Property Cases and Doctrine

No. L-55729. March 28, 1983.*FIRST DIVISION. ANTONIO PUNSALAN, JR., petitioner, vs. REMEDIOS VDA. DE LACSAMANA and THE HONORABLE JUDGE RODOLFO A. ORTIZ, respondents. Civil Law; Property; Immovable Property; Warehouse considered immovable or real property; Building always immovable under the Civil Code; Separate treatment by parties of building from the land in which it stood, does not change immovable character of the building.—The warehouse claimed to be owned by petitioner is an immovable or real property as provided in article 415(1) of the Civil Code. Buildings are always immovable under the Code. A building treated separately from the land on which it stood is immovable property and the mere fact that the parties to a contract seem to have dealt with it separate and apart from the land on which it stood in no wise changed its character as immovable property. Same; Same; Same; Venue, improperly laid; Action for annulment of sale over property and claim for damages does not operate to efface the prime objective and nature of the case which is to recover said real property; Action of petitioner treated as a real action, not _______________ * FIRST DIVISION. 332 332 SUPREME COURT REPORTS ANNOTATED Punsalan, Jr. vs. Vda. de Lacsamana personal action; Venue of real action is where the real property or any part thereof is situated.—While it is true that petitioner does not directly seek the recovery of title or possession of the

property in question, his action for annulment of sale and his claim for damages are closely intertwined with the issue of ownership of the building which, under the law, is considered immovable property, the recovery of which is petitioner’s primary objective. The prevalent doctrine is that an action for the annulment or rescission of a sale of real property does not operate to efface the fundamental and prime objective and nature of the case, which is to recover said real property. It is a real action. Respondent Court, therefore, did not err in dismissing the case on the ground of improper venue (Section 2, Rule 4), which was timely raised (Section 1, Rule 16). PETITION for certiorari to review the order of the Court of First Instance of Rizal, Br. XXXI. The facts are stated in the opinion of the Court. Benjamin S. Benito & Associates for petitioner. Expedito Yummul for private respondent. MELENCIO-HERRERA, J.: The sole issue presented by petitioner for resolution is whether or not respondent Court erred in denying the Motion to Set Case for Pre-trial with respect to respondent Remedios Vda. de Lacsamana as the case had been dismissed on the ground of improper venue upon motion of co-respondent Philippine National Bank (PNB). It appears that petitioner, Antonio Punsalan, Jr., was the former registered owner of a parcel of land consisting of 340 square meters situated in Bamban, Tarlac. In 1963, petitioner mortgaged said land to respondent PNB (Tarlac Branch) in the amount of P10,000.00, but for failure to pay said amount, the property was foreclosed on December 16, 1970. Respondent PNB (Tarlac Branch) was the highest bidder in said foreclosure

proceedings. However, the bank secured title thereto only on December 14, 1977. In the meantime, in 1974, while the property was still in the alleged possession of petitioner and with the alleged acquiescence of respondent PNB (Tarlac Branch), and upon 333 VOL. 121, MARCH 28, 1983 333 Punsalan, Jr. vs. Vda. de Lacsamana securing a permit from the Municipal Mayor, petitioner constructed a warehouse on said property. Petitioner declared said warehouse for tax purposes for which he was issued Tax Declaration No. 5619. Petitioner then leased the warehouse to one Hermogenes Sibal for a period of 10 years starting January 1975. On July 26, 1978, a Deed of Sale was executed between respondent PNB (Tarlac Branch) and respondent Lacsamana over the property. This contract was amended on July 31, 1978, particularly to include in the sale, the building and improvement thereon. By virtue of said instruments, respondent Lacsamana secured title over the property in her name (TCT No. 173744) as well as separate tax declarations for the land and building.1Exhibits “R” and “U”, Original Records. On November 22, 1979, petitioner commenced suit for “Annulment of Deed of Sale with Damages” against herein respondents PNB and Lacsamana before respondent Court of First Instance of Rizal, Branch XXXI, Quezon City, essentially impugning the validity of the sale of the building as embodied

in the Amended Deed of Sale. In this connection, petitioner alleged: “x x x 22. That defendant, Philippine National Bank, through its Branch Manager x x x by virtue of the request of defendant x x x executed a document dated July 31, 1978, entitled Amendment to Deed of Absolute Sale x x x wherein said defendant bank as Vendor sold to defendant Lacsamana the building owned by the plaintiff under Tax Declaration No. 5619, notwithstanding the fact that said building is not owned by the bank either by virtue of the public auction sale conducted by the Sheriff and sold to the Philippine National Bank or by virtue of the Deed of Sale executed by the bank itself in its favor on September 27, 1977 x x x; 23. That said defendant bank fraudulently mentioned x x x that the sale in its favor should likewise have included the building, notwithstanding no legal basis for the same and despite full knowledge that the Certificate of Sale executed by the sheriff in its favor x x x only limited the sale to the land, hence, by selling the _______________ 1 Exhibits “R” and “U”, Original Records. 334 334 SUPREME COURT REPORTS ANNOTATED Punsalan, Jr. vs. Vda. de Lacsamana building which never became the property of defendant, they have violated the principle against ‘pactum commisorium’.

Petitioner prayed that the Deed of Sale of the building in favor of respondent Lacsamana be declared null and void and that damages in the total sum of P230,000.00, more or less, be awarded to him.2pp. 17-21, Rollo. In her Answer filed on March 4, 1980, respondent Lacsamana averred the affirmative defense of lack of cause of action in that she was a purchaser for value and invoked the principle in Civil Law that the “accessory follows the principal”.3pp. 2225, ibid. On March 14, 1980, respondent PNB filed a Motion to Dismiss on the ground that venue was improperly laid considering that the building was real property under article 415 (1) of the New Civil Code and therefore section 2(a) of Rule 4 should apply.4pp. 26-28, ibid. Opposing said Motion to Dismiss, petitioner contended that the action for annulment of deed of sale with damages is in the nature of a personal action, which seeks to recover not the title nor possession of the property but to compel payment of damages, which is not an action affecting title to real property. On April 25, 1980, respondent Court granted respondent PNB’s Motion to Dismiss as follows: “Acting upon the ‘Motion to Dismiss’ of the defendant Philippine National Bank dated March 13, 1980, considered against the plaintiff’s opposition thereto dated April 1, 1980, including the reply therewith of said defendant, this Court resolves to DISMISS the plaintiff’s complaint for improper venue considering that the plaintiff’s complaint which seeks for the declaration as null and void, the amendment to Deed of Absolute Sale executed by the defendant Philippine National

Bank in favor of the defendant Remedios T. Vda. de Lacsamana, on July 31, 1978, involves a warehouse allegedly owned and constructed by the plaintiff on the land of the defendant Philippine National Bank situated in the Municipality of Bamban, Province of Tarlac, which warehouse is an immovable property pur_______________ 2 pp. 17-21, Rollo. 3 pp. 22-25, ibid. 4 pp. 26-28, ibid. 335 VOL. 121, MARCH 28, 1983 335 Punsalan, Jr. vs. Vda. de Lacsamana suant to Article 415, No. 1 of the New Civil Code; and, as such the action of the plaintiff is a real action affecting title to real property which, under Section 2, Rule 4 of the New Rules of Court, must be tried in the province where the property or any part thereof lies.”5p. 35, ibid. In his Motion for Reconsideration of the aforestated Order, petitioner reiterated the argument that the action to annul does not involve ownership or title to property but is limited to the validity of the deed of sale and emphasized that the case should proceed with or without respondent PNB as respondent Lacsamana had already filed her Answer to the Complaint and no issue on venue had been raised by the latter. On September 1, 1980, respondent Court denied reconsideration for lack of merit.

Petitioner then filed a Motion to Set Case for Pre-trial, in so far as respondent Lacsamana was concerned, as the issues had already been joined with the filing of respondent Lacsamana’s Answer. In the Order of November 10, 1980, respondent Court denied said Motion to Set Case for Pre-trial as the case was already dismissed in the previous Orders of April 25, 1980 and September 1, 1980. Hence, this Petition for Certiorari, to which we gave due course. We affirm respondent Court’s Order denying the setting for pre-trial. The warehouse claimed to be owned by petitioner is an immovable or real property as provided in article 415(1) of the Civil Code.6“ART. 415. The following are immovable property.(1) Land, buildings, roads and constructions of all kinds adhered to the soil;x x x Buildings are always immovable under the Code.73 Manresa 20. A building treated separately from the land on which it stood is immovable property and the mere fact that the parties to a contract seem to have dealt with it separate and apart from the _______________ 5 p. 35, ibid. 6 “ART. 415. The following are immovable property. (1) Land, buildings, roads and constructions of all kinds adhered to the soil; xxx 7 3 Manresa 20.

336 336 SUPREME COURT REPORTS ANNOTATED Punsalan, Jr. vs. Vda. de Lacsamana land on which it stood in no wise changed its character as immovable property.8Leung Yee vs. Strong Machinery Co., 37 Phil. 644 (1918). While it is true that petitioner does not directly seek the recovery of title or possession of the property in question, his action for annulment of sale and his claim for damages are closely intertwined with the issue of ownership of the building which, under the law, is considered immovable property, the recovery of which is petitioner’s primary objective. The prevalent doctrine is that an action for the annulment or rescission of a sale of real property does not operate to efface the fundamental and prime objective and nature of the case, which is to recover said real property. It is a real action.9Gavieres vs. Sanchez, et al. 94 Phil. 760, (1954); Torres vs. J.M. Tuason & Co., 12 SCRA 174 (1964); De Jesus vs. Coloso, 1 SCRA 272 (1961). Respondent Court, therefore, did not err in dismissing the case on the ground of improper venue (Section 2, Rule 4)10“Section 2. Venue in Courts of First Instance.—Actions affecting title, to or for recovery of possession or for partition or condemnation of, or foreclosure of mortgage on, real property, shall be commenced and tried in the province where the p..., which was timely raised (Section 1, Rule 16)11“Section 1. Grounds.—Within the time for pleading a motion to dismiss the action may be made on any of the following grounds:x x xc) That venue is improperly laid;” (Rule 16).

Petitioner’s other contention that the case should proceed in so far as respondent Lacsamana is concerned as she had already filed an Answer, which did not allege improper venue and, therefore, issues had already been joined, is likewise untenable. Respondent PNB is an indispensable party as the validity of the Amended Contract of Sale between the former and respondent Lacsamana is in issue. It would, indeed, be futile to proceed with the case against respondent Lacsamana alone. _______________ 8 Leung Yee vs. Strong Machinery Co., 37 Phil. 644 (1918). 9 Gavieres vs. Sanchez, et al. 94 Phil. 760, (1954); Torres vs. J.M. Tuason & Co., 12 SCRA 174 (1964); De Jesus vs. Coloso, 1 SCRA 272 (1961). 10 “Section 2. Venue in Courts of First Instance.—Actions affecting title, to or for recovery of possession or for partition or condemnation of, or foreclosure of mortgage on, real property, shall be commenced and tried in the province where the property or any part thereof lies” (Rule 4, Rules of Court). 11 “Section 1. Grounds.—Within the time for pleading a motion to dismiss the action may be made on any of the following grounds: xxx c) That venue is improperly laid;” (Rule 16) 337 VOL. 121, MARCH 28, 1983 337 Punsalan, Jr. vs. Vda. de Lacsamana

WHEREFORE, the petition is hereby denied without prejudice to the refiling of the case by petitioner Antonio Punsalan, Jr. in the proper forum. Costs against petitioner. SO ORDERED. Teehankee (Chairman), Plana, Vasquez, Relova and Gutierrez, Jr., JJ., concur. Petition denied. Notes.—In the absence of a written agreement, the venue of contract of sale is at the place of the execution of the contract or the place where there was a meeting of the minds of the parties and consummation of the contract. A purchase order is merely an offer to buy. (Raza Appliance Center vs. Villaraza, 117 SCRA 576.) Although venue is generally determined by residence of the parties, disputes involving real property shall be brought in the barangay where the real property is situated, notwithstanding that the parties reside elsewhere within the same city or town. (Tabora vs. Veloso, 117 SCRA 613.) Petitioner’s preference to file its petition for annulment of the reconstituted title in the CFI branch in Bacolod City, which is more accessible, rather than Himamaylan, is granted. (Register of Deeds of Negros Occ. vs. Mirasol, Jr., 75 SCRA 52.) Venue is not a jurisdictional matter. (Tantoco vs. Court of Appeals, 77 SCRA 225.) The venue of personal actions is at the residence of the plaintiff. (De Guzman vs. Genato, 89 SCRA 671.) [Punsalan, Jr. vs. Vda. de Lacsamana, 121 SCRA 331(1983)]

No. L-50008. August 31, 1987.*FIRST DIVISION. 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. Civil Law; Mortgages; Property; Under Art 415, Civil Code, the inclusion of a building separate and distinct from the land means that a building is by itself an immovable property.—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-1081718, Feb. 28, 1958; Associated Inc. and Surety Co., Inc. vs. lya, et al., L-10837-38, May 30, 1958). Same; Same; Same; While a mortgage of land necessarily includes buildings, a building by itself may be mortgaged apart from the land on which it has been built; Mortgage is still a real estate mortgage for the building would still be considered immovable property even if dealt with separately from the land; Possessory rights over property before title is vested on the grantee may be validly transferred as in a deed of mortgage.—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 _______________

* FIRST DIVISION. 391 VOL. 153, AUGUST 31, 1987 391 Prudential Bank vs. Panis 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]). Same; Same; Same; Same; A mortgage executed by a private respondent on his own building erected on the land belonging to the government is a valid mortgage; The original mortgage was executed before the issuance of the final patent and before the government was divested of its title to the land.—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; Peña, "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. Same; Same; Same; Same; Restrictions expressly mentioned on the face of the respondents' title, are valid, as under the Public Land Act what are referred to are lands or any improvements thereon, and have no application to the assailed mortgage which was executed before such eventuality; Case at bar.—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 392 392 SUPREME COURT REPORTS ANNOTATED Prudential Bank vs. Panis 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. Same; Same; Same; Same; A mortgage executed after the issuance of the sales patent and of the original certificate of title falls squarely under the prohibition of the Public Land Act and Republic Act 730, and is null and void.—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. Same; Same; Same; Same; 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.—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: "x x x 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 seeks to preserve (Gonzalo Puyat & Sons, Inc. vs. De los Amas and Alino, supra). x x x" (Arsenal vs. IAC, 143 SCRA 54 [1986]). PETITION for certiorari to review the decision of the Court of First Instance of Zambales and Olongapo City, Br. III. Panis, J. 393 VOL. 153, AUGUST 31, 1987 393 Prudential Bank vs. Panis The facts are stated in the opinion of the Court. PARAS, J.: This is a petition for review on certiorari of the November 13,1978 Decision**Penned by Judge Domingo D. Panis. 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: "x x x 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: '1. 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 identified as Lot No. 720, (Ts308, 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 Declaration No. 19595 issued by the Assessor of Olongapo City with an assessed value of P1 860.00; bounded on the _____________ ** Penned by Judge Domingo D. Panis. 394 394 SUPREME COURT REPORTS ANNOTATED Prudential Bank vs. Panis 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 P 20,000.00. 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, 395 VOL. 153, AUGUST 31, 1987 395 Prudential Bank vs. Panis 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: 396 396 SUPREME COURT REPORTS ANNOTATED Prudential Bank vs. Panis

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-1081718, Feb. 28, 1958; Associated Inc. and Surety Co., Inc. vs. lya, 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 semiconcrete 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 pro397 VOL. 153, AUGUST 81. 1987 397 Prudential Bank vs. Panis visions 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; Peña, "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. 398 398 SUPREME COURT REPORTS ANNOTATED Prudential Bank vs. Panis

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: "x x x 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 seeks to preserve (Gonzalo Puyat & Sons, Inc. vs. De los Amas and Alino, supra). x x x" (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 f avor. 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 P 70,000.00 is valid but ruling that the Deed of Real Estate Mortgage for an additional loan of P 20,000.00 is null and void, without prejudice to any appropriate action the Government may take against private respondents. 399 VOL. 153, AUGUST 31, 1987 399 Antipolo Realty Corp. vs. National Housing Authority SO ORDERED. Teehankee (C.J.), Narvasa, Cruz and Gancayco, JJ., concur. Decision modified. Notes.—As it is an essential requisite for the validity of a mortgage that the mortgagor be the absolute owner of the thing mortgaged, and it appearing that the mortgage was constituted before the issuance of the patent to the mortgagor, the mortgage in question is void and ineffective. (Vda. de Bautista vs. Marcos, 3 SCRA 434.) Where several things are pledged or mortgaged, each thing for a determinate portion of the debt, the pledges or mortgages are considered separate from each other. (Dayrit vs. Court of Appeals, 36 SCRA 548.) [Prudential Bank vs. Panis, 153 SCRA 390(1987)]

G.R. No. 120098. October 2, 2001.*SECOND DIVISION. RUBY L. TSAI, petitioner, vs. HON. COURT OF APPEALS, EVER TEXTILE MILLS, INC. and MAMERTO R. VILLALUZ, respondents. G.R. No. 120109. October 2, 2001*SECOND DIVISION. PHILIPPINE BANK OF COMMUNICATIONS, petitioner, vs. HON. COURT OF APPEALS, EVER TEXTILE MILLS and MAMERTO R. VILLALUZ, respondents. Appeals: The jurisdiction of the Supreme Court in a petition for review on certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of law, not of fact, unless the factual findings complained of are devoid of support by the evidence on record or the assailed judgment is based on misapprehension of facts.—Well settled is the rule that the jurisdiction of the Supreme Court in a petition for review on certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of law, not of fact, unless the factual findings complained of are devoid of support by the evidence on record or the assailed judgment is based on misapprehension of facts. This rule is applied more stringently when the findings of fact of the RTC is affirmed by the Court of Appeals. Property; Mortgages; The nature of the disputed machineries, i.e., that they were heavy, bolted or cemented on the real property mortgaged, does not make them ipso facto immovable under Article 415 (3) and (5) of the New Civil Code, as the parties’ intent has to be looked into.—Petitioners contend that the nature of the disputed machineries, i.e., that they were heavy, bolted or cemented on the real property mortgaged by EVERTEX to PBCom, make them ipso facto immovable under

Article 415 (3) and (5) of the New Civil Code. This assertion, however, does not settle the issue. Mere nuts and bolts do not foreclose the controversy. We have to look at the parties’ intent. While it is true that the controverted properties appear to be immobile, a perusal of the contract of Real and Chattel Mortgage executed by the parties herein gives us a contrary indication. In the case at bar, both the trial and the appellate courts reached the same finding that the true intention of PBCom and the owner, EVERTEX, is to treat machinery and equipment as chattels. ______________ * SECOND DIVISION. 325 VOL. 366, OCTOBER 2, 2001 325 Tsai vs. Court of Appeals Same; Same; Estoppel; Even if the properties are immovable by nature, nothing detracts the parties from treating them as chattels to secure an obligation under the principle of estoppel.—Too, assuming arguendo that the properties in question are immovable by nature, nothing detracts the parties from treating it as chattels to secure an obligation under the principle of estoppel. As far back as Navarro v. Pineda, 9 SCRA 631 (1963), an immovable may be considered a personal property if there is a stipulation as when it is used as security in the payment of an obligation where a chattel mortgage is executed over it, as in the case at bar. Same; Same; Same; Where the facts, taken together, evince the conclusion that the parties’ intention is to treat the units of machinery as chattels, a fortiori, the after-acquired properties,

which are of the same description as the units referred to earlier, must also be treated as chattels.—In the instant case, the parties herein: (1) executed a contract styled as “Real Estate Mortgage and Chattel Mortgage,” instead of just “Real Estate Mortgage” if indeed their intention is to treat all properties included therein as immovable, and (2) attached to the said contract a separate “LIST OF MACHINERIES & EQUIPMENT.” These facts, taken together, evince the conclusion that the parties’ intention is to treat these units of machinery as chattels. A fortiori, the contested after-acquired properties, which are of the same description as the units enumerated under the title “LIST OF MACHINERIES & EQUIPMENT,” must also be treated as chattels. Same; Same; Chattel Mortgage; A chattel mortgage shall be deemed to cover only the property described therein and not like or substituted property thereafter acquired by the mortgagor and placed in the same depository as the property originally mortgaged, anything in the mortgage to the contrary notwithstanding.—Accordingly, we find no reversible error in the respondent appellate court’s ruling that inasmuch as the subject mortgages were intended by the parties to involve chattels, insofar as equipment and machinery were concerned, the Chattel Mortgage Law applies, which provides in Section 7 thereof that: “a chattel mortgage shall be deemed to cover only the property described therein and not like or substituted property thereafter acquired by the mortgagor and placed in the same depository as the property originally mortgaged, anything in the mortgage to the contrary notwithstanding.” And, since the disputed machineries were acquired in 1981 and could not have been involved in the 1975 or 1979 chattel mortgages, it

was consequently an error on the part of the Sheriff to include subject machineries with the properties enumerated in said chattel mortgages. 326 326 SUPREME COURT REPORTS ANNOTATED Tsai vs. Court of Appeals Sales; Purchaser in Good Faith; Well-settled is the rule that the person who asserts the status of a purchaser in good faith and for value has the burden of proving such assertion.—Petitioner Tsai also argued that assuming that PBCom’s title over the contested properties is a nullity, she is nevertheless a purchaser in good faith and for value who now has a better right than EVERTEX. To the contrary, however, are the factual findings and conclusions of the trial court that she is not a purchaser in good faith. Well-settled is the rule that the person who asserts the status of a purchaser in good faith and for value has the burden of proving such assertion. Petitioner Tsai failed to discharge this burden persuasively. Same; Same; A purchaser in good faith and for value is one who buys the property of another without notice that some other person has a right to or interest in such property and pays a full and fair price for the same, at the time of purchase, or before he has notice of the claims or interest of some other person in the property.—A purchaser in good faith and for value is one who buys the property of another without notice that some other person has a right to or interest in such property and pays a full and fair price for the same, at the time of purchase, or before he has notice of the claims or interest of some other person in the property. Records reveal, however,

that when Tsai purchased the controverted properties, she knew of respondent’s claim thereon. As borne out by the records, she received the letter of respondent’s counsel, apprising her of respondent’s claim, dated February 27, 1987. She replied thereto on March 9, 1987. Despite her knowledge of respondent’s claim, she proceeded to buy the contested units of machinery on May 3, 1988. Thus, the RTC did not err in finding that she was not a purchaser in good faith. Same; Land Titles; Torrens System; The defense of indefeasibility of Torrens Title refers to sale of lands and not to sale of properties situated therein; The mere fact that the lot where a factory and disputed properties stand in a person’s name does not automatically make such person the owner of everything found therein.—Petitioner Tsai’s defense of indefeasibility of Torrens Title of the lot where the disputed properties are located is equally unavailing. This defense refers to sale of lands and not to sale of properties situated therein. Likewise, the mere fact that the lot where the factory and the disputed properties stand is in PBCom’s name does not automatically make PBCom the owner of everything found therein, especially in view of EVERTEX’s letter to Tsai enunciating its claim. 327 VOL. 366, OCTOBER 2, 2001 327 Tsai vs. Court of Appeals Laches; Doctrine of Stale Demands; The doctrine of stale demands would apply only where by reason of the lapse of time, it would be inequitable to allow a party to enforce his legal rights.—Petitioners’ defense of prescription and laches is

less than convincing. We find no cogent reason to disturb the consistent findings of both courts below that the case for the reconveyance of the disputed properties was filed within the reglementary period. Here, in our view, the doctrine of laches does not apply. Note that upon petitioners’ adamant refusal to heed EVERTEX’s claim, respondent company immediately filed an action to recover possession and ownership of the disputed properties. There is no evidence showing any failure or neglect on its part, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier. The doctrine of stale demands would apply only where by reason of the lapse of time, it would be inequitable to allow a party to enforce his legal rights. Moreover, except for very strong reasons, this Court is not disposed to apply the doctrine of laches to prejudice or defeat the rights of an owner. Damages; In determining actual damages, the court cannot rely on mere assertions, speculations, conjectures or guesswork but must depend on competent proof and on the best evidence obtainable regarding the actual amount of loss.—Basic is the rule that to recover actual damages, the amount of loss must not only be capable of proof but must actually be proven with reasonable degree of certainty, premised upon competent proof or best evidence obtainable of the actual amount thereof. However, the allegations of respondent company as to the amount of unrealized rentals due them as actual damages remain mere assertions unsupported by documents and other competent evidence. In determining actual damages, the court cannot rely on mere assertions, speculations, conjectures or

guesswork but must depend on competent proof and on the best evidence obtainable regarding the actual amount of loss. PETITIONS for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. Eduardo C. Ong for petitioner R.L. Tsai. Laogan, Silva, Baeza & Llantino Law Offices for petitioner PBCom in G.R. No. 120109. M.R. Villaluz & Associates for private respondents. 328 328 SUPREME COURT REPORTS ANNOTATED Tsai vs. Court of Appeals QUISUMBING, J.: These consolidated cases assail the decision1Rollo, G.R. No. 120109, pp. 23-45. of the Court of Appeals in CA-G.R. CV No. 32986, affirming the decision2Id., at 23-24. of the Regional Trial Court of Manila, Branch 7, in Civil Case No. 89-48265. Also assailed is respondent court’s resolution denying petitioners’ motion for reconsideration. On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX) obtained a three million peso (P3,000,000.00) loan from petitioner Philippine Bank of Communications (PBCom). As security for the loan, EVERTEX executed in favor of PBCom, a deed of Real and Chattel Mortgage over the lot under TCT No. 372097, where its factory stands, and the chattels located therein as enumerated in a schedule attached to the mortgage contract. The pertinent portions of the Real and Chattel Mortgage are quoted below:

MORTGAGE (REAL AND CHATTEL) xxx The MORTGAGOR(S) hereby transfers) and convey(s), by way of First Mortgage, to the MORTGAGEE, x x x certain parcel(s) of land, together with all the buildings and improvements now existing or which may hereafter exist thereon, situated in x x x. “Annex A” (Real and Chattel Mortgage executed by Ever Textile Mills in favor of PBCommunications—continued) LIST OF MACHINERIES & EQUIPMENT A. Forty Eight (48) units of Vayrow Knitting MachinesTompkins made in Hongkong: Serial Numbers Size of Machines xxx _______________ 1 Rollo, G.R. No. 120109, pp. 23-45. 2 Id., at 23-24. 329 VOL. 366, OCTOBER 2, 2001 329 Tsai vs. Court of Appeals B. Sixteen (16) sets of Vayrow Knitting Machines made in Taiwan. xxx C. Two (2) Circular Knitting Machines made in West Germany. xxx

D. Four (4) Winding Machines. xxx SCHEDULE “A” I. TCT # 372097—RIZAL xxx II. Any and all buildings and improvements now existing or hereafter to exist on the above-mentioned lot. III. MACHINERIES & EQUIPMENT situated, located and/or installed on the above-mentioned lot located at x x x (a) Forty eight sets (48) Vayrow Knitting Machines x x x (b) Sixteen sets (16) Vayrow Knitting Machines x x x (c) Two (2) Circular Knitting Machines x x x (d) Two (2) Winding Machines x x x (e) Two (2) Winding Machines x x x IV. Any and all replacements, substitutions, additions, increases and accretions to above properties. x x x3Folder of Exhibits, pp. 5-12. On April 23, 1979, PBCom granted a second loan of P3,356,000.00 to EVERTEX. The loan was secured by a Chattel Mortgage over personal properties enumerated in a list attached thereto. These listed properties were similar to those listed in Annex A of the first mortgage deed. After April 23, 1979, the date of the execution of the second mortgage mentioned above, EVERTEX purchased various machines and equipments. _______________ 3 Folder of Exhibits, pp. 5-12. 330 330 SUPREME COURT REPORTS ANNOTATED

Tsai vs. Court of Appeals On November 19, 1982, due to business reverses, EVERTEX filed insolvency proceedings docketed as SP Proc. No. LP3091-P before the defunct Court of First Instance of Pasay City, Branch XXVIII. The CFI issued an order on November 24, 1982 declaring the corporation insolvent. All its assets were taken into the custody of the Insolvency Court, including the collateral, real and personal, securing the two mortgages as abovementioned. In the meantime, upon EVERTEX’s failure to meet its obligation to PBCom, the latter commenced extrajudicial foreclosure proceedings against EVERTEX under Act 3135, otherwise known as “An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages” and Act 1506 or “The Chattel Mortgage Law.” A Notice of Sheriffs Sale was issued on December 1, 1982. On December 15, 1982, the first public auction was held where petitioner PBCom emerged as the highest bidder and a Certificate of Sale was issued in its favor on the same date. On December 23, 1982, another public auction was held and again, PBCom was the highest bidder. The sheriff issued a Certificate of Sale on the same day. On March 7, 1984, PBCom consolidated its ownership over the lot and all the properties in it. In November 1986, it leased the entire factory premises to petitioner Ruby L. Tsai for P50,000.00 a month. On May 3, 1988, PBCom sold the factory, lock, stock and barrel to Tsai for P9,000,000.00, including the contested machineries.

On March 16, 1989, EVERTEX filed a complaint for annulment of sale, reconveyance, and damages with the Regional Trial Court against PBCom, alleging inter alia that the extrajudicial foreclosure of subject mortgage was in violation of the Insolvency Law. EVERTEX claimed that no rights having been transmitted to PBCom over the assets of insolvent EVERTEX, therefore Tsai acquired no rights over such assets sold to her, and should reconvey the assets. Further, EVERTEX averred that PBCom, without any legal or factual basis, appropriated the contested properties, which were not included in the Real and Chattel Mortgage of November 26, 331 VOL. 366, OCTOBER 2, 2001 331 Tsai vs. Court of Appeals 1975 nor in the Chattel Mortgage of April 23, 1979, and neither were those properties included in the Notice of Sheriff’s Sale dated December 1, 1982 and Certificate of Sale dated December 15, 1982. The disputed properties, which were valued at P4,000,000.00, are: 14 Interlock Circular Knitting Machines, 1 Jet Drying Equipment, 1 Dryer Equipment, 1 Raisin Equipment and 1 Heatset Equipment. The RTC found that the lease and sale of said personal properties were irregular and illegal because they were not duly foreclosed nor sold at the December 15, 1982 auction sale since these were not included in the schedules attached to the mortgage contracts. The trial court decreed:

WHEREFORE, judgment is hereby rendered in favor of plaintiff corporation and against the defendants: 1. Ordering the annulment of the sale executed by defendant Philippine Bank of Communications in favor of defendant Ruby L. Tsai on May 3, 1988 insofar as it affects the personal properties listed in par. 9 of the complaint, and their return to the plaintiff corporation through its assignee, plaintiff Mamerto R. Villaluz, for disposition by the Insolvency Court, to be done within ten (10) days from finality of this decision; 2. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of P5,200,000.00 as compensation for the use and possession of the properties in question from November 1986 to February 1991 and P100,000.00 every month thereafter, with interest thereon at the legal rate per annum until full payment; 3. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of P50,000.00 as and for attorney’s fees and expenses of litigation; 4. Ordering the defendants to pay jointly and severally the plaintiffcorporation the sum of P200,000.00 by way of exemplary damages; 5. Ordering the dismissal of the counterclaim of the defendants; and 6. Ordering the defendants to proportionately pay the costs of suit. SO ORDERED.4Rollo, G.R. No. 120109, pp. 23-24. ______________ 4 Rollo, G.R. No. 120109, pp. 23-24. 332

332 SUPREME COURT REPORTS ANNOTATED Tsai vs. Court of Appeals Dissatisfied, both PBCom and Tsai appealed to the Court of Appeals, which issued its decision dated August 31, 1994, the dispositive portion of which reads: WHEREFORE, except for the deletion therefrom of the award for exemplary damages, and reduction of the actual damages, from P100,000.00 to P20,000.00 per month, from November 1986 until subject personal properties are restored to appellees, the judgment appealed from is hereby AFFIRMED, in all other respects. No pronouncement as to costs.5Id. at 45. Motion for reconsideration of the above decision having been denied in the resolution of April 28, 1995, PBCom and Tsai filed their separate petitions for review with this Court. In G.R. No. 120098, petitioner Tsai ascribed the following errors to the respondent court: I THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN EFFECT MAKING A CONTRACT FOR THE PARTIES BY TREATING THE 1981 ACQUIRED MACHINERIES AS CHATTELS INSTEAD OF REAL PROPERTIES WITHIN THEIR EARLIER 1975 DEED OF REAL AND CHATTEL MORTGAGE OR 1979 DEED OF CHATTEL MORTGAGE. II THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING THAT THE DISPUTED 1981 MACHINERIES ARE NOT REAL PROPERTIES DEEMED PART OF THE MORTGAGE—DESPITE THE

CLEAR IMPORT OF THE EVIDENCE AND APPLICABLE RULINGS OF THE SUPREME COURT. III THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN DEEMING PETITIONER A PURCHASER IN BAD FAITH. _______________ 5 Id. at 45. 333 VOL. 366, OCTOBER 2, 2001 333 Tsai vs. Court of Appeals IV THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN ASSESSING PETITIONER ACTUAL DAMAGES, ATTORNEY’S FEES AND EXPENSES OF LITIGATION—FOR WANT OF VALID FACTUAL AND LEGAL BASIS. V THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING AGAINST PETITIONER’S ARGUMENTS ON PRESCRIPTION AND LACHES.6Rollo, G.R. No. 120098, pp. 23-25. In G.R. No. 120109, PBCom raised the following issues: I. DID THE COURT OF APPEALS VALIDLY DECREE THE MACHINERIES LISTED UNDER PARAGRAPH 9 OF THE COMPLAINT BELOW AS PERSONAL PROPERTY OUTSIDE OF THE 1975 DEED OF REAL ESTATE

MORTGAGE AND EXCLUDED THEM FROM THE REAL PROPERTY EXTRAJUDICIALLY FORECLOSED BY PBCOM DESPITE THE PROVISION IN THE 1975 DEED THAT ALL AFTER-ACQUIRED PROPERTIES DURING THE LIFETIME OF THE MORTGAGE SHALL FORM PART THEREOF, AND DESPITE THE UNDISPUTED FACT THAT SAID MACHINERIES ARE BIG AND HEAVY, BOLTED OR CEMENTED ON THE REAL PROPERTY MORTGAGED BY EVER TEXTILE MILLS TO PBCOM, AND WERE ASSESSED FOR REAL ESTATE TAX PURPOSES? II. CAN PBCOM, WHO TOOK POSSESSION OF THE MACHINERIES IN QUESTION IN GOOD FAITH, EXTENDED CREDIT FACILITIES TO EVER TEXTILE MILLS WHICH AS OF 1982 TOTALLED P9,547,095.28, WHO HAD SPENT FOR MAINTENANCE AND SECURITY ON THE DISPUTED MACHINERIES AND HAD TO PAY ALL THE BACK TAXES OF EVER TEXTILE MILLS BE LEGALLY COMPELLED TO RETURN TO EVER THE SAID MACHINERIES OR IN LIEU THEREOF BE ASSESSED DAMAGES. IS THAT SITUATION TANTAMOUNT TO A CASE OF UNJUST ENRICHMENT?7Rollo, G.R. No. 120109. pp. 9-10. _______________ 6 Rollo, G.R. No. 120098, pp. 23-25. 7 Rollo, G.R. No. 120109. pp. 9-10. 334 334 SUPREME COURT REPORTS ANNOTATED

Tsai vs. Court of Appeals The principal issue, in our view, is whether or not the inclusion of the questioned properties in the foreclosed properties is proper. The secondary issue is whether or not the sale of these properties to petitioner Ruby Tsai is valid. For her part, Tsai avers that the Court of Appeals in effect made a contract for the parties by treating the 1981 acquired units of machinery as chattels instead of real properties within their earlier 1975 deed of Real and Chattel Mortgage or 1979 deed of Chattel Mortgage.8Rollo, G.R. No. 120098, p. 25. Additionally, Tsai argues that respondent court erred in holding that the disputed 1981 machineries are not real properties.9Id. at 33. Finally, she contends that the Court of Appeals erred in holding against petitioner’s arguments on prescription and laches10Id. at 49. and in assessing petitioner actual damages, attorney’s fees and expenses of litigation, for want of valid factual and legal basis.11Id. at 44. Essentially, PBCom contends that respondent court erred in affirming the lower court’s judgment decreeing that the pieces of machinery in dispute were not duly foreclosed and could not be legally leased nor sold to Ruby Tsai. It further argued that the Court of Appeals’ pronouncement that the pieces of machinery in question were personal properties have no factual and legal basis. Finally, it asserts that the Court of Appeals erred in assessing damages and attorney’s fees against PBCom. In opposition, private respondents argue that the controverted units of machinery are not “real properties” but chattels, and, therefore, they were not part of the foreclosed real properties,

rendering the lease and the subsequent sale thereof to Tsai a nullity.12Id. at 133. Considering the assigned errors and the arguments of the parties, we find the petitions devoid of merit and ought to be denied. Well settled is the rule that the jurisdiction of the Supreme Court in a petition for review on certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of law, _______________ 8 Rollo, G.R. No. 120098, p. 25. 9 Id. at 33. 10 Id. at 49. 11 Id. at 44. 12 Id. at 133. 335 VOL. 366, OCTOBER 2, 2001 335 Tsai vs. Court of Appeals not of fact, unless the factual findings complained of are devoid of support by the evidence on record or the assailed judgment is based on misapprehension of facts.13Congregation of the Religious of the Virgin Mary v. Court of Appeals, 291 SCRA 385, 391-392 (1998). This rule is applied more stringently when the findings of fact of the RTC is affirmed by the Court of Appeals.14Manlapaz vs. Court of Appeals, 147 SCRA 236, 239 (1987). The following are the facts as found by the RTC and affirmed by the Court of Appeals that are decisive of the issues: (1) the

“controverted machineries” are not covered by, or included in, either of the two mortgages, the Real Estate and Chattel Mortgage, and the pure Chattel Mortgage; (2) the said machineries were not included in the list of properties appended to the Notice of Sale, and neither were they included in the Sheriff’s Notice of Sale of the foreclosed properties.15Rollo, G.R. No. 120109, pp. 62-63. Petitioners contend that the nature of the disputed machineries, i.e., that they were heavy, bolted or cemented on the real property mortgaged by EVERTEX to PBCom, make them ipso facto immovable under Article 415 (3) and (5) of the New Civil Code. This assertion, however, does not settle the issue. Mere nuts and bolts do not foreclose the controversy. We have to look at the parties’ intent. While it is true that the controverted properties appear to be immobile, a perusal of the contract of Real and Chattel Mortgage executed by the parties herein gives us a contrary indication. In the case at bar, both the trial and the appellate courts reached the same finding that the true intention of PBCom and the owner, EVERTEX, is to treat machinery and equipment as chattels. The pertinent portion of respondent appellate court’s ruling is quoted below: As stressed upon by appellees, appellant bank treated the machineries as chattels; never as real properties. Indeed, the 1975 mortgage contract, which was actually real and chattel mortgage, militates against appellants’ posture. It should be noted that the printed form used by appellant bank was mainly for real estate mortgages. But reflective of the true intention of appellant PBCOM and appellee EVERTEX was the typing in _______________

13 Congregation of the Religious of the Virgin Mary v. Court of Appeals, 291 SCRA 385, 391-392 (1998). 14 Manlapaz vs. Court of Appeals, 147 SCRA 236, 239 (1987). 15 Rollo, G.R. No. 120109, pp. 62-63. 336 336 SUPREME COURT REPORTS ANNOTATED Tsai vs. Court of Appeals capital letters, immediately following the printed caption of mortgage, of the phrase “real and chattel.” So also, the “machineries and equipment” in the printed form of the bank had to be inserted in the blank space of the printed contract and connected with the word “building” by typewritten slash marks. Now, then, if the machineries in question were contemplated to be included in the real estate mortgage, there would have been no necessity to ink a chattel mortgage specifically mentioning as part III of Schedule A a listing of the machineries covered thereby. It would have sufficed to list them as immovables in the Deed of Real Estate Mortgage of the land and building involved. As regards the 1979 contract, the intention of the parties is clear and beyond question. It refers solely to chattels. The inventory list of the mortgaged properties is an itemization of sixty-three (63) individually described machineries while the schedule listed only machines and 2,996,880.50 worth of finished cotton fabrics and natural cotton fabrics.16Rollo, G.R. No. 120098, pp. 68-69.

In the absence of any showing that this conclusion is baseless, erroneous or uncorroborated by the evidence on record, we find no compelling reason to depart therefrom. Too, assuming arguendo that the properties in question are immovable by nature, nothing detracts the parties from treating it as chattels to secure an obligation under the principle of estoppel. As far back as Navarro v. Pineda, 9 SCRA 631 (1963), an immovable may be considered a personal property if there is a stipulation as when it is used as security in the payment of an obligation where a chattel mortgage is executed over it, as in the case at bar. In the instant case, the parties herein: (1) executed a contract styled as “Real Estate Mortgage and Chattel Mortgage,” instead of just “Real Estate Mortgage” if indeed their intention is to treat all properties included therein as immovable, and (2) attached to the said contract a separate “LIST OF MACHINERIES & EQUIPMENT.” These facts, taken together, evince the conclusion that the parties’ intention is to treat these units of machinery as chattels. A fortiori, the contested after-acquired properties, which are of the same description as the units enumerated under the title “LIST OF MACHINERIES & EQUIPMENT,” must also be treated as chattels. _______________ 16 Rollo, G.R. No. 120098, pp. 68-69. 337 VOL. 366, OCTOBER 2, 2001 337 Tsai vs. Court of Appeals

Accordingly, we find no reversible error in the respondent appellate court’s ruling that inasmuch as the subject mortgages were intended by the parties to involve chattels, insofar as equipment and machinery were concerned, the Chattel Mortgage Law applies, which provides in Section 7 thereof that: “a chattel mortgage shall be deemed to cover only the property described therein and not like or substituted property thereafter acquired by the mortgagor and placed in the same depository as the property originally mortgaged, anything in the mortgage to the contrary notwithstanding.” And, since the disputed machineries were acquired in 1981 and could not have been involved in the 1975 or 1979 chattel mortgages, it was consequently an error on the part of the Sheriff to include subject machineries with the properties enumerated in said chattel mortgages. As the auction sale of the subject properties to PBCom is void, no valid title passed in its favor. Consequently, the sale thereof to Tsai is also a nullity under the elementary principle of nemo dat quod non habet, one cannot give what one does not have.17Segura vs. Segura, 165 SCRA 368, 375 (1988); Noel vs. Court of Appeals, G.R. No. 59550, 240 SCRA 78, 88 (1995). Petitioner Tsai also argued that assuming that PBCom’s title over the contested properties is a nullity, she is nevertheless a purchaser in good faith and for value who now has a better right than EVERTEX. To the contrary, however, are the factual findings and conclusions of the trial court that she is not a purchaser in good faith. Well-settled is the rule that the person who asserts the status of a purchaser in good faith and for value has the burden

of proving such assertion.18Mathay v. Court of Appeals, 295 SCRA 556, 575 (1988). Petitioner Tsai failed to discharge this burden persuasively. Moreover, a purchaser in good faith and for value is one who buys the property of another without notice that some other person has a right to or interest in such property and pays a full and fair price for the same, at the time of purchase, or before he has notice _______________ 17 Segura vs. Segura, 165 SCRA 368, 375 (1988); Noel vs. Court of Appeals, G.R. No. 59550, 240 SCRA 78, 88 (1995). 18 Mathay v. Court of Appeals, 295 SCRA 556, 575 (1988). 338 338 SUPREME COURT REPORTS ANNOTATED Tsai vs. Court of Appeals of the claims or interest of some other person in the property.19Diaz-Duarte vs. Ong, 298 SCRA 388, 397 (1998). Records reveal, however, that when Tsai purchased the controverted properties, she knew of respondent’s claim thereon. As borne out by the records, she received the letter of respondent’s counsel, apprising her of respondent’s claim, dated February 27, 1987.20Exhibit “U”, Folder of Exhibits, p. 64. She replied thereto on March 9, 1987.21Exhibit “V”, Id. at 66. Despite her knowledge of respondent’s claim, she proceeded to buy the contested units of machinery on May 3, 1988. Thus, the RTC did not err in finding that she was not a purchaser in good faith.

Petitioner Tsai’s defense of indefeasibility of Torrens Title of the lot where the disputed properties are located is equally unavailing. This defense refers to sale of lands and not to sale of properties situated therein. Likewise, the mere fact that the lot where the factory and the disputed properties stand is in PBCom’s name does not automatically make PBCom the owner of everything found therein, especially in view of EVERTEX’s letter to Tsai enunciating its claim. Finally, petitioners’ defense of prescription and laches is less than convincing. We find no cogent reason to disturb the consistent findings of both courts below that the case for the reconveyance of the disputed properties was filed within the reglementary period. Here, in our view, the doctrine of laches does not apply. Note that upon petitioners’ adamant refusal to heed EVERTEX’s claim, respondent company immediately filed an action to recover possession and ownership of the disputed properties. There is no evidence showing any failure or neglect on its part, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier. The doctrine of stale demands would apply only where by reason of the lapse of time, it would be inequitable to allow a party to enforce his legal rights. Moreover, except for very strong reasons, this Court is not disposed to apply the doctrine of laches to prejudice or defeat the rights of an owner.22Noel vs. Court of Appeals, 240 SCRA 78, 90 (1995). _______________ 19 Diaz-Duarte vs. Ong, 298 SCRA 388, 397 (1998). 20 Exhibit “U”, Folder of Exhibits, p. 64. 21 Exhibit “V”, Id. at 66.

22 Noel vs. Court of Appeals, 240 SCRA 78, 90 (1995). 339 VOL. 366, OCTOBER 2, 2001 339 Tsai vs. Court of Appeals As to the award of damages, the contested damages are the actual compensation, representing rentals for the contested units of machinery, the exemplary damages, and attorney’s fees. As regards said actual compensation, the RTC awarded P100,000.00 corresponding to the unpaid rentals of the contested properties based on the testimony of John Chua, who testified that the P100,000.00 was based on the accepted practice in banking and finance, business and investments that the rental price must take into account the cost of money used to buy them. The Court of Appeals did not give full credence to Chua’s projection and reduced the award to P20,000.00. Basic is the rule that to recover actual damages, the amount of loss must not only be capable of proof but must actually be proven with reasonable degree of certainty, premised upon competent proof or best evidence obtainable of the actual amount thereof.23Ace Haulers Corporation v. CA, et al., G.R. No. 127934, August 23, 2000, p. 11, 338 SCRA 572. However, the allegations of respondent company as to the amount of unrealized rentals due them as actual damages remain mere assertions unsupported by documents and other competent evidence. In determining actual damages, the court cannot rely on mere assertions, speculations, conjectures or guesswork but must depend on competent proof and on the best evidence

obtainable regarding the actual amount of loss.24Barzaga vs. Court of Appeals, 268 SCRA 105, 113-114 (1997). However, we are not prepared to disregard the following dispositions of the respondent appellate court: . . . In the award of actual damages under scrutiny, there is nothing on record warranting the said award of P5,200,000.00, representing monthly rental income of P100,000.00 from November 1986 to February 1991, and the additional award of P100,000.00 per month thereafter. As pointed out by appellants, the testimonial evidence, consisting of the testimonies of Jonh (sic) Chua and Mamerto Villaluz, is shy of what is necessary to substantiate the actual damages allegedly sustained by appellees, by way of unrealized rental income of subject machineries and equipments. _______________ 23 Ace Haulers Corporation v. CA, et al., G.R. No. 127934, August 23, 2000, p. 11, 338 SCRA 572. 24 Barzaga vs. Court of Appeals, 268 SCRA 105, 113-114 (1997). 340 340 SUPREME COURT REPORTS ANNOTATED Tsai vs. Court of Appeals The testimony of John Cua (sic) is nothing but an opinion or projection based on what is claimed to be a practice in business and industry. But such a testimony cannot serve as the sole basis for assessing the actual damages complained of. What is more, there is no showing that had appellant Tsai not taken

possession of the machineries and equipments in question, somebody was willing and ready to rent the same for P100,000.00 a month. xxx Then, too, even assuming arguendo that the said machineries and equipments could have generated a rental income of P30,000.00 a month, as projected by witness Mamerto Villaluz,’the same would have been a gross income. Therefrom should be deducted or removed, expenses for maintenance and repairs. . . . Therefore, in the determination of the actual damages or unrealized rental income sued upon, there is a good basis to calculate that at least four months in a year, the machineries in dispute would have been idle due to absence of a lessee or while being repaired. In the light of the foregoing rationalization and computation, We believe that a net unrealized rental income of P20,000.00 a month, since November 1986, is more realistic and fair.25Rollo, G.R. No. 120109, pp. 43-44. As to exemplary damages, the RTC awarded P200,000.00 to EVERTEX which the Court of Appeals deleted. But according to the CA, there was no clear showing that petitioners acted malevolently, wantonly and oppressively. The evidence, however, shows otherwise. It is a requisite to award exemplary damages that the wrongful act must be accompanied by bad faith,26“J” Marketing Corp. vs. Sia, Jr., 285 SCRA 580, 583-584 (1998). and the guilty acted in a wanton, fraudulent, oppressive, reckless or malevolent manner.27Cervantes vs. Court of Appeals, 304 SCRA 25, 33 (1997). As previously stressed, petitioner Tsai’s

act of purchasing the controverted properties despite her knowledge of EVERTEX’s claim was oppressive and subjected the already insolvent respondent to gross disadvantage. Petitioner PBCom also received the same letters of Atty. Villaluz, responding thereto on March 24, 1987.28Exhibit “X”, Folder of Exhibits, p. 69. Thus, PBCom’s act of taking all the properties found in the factory of the financially handicapped respondent, including those proper_______________ 25 Rollo, G.R. No. 120109, pp. 43-44. 26 “J” Marketing Corp. vs. Sia, Jr., 285 SCRA 580, 583-584 (1998). 27 Cervantes vs. Court of Appeals, 304 SCRA 25, 33 (1997). 28 Exhibit “X”, Folder of Exhibits, p. 69. 341 VOL. 366, OCTOBER 2, 2001 341 Tsai vs. Court of Appeals ties not covered by or included in the mortgages, is equally oppressive and tainted with bad faith. Thus, we are in agreement with the RTC that an award of exemplary damages is proper. The amount of P200,000.00 for exemplary damages is, however, excessive. Article 2216 of the Civil Code provides that no proof of pecuniary loss is necessary for the adjudication of exemplary damages, their assessment being left to the discretion of the court in accordance with the circumstances of each case.29Art. 2216. Civil Code. No proof of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated

or exemplary damages may be adjudicated. The assessment of such damages, except liquidated ones, is left to the discretion of the court, acco... While the imposition of exemplary damages is justified in this case, equity calls for its reduction. In Inhelder Corporation v. Court of Appeals, G.R. No. L52358, 122 SCRA 576, 585, (May 30, 1983), we laid down the rule that judicial discretion granted to the courts in the assessment of damages must always be exercised wrtti balanced restraint and measured objectivity. Thus, here the award of exemplary damages by way of example for the public good should be reduced to P100,000.00. By the same token, attorney’s fees and other expenses of litigation may be recovered when exemplary damages are awarded.30Vital-Gozon v. Court of Appeals, 292 SCRA 124, 147 (1998). In our view, RTC’s award of P50,000.00 as attorney’s fees and expenses of litigation is reasonable, given the circumstances in these cases. WHEREFORE, the petitions are DENIED. The assailed decision and resolution of the Court of Appeals in CA-G.R. CV No. 32986 are AFFIRMED WITH MODIFICATIONS. Petitioners Philippine Bank of Communications and Ruby L. Tsai are hereby ordered to pay jointly and severally Ever Textile Mills, Inc., the following: (1) P20,000.00 per month, as compensation for the use and possession of the properties in question from November 198631The time when PBCom leased the disputed properties to Tsai, CA Rollo, p. 34. until subject personal properties are restored to respondent corporation; (2) _______________ 29 Art. 2216. Civil Code. No proof of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or

exemplary damages may be adjudicated. The assessment of such damages, except liquidated ones, is left to the discretion of the court, according to the circumstances of each case. 30 Vital-Gozon v. Court of Appeals, 292 SCRA 124, 147 (1998). 31 The time when PBCom leased the disputed properties to Tsai, CA Rollo, p. 34. 342 342 SUPREME COURT REPORTS ANNOTATED People vs. De Guzman P100,000.00 by way of exemplary damages, and (3) P50,000.00 as attorney’s fees and litigation expenses. Costs against petitioners. SO ORDERED. Bellosillo (Chairman), Mendoza, Buena and De Leon, Jr., JJ., concur. Petitions denied, judgment and resolution affirmed with modifications. Notes.—One who deals with property subject of a notice of lis pendens cannot invoke the right of a purchaser in good faith— neither can he acquire better rights than those of his predecessor in interest. (Yu vs. Court of Appeals, 251 SCRA 509 [1995]) Where a purchases was fully aware of another person’s possession of the lot he purchased, he cannot successfully pretend later to be an innocent purchaser for value. (Heirs of Teodoro dela Cruz vs. Court of Appeals, 298 SCRA 172 [1998]) [Tsai vs. Court of Appeals, 366 SCRA 324(2001)]

[No. 20329. March 16, 1923] THE STANDARD OIL COMPANY OF NEW YORK, petitioner, vs. JOAQUIN JARAMILLO, as register of deeds of the City of Manila, respondent. 1. CHATTEL MORTGAGE; REGISTRATION; NOTICE.— The efficacy of the act of recording a chattel mortgage consists in the fact that registration operates as constructive notice of the existence of the contract, and the legal effects of the instrument must be discovered in the document itself, in relation with the fact of notice. Registration adds nothing to the instrument, considered as a source of title, and affects nobody's rights except as a species of constructive notice. 2, ID. ; ID. ; FUNCTION OF REGISTER.—The duties of a register of deeds in respect to the registration of chattel mortgages are purely of a ministerial character, and he is clothed with no judicial or quasi-judicial power to determine the-nature of the property, whether real or personal, which is the subject of the mortgage. Generally speaking, he should accept the qualification of the property adopted by the person who presents the instrument for registration and should place the instrument on record, upon payment of the proper fee, leaving the effects of registration to be determined by the court if such question should arise for legal determination. ORIGINAL ACTION in the Supreme Court. Mandamus. The facts are stated in the opinion of the court. Ross, Lawrence & Selph for petitioner. City Fiscal Revilla and Assistant City Fiscal Rodas for respondent. 631

VOL. 44, MARCH 16, 1923 631 Standard Oil Co. of New York vs. Jaramillo STREET, J.: This cause is before us upon demurrer interposed by the respondent, Joaquin Jaramillo, register of deeds of the City of Manila, to an original petition of the Standard Oil Company of New York, seeking a peremptory mandamus to compel the respondent to record in the proper register a document purporting to be a chattel mortgage executed in the City of Manila by Gervasia de la Rosa, Vda. de Vera, in favor of the Standard Oil Company of New York. It appears from the petition that on November 27, 1922, Gervasia de la Rosa, Vda. de Vera, was the lessee of a parcel of land situated in the City of Manila and owner of the house of strong materials built thereon, upon which date she executed a document in the form of a chattel mortgage, purporting to convey to the petitioner by way of mortgage both the leasehold interest in said lot and the building which stands thereon. The clauses in said document describing the property intended to be thus mortgaged are expressed in the following words: "Now, therefore, the mortgagor hereby conveys and transfers to the mortgagee, by way of mortgage, the following described personal property, situated in the City of Manila, and now in possession of the mortgagor, to wit: "(1) All of the right, title, and interest of the mortgagor in and to the contract of lease hereinabove referred to, and in and to the premises the subject of the said lease; "(2) The building, property of the mortgagor, situated on the aforesaid leased premises."

After said document had been duly acknowledged and delivered, the petitioner caused the same to be presented to the respondent, Joaquin Jaramillo, as register of deeds of the City of Manila, f or the purpose of having the same recorded in the book of record of chattel mortgages. Upon examination of the instrument, the respondent was of the opinion that it was not a chattel mortgage, for the reasón 632 632 PHILIPPINE REPORTS ANNOTATED Standard Oil Co. of New York vs. Jaramillo that the interests therein mortgaged did not appear to be personal property, within the meaning of the Chattel Mortgage Law, and registration was refused on this ground only. We are of the opinion that the position taken by the respondent is untenable; and it is his duty to accept the proper fee and place the instrument on record. The duties of a register of deeds in respect to the registration of chattel mortgages are of a purely ministerial character; and no provision of law can be cited which confers upon him any judicial or quasi-judicial power to determine the nature of any document of which registration is sought as a chattel mortgage. The original provisions touching this matter are contained in section 15 of the Chattel Mortgage Law (Act No. 1508), as amended by Act No. 2496; but these have been transferred to section 198 of the Administrative Code, where they are now found. There is nothing in any of these provisions conferring upon the register of deeds any authority whatever in respect to the "qualification," as the term is used in Spanish law, of

chattel mortgages. His duties in respect to such instruments are ministerial only. The efficacy of the act of recording a chattel mortgage consists in the fact that it operates as constructive notice of the existence of the contract, and the legal effects of the contract must be discovered in the instrument itself in relation with the fact of notice. Registration adds nothing to the instrument, considered as a source of title, and affects nobody's rights except as a species of notice. Articles 334 and 335 of the Civil Code supply no absolute criterion for discriminating between real property and personal property for purposes of the application of the Chattel Mortgage Law. Those articles state rules which, considered as a general doctrine, are law in this jurisdiction; but it must not be forgotten that under given conditions property may have character different from that imputed to it in said articles. It is undeniable that the parties to 633 VOL. 44, MARCH 16, 1923 633 Standard Oil Co. of New York vs. Jaramillo a contract may by agreement treat as personal property that which by nature would be real property; and it is a f familiar phenomenon to see things classed as real property for purposes of taxation which on general principle might be considered personal property. Other situations are constantly arising, and from time to time are presented to this court, in which the proper classification of one thing or another as real or personal property may be said to be doubtful.

The point submitted to us in this case was determined on September 8, 1914, in an administrative ruling promulgated by the Honorable James A. Ostrand, now a Justice of this Court, but acting at that time in the capacity of Judge of the fourth branch of the Court of First Instance of the Ninth Judicial District, in the City of Manila; and little of value can be here added to the observations contained in said ruling. We accordingly quote therefrom as follows: "It is unnecessary here to determine whether or not the property described in the document in question is real or personal; the discussion may be confined to the point as to whether a register of deeds has authority to deny the registration of a document purporting to be a chattel mortgage and executed in the manner and form prescribed by the Chattel Mortgage Law." Then, after quoting section 5 of the Chattel Mortgage Law (Act No. 1508), his Honor continued: "Based principally upon the provisions of section quoted the Attorney-General of the Philippine Islands, in an opinion dated August 11, 1909, held that a register of deeds has no authority to pass upon the capacity of the parties to a chattel mortgage which is presented to him for record. A fortiori a register of deeds can have no authority to pass upon the character of the property sought to be encumbered by a chattel mortgage. Of course, if the mortgaged property is real instead of personal the chattel mortgage would no doubt be held ineffective as against 634 634 PHILIPPINE REPORTS ANNOTATED Arnold vs. Willits & Patterson

third parties, but this is a question to be determined by the courts of justice and not by the register of deeds." In Leung Yee vs. Frank L. Strong Machinery Co. and Williamson (37 Phil., 644), this court held that where the interest conveyed is of the nature of real property, the placing of the document on record in the chattel mortgage register is a futile act; but that decision is not decisive of the question now before us, which has reference to the function of the register of deeds in placing the document on record. In the light of what has been said it becomes unnecessary for us to pass upon the point whether the interests conveyed in the instrument now in question are real or personal; and we declare it to be the duty of the register of deeds to accept the estimate placed upon the document by the petitioner and to register it, upon payment of the proper fee. The demurrer is overruled; and unless within the period of five days from the date of the notification hereof, the respondent shall interpose a sufficient answer to the petition, the writ of mandamus will be issued, as prayed, but without costs. So ordered. Araullo, C. J., Malcolm, Avanceña, Ostrand, Johns, and Romualdez, JJ., concur. Demurrer overruled. [Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630(1923)]

SANTOS EVANGELISTA, petitioner, vs. ALTO SURETY & INSURANCE Co., INC., respondent. PROPERTY; HOUSE is NOT PERSONAL BUT REAL PROPERTY FOR PURPOSES OF ATTACHMENT.—A house is not personal property, much less a debt, credit or other personal property capable of manual delivery, but immovable property. "A true building (not merely superimposed on the soil), is immovable or real property, whether it is erected by the owner of the land or by a usufructuary or lessee" (Laddera vs. Hodges, 48 Off. Gaz., 5374.) and the attachment of such building is subject to the provisions of subsection (a) of section 7, Rule 59 of the Rules of Court. PETITION for review by certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. Gonzalo D. David for petitioner. Raul A. Aristorenas and Benjamin Relova for respondent. CONCEPCIÓN, J.: This is an appeal by certiorari from a decision of the Court of Appeals. Briefly, the facts are: On June 4, 1949, petitioner herein, Santos Evangelista, instituted Civil Case No. 8235 of the Court of First Instance of Manila, entitled "Santos Evangelista vs. Ricardo Rivera," for a sum of money. On the same date, he obtained a writ of attachment, which was levied upon a house, built by Rivera on a land situated in Manila and leased to him, by filing copy of said writ and the corresponding notice of attachment with the Office of the Register of Deeds of Manila, on June 8, 1949. In

402 402 PHILIPPINE REPORTS ANNOTATED Evangelista vs. Alto Surety & Ins. Co., Inc. due course, judgment was rendered in favor of Evangelista, who, on October 8, 1951, bought the house at public auction held in compliance with the writ of execution issued in said case. The corresponding definite deed of sale was issued to him on October 22, 1952, upon expiration of the period of redemption. When Evangelista sought to take possession of the house, Rivera refused to surrender it, upon the ground that he had leased the property from the Alto Surety & Insurance Co., Inc.—respondent herein—and that the latter is now the true owner of said property. It appears that on May 10, 1952, a definite deed of sale of the same house had been issued to respondent, as the highest bidder at an auction sale held, on September 29, 1950, in compliance with a writ of execution issued in Civil Case No. 6268 of the same court, entitled "Alto Surety & Insurance Co., Inc. vs. Maximo Quiambao, Rosario Guevara and Ricardo Rivera," in which judgment, for the sum of money, had been rendered in favor of respondent herein, as plaintiff therein. Hence, on June 13, 1953, Evangelista instituted the present action against respondent and Ricardo Rivera, for the purpose of establishing his (Evangelista) title over said house, and securing possession thereof, apart from recovering damages. In its answer, respondent alleged, in substance, that it has a better right to the house, because the sale made, and the definite deed of sale executed, in its favor, on September 29, 1950 and May 10, 1952, respectively, precede the sale to

Evangelista (October 8, 1951) and the definite deed of sale in his favor (October 22, 1952). It, also, made some special defenses which are discussed hereafter. Rivera, in effect, joined forces with respondent. After due trial, the Court of First Instance of Manila rendered judgment for Evangelista, sentencing Rivera and respondent to deliver the house in question to petitioner herein and to pay him, jointly and severally, forty pesos (P40.00) a month from October, 1952, until said delivery, plus costs. 403 VOL. 103, APRIL 23, 1958 403 Evangelista vs. Alto Surety & Ins. Co., Inc. On appeal taken by respondent, this decision was reversed by the Court of Appeals, which absolved said respondent from the complaint, upon the ground that, although the writ of attachment in favor of Evangelista had been filed with the Register of Deeds of Manila prior to the sale in favor of respondent, Evangelista did not acquire thereby a preferential lien, the attachment having been levied as if the house in question were immovable property, although, in the opinion of the Court of Appeals, it is "ostensibly a personal property." As such, the Court of Appeals held, "the order of attachment * * * should have been served in the manner provided in subsection (e) of section 7 of Rule 59," of the Rules of Court, reading: "The property of the defendant shall be attached by the officer executing the order in the following manner: * * * * * * *

"(e) Debts and credits, and other personal property not capable of manual delivery, by leaving with the person owing such debts, or having in his possession or under his control, such credits or other personal property, or with his agent, a copy of the order, and a notice that the debts owing by him to the defendant, and the credits and other personal property in his possession, or under his control, belonging to the defendant, are attached in pursuance of such order." (Italics ours.) However, the Court of Appeals seems to have been of the opinion, also, that the house of Rivera should have been attached in accordance with subsection (c) of said section 7, as "personal property capable of manual delivery, by taking and safely keeping in his custody", for it declared that "Evangelista could not have * * * validly purchased Ricardo Rivera's house from the sheriff as the latter was not in possession thereof at the time he sold it at a public auction." Evangelista now seeks a review, by certiorari, of this decision of the Court of Appeals. In this connection, it is not disputed that although the sale to the respondent 404 404 PHILIPPINE REPORTS ANNOTATED Evangelista vs. Alto Surety & Ins. Co., Inc. preceded that made to Evangelista, the latter would have a better right if the writ of attachment, issued in his favor before the sale to the respondent, had been properly executed or enforced. This question, in turn, depends upon whether the house of Ricardo Rivera is real property or not. In the affirmative case, the applicable provision would be subsection

(a) of section 7, Rule 59 of the Rules of Court, pursuant to which the attachment should be made "by filing with the registrar of deeds a copy of the order, together with a description of the property attached, and a notice that it is attached, and by leaving a copy of such order, description, and notice with the occupant of the property, if any there be." Respondent maintains, however, and the Court of Appeals held, that Rivera's house is personal property, the levy upon which must be made in conformity with subsections (c) and (e) of said section 7 of Rule 59, Hence, the main issue before us is whether a house, constructed by the lessee of the land on which it is built, should be dealt with, for purposes of attachment, as immovable property, or as personal property. It is our considered opinion that said house is not personal property, much less a debt, credit or other personal property not capable of manual delivery, but immovable property. As explicitly held, in Laddera vs. Hodges (48 Off. Gaz., 5374), "a true building (not merely superimposed on the soil) is immovable -or real 'property, whether it is erected by the owner of the land or by a usufructuary or lessee. This is the doctrine of our Supreme Court in Leung Yee vs. Strong Machinery Company, 37 Phil., 644, And it is amply supported by the rulings of the French Court * * *." It is true that the parties to a deed of chattel mortgage may agree to consider a house as personal property for purposes of said contract (Luna vs. Encarnacion,*91 Phil., 531. 48 Off. Gaz., 2664; Standard Oil Co. of New York vs. Jaramillo, ______________ * 91 Phil., 531.

405 VOL. 103, APRIL 23, 1958 405 Evangelista vs. Alto Surety & Ins. Co., Inc. 44 Phil., 630; De Jesus vs. Juan Dee Co., Inc., 72 Phil., 464). However, this view is good only insofar as the contracting parties are concerned. It is based, partly, upon the principle of estoppel. Neither this principle, nor said view, is applicable to strangers to said contract. Much less is it in point where there has been no contract whatsoever, with respect to the status of the house involved, as in the case at bar. Apart from this, in Manarang vs. Ofilada (99 Phil., 108; 52 Off. Gaz., 3954), we held: "The question now before us, however, is: Does the fact that the parties entering into a contract regarding a house gave said property the consideration of personal property in their contract, bind the sheriff in advertising the property's sale at public auction as personal property? It is to be remembered that in the case at bar the action was to collect a loan secured by a chattel mortgage on the house. It is also to be remembered that in practice it is the judgment creditor who points out to the sheriff the properties that the sheriff is to levy upon in execution, and the judgment creditor in the case at bar is the party in whose favor the owner of the house had conveyed it by way of chattel mortgage and, therefore, knew its consideration as personal property. "These considerations notwithstanding, we hold that the rules on execution do not allow, and we should not interpret them in such a way as to allow, the special consideration that parties to a contract may have desired to impart to real estate, for

example, as personal property, when they are not ordinarily so. Sales on execution affect the public and third persons. The regulation governing sales on execution are for public officials to follow. The form of proceedings prescribed for each kind of property is suited to its character, not to the character which the parties have given to it or desire to give it. When the rules speak of personal property, property which is ordinarily so considered is meant; and when real property is spoken of, it means property which is generally known as real property. The regulations were never intended to suit the consideration that parties may have privately given to the property levied upon. Enforcement of regulations would be difficult were the convenience or agreement of private parties to determine or govern the nature of the proceedings. We, therefore, hold that the mere fact that a house was the subject of a chattel mortgage and was considered as personal property by the parties does not make said house personal property for purposes of the notice to be given for its sale at public auction. This ruling is demanded by the need for a definite, orderly and 406 406 PHILIPPINE REPORTS ANNOTATED Evangelista, vs. Alto Surety & Ins. Co., Inc. well-defined regulation for official and public guidance and which would prevent confusion and misunderstanding. "We, therefore, declare that the house of mixed materials levied upon on execution, although subject of a contract of chattel mortgage between the owner and a third person, is real property within the purview of Rule 39, section 16, of the

Rules of Court as it has become a permanent fixture of the land, which is real property. (42 Am. Jur. 199-200; Leung Yee vs. Strong Machinery Co., 37 Phil., 644; Republic vs. Ceniza, et al., 90 Phil., 544; Ladera, et al. vs. Hodges, et al., [C.A.], 48 Off. Gaz., 5374.)" (Italics ours.) The foregoing considerations apply, with equal force, to the conditions for the levy of attachment, for it similarly affects the public and third persons. It is argued, however, that, even if the house in question were immovable property, its attachment by Evangelista was void or ineffective, because, in the language of the Court of Appeals, "after presenting a copy of the order of attachment in the Office of the Register of Deeds, the person who might then be in possession of the house, the sheriff took no pains to serve Ricardo Rivera, or other copies thereof." This finding of the Court of Appeals is neither conclusive upon us, nor accurate. The Record on Appeal, annexed to the petition for certiorari, shows that petitioner alleged, in paragraph 3 of the complaint, that he acquired the house in question "as a consequence of the levy of an attachment and execution of the judgment in Civil Case No. 8235" of the Court of First Instance of Manila. In his answer (paragraph 2), Ricardo Rivera admitted said attachment and execution of judgment. He alleged, however, by way of special defense, that the title of respondent "is superior to that of plaintiff because it is based on a public instrument," whereas Evangelista relied upon a "promissory note" which "is only a private instrument"; that said public instrument in favor of respondent "is superior also to the judgment in Civil Case No. 8235"; and that plaintiff's claim against Rivera amounted only to P866, "which

407 VOL. 103, APRIL 23, 1958 407 Evangelista vs. Alto Surety & Ins. Co., Inc. is much below the real value" of said house, for which reason it would be "grossly unjust to allow plaintiff to acquire the property for such an inadequate consideration". Thus, Rivera impliedly admitted that his house had been attached, that the house had been sold to Evangelista in accordance with the requisite formalities, and that said attachment was valid, although allegedly inferior to the rights of respondent, and the consideration for the sale to Evangelista was claimed to be inadequate. Respondent, in turn, denied the allegation in said paragraph 3 of the complaint, but only "for the reasons stated in its special defenses" namely: (1) that by virtue of the sale at public auction, and the final deed executed by the sheriff in favor of respondent, the same became the "legitimate owner of the house" in question; (2) that respondent "is a buyer in good faith and for value"; (3) that respondent "took possession and control of said house"; (4) that "there was no valid attachment by the plaintiff and/or the Sheriff of Manila of the property in question as neither took actual or constructive possession or control of the property at any time"; and (5) "that the alleged registration of plaintiff's attachment, certificate of sale and final deed in the Office of Register of Deeds, Manila, if there was any, is likewise, not valid as there is no registry of transactions. covering houses erected on land belonging to or leased from another" In this manner, respondent claimed a better right,

merely under the theory that, in case of double sale of immovable property, the purchaser who first obtains possession in good faith, acquires title, if the sale has not been "recorded * * * in the Registry of Property" (Art. 1544, Civil Code of the Philippines), and that the writ of attachment and the notice of attachment in favor of Evangelista should be considered unregistered, "as there is no registry of transactions covering houses erected on land belonging to or leased from another." In fact, said article 1544 of the Civil Code of the Philippines, governing double sales, 408 408 PHILIPPINE REPORTS ANNOTATED Evangelista vs. Alto Surety & Ins. Co., Inc. was quoted on page 15 of the brief for respondent in the Court of Appeals, in support of its fourth assignment of error therein, to the effect that it "has preference or priority over the sale of the same property" to Evangelista. In other words, there was no issue on whether copy of the writ and notice of attachment had been served on Rivera. No evidence whatsoever, to the effect that Rivera had not been served with copies of said writ and notice, was introduced in the Court of First Instance. In its brief in the Court of Appeals, respondent did not aver, or even intimate, that no such copies were served by the sheriff upon Rivera. Service thereof on Rivera had been impliedly admitted by the defendants, in their respective answers, and by their behaviour throughout the proceedings in the Court of First Instance, and, as regards respondent, in the Court of Appeals. In fact, petitioner asserts

in his brief herein (p. 26) that copies of said writ and notice were delivered to Rivera, simultaneously with copy of the complaint, upon service of summons, prior to the filing of copies of said writ and notice with the register of deeds, and the' truth of this assertion has not been directly and positively challenged or denied in the brief filed before us by respondent herein. The latter did not dare therein to go beyond making a statement—for the first time in the course of these proceedings, begun almost five (5) years ago (June 18, 1953)—reproducing substantially the aforementioned finding of the Court of Appeals and then quoting the same. Considering, therefore, that neither the pleadings, nor the briefs in the Court of Appeals, raised an issue on whether or not copies of the writ of attachment and notice of attachment had been served upon Rivera; that the defendants had impliedly admitted—in said pleadings and briefs, as well as by their conduct during the entire proceedings, prior to the rendition of the decision of the Court of Appeals—that Rivera had received copies of said documents; and that, for this reason, evidently, no proof was 409 VOL. 103, APRIL 23, 1958 409 Phil. Land-Air-Sea Labor Union, et al. vs. Hon. Ortiz, etc., and Betangcor introduced thereon, we are of the opinion, and so hold that the finding of the Court of Appeals to the effect that said copies had not been served upon Rivera is based upon a misapprehension of the specific issues involved therein and

goes beyond the range of such issues, apart from being contrary to the aforementioned admission by the parties, and that, accordingly, a grave abuse of discretion was committed in making said finding, which is, furthermore, inaccurate. Wherefore, the decision of the Court of Appeals is hereby reversed, and another one shall be entered affirming that of the Court of First Instance of Manila, with the costs of this instance against respondent, the Alto Surety & Insurance Co., Inc. It is so ordered. Parás, C. J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Reyes, J. B. L., Endencia, and Felix, JJ., concur. Decision reversed. [Evangelista vs. Alto Surety & Ins. Co., Inc., 103 Phil. 401(1958)]

LEUNG YEE, plaintiff and appellant, vs. FRANK L. STRONG MACHINERY COMPANY and J. G. WILLIAMSON, defendants and appellees. 1. CHATTEL MORTGAGE; REGISTRY OF MORTGAGE .COVERING REAL PROPERTY.—The sole purpose and object of the chattel mortgage registry is to provide for the registry of "chattel mortgages," and transfers thereof, that is to say, mortgages of personal property executed in the manner and form prescribed in the statute. Neither the original registry in a chattel mortgage registry of an instrument purporting to be a chattel mortgage of a building and the machinery installed therein, nor the an ________________ 1 16 Off. Gaz., 911. 645 VOL. 37, FEBRUARY 15, 1918 645 Leung Yee vs. F. L. Strong Machinery Co. and Williamson. notation in that registry of the sale of the mortgaged property, had any effect whatever so far as the building is concerned. 2. ID.; ID.—A factory building is real property, and the mere fact that it is mortgaged and sold, separate and apart from the land on which it stands, in no wise changes its character as real property. 3. VENDOR AND PURCHASER; REGISTRY OF TITLE; GOOD FAITH.—The rights secured under the provisions of article 1473 of the Civil Code to that one of two purchasers of the same real estate, who has secured and inscribed his title thereto in the Land Registry,. do not accrue unless such inscription is made in good faith.

4. ID.; SEPARATE PURCHASERS; DETERMINATION OF RIGHTS.—The respective rights of two or more separate purchasers of the same real estate from the same owner in case none of them has secured an inscription of his title in the land registry in good faith, are to be determined in accord with the third, and not the second paragraph of that article. 5. ID.; 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. 6. ID.; ID.—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. 7. ID.; ID.—Good faith, or the lack of it, is in its last 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. 8. ID.; ID.—"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." APPEAL from a judgment of the Court of First Instance of Cavite. Revilla, J.

The facts are stated in the opinion of the court. Booram & Mahoney for appellant. Williams, Ferrier & SyCip for appellees. 646 646 PHILIPPINE REPORTS ANNOTATED Leung Yee vs. F. L. Strong Machinery Co. and Williamson. CARSON, J.: The "Compañía Agrícola Filipina" bought a considerable quantity of rice-cleaning machinery 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 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 "Compañía Agrícola 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 "Compañía Agrícola 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 judg647 VOL. 37, FEBRUARY 15, 1918 647 Leung Yee vs. F. L. Strong Machinery Co. and Williamson. ment 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 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 transferred to the person who may have 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 here 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 648 648 PHILIPPINE REPORTS ANNOTATED Leung Yee vs. F. L. Strong Machinery Co. and Williamson.

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 "Compañía Agrícola 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 registry of the instrument purporting to be a chattel mortgage of the building and the machinery installed therein, nor 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 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 in 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. 649 VOL. 37, FEBRUARY 15, 1918 649 Leung Yee vs. F. L. Strong Machinery Co. and Williamson. 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 f 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 Marañon [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 650 650 PHILIPPINE REPORTS ANNOTATED Leung Yee vs. F. L. Strong Machinery Co. and Williamson. 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 f 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 plaintiff's claim against the "Compañía Agrícola 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 conceived 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 or the propriety of the course he adopted. 651 VOL. 37, FEBRUARY 15, 1918 651 Leung Yee vs. F. L. Strong Machinery Co. and Williamson. 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 it afterwards develops that the title was in fact defective, and it appears that he had such

notice of the defect as would have led to its discovery had he acted with that measure of precaution which may reasonably be required of a prudent man in a like situation. Good faith, or the lack of it, is in its last 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 652 652 PHILIPPINE REPORTS ANNOTATED Asido vs. Guzman. 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 vs. Miller, 108 Cal., 250; Breaux-Renoudet, Cypress 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 the costs of this instance against the appellant. So ordered.

Arellano, C. J., Johnson, Araullo, Street, and Malcolm, JJ., concur. Torres, Avanceña, and Fisher, JJ., did not take part. Judgment affirmed. [Leung Yee vs. F. L. Strong Machinery Co. and Williamson., 37 Phil., 644(1918)]

No. L-16218. November 29, 1962. ANTONIA BICERRA,DOMINGO BICERRA,BERNARDO BICERRA, CAYETANO BICERRA,LINDA BICERRA,PIO BICERRA and EUFRICINA BICERRA, plaintiffs-appellants, vs. TOMASA TENEZA and BENJAMIN BARBOSA, defendants-appellees. Jurisdiction; Action for recovery of damages arising from demolished house; Nature of Action.—A house, even if situated or land belonging to a different owner, is classified as immovable property. However, once it is demolished, its character as an immovable ceases. Hence, an action for recovery of damages in connection with the demolished house, does not involve title to real property, and falls under the jurisdiction of the justice of the peace court or the court of first instance, depending on the amount of the demand. Although the plaintiffs ask that they be declared owners of the dismantled house and/or of the materials, such declaration in no wise constitutes the relief itself which if granted by final judgment could be enforceable by execution, but is only incidental to the real cause of action to recover damages. APPEAL from an order of the Court of First Instance 650 650 SUPREME COURT REPORTS ANNOTATED Bicerra vs. Teneza of Abra. The facts are stated in the opinion of the Court. Agripino Brillantes and Alberto B. Bravo for plaintiffsappellants.

Ernesto Parol for defendants-appellees. MAKALINTAL, J.: This case is before us on appeal from the order of the Court of First Instance of Abra dismissing the complaint filed by appellants, upon motion of defendants-appellees on the ground that the action was within the exclusive (original) jurisdiction of the Justice of the Peace Court of Lagangilang, of the same province. The complaint alleges in substance that appellants were the owners of the house, worth P200.00, built on a lot owned by them and situated in the said municipality of Lagangilang; that sometime in January 1957 appellees forcibly demolished the house, claiming to be the owners thereof; that the materials of the house, after it was dismantled, were placed in the custody of the barrio lieutenant of the place; and that as a result of appellees’ refusal to restore the house or to deliver the materials to appellants the latter have suffered actual damages in the amount of P200.00, plus moral and consequential damages in the amount of P600.00. The relief prayed for is that “the plaintiffs be declared the owners of the house in question and/or the materials that resulted in (sic) its dismantling; (and) that the defendants be ordered to pay the sum of P200.00, plus P600.00 as damages, and the costs.” The issue posed by the parties in this appeal is whether the action involves title to real property, as appellants contend, and therefore is cognizable by the Court of First Instance (Sec. 44, par. [b], R.A. 296, as amended), or whether it pertains to the jurisdiction of the Justice of the Peace Court, as stated in the order appealed from, since there is no real property litigated, the house having ceased to exist, and the amount of the demand

does not exceed P2,000.00 (Sec. 88, id.).1This amount, cognizable by the Justice of the Peace Court, has been increased to P5,000 in R.A. 2613, enacted August 1, 1959. _______________ 1 This amount, cognizable by the Justice of the Peace Court, has been increased to P5,000 in R.A. 2613, enacted August 1, 1959. 651 VOL. 6, NOVEMBER 29, 1962 651 People vs. Paulin The dismissal of the complaint was proper. A house is classified as immovable property by reason of its adherence to the soil on which it is built (Art. 415, par. 1, Civil Code). This classification holds true regardless of the fact that the house may be situated on land belonging to a different owner. But once the house is demolished, as in this case, it ceases to exist as such and hence its character as an immovable likewise ceases. It should be noted that the complaint here is for recovery of damages. This is the only positive relief prayed for by appellants. To be sure, they also asked that they be declared owners of the dismantled house and/or of the materials. However, such declaration in no wise constitutes the relief itself which if granted by final judgment could be enforceable by execution, but is only incidental to the real cause of action to recover damages. The order appealed from is affirmed. The appeal having been admitted in forma pauperis, no costs are adjudged.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon and Regala, JJ., concur. Order affirmed. Note.—Buildings are considered immovable provided they are substantially adhered to the land (Article 415, No. 1, Civil Code), whether the building is built on one’s own land or on rented land. It is obvious that the inclusion of the word “building” as a separate and distinct enumeration from the land in Article 415 of the Civil Code can only mean that a building is by itself an immovable property (Lopez vs. Oroso, Jr., et al., L-40817-1.8, Feb. 28, 1958; Associated Insurance & Surety Co., Inc. v. lya, et al., L-10837-38, May 30, 1958). The nature of a building does not depend on the way the parties deal with it (Leung Yee v. Strong Machinery Co., 37 Phil. 644). [Bicerra vs. Teneza, 6 SCRA 649(1962)]

DAVAO SAW MILL Co., INC., plaintiff and appellant, vs. APRONIANO G. CASTILLO and DAVAO LIGHT & POWER Co., INC., def endants and appellees. 1. PROPERTY; MACHINERY AS PERSONAL PROPERTY; CIVIL CODE, ARTICLE 334, PARAGRAPHS 1 and 5, CONSTRUED.—A lessee placed machinery in a building erected on land belonging to another, with the understanding that the machinery was not included in the improvements which would pass to the lessor on the expiration or abandonment of the land leased. The lessee also treated the machinery as personal property by executing chattel mortgages in f favor of third persons. The machinery was levied upon by the sheriff as personalty pursuant to a writ of execution obtained without any protest being registered. Held: That the machinery must be classified as personal property. 2. ID.; ID.; ID.—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. 710 710 PHILIPPINE REPORTS ANNOTATED Davao Saw Mill Co. vs. Castillo APPEAL from a judgment of the Court of First Instance of Davao. Hilario, J. The facts are stated in the opinion of the court. Arsenio Suazo & Jose L. Palma Gil and Pablo Lorenzo & 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 f oundations 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

711 VOL. 61, AUGUST 7, 1935 711 Davao Saw Mill Co. vs. Castillo 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 def endant 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 mortgagees. 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; * * * * * * * "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 or industry." Appellant emphasizes the first paragraph, and appellees the last mentioned paragraph. We entertain no doubt that 712 712 PHILIPPINE REPORTS ANNOTATED Davao Saw Mill Co. vs. Castillo the trial judge and the 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 much 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, 713 VOL. 61, AUGUST 7, 1935 713 Davao Saw Mill Co. vs. Castillo 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 industry 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

714 714 PHILIPPINE REPORTS ANNOTATED Government of the Philippine Islands vs. Conde 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 of 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. * * * * * * * "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 [1912], 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. Villa-Real, Imperial, Butte, and Goddard, JJ., concur. Judgment affirmed. [Davao Saw Mill Co. vs. Castillo, 61 Phil., 709(1935)]

No. L-17870. September 29, 1962. MINDANAO BUS COMPANY, petitioner, vs. THE CITY ASSESSOR &TREASURER and the BOARD OF TAX APPEALS of Cagayan de Oro City, respondents. Property; Immovable Property by Destination; Two requisites before movables may be deemed to have immobilized; Tools and equipments merely incidental to business not subject to real estate tax.—Movable equipments, to be immobilized in contemplation of Article 415 of the Civil Code, must be the essential and principal elements of an industry or works which are carried on in a building or on a piece of land. Thus, where the business is one of transportation, which is carried on without a repair or service shop, and its rolling equipment is repaired or serviced in a shop belonging to another, the tools and equipments in its repair shop which appear movable are merely incidentals and may not be considered immovables, and, hence, not subject to assessment as real estate for purposes of the real estate tax. PETITION for review of a decision of the Court of the Appeals. The facts are stated in the opinion of the Court. Binamira, Barria & Irabagon for petitioner. Vicente E. Sabellina for respondents. LABRADOR, J.: This is a petition for the review of the decision of the Court of Tax Appeals in C.T.A. Case No. 710 holding that the petitioner Mindanao Bus Company is liable to the payment of the realty tax on its maintenance and repair equipment hereunder referred to.

198 198 SUPREME COURT REPORTS ANNOTATED Mindanao Bus Co. vs. City Assessor and Treasurer Respondent City Assessor of Cagayan de Oro City assessed at P4,400 petitioner’s above-mentioned equipment. Petitioner appealed the assessment to the respondent Board of Tax Appeals on the ground that the same are not realty. The Board of Tax Appeals of the City sustained the city assessor, so petitioner herein filed with the Court of Tax Appeals a petition for the review of the assessment. In the Court of Tax Appeals the parties submitted the following stipulation of facts: “Petitioner and respondents, thru their respective counsels agreed to the following stipulation of facts: “1. That petitioner is a public utility solely engaged in transporting passengers and cargoes by motor trucks, over its authorized lines in the Island of Mindanao, collecting rates approved by the Public Service Commission; “2. That petitioner has its main office and shop at Cagayan de Oro City. It maintains Branch Offices and/or stations at Iligan City, Lanao; Pagadian, Zamboanga del Sur; Davao City and Kibawe, Bukidnon Province; “3. That the machineries sought to be assessed by the respondent as real properties are the following: “(a) Hobart Electric Welder Machine, appearing in the attached photograph, marked Annex ‘A’; “(b) Storm Boring Machine, appearing in the attached photograph, marked Annex ‘B’;

“(c) Lathe machine with motor, appearing in the attached photograph, marked Annex ‘C’; “(d) Black and Decker Grinder, appearing in the attached photograph, marked Annex ‘D’; “(e) PEMCO Hydraulic Press, appearing in the attached photograph, marked Annex ‘E’; “(f) Battery charger (Tungar charge machine) appearing in the attached photograph, marked Annex ‘F’; and “(g) D-Engine Waukesha-M-Fuel, appearing in the attached photograph, marked Annex ‘G’. “4. That these machineries are sitting on cement or wooden platforms as may be seen in the attached photographs which form part of this agreed stipulation of facts; “5. That petitioner is the owner of the land where it maintains and operates a garage for its TPU motor trucks; a repair shop; blacksmith and carpentry shops, and with these machineries which are placed therein, its TPU trucks are made; body constructed; and same are repaired in a condition to be serviceable in the TPU land transportation business it operates; 199 VOL. 6, SEPTEMBER 29, 1962 199 Mindanao Bus Co. vs. City Assessor and Treasurer “6. That these machineries have never been or were never used as industrial equipments to produce finished products for sale, nor to repair machineries, parts and the like offered to the general public indiscriminately for business or commercial purposes for which petitioner has never engaged in, to date.”

The Court of Tax Appeals having sustained the respondent city assessor’s ruling, and having denied a motion for reconsideration, petitioner brought the case to this Court assigning the following errors: “1. The Honorable Court of Tax Appeals erred in upholding respondents’ contention that the questioned assessments are valid; and that said tools, equipments or machineries are immovable taxable real properties. “2. The Tax Court erred in its interpretation of paragraph 5 of Article 415 of the New Civil Code, and holding that pursuant thereto, the movable equipments are taxable realties, by reason of their being intended or destined for use in an industry. “3. The Court of Tax Appeals erred in denying petitioner’s contention that the respondent City Assessor’s power to assess and levy real estate taxes on machineries is further restricted by section 31, paragraph (c) of Republic Act No. 521; and “4. The Tax Court erred in denying petitioner’s motion for reconsideration.” Respondents contend that said equipments, tho movable, are immobilized by destination, in accordance with paragraph 5 of Article 415 of the New Civil Code which provides: “Art. 415.—The following are immovable properties: x x x x “(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land, and which tend directly to meet the needs of the said industry or works.” (Italics ours.) Note that the stipulation expressly states that the equipment are placed on wooden or cement platforms. They can be moved

around and about in petitioner’s repair shop. In the case of B. H. Berkenkotter vs. Cu Unjieng, 61 Phil. 663, the Supreme Court said: “Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives the character of real property to ‘machinery, liquid 200 200 SUPREME COURT REPORTS ANNOTATED Mindanao Bus Co. vs. City Assessor and Treasurer containers, instruments or implements intended by the owner of any building or land for use in connection with any industry or trade being carried on therein and which are expressly adapted to meet the requirements of such trade or industry. If the installation of the machinery and equipment in question in the central of the Mabalacat Sugar Co., Inc., in lieu of the other of less capacity existing therein, for its sugar industry, converted them into real property by reason of their purpose, it cannot be said that their incorporation therewith was not permanent in character because, as essential and principal elements of a sugar central, without them, the sugar central would be unable to function or carry on the industrial purpose for which it was established. Inasmuch as the central is permanent in character, the necessary machinery and equipment installed for carrying on the sugar industry for which it has been established must necessarily be permanent.” (Italics ours.) So that movable equipments to be immobilized in contemplation of the law must first be “essential and principal

elements” of an industry or works without which such industry or works would be “unable to function or carry on the industrial purpose for which it was established.” We may here distinguish, therefore, those movables which become immobilized by destination because they are essential and principal elements in the industry from those which may not be so considered immobilized because they are merely incidental, not essential and principal. Thus, cash registers, typewriters, etc., usually found and used in hotels, restaurants, theaters, etc. are merely incidentals and are not and should not be considered immobilized by destination, for these businesses can continue or carry on their functions without these equipments. Airline companies use forklifts, jeep-wagons, pressure pumps, IBM machines, etc. which are incidentals, not essentials, and thus retain their movable nature. On the other hand, machineries of breweries used in the manufacture of liquor and soft drinks, though movable in nature, are immobilized because they are essential to said industries; but the delivery trucks and adding machines which they usually own and use and are found within their industrial compounds are merely incidentals and retain their movable nature. Similarly, the tools and equipments in question in this instant case are, by their nature, not essential and prin201 VOL. 6, SEPTEMBER 29, 1962 201 Mindanao Bus Co. vs. City Assessor and Treasurer cipal elements of petitioner’s business of transporting passengers and cargoes by motor trucks. They are merely

incidentals—acquired as movables and used only for expediency to facilitate and/or improve its service. Even without such tools and equipments, its business may be carried on, as petitioner has carried on, without such equipments, before the war. The transportation business could be carried on without the repair or service shop if its rolling equipment is repaired or serviced in another shop belonging to another. The law that governs the determination of the question at issue is as follows: “Art. 415. The following are immovable property: x x x x “(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land, and which tend directly to meet the needs of the said industry or works;” (Civil Code of the Phil.) Aside from the element of essentiality the above-quoted provision also requires that the industry or works be carried on in a building or on a piece of land. Thus in the case of Berkenkotter vs. Cu Unjieng, supra, the “machinery, liquid containers, and instruments or implements” are found in a building constructed on the land. A sawmill would also be installed in a building on land more or less permanently, and the sawing is conducted in the land or building. But in the case at bar the equipments in question are destined only to repair or service the transportation business, which is not carried on in a building or permanently on a piece of land, as demanded by the law. Said equipments may not, therefore, be deemed real property.

Resuming what we have set forth above, we hold that the equipments in question are not absolutely essential to the petitioner’s transportation business, and petitioner’s business is not carried on in a building, tenement or on a specified land, so said equipment may not be considered real estate within the meaning of Article 415(c) of the Civil Code. 202 202 SUPREME COURT REPORTS ANNOTATED People vs. Repato WHEREFORE, the decision subject of the petition for review is hereby set aside and the equipment in question declared not subject to assessment as real estate for the purposes of the real estate tax. Without costs. So ordered. Bengzon, C.J., Padilla, Bautista Angelo, Reyes, J.B.L., Paredes, Dizon and Makalintal, JJ., concur. Concepcion and Barrera, JJ., took no part. Regala, J., did not take part. Decision set aside. [Mindanao Bus Co. vs. City Assessor and Treasurer, 6 SCRA 197(1962)]

G.R. No. 137705. August 22, 2000.*THIRD DIVISION. SERG’S PRODUCTS, INC., and SERGIO T. GOQUIOLAY, petitioners, vs. PCI LEASING AND FINANCE, INC., respondent. Civil Law; Property; The machines 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 of petitioners chocolate-making industry.—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. 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. Same; Same; Contracting parties may validly stipulate that a real property be considered as personal.—The Court has held that contracting parties may validly stipulate that a real property be considered as personal. After agreeing to such stipulation, they are consequently estopped from claiming otherwise. Under the principle of estoppel, a party to a contract is ordinarily precluded from denying the truth of any material fact found therein. _______________ * THIRD DIVISION. 500 500 SUPREME COURT REPORTS ANNOTATED

Serg’s Products, Inc. vs. PCI Leasing and Finance, Inc. Same; Same; The Lease Agreement clearly provides that the machinesin question are to be considered as personal property; Under the circumstances they are proper subjects of the writ of seizure.—In the present case, the Lease Agreement clearly provides that the machines in question are to be considered as personal property. x x x 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. Same; Same; That the machines should be deemed personal property pursuant to the Lease Agreement is good only insofar as the contracting parties are concerned.—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. 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. In any event, there is no showing that any specific third party would be adversely affected. Remedial Law; Replevin; Policy under Rule 60 is that questions involving title to the subject property should be determined in the trial; Remedy of defendants under Rule 60 is either to post a counterbond or to question the sufficiency of the plaintiff’s bond.—Indeed, in La Tondeña Distillers v. CA, 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. PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. Antonio R. Bautista & Partners for petitioners. Perez & Calima Law Offices for respondent. PANGANIBAN, J.: After agreeing to a contract stipulating that a real or immovable property be considered as personal or movable, a party is estopped 501 VOL. 338, AUGUST 22, 2000 501 Serg’s Products, Inc. vs. PCI Leasing and Finance, Inc. 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 Decision1Rollo, pp. 177-180. of the Court of Appeals (CA)2Penned by Justice Romeo A. Brawner (Division acting chairman), with the concurrence of Justices Eloy R. Bello, Jr. and Martin S. Villarama, Jr. in CA-GR SP No. 47332 and its February 26, 1999 Resolution3Rollo, p. 189. 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.”4CA Decision, p. 3; rollo, p. 179. In its February 18, 1998 Order,5Rollo, p. 356. the Regional Trial Cour (RTC) of Quezon City (Branch 218)6Presided by Judge Hilario L. Laqui. issued a Writ of Seizure.7Rollo, pp. 23-24. The March 18, 1998 Resolution8Rollo, pp. 78-79. 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.”9Motion for Special Protective Order, pp. 3-4; rollo, pp. 76-77. _______________ 1 Rollo, pp. 177-180. 2 Penned by Justice Romeo A. Brawner (Division acting chairman), with the concurrence of Justices Eloy R. Bello, Jr. and Martin S. Villarama, Jr. 3 Rollo, p. 189. 4 CA Decision, p. 3; rollo, p. 179. 5 Rollo, p. 356. 6 Presided by Judge Hilario L. Laqui. 7 Rollo, pp. 23-24. 8 Rollo, pp. 78-79.

9 Motion for Special Protective Order, pp. 3-4; rollo, pp. 7677. 502 502 SUPREME COURT REPORTS ANNOTATED Serg’s Products, Inc. vs. PCI Leasing and Finance, Inc. The Facts The undisputed facts are summarized by the Court of Appeals as follows:10CA Decision, pp. 1-2; rollo, pp. 177-178. “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. Q98-33500. “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.” _______________ 10 CA Decision, pp. 1-2; rollo, pp. 177-178. 503 VOL. 338, AUGUST 22, 2000 503 Serg’s Products, Inc. vs. PCI Leasing and Finance, Inc. 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.11The case was deemed submitted for resolution on October 21, 1999, upon receipt by this Court of the petitioners’ Memorandum signed by Atty. Victor Basilio N. De Leon of Antonio R. Bautista & Partners. Respondent’s Memorandum, which was sig... 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.”12Petitioners’ Memorandum, p. 3; rollo, p. 376. _______________ 11 The case was deemed submitted for resolution on October 21, 1999, upon receipt by this Court of the petitioners’

Memorandum signed by Atty. Victor Basilio N. De Leon of Antonio R. Bautista & Partners. Respondent’s Memorandum, which was signed by Atty. Amador F. Brioso, Jr. of Perez & Calima Law Offices, had been filed earlier on September 29, 1999. 12 Petitioners’ Memorandum, p. 3; rollo, p. 376. 504 504 SUPREME COURT REPORTS ANNOTATED Serg’s Products, Inc. vs. PCI Leasing and Finance, Inc. 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.”13Section 1, Rule 45 of the Rules of Court. While Judge Laqui should not have been impleaded as a respon-dent,14Section 4 (a) of Rule 45 provides that the petition shall state the full name of the parties, “without

impleading the lower courts or judges thereof either as petitioners or respondents.... 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. _______________ 13 Section 1, Rule 45 of the Rules of Court. 14 Section 4 (a) of Rule 45 provides that the petition shall state the full name of the parties, “without impleading the lower courts or judges thereof either as petitioners or respondents.” 505 VOL. 338, AUGUST 22, 2000 505 Serg’s Products, Inc. vs. PCI Leasing and Finance, Inc. Rule 60 of the Rules of Court provides that writs of replevin are issued for the recovery of personal property only.15BA Finance v. CA, 258 SCRA 102, July 5, 1996; Filinvest Credit v. CA, 248 SCRA 549, September 27, 1995; Machinery Engineering Supply v. CA, 96 Phil. 70, October 29, 1954. Section 3 thereof reads: “SEC. 3. Order.—Upon the filing of such affidavit and approval of the bond, the court shall issue an order and the

corresponding writ of replevin describing the personal property alleged to be wrongfully detained and requiring the sheriff forthwith to take such property into his custody.” On the other hand, Article 415 of the Civil Code enumerates immovable or real property as follows: ART. 415. The following are immovable property: 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 xxx 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.”16Mindanao Bus Co. v. City Assessor and Treasurer, 66 SCRA 197, September 29, 1962, per Labrador, J. See also Vitug, Compendium of Civil Law and Jurisprudence, 1986, ed., pp. 99-100. 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.17People’s Bank & Trust Co. v. Dahican Lumber, |20 SCRA 84, May 16, 1967; Burgos v. Chief of Staff, 133 SCRA 800, December 26, 1984; Davao Sawmill Co. v. Castillo, 61 Phil. 709, August 7, 1935. _______________

15 BA Finance v. CA, 258 SCRA 102, July 5, 1996; Filinvest Credit v. CA, 248 SCRA 549, September 27, 1995; Machinery Engineering Supply v. CA, 96 Phil. 70, October 29, 1954. 16 Mindanao Bus Co. v. City Assessor and Treasurer, 66 SCRA 197, September 29, 1962, per Labrador, J. See also Vitug, Compendium of Civil Law and Jurisprudence, 1986, ed., pp. 99-100. 17 People’s Bank & Trust Co. v. Dahican Lumber, |20 SCRA 84, May 16, 1967; Burgos v. Chief of Staff, 133 SCRA 800, December 26, 1984; Davao Sawmill Co. v. Castillo, 61 Phil. 709, August 7, 1935. 506 506 SUPREME COURT REPORTS ANNOTATED Serg’s Products, Inc. vs. PCI Leasing and Finance, Inc. 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.18Chua Peng Hian v. CA, 133 SCRA 572, December 19, 1984; Standard Oil Co. v. Jaranillo, 44 Phil. 630, March 16, 1923; Luna v. Encarnacion, 91 Phil. 531, June 30, 1952; Manarang v. Ofilada, 99 Phil. 109, May 18, 1956; People’s Bank & Trust Co. v. D... After agreeing to such stipulation, they are consequently estopped from claiming otherwise. Under the principle of estoppel, a party to a contract is ordinarily precluded from denying the truth of any material fact found therein.

Hence, in Tumalad v. Vicencio1941 SCRA 143, 153, September 30, 1971, per Reyes, JBL, J. 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 defendantsappellants 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 Mills20122 SCRA 296, 300, May 16, 1983, per De Castro, J. 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 _______________ 18 Chua Peng Hian v. CA, 133 SCRA 572, December 19, 1984; Standard Oil Co. v. Jaranillo, 44 Phil. 630, March 16, 1923; Luna v. Encarnacion, 91 Phil. 531, June 30, 1952;

Manarang v. Ofilada, 99 Phil. 109, May 18, 1956; People’s Bank & Trust Co. v. Dahican Lumber, supra. 19 41 SCRA 143, 153, September 30, 1971, per Reyes, JBL, J. 20 122 SCRA 296, 300, May 16, 1983, per De Castro, J. 507 VOL. 338, AUGUST 22, 2000 507 Serg’s Products, Inc. vs. PCI Leasing and Finance, Inc. 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:21Rollo, p. 262. “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 a 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.22Evangelista v. Alto Surety and Insurance Co., 103 Phil. 401, April 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, 1958; Navarro v. Pineda, 9 SCRA 631, November 30, 1963. 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.24Petitioners’ Memorandum, p. 8; rollo, p. 381. 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.”25Petition, p. 10; rollo, p. 12. In their Reply to re_______________ 21 Rollo, p. 262. 22 Evangelista v. Alto Surety and Insurance Co., 103 Phil. 401, April 23, 1958; Navarro v. Pineda, 9 SCRA 631, November 30, 1963. 23 Vitug, supra, pp. 100-101. 24 Petitioners’ Memorandum, p. 8; rollo, p. 381. 25 Petition, p. 10; rollo, p. 12. 508 508 SUPREME COURT REPORTS ANNOTATED Serg’s Products, Inc. vs. PCI Leasing and Finance, Inc.

spondent’s Comment, they further allege that the Agreement is invalid.26Reply, p. 7, rollo, p. 301. 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,27209 SCRA 553, 567, June 8, 1992, per Narvasa, CJ. 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.”28Ibid. 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 45.29See Fuentes v. Court of Appeals, 268 SCRA 703, February 26, 1997. _________________ 26 Reply, p. 7, rollo, p. 301. 27 209 SCRA 553, 567, June 8, 1992, per Narvasa, CJ. 28 Ibid. 29 See Fuentes v. Court of Appeals, 268 SCRA 703, February 26, 1997. 509 VOL. 338, AUGUST 22, 2000 509 Serg’s Products, Inc. vs. PCI Leasing and Finance, Inc. 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 Corporation30Supra, p. 301. 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.”31Petition, p. 16; rollo, p. 18. They also allege that the seizure would nullify all efforts to rehabilitate the corporation. Petitioners’ arguments do not preclude the implementation of the Writ. As earlier discussed, law and jurisprudence support its propriety. Verily, the above-mentioned consequences, if they come true, should not be blamed on this Court, but on the petitioners for _______________ 30 Supra, p. 301. 31 Petition, p. 16; rollo, p. 18. 510 510 SUPREME COURT REPORTS ANNOTATED Serg’s Products, Inc. vs. PCI Leasing and Finance, Inc. 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. Melo (Chairman), Vitug, Purisima and Gonzaga-Reyes, JJ., concur. Petition denied, judgment affirmed. Note.—The Supreme Court is constrained to rule against petitioner on grounds of fairness and equity particularly on the principle of estoppel. (Ysmael vs. Court of Appeals, 273 SCRA 165 [1997]) [Serg’s Products, Inc. vs. PCI Leasing and Finance, Inc., 338 SCRA 499(2000)]

No. L-50466. May 31, 1982.*SECOND DIVISION. CALTEX (PHILIPPINES) INC., petitioner, vs. CENTRAL BOARD OF ASSESSMENT APPEALS and CITY ASSESSOR OF PASAY, respondents. Taxation; Property; Courts; Jurisdiction; The Central Board of Assessment Appeals, and not the Court of Tax Appeals has appellate jurisdiction over decisions of the provincial or city boards of assessment appeals.—The Solicitor General’s contention that the Court of Tax Appeals has exclusive appellate jurisdiction over this case is not correct. When Republic Act No. 1125 created the Tax Court in 1954, there was as yet no Central Board of Assessment Appeals Section 7(3) of that law in providing that the Tax Court had jurisdiction to review by appeal decisions of provincial or city boards of assessment appeals had in mind the local boards of assessment appeals but not the Central Board of Assessment Appeals which under the Real Property Tax Code has appellate jurisdiction over decisions of the said local boards of assessment appeals and is. therefore, in the same category as the Tax Court. Same; Same; Same; Same; Supreme Court; Certiorari; The Heal Property Tax Code does not provide for Supreme Court review of decisions of the Central Board of Assessment Appeals. The only remedy for Supreme Court review of the Central Board’s decision is by Special Civil Action of Certiorari.—Section 36 of the Real Property Tax Code provides that the decision of the Central Board of Assessment Appeals shall become final and executory after the lapse of fifteen days from the receipt of its decision by the appellant. Within that fifteen-day period, a petition for reconsideration

may be filed. The Code does not provide for the review of the Board’s decision by this Court. Consequently, the only remedy available for seeking a review by this Court of the decision of the Central Board of Assessment Appeals is the special civil action of certiorari, the recourse resorted to herein by Caltex (Philippines), Inc. Same; Same; Gasoline station equipments and machineries are subject to the real property tax.—We hold that the said equipment and machinery, as appurtenances to the gas station building or shed owned by Caltex (as to which it is subject to realty tax) and which fix__________________ * SECOND DIVISION. 297 VOL. 114, MAY 31, 1982 297 Caltex (Phil.) Inc. vs. Central Board of Assessment Appeals tures are necessary to the operation of the gas station, for without them the gas station would be useless, and which have been attached or affixed permanently to the gas station site or embedded therein, are taxable improvements and machinery within the meaning of the Assessment Law and the Real Property Tax Code. Same; Same; Gasoline station equipments and machineries are permanent fixtures for purposes of realty taxation.—Here, the question is whether the gas station equipment and machinery permanently affixed by Caltex to its gas station and pavement (which are indubitably taxable realty) should be subject to the realty tax. This question is different from the issue raised in the Davao Saw Mill case. Improvements on land are commonly

taxed as realty even though for some purposes they might be considered personalty (84 C.J.S. 181-2, Notes 40 and 41). “It is a familiar phenomenon to see things classed as real property for purposes of taxation which on general principle might be considered personal property” (Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633). PETITION for certiorari to review the decision of the Central Board of Assessment Appeals. The facts are stated in the opinion of the Court. AQUINO, J.: This case is about the realty tax on machinery and equipment installed by Caltex (Philippines) Inc. in its gas stations located on leased land. The machines and equipment consists of underground tanks, elevated tank, elevated water tanks, water tanks, gasoline pumps, computing pumps, water pumps, car washer, car hoists, truck hoists, air compressors and tireflators. The city assessor described the said equipment and machinery in this manner: “A gasoline service station is a piece of lot where a building or shed is erected, a water tank if there is any is placed in one corner of the lot, car hoists are placed in an adjacent shed, an air compressor is attached in the wall of the shed or at the concrete wall fence. “The controversial underground tank, depository of gasoline or crude oil, is dug deep about six feet more or less, a few meters away 298 298 SUPREME COURT REPORTS ANNOTATED Caltex (Phil.) Inc. vs. Central Board of Assessment Appeals

from the shed. This is done to prevent conflagration because gasoline and other combustible oil are very inflammable. “This underground tank is connected with a steel pipe to the gasoline pump and the gasoline pump is commonly placed or constructed under the shed. The footing of the pump is a cement pad and this cement pad is imbedded in the pavement under the shed, and evidence that the gasoline underground tank is attached and connected to the shed or building through the pipe to the pump and the pump is attached and affixed to the cement pad and pavement covered by the roof of the building or shed. “The building or shed, the elevated water tank, the car hoist under a separate shed, the air compressor, the underground gasoline tank, neon lights signboard, concrete fence and pavement and the lot where they are all placed or erected, all of them used in the pursuance of the gasoline service station business formed the entire gasoline service station. “As to whether the subject properties are attached and affixed to the tenement, it is clear they are, for the tenement we consider in this particular case are (is) the pavement covering the entire lot which was constructed by the owner of the gasoline station and the improvement which holds all the properties under question, they are attached and affixed to the pavement and to the improvement. “The pavement covering the entire lot of the gasoline service station, as well as all the improvements, machines, equipments and apparatus are allowed by Caltex (Philippines) Inc. x x x. “The underground gasoline tank is attached to the shed by the steel pipe to the pump, so with the water tank it is connected

also by a steel pipe to the pavement, then to the electric motor which electric motor is placed under the shed. So to say that the gasoline pumps, water pumps and underground tanks are outside of the service station, and to consider only the building as the service station is grossly erroneous.” (pp. 58-60, Rollo). The said machines and equipment are loaned by Caltex to gas station operators under an appropriate lease agreement or receipt. It is stipulated in the lease contract that the operators, upon demand, shall return to Caltex the machines and equipment in good condition as when received, ordinary wear and tear excepted. The lessor of the land, where the gas station is located, does not become the owner of the machines and equipment installed 299 VOL. 114, MAY 31, 1982 299 Caltex (Phil.) Inc. vs. Central Board of Assessment Appeals therein. Caltex retains the ownership thereof during the term of the lease. The city assessor of Pasay City characterized the said items of gas station equipment and machinery as taxable realty. The realty tax on said equipment amounts to P4,541.10 annually (p. 52, Rollo). The city board of tax appeals ruled that they are personalty. The assessor appealed to the Central Board of Assessment Appeals. The Board, which was composed of Secretary of Finance Cesar Virata as chairman, Acting Secretary of Justice Catalino Macaraig, Jr. and Secretary of Local Government and Community Development Jose Roño, held in its decision of

June 3, 1977 that the said machines and equipment are real property within the meaning of sections 3(k) & (m) and 38 of the Real Property Tax Code, Presidential Decree No. 464, which took effect on June 1, 1974, and that the definitions of real property and personal property in articles 415 and 416 of the Civil Code are not applicable to this case. The decision was reiterated by the Board (Minister Vicente Abad Santos took Macaraig’s place) in its resolution of January 12, 1978, denying Caltex’s motion for reconsideration, a copy of which was received by its lawyer on April 2, 1979. On May 2, 1979 Caltex filed this certiorari petition wherein it prayed for the setting aside of the Board’s decision and for a declaration that the said machines and equipment are personal property not subject to realty tax (p. 16, Rollo). The Solicitor General’s contention that the Court of Tax Appeals has exclusive appellate jurisdiction over this case is not correct. When Republic act No. 1125 created the Tax Court in 1954, there was as yet no Central Board of Assessment Appeals. Section 7(3) of that law in providing that the Tax Court had jurisdiction to review by appeal decisions of provincial or city boards of assessment appeals had in mind the local boards of assessment appeals but not the Central Board of Assessment Appeals which under the Real Property Tax Code has appellate jurisdiction over decisions of the said local boards of 300 300 SUPREME COURT REPORTS ANNOTATED Caltex (Phil.) Inc. vs. Central Board of Assessment Appeals

assessment appeals and is, therefore, in the same category as the Tax Court. Section 36 of the Real Property Tax Code provides that the decision of the Central Board of Assessment Appeals shall become final and executory after the lapse of fifteen days from the receipt of its decision by the appellant. Within that fifteenday period, a petition for reconsideration may be filed. The Code does not provide for the review of the Board’s decision by this Court. Consequently, the only remedy available for seeking a review by this Court of the decision of the Central Board of Assessment Appeals is the special civil action of certiorari, the recourse resorted to herein by Caltex (Philippines), Inc. The issue is whether the pieces of gas station equipment and machinery already enumerated are subject to realty tax. This issue has to be resolved primarily under the provisions of the Assessment Law and the Real Property Tax Code. Section 2 of the Assessment Law provides that the realty tax is due “on real property, including land, buildings, machinery, and other improvements” not specifically exempted in section 3 thereof. This provision is reproduced with some modification in the Real Property Tax Code which provides: “SEC. 38. Incidence of Real Property Tax.—There shall be levied, assessed and collected in all provinces, cities and municipalities an annual ad valorem tax on real property, such as land, buildings, machinery and other improvements affixed or attached to real property not hereinafter specifically exempted.” The Code contains the following definitions in its section 3:

“k) Improvements—is a valuable addition made to property or an amelioration in its condition, amounting to more than mere repairs or replacement of waste, costing labor or capital and intended to enhance its value, beauty or utility or to adapt it for new or further purposes.” “m) Machinery—shall embrace machines, mechanical contrivances, instruments, appliances and apparatus attached to the 301 VOL. 114, MAY 31, 1982 301 Caltex (Phil.) Inc. vs. Central Board of Assessment Appeals real estate. It includes the physical facilities available for production, as well as the installations and appurtenant service facilities, together with all other equipment designed for or essential to its manufacturing, industrial or agricultural purposes.” (See sec. 3[f], Assessment Law). We hold that the said equipment and machinery, as appurtenances to the gas station building or shed owned by Caltex (as to which it is subject to realty tax) and which fixtures are necessary to the operation of the gas station, for without them the gas station would be useless, and which have been attached or affixed permanently to the gas station site or embedded therein, are taxable improvements and machinery within the meaning of the Assessment Law and the Real Property Tax Code. Caltex invokes the rule that machinery which is movable in its nature only becomes immobilized when placed in a plant by the owner of the property or plant but not when so placed by a

tenant, a usufructuary, or any person having only a temporary right, unless such person acted as the agent of the owner (Davao Saw Mill Co. vs. Castillo, 61 Phil. 709). That ruling is an interpretation of paragraph 5 of article 415 of the Civil Code regarding machinery that becomes real property by destination. In the Davao Saw Mills case the question was whether the machinery mounted on foundations of cement and installed by the lessee on leased land should be regarded as real property for purposes of execution of a judgment against the lessee. The sheriff treated the machinery as personal property. This Court sustained the sheriffs action. (Compare with Machinery & Engineering Supplies, Inc. vs. Court of Appeals, 96 Phil. 70, where in a replevin case machinery was treated as realty). Here, the question is whether the gas station equipment and machinery permanently affixed by Caltex to its gas station and pavement (which are indubitably taxable realty) should be subject to the realty tax. This quetion is different from the issue raised in the Davao Saw Mill case. Improvements on land are commonly taxed as realty even though for some purposes they might be considered personalty 302 302 SUPREME COURT REPORTS ANNOTATED Caltex (Phil.) Inc. vs. Central Board of Assessment Appeals (84 C.J.S. 181-2, Notes 40 and 41). “It is a familiar phenomenon to see things classed as real property for purposes of taxation which on general principle might be considered

personal property” (Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633). This case is also easily distinguishable from Board of Assessment Appeals vs. Manila Electric Co., 119 Phil. 328, where Meralco’s steel towers were considered poles within the meaning of paragraph 9 of its franchise which exempts its poles from taxation. The steel towers were considered personalty because they were attached to square metal frames by means of bolts and could be moved from place to place when unscrewed and dismantled. Nor are Caltex’s gas station equipment and machinery the same as tools and equipment in the repair shop of a bus company which were held to be personal property not subject to realty tax (Mindanao Bus Co. vs. City Assessor, 116 Phil. 501). The Central Board of Assessment Appeals did not commit a grave abuse of discretion in upholding the city assessor’s imposition of the realty tax on Caltex’s gas station and equipment. WHEREFORE, the questioned decision and resolution of the Central Board of Assessment Appeals are affirmed. The petition for certiorari is dismissed for lack of merit. No costs. SO ORDERED. Barredo (Chairman), Guerrero, De Castro and Escolin, JJ., concur. Concepcion Jr., and Abad Santos, JJ., did not take part. Petition dismissed. Notes.—A tax assessment is deemed made when the notice to that effect is released, mailed or sent to the taxpayer for the

purpose of giving effect to the assessment. (Republic vs. De la Rama, 18 SCRA 861.) 303 VOL. 114, MAY 31, 1982 303 Caltex (Phil.) Inc. vs. Central Board of Assessment Appeals An assessment is illegal and void when the assessor has no power to act at all. It is erroneous when the assessor has the power but errs in the exercise of that power. (Victorias Milling Co. vs. Court of Tax Appeals, 22 SCRA 1008.) It is obvious that the inclusion of the building, separate and distinct from the land, in the enumeration of what may constitute real properties under the 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 or different owner. (Tumalad vs. Vicencio, 41 SCRA 143.) R.A. 1435 An Act to Provide Means for Increasing the Highway Special Fund is not unconstitutional as it has only one project and proclaims just a single policy. (Insular Lumber Co. vs. Court of Tax Appeals, 104 SCRA 710.) The 5-year period for refund of specific tax paid for oils used in agricultural and aviation activities is not applicable to partial refund of specific tax paid for oils used by miners and forest concessionaries. (Insular Lumber Co. vs. Court of Tax Appeals, 104 SCRA 710.) The distinction between the power of Secretary of Finance and Court of Tax Appeals over decisions of City Board of Tax Appeals is: the power of the Secretary of Finance under Republic Act 3275, amending Section 42 of the City Charter.

refers to administrative review, whereas the power of the latter refers to judicial review by appeal. (Enriquez vs. Secretary of Finance, 27 SCRA 1261.) Where an assessment made by the Collector of Internal Revenue was disputed by the taxpayer at the opportune time, said Collector may not ignore the positive dispute against the assessment by immediately bringing an action to collect, thus depriving the taxpayer of his right to appeal the disputed assessment. (San Juan vs. Vasquez, 3 SCRA 92.) Tax Code does not bar the right to contest the legality of the tax after a taxpayer pays it. (Commissioner of Internal Revenue vs. Gonzales, 18 SCRA 757.) [Caltex (Phil.) Inc. vs. Central Board of Assessment Appeals, 114 SCRA 296(1982)]

No. L-47943. May 31, 1982.*SECOND DIVISION MANILA ELECTRIC COMPANY, petitioner, vs. CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT APPEALS OF BATANGAS and PROVINCIAL ASSESSOR OF BATANGAS, respondents. Taxation; Civil Law; Property; Storage tanks although not embedded on land considered as improvements and are subject to realty tax.—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. Same; Same; Same; Real property, for taxation purposes, defined.—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). __________________ * SECOND DIVISION 274 274 SUPREME COURT REPORTS ANNOTATED Manila Electric Co. vs. Central Board of Assessment Appeals

SPECIAL CIVIL ACTION for certiorari to review the decision and resolution of the Central Board of Assessment Appeals. The facts are stated in the opinion of the Board. 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 275 VOL. 114, MAY 31, 1982 275 Manila Electric Co. vs. Central Board of Assessment Appeals 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 at276 276 SUPREME COURT REPORTS ANNOTATED Manila Electric Co. vs. Central Board of Assessment Appeals tached 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.

277 VOL. 114, MAY 31, 1982 277 Manila Electric Co. vs. Central Board of Assessment Appeals For purposes of taxation, the term “real property” may include things which should generally be regarded as personal property (84 C.J.S. 171, Note 8). It is a familiar phenomenon to see things classed as real property for purposes of taxation which on general principle might be considered personal property (Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633). The case of Board of Assessment Appeals vs., Manila Electric Company, 119 Phil. 328, wherein Meralco’s steel towers were held not to be subject to realty tax, is not in point because in that case the steel towers were regarded as poles and under its franchise Meralco’s poles are exempt from taxation. Moreover, the steel towers were not attached to any land or building. They were removable from their metal frames. Nor is there any parallelism between this case and Mindanao Bus Co. vs. City Assessor, 116 Phil. 501, where the tools and equipment in the repair, carpentry and blacksmith shops of a transportation company were held not subject to realty tax because they were personal property. WHEREFORE, the petition is dismissed. The Board’s questioned decision and resolution are affirmed. No costs. SO ORDERED. Barredo (Chairman), Guerrero, De Castro and Escolin, JJ., concur. Concepcion Jr., J., is on leave. Justice Abad Santos did not take part.

Decision and resolution affirmed. Notes.—Tax exemptions are strictly constituted against the taxpayer and liberally in favor of the taxing authority. (City of Baguio vs. Basuego, 100 SCRA 116.) Taxes being the chief source of revenue for the Government to keep it running must be paid immediately and without delay. (Collector of Internal Revenue vs. Yuseco, 3 SCRA 313.) Exceptions from taxation are considered in strictissimi juris against the taxpayer and liberally in favor of the taxing 278 278 SUPREME COURT REPORTS ANNOTATED Manila Electric Co. vs. Central Board of Assessment Appeals authority. (Esso Standard Eastern, Inc. vs. Acting Commissioner of Customs; 18 SCRA 488.) The power of taxation should be exercised with caution to minimize injury to the propriety rights of a taxpayer. (Roxas vs. Court of Tax Appeals, 23 SCRA 276.) Local governments are without power to tax electric power companies already subject to franchise tax, unless their franchise allows the imposition of an additional tax. (Ilocos Norte Electric Co., Inc. vs. Municipality of Laoag, 18 SCRA 703.) Where the law clearly refers to the condonation of unpaid taxes, it is held that it cannot be extended to authorize the refund of paid taxes. (Surigao Consolidated Mining Co., Inc. vs. Collector of Internal Revenue, 9 SCRA 728.) The term “insulating oil” comes within the meaning of the term “insulator” and qualifies the Manila Electric Company for exemption from the tax due on the importation thereof under

the terms of its franchise which expressly exempts its “insulator” from all taxes of whatever kind and nature. (Acting Commissioner of Customs vs. Manila Electric Co., 77 SCRA 469.) The forfeiture proceeding concluded by the collector in favor of the State, after notice to unknown owners is made and when no claim is interposed in the prescribed interim period, attains finality and cannot be the subject of any relief. (Commissioner of Customs vs. Geronimo, 80 SCRA 74.) The prohibition against the imposition of percentage taxes (formerly provided for in Sec. 1 of C.A. 472) refers to municipalities and municipal districts but not to chartered cities. (Philippine Match Co. vs. City of Cebu, 81 SCRA 99.) Alleged lack of personal notice of tax sale to petitioner is negated by averments in her pleading (Vda, de Gordon vs. Court of Appeals, 109 SCRA 388.) Term “AS IS” in public auction of imported goods refers to the physical condition of the merchandise and not the legal situation in which it was at the time of the sale. (Auyong Hian vs. Court of Tax Appeals, 109 SCRA 472.) ——o0o—— [Manila Electric Co. vs. Central Board of Assessment Appeals, 114 SCRA 273(1982)]

G.R. No. 168557. February 16, 2007.*THIRD DIVISION. FELS ENERGY, INC., petitioner, vs. THE PROVINCE OF BATANGAS and THE OFFICE OF THE PROVINCIAL ASSESSOR OF BATANGAS, respondents. G.R. No. 170628. February 16, 2007.*THIRD DIVISION. NATIONAL POWER CORPORATION, petitioner, vs. LOCAL BOARD OF ASSESSMENT APPEALS OF BATANGAS, LAURO C. ANDAYA, in his capacity as the Assessor of the _______________ * THIRD DIVISION. 187 VOL. 516, FEBRUARY 16, 2007 187 FELS Energy, Inc. vs. Province of Batangas Province of Batangas, and the PROVINCE OF BATANGAS represented by its Provincial Assessor, respondents. Taxation; Real Property Tax Code; Appeals; Assessments; The remedy of appeal to the Local Board of Assessment Appeals (LBAA) is available from an adverse ruling or action of the provincial, city or municipal assessor in the assessment of the property.—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. Same; Same; Same; Same; Under Section 226 of R.A. No. 7160, the last action of the local assessor on a particular assessment shall be the notice of assessment.—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, 285 SCRA 648 (1998), where we ruled that under Section 226 of R.A. No 7160, 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. Same; Same; Same; Same; The taxpayer’s failure to question the assessment in the Local Board of Assessment Appeals (LBAA) renders the assessment of the local assessor final, executory and demandable.—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. 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 188 188 SUPREME COURT REPORTS ANNOTATED

FELS Energy, Inc. vs. Province of Batangas invoking any defense that would reopen the question of its liability on the merits. Same; Same; Same; Same; Taxation is the rule and exemption is the exception.—Time and again, the Supreme Court has stated that taxation is the rule and exemption is the exception. 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. 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. Same; Same; Same; Same; The right of local government units to collect taxes due must always be upheld to avoid severe tax erosion.—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. 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 governments 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. Remedial Law; Judgments; Res Judicata; Res judicata is founded on two grounds, namely: (1) public policy and necessity, which makes it to the interest of the State that there should be an end to litigation and (2) the hardship on the individual of being vexed twice for the same cause.—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 indi189 VOL. 516, FEBRUARY 16, 2007 189 FELS Energy, Inc. vs. Province of Batangas viduals and prefer the regalement of the litigious disposition on the part of suitors to the preservation of the public tranquility and happiness. Same; Actions; Forum Shopping; 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; Requisites of Forum Shopping.—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. 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. 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. PETITIONS for review on certiorari of the decisions and resolutions of the Court of Appeals. The facts are stated in the opinion of the Court. Jimenez, Gonzales, Liwanag, Bello, Valdez, Caluya and Fernandez for FELS Energy, Inc. Melchor P. Ridulme for National Power Corporation. Emmanuel R. Matibag for the Province of Batangas and the Assessor’s Office of Batangas. 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 190 190 SUPREME COURT REPORTS ANNOTATED FELS Energy, Inc. vs. Province of Batangas

FELS Energy, Inc. (FELS) and National Power Corporation (NPC), respectively. The first is a petition for review on certiorari assailing the August 25, 2004 Decision1Penned by Associate Justice Marina L. Buzon, with Associate Justices Mario L. Guariña III and Santiago Javier Ranada (retired), concurring; Rollo (G.R. No. 168557), pp. 103-116. of the Court of Appeals (CA) in CA-G.R. SP No. 67490 and its Resolution2Penned by Associate Justice Marina L. Buzon, with Associate Justices Mario L. Guariña III and Santiago Javier Ranada; concurring; id., at pp. 118-120. dated June 20, 2005; the second, also a petition for review on certiorari, challenges the February 9, 2005 Decision3Penned by Associate Justice Mario L. Guariña III, with Associate Justices Marina L. Buzon and Santiago Javier Ranada; concurring; Rollo (G.R. No. 170628), pp. 59-64. and November 23, 2005 Resolution4Penned by Associate Justice Mario L. Guariña III, with Associate Justices Marina L. Buzon and Santiago Javier Ranada; concurring; id., at p. 65. 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 Agreement5Rollo (G.R. No. 168557), pp. 121-245. (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 _______________ 1 Penned by Associate Justice Marina L. Buzon, with Associate Justices Mario L. Guariña III and Santiago Javier Ranada (retired), concurring; Rollo (G.R. No. 168557), pp. 103-116. 2 Penned by Associate Justice Marina L. Buzon, with Associate Justices Mario L. Guariña III and Santiago Javier Ranada; concurring; id., at pp. 118-120. 3 Penned by Associate Justice Mario L. Guariña III, with Associate Justices Marina L. Buzon and Santiago Javier Ranada; concurring; Rollo (G.R. No. 170628), pp. 59-64. 4 Penned by Associate Justice Mario L. Guariña III, with Associate Justices Marina L. Buzon and Santiago Javier Ranada; concurring; id., at p. 65. 5 Rollo (G.R. No. 168557), pp. 121-245. 191 VOL. 516, FEBRUARY 16, 2007 191 FELS Energy, Inc. vs. Province of Batangas (b) all real estate taxes and assessments, rates and other charges in respect of the Power Barges.”6Id., at p. 155.

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 P56,184,088.40 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 letter7Id., at pp. 249-250. 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.8Id., at pp. 253255. 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.9Rollo (G.R. No. 168557), pp. 256-267. 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 _______________ 6 Id., at p. 155.

7 Id., at pp. 249-250. 8 Id., at pp. 253-255. 9 Rollo (G.R. No. 168557), pp. 256-267. 192 192 SUPREME COURT REPORTS ANNOTATED FELS Energy, Inc. vs. Province of Batangas Finance (DOF) had rendered an opinion10Id., at pp. 286-288. 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 Resolution11Id., at pp. 289-294. 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 P56,184,088.40, for the year 1994. SO ORDERED.”12Id., at p. 294. 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 Distraint13Rollo (G.R. No. 170628), pp. 122-124. over the power barges, seeking to collect real property taxes amounting to P232,602,125.91 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 re_______________ 10 Id., at pp. 286-288. 11 Id., at pp. 289-294. 12 Id., at p. 294. 13 Rollo (G.R. No. 170628), pp. 122-124. 193 VOL. 516, FEBRUARY 16, 2007 193 FELS Energy, Inc. vs. Province of Batangas strained by the CBAA from enforcing the disputed assessment during the pendency of the appeal. On November 15, 1996, the CBAA issued an Order14Id., at p. 129. 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 Intervention15Rollo (G.R. No. 168557), pp. 364-369. dated August 7, 1998 in the proceedings before the CBAA. This was approved by the CBAA in an Order16Id., at pp. 370-372. 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 Decision17Id., at pp. 383-394. 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.”18Id., at p. 394. 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 _______________ 14 Id., at p. 129. 15 Rollo (G.R. No. 168557), pp. 364-369. 16 Id., at pp. 370-372. 17 Id., at pp. 383-394. 18 Id., at p. 394. 194 194 SUPREME COURT REPORTS ANNOTATED FELS Energy, Inc. vs. Province of Batangas

by the exemptions under Section 234(c) of R.A. No. 7160.19Otherwise known as the “Local Government Code of 1991.... 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 Resolution20Rollo (G.R. No. 168557), pp. 425-431. 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.”21Id., at pp. 430-431. FELS and NPC filed separate motions for reconsideration, which were timely opposed by the Provincial Assessor. The CBAA denied the said motions in a Resolution22Id., at p. 478. 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 _______________ 19 Otherwise known as the “Local Government Code of 1991.” 20 Rollo (G.R. No. 168557), pp. 425-431. 21 Id., at pp. 430-431. 22 Id., at p. 478. 195 VOL. 516, FEBRUARY 16, 2007 195 FELS Energy, Inc. vs. Province of Batangas Resolution23CA Rollo (CA-G.R. SP No. 67490), p. 422. dated February 12, 2002, the appellate court directed NPC to re-file its motion for consolidation with CAG.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.”24Rollo (G.R. No. 168557), pp. 49-50.

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 Resolution25Id., at p. 605. 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 Resolution26Id., at p. 606. dated January 19, 2005. Meantime, the appellate court dismissed the petition in CAG.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 _______________ 23 CA Rollo (CA-G.R. SP No. 67490), p. 422. 24 Rollo (G.R. No. 168557), pp. 49-50. 25 Id., at p. 605. 26 Id., at p. 606. 196 196 SUPREME COURT REPORTS ANNOTATED FELS Energy, Inc. vs. Province of Batangas 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 Resolution27Rollo (G.R. No. 170628), p. 65. dated November 23, 2005. The motion for reconsideration filed by FELS in CAG.R. SP No. 67490 had been earlier denied for lack of merit in a Resolution28Rollo (G.R. No. 168557), pp. 23-25. 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. _______________ 27 Rollo (G.R. No. 170628), p. 65. 28 Rollo (G.R. No. 168557), pp. 23-25.

197 VOL. 516, FEBRUARY 16, 2007 197 FELS Energy, Inc. vs. Province of Batangas 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.29Id., at p. 61. 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: I 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.30Rollo (G.R. No. 170628), pp. 18-19. Considering that the factual antecedents of both cases are similar, the Court ordered the consolidation of the two cases in a Resolution31Rollo (G.R. No. 168557), p. 637. dated March 8, 2006. 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. _______________ 29 Id., at p. 61. 30 Rollo (G.R. No. 170628), pp. 18-19. 31 Rollo (G.R. No. 168557), p. 637. 198 198 SUPREME COURT REPORTS ANNOTATED FELS Energy, Inc. vs. Province of Batangas 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.”32Id., at p. 246 (Italics supplied). 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. _______________ 32 Id., at p. 246 (Italics supplied). 199 VOL. 516, FEBRUARY 16, 2007 199 FELS Energy, Inc. vs. Province of Batangas 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.33Systems Plus Computer College of Caloocan City v. Local Government of Caloocan City, 455 Phil. 956, 962-963; 408 SCRA 494, 498 (2003). We fully agree with the rationalization of the CA in both CAG.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,34G.R. Nos. 115253-74, January 30, 1998, 285 SCRA 648. where we ruled that under Section 226 of R.A. No 7160,35Formerly Section 30 of The Real Property Tax Code. 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 _______________ 33 Systems Plus Computer College of Caloocan City v. Local Government of Caloocan City, 455 Phil. 956, 962-963; 408 SCRA 494, 498 (2003). 34 G.R. Nos. 115253-74, January 30, 1998, 285 SCRA 648. 35 Formerly Section 30 of The Real Property Tax Code. 200 200 SUPREME COURT REPORTS ANNOTATED FELS Energy, Inc. vs. Province of Batangas conveniently take place. Such occasion for mischief must be prevented and excised from our system.”36Callanta v. Office of the Ombudsman, supra note 34, at pp. 661-662. 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.”37Rollo (G.R. No. 170628), pp. 62-63. 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.38Manila Electric Company v. Barlis, G. R. No. 114231, June 29, 2004, 433 SCRA 11, 32. 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.39Id., at pp. 32-33. 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 ju_______________ 36 Callanta v. Office of the Ombudsman, supra note 34, at pp. 661-662. 37 Rollo (G.R. No. 170628), pp. 62-63. 38 Manila Electric Company v. Barlis, G. R. No. 114231, June 29, 2004, 433 SCRA 11, 32. 39 Id., at pp. 32-33. 201 VOL. 516, FEBRUARY 16, 2007 201 FELS Energy, Inc. vs. Province of Batangas risdictional, and failure in this regard renders the decision final and executory.40See Borja Estate v. Ballad, G.R. No. 152550, June 8, 2005, 459 SCRA 657, 668, 670.

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.41Cruz v. Court of Appeals, G.R. No. 164797, February 13, 2006, 482 SCRA 379, 395, citing Heirs of the Late Faustina Adalid v. Court of Appeals, 459 SCRA 27, 41 (2005). As we ruled

_______________ 40 See Borja Estate v. Ballad, G.R. No. 152550, June 8, 2005, 459 SCRA 657, 668, 670. 41 Cruz v. Court of Appeals, G.R. No. 164797, February 13, 2006, 482 SCRA 379, 395, citing Heirs of the Late Faustina Adalid v. Court of Appeals, 459 SCRA 27, 41 (2005). 202 202 SUPREME COURT REPORTS ANNOTATED FELS Energy, Inc. vs. Province of Batangas in Heirs of Trinidad De Leon Vda. de Roxas v. Court of Appeals:42G.R. No. 138660, February 5, 2004, 422 SCRA 101. “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.”43Id., at p. 116. 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 _______________ 42 G.R. No. 138660, February 5, 2004, 422 SCRA 101. 43 Id., at p. 116. 203 VOL. 516, FEBRUARY 16, 2007 203 FELS Energy, Inc. vs. Province of Batangas 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.44Municipality of Taguig v. Court of Appeals, G.R. No. 142619, September 13, 2005, 469 SCRA 588, 594-595. 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.45Foronda v. Guerrero, Adm. Case No. 5469, August 10, 2004, 436 SCRA 9, 23. The

rationale against forum shopping is that a party should not be allowed to pur_______________ 44 Municipality of Taguig v. Court of Appeals, G.R. No. 142619, September 13, 2005, 469 SCRA 588, 594-595. 45 Foronda v. Guerrero, Adm. Case No. 5469, August 10, 2004, 436 SCRA 9, 23. 204 204 SUPREME COURT REPORTS ANNOTATED FELS Energy, Inc. vs. Province of Batangas sue 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.46Wee v. Galvez, G.R. No. 147394, August 11, 2004, 436 SCRA 96, 108-109. 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.47Hongkong and Shanghai Banking Corporation Limited v. Catalan, G.R. Nos. 159590 and 159591, October 18, 2004, 440 SCRA 498, 513-514.

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.48Commissioner of Internal Revenue v. Hantex Trading Co., Inc., G.R. No. 136975, March 31, 2005, 454 SCRA 301, 329. 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 _______________ 46 Wee v. Galvez, G.R. No. 147394, August 11, 2004, 436 SCRA 96, 108-109. 47 Hongkong and Shanghai Banking Corporation Limited v. Catalan, G.R. Nos. 159590 and 159591, October 18, 2004, 440 SCRA 498, 513-514. 48 Commissioner of Internal Revenue v. Hantex Trading Co., Inc., G.R. No. 136975, March 31, 2005, 454 SCRA 301, 329. 205 VOL. 516, FEBRUARY 16, 2007 205 FELS Energy, Inc. vs. Province of Batangas

trained in appraising property. Where the judicial mind is left in doubt, it is a sound policy to leave the assessment undisturbed.49Cagayan Robina Sugar Milling Co. v. Court of Appeals, 396 Phil. 830, 840; 342 SCRA 663, 672 (2000). 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.,5080 Misc.2d 1065 (1975). 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.51J. Vitug, CIVIL LAW VOLUME II, PROPERTY,OWNERSHIP, AND ITS MODIFICATIONS, 34 (2003). 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. _______________ 49 Cagayan Robina Sugar Milling Co. v. Court of Appeals, 396 Phil. 830, 840; 342 SCRA 663, 672 (2000). 50 80 Misc.2d 1065 (1975). 51 J. Vitug, CIVIL LAW VOLUME II, PROPERTY,OWNERSHIP, AND ITS MODIFICATIONS, 34 (2003). 206 206 SUPREME COURT REPORTS ANNOTATED FELS Energy, Inc. vs. Province of Batangas 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.”52Rollo (G.R. No. 168557), p. 135. 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 governmentowned 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.”53Id., at p. 142 (Emphasis supplied). _______________ 52 Rollo (G.R. No. 168557), p. 135. 53 Id., at p. 142 (Emphasis supplied). 207 VOL. 516, FEBRUARY 16, 2007 207 FELS Energy, Inc. vs. Province of Batangas 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.54L & L Lawrence Footwear, Inc. v. PCI Leasing and Finance Corporation, G.R. No. 160531, August 30, 2005, 468 SCRA 393, 402. Time and again, the Supreme Court has stated that taxation is the rule and exemption is the exception.55Commissioner of Internal Revenue v. Philippine Long Distance Telephone Company, G.R. No. 140230, December 15, 2005, 478 SCRA 61, 74. 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.56Republic v. City of Kidapawan, G.R. No. 166651, December 9, 2005, 477 SCRA 324, 335, citing SeaLand Service, Inc. v. Court of Appeals, 357 SCRA 441, 444 (2001). 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 _______________ 54 L & L Lawrence Footwear, Inc. v. PCI Leasing and Finance Corporation, G.R. No. 160531, August 30, 2005, 468 SCRA 393, 402. 55 Commissioner of Internal Revenue v. Philippine Long Distance Telephone Company, G.R. No. 140230, December 15, 2005, 478 SCRA 61, 74. 56 Republic v. City of Kidapawan, G.R. No. 166651, December 9, 2005, 477 SCRA 324, 335, citing Sea-Land Service, Inc. v. Court of Appeals, 357 SCRA 441, 444 (2001). 208 208 SUPREME COURT REPORTS ANNOTATED FELS Energy, Inc. vs. Province of Batangas pay for it.57Mactan Cebu International Airport Authority v. Marcos, G.R. No. 120082, September 11, 1996, 261 SCRA 667, 679. 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 governments58CONSTITUTION, Section 25, Article II, and Section 2, Article X. 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.59Republic Act No. 7160, Section 2(a).

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.60Mactan Cebu International Airport Authority v. Marcos, supra note 57, at p. 690. WHEREFORE, the Petitions are DENIED and the assailed Decisions and Resolutions AFFIRMED. SO ORDERED. Ynares-Santiago (Chairperson), Austria-Martinez and Chico-Nazario, JJ., concur. Petitions denied, assailed decisions and resolutions affirmed. Note.—Elsewhere stated, taxation is the rule, exemption therefrom is the exception. (Paseo Realty & Development Corporation vs. Court of Appeals, 440 SCRA 235 [2004]) [FELS Energy, Inc. vs. Province of Batangas, 516 SCRA 186(2007)]

[No. 6295. September 1,1911.] THE UNITED STATES, plaintiff and appellee, vs. IGNACIO CARLOS, defendant and appellant. ELECTRICITY; UNLAWFUL USE OF ELECTRIC CURRENT; LARCENY.—A person to whom an electric light company furnishes electric current for lighting purposes, and who, by means of a "jumper," uses electricity which does not pass through the meter installed f or the purpose of measuring the current used, thus depriving the company of such electric current, is guilty of larceny. APPEAL from a judgment of the Court of First Instance of Manila. Lobingier, J. The facts are stated in the opinion of the court. A. D. Gibbs, for appellant. Acting Attorney-General Harvey, for appellee. PER CURIAM: The information filed in this case is as follows: "The undersigned accuses Ignacio Carlos of the crime of theft, committed as follows: "That on, during, and between the 13th day of February, 1909, and the 3rd day of March, 1910, in the city of Manila, Philippine Islands, the said Ignacio Carlos, with intent of gain and without violence or intimidation against the person or force against the thing, did then and there, willfully, unlawfully, and feloniously, take, steal, and carry away two thousand two hundred and seventy-three (2,273) kilowatts of electric current, of the value of nine hundred and nine (909) pesos and twenty (20) cents Philippine currency, the property of the Manila Electric Railroad and Light Company, a corporation doing business in the Philippine Islands, without the consent of the

owner thereof; to the damage and prejudice of the said Manila Electric Railroad and Light Company in the said sum of nine hundred and nine (909) pesos and twenty (20) cents Philippine currency, equal to and the equivalent of 4,546 pesetas Philippine currency. All contrary to law. (Sgd.) "L. M. SOUTHWORTH, "Prosecuting Attorney. 554 554 PHILIPPINE REPORTS ANNOTATED United States vs. Carlos. "Subscribed and sworn to before me this 4th day of March, 1910, in the city of Manila, Philippine Islands, by L. M. Southworth, prosecuting attorney for the city of Manila. (Sgd.) "CHARLES S. LOBINGIER, "Judge, First Instance. "A preliminary investigation has heretofore been conducted in this case, under my direction, having examined the witnesses under oath, in accordance with the provisions of section 39 of Act No. 183 of the Philippine Commission, as amended by section 2 of Act No. 612 of the Philippine Commission. (Sgd.) "L. M. SOUTHWORTH, "Prosecuting Attorney. "Subscribed and sworn to before me this 4th day of March, 1910, in the city of Manila, Philippine Islands, by L. M. Southworth, prosecuting attorney for the city of Manila. (Sgd.) "CHARLES S. LOBINGIER, "Judge, First Instance"

A warrant for the arrest of the defendant was issued by the Honorable J. C. Jenkins on the 4th of March and placed in the hands of the sheriff. The sheriff's return shows that the defendant gave bond for his appearance. On the 14th of the same month counsel for the defendant demurred to the complaint on the following grounds: "1. That the court has no jurisdiction over the person of the accused nor of the offense charged because the accused has not been accorded a preliminary investigation or examination as required by law and no court, magistrate, or other competent authority has determined from a sworn complaint or evidence adduced that there is probable cause to believe that a crime has been committed, or that this defendant has committed any crime. "2. That the facts charged do not constitute a public offense." 555 VOL. 21, SEPTEMBER 1, 1911. 555 United States vs. Carlos. The demurrer was overruled on the same day and the defendant having refused to plead, a plea of not guilty was entered by direction of the court for him and the trial proceeded. After due consideration of all the proofs presented and the arguments of counsel the trial court f ound the def endant guilty of the crime charged and sentenced him to one year eight months and twenty-one days' presidio correccional, to indemnify the offended party, The Manila Electric Railroad and Light Company, in the sum of P865.26, to the corresponding subsidiary imprisonment in case of insolvency

and to the payment of the costs. From this judgment the defendant appealed and makes the following assignments of error: "I. "The court erred in overruling the objection of the accused to the jurisdiction of the court, because he was not given a preliminary investigation as required by law, and in overruling his demurrer for the same reason. "II. "The court erred in declaring the accused to be guilty, in view of the evidence submitted. "III. "The court erred in declaring that electrical energy may be stolen. "IV. "The court erred in not declaring that the plaintiff consented to the taking of the current. "V. "The court erred in finding the accused guilty of more than one offense. "VI. "The court erred in condemning the accused to pay P865.26 to the electric company as damages." 556 556 PHILIPPINE REPORTS ANNOTATED United States vs. Carlos. Exactly the same question as that raised in the first assignment of error was, after a thorough examination and due

consideration, decided adversely to appellant's contention in the case of U. S. vs. Grant and Kennedy (18 Phil. Rep., 122). No sufficient reason is presented why we should not follow the doctrine enunciated in that case. The question raised in the second assignment of error is purely one of fact. Upon this point the trial court said: "For considerably more than a year previous to the filing of this complaint the accused had been a consumer of electricity furnished by the Manila Electric Railroad and Light Company for a building containing the residence of the accused and three other residences, and which was equipped, according to the defendant's testimony, with thirty electric lights. On March 15, 1909, the representatives of the company, believing that more light was being used than their meter showed, installed an additional meter (Exhibit A) on a pole outside of defendant's house, and both it and the meter (Exhibit B) which had been previously installed in the house were read on said date. Exhibit A read 218 kilowatt hours; Exhibit B, 745 kilowatt hours. On March 3, 1910, each was read again, Exhibit A showing 2,718 kilowatt hours and Exhibit B, 968. It is undisputed that the current which supplied the house passed through both meters and the city electrician testifies that each meter was tested on the date of the last reading and was "in good condition." The result of this registration therefore is that while the outside meter (Exhibit A) showed a consumption in defendant's building of 2,500 kilowatt hours of electricity, the inside meter (Exhibit B) showed but 223 kilowatt hours. In other words the actual consumption, according to the outside meter, was more than ten times as great as that registered by the one inside. Obviously this difference could not be due to

normal causes, for while the electrician called by the defense (Lanusa) testifies to the possibility of a difference between two such meters, he places the extreme limit of such difference between them at 5 per cent. Here, as we have seen, the difference is more than 900 per 557 VOL. 21, SEPTEMBER 1, 1911. 557 United States vs. Carlos. cent. Besides, according to the defendant's electrician, the outside meter should normally run faster, while according to the test made in this case the inside meter (Exhibit B) ran the faster. The city electrician also testifies that the electric current could have been deflected from the inside meter by placing thereon a device known as a 'jumper' connecting the two outside wires, and there is other testimony that there were marks on the insulation of the meter Exhibit B which showed the use of such a device. There is further evidence that the consumption of 223 kilowatt hours, registered by the inside meter would not be a reasonable amount f or the number of lights installed in defendant's building during the period in question, and the accused f ails to explain why he should have had thirty lights installed if he needed but four or five. "On the strength of this showing a search warrant was issued for the examination of defendant's premises and was duly served by a police officer (Hartpence). He was accompanied at the time by three employees of the Manila Electric Railroad and Light Company, and he found there the accused, his wife and son, and perhaps one or two others. There is a sharp

conflict between the several spectators on some points but on one there is no dispute. All agree that the 'jumper' (Exhibit C) was found in a drawer of a small cabinet in the room of defendant's house where the meter was installed and not more than 20 feet therefrom. In the absence of a satisf actory explanation this constituted possession on defendant's part, and such possession, under the Code of Civil Procedure, section 334 (10), raises the presumption that the accused was the owner of a device whose only use was to deflect the current from the meter. "Is there any other 'satisfactory explanation' of the 'jumper's' presence? The only one sought to be offered is the statement by the son of the accused, a boy of twelve years, that he saw the 'jumper' placed there by the witness Porter, an employee of the Light Company. The boy is the only witness who so testifies and Porter himself squarely denies it. We can not agree with counsel for the defense 558 558 PHILIPPINE REPORTS ANNOTATED United States vs. Carlos. that the boy's interest in the outcome of this case is less than that of the witnesses for the prosecution. It seems to us that his natural desire to shield his father would far outweigh any interest such an employee like Porter would have and which, at most, would be merely pecuniary. "There is, however, one witness whom so far as appears, has no interest in the matter whatsoever. This is officer Hartpence, who executed the search warrant. He testifies that after

inspecting other articles and places in the building as he and the other spectators, including the accused, approached the cabinet in which the 'jumper' was found, the officer's attention was called to the defendant's appearance and the former noticed that the latter was becoming nervous. Where the only two witnesses who are supposed to know anything of the matter thus contradict each other this item of testimony by the officer is of more than ordinary significance; for if, as the accused claims, the 'jumper' was placed in the cabinet for the first time by Porter there would be no occasion for any change of demeanor on the part of the accused. We do not think that the officer's declination to wait until defendant should secure a notary public shows bias. The presence of such an official was neither required nor authorized by law and the very efficacy of a search often depends upon its swiftness. "We must also agree with the prosecuting attorney that the attending circumstances do not strengthen the story told by the boy; that the latter would have been likely to call out at the time he saw the 'jumper' being placed in the drawer, or at least directed his father's attention to it immediately instead of waiting, as he says, until the latter was called by the officer. Finally, to accept the boy's story we must believe that this company or its representatives deliberately conspired not merely to lure the defendant into the commission of a crime but to fasten upon him a crime which he did not commit and thus convict an innocent man by perjured evidence. This is a much more serious charge than that contained in the complaint and should be supported 559

VOL. 21, SEPTEMBER 1, 1911. 559 United States vs. Carlos. by very strong corroborating circumstances which we do not find here. We are, accordingly, unable to consider as satisfactory defendant's explanation of the 'jumper's' presence. "The only alternative is the conclusion that the 'jumper' was placed there by the accused or by some one acting for him and that it was the instrument by which the current was deflected from the meter Exhibit B and the Light Company deprived of its lawful compensation." After a careful examination of the entire record we are satisfied beyond peradventure of a doubt that the proofs presented fully support the facts as set forth in the foregoing finding. Counsel f or the appellant insists that only corporeal property can be the subject of the crime of larceny, and in support of this proposition cites several authorities for the purpose of showing that the only subjects of larceny are tangible, movable, chattels, something which could be taken in possession and carried away, and which had some, although trifling, intrinsic value, and also to show that electricity is an unknown force and can not be a subject of larceny. In the case of U. S. vs. Genato (15 Phil. Rep., 170) the defendant, the owner of the store situated at No. 154 Escolta, Manila, was using a contrivance known as a "jumper" on the electric meter installed by the Manila Electric Railroad and Light Company. As a result of the use of this "jumper" the meter, instead of making one revolution in every f our seconds, registered one in seventy-seven seconds, thereby reducing the current approximately 95 per cent. Genato was charged in the

municipal court with a violation of a certain ordinance of the city of Manila, and was sentenced to pay a fine of P200. He appealed to the Court of First Instance, was again tried and sentenced to pay the same fine. An appeal was taken from the judgment of the Court of First Instance to the Supreme Court on the ground that the ordinance in question was null and void. It is true 560 560 PHILIPPINE REPORTS ANNOTATED United States vs. Carlos. that the only question directly presented was that of the validity of the city ordinance. The court, after holding that said ordinance was valid, said: "Even without them (ordinances), the right of ownership of electric current is secured by articles 517 and 518 of the Penal Code; the application of these articles in cases of substraction of gas, a fluid used for lighting, and in some respects resembling electricity, is confirmed by the rule laid down in the decisions of the supreme court of Spain January 20, 1887, and April 1, 1897, construing and enforcing the provisions of articles 530 and 531 of the penal code of that country, articles identical with articles 517 and 518 of the code in force in these Islands." Article 517 of the Penal Code above referred to reads as follows: "The following are guilty of larceny:

" (1) Those who with intent of gain and without violence or intimidation against the person, or force against things, shall take another's personal property without the owner's consent." And article 518 fixes the penalty for larceny in proportion to the value of the personal property stolen. It is true that electricity is "no longer, as formerly, regarded by electricians as a fluid, but its manifestations and effects, like those of gas, may be seen and felt. The true test of what is a proper subject of larceny seems to be not whether the subject is corporeal or incorporeal, but whether it is capable of appropriation by another than the owner. It is well-settled that illuminating gas may be the subject of larceny, even in the absence of a statute so providing. (Decisions of supreme court of Spain, January 20, 1887, and April 1, 1897, supra; also (England) Queen vs. Firth, L. R. 1 C. C., 172, 11 Cox C. C., 234; Queen vs. White, 3 C. & K, 363, 6 Cox C. C., 213; Woods vs. People, 222 111., 293, 7 L. R. A., 520; Commonwealth vs. Shaw, 4 Allen (Mass.), 308; State vs. Wellman, 34 Minn., 221, N. W. Rep., 385, and 25 Cyc., p. 12, note 10.) 561 VOL. 21, SEPTEMBER 1, 1911. 561 United States vs. Carlos. In the case of Commonwealth vs. Shaw, supra, the court, speaking through Chief Justice Bigelow, said: "There is nothing in the nature of gas used for illuminating purposes which renders it incapable of being feloniously taken and carried away. It is a valuable article of merchandise,

bought and sold like other personal property, susceptible of being severed from a mass or larger quantity, and of being transported from place to place. In the present case it appears that it was the property of the Boston Gas Light Company; that it was in their possession by being confined in conduits and tubes which belonged to them, and that the defendant severed a portion of that which was in the pipes of the company by taking it into her house and there consuming it. All this being proved to have been done by her secretly and with intent to deprive the company of their property and to appropriate it to her own use, clearly constitutes the crime of larceny." Electricity, the same as gas, is a valuable article of merchandise, bought and sold like other personal property and is capable of appropriation by another. So no error was committed by the trial court in holding that electricity is a subject of larceny. It is urged in support of the fourth assignment of error that if it be true that the appellant did appropriate to his own use the electricity as charged he can not be held guilty of larceny for any part of the electricity thus appropriated, after the first month, for the reason that the complaining party, the Manila Electric Railroad and Light Company, knew of this misappropriation and consented thereto. The outside meter was installed on March 15, 1909, and read 218 kilowatt hours. On the same day the inside meter was read and showed 745 kilowatt hours. Both meters were again read on March 3, 1910, and the outside one showed 2,718 kilowatt hours while the one on the inside only showed 968, the difference in consumption during this time being 2,277

kilowatt hours. The taking of this current continued over a period of one year, less twelve days. 562 562 PHILIPPINE REPORTS ANNOTATED United States vs. Carlos. Assuming that the company read both meters at the end of each month; that it knew the defendant was misappropriating the current to that extent; and that it continued to furnish the current, thereby giving the defendant an opportunity to continue the misappropriation, still, we think, that the defendant is criminally responsible for the taking of the whole amount, 2,277 kilowatt hours. The company had a contract with the defendant to furnish him with current for lighting purposes. It could not stop the misappropriation without cutting off the current entirely. It could not reduce the current so as to just furnish sufficient for the lighting of two, three, or five lights, as claimed by the defendant that he used during the most of this time, but the current must always be sufficiently strong to furnish current for the thirty lights, at any time the defendant desired to use them. There is no pretense that the accused was solicited by the company or any one else to commit the acts charged. At most there was a mere passive submission on the part of the company that the current should be taken and no indication that it wished it to be taken, and no knowledge by the defendant that the company wished him to take the current, and no mutual understanding between the company and the defendant, and no measures of inducement of any kind were employed by the

company for the purpose of leading the defendant into temptation, and no preconcert whatever between him and the company. The original design to misappropriate this current was formed by the defendant absolutely independent of any acts on the part of the company or its agents. It is true, no doubt, as a general proposition, that larceny is not committed when the property is taken with the consent of its owner. It may be difficult in some instances to determine whether certain acts constitute, in law, such "consent." But under the facts in the case at bar it is not difficult to reach a conclusion that the acts performed by the plaintiff company did not constitute a consent on its part that the defendant take its property. We have been unable to find a well563 VOL. 21, SEPTEMBER 1, 1911. 563 United States vs. Carlos. considered case holding a contrary opinion under similar facts, but, there are numerous cases holding that such acts do not constitute such consent as would relieve the taker of criminal responsibility. The fourth assignment of error is, therefore, not well founded. It is also contended that since the "jumper" was not used continuously, the defendant committed not a single offense but a series of offenses. It is, no doubt, true that the defendant did not allow the "jumper" to remain in place continuously for any number of days as the company inspected monthly the inside meter. So the "jumper" was put on and taken off at least monthly, if not daily, in order to avoid detection, and while the

"jumper" was off the defendant was not misappropriating the current. The complaint alleged that the defendant did on, during, and between the 13th day of February, 1909, and the 3rd of March, 1910, willfully, unlawfully, and feloniously take, steal, and carry away 2,277 kilowatts of electric current of the value of P909. No demurrer was presented against this complaint on the ground that more than one crime was charged. The Government had no opportunity to amend or correct this error, if error at all. In the case of U. S. vs. Macaspac (12 Phil. Rep., 26), the defendant received from one Joaquina Punu the sum of P31.50, with the request to deliver it to Marcelina Dy-Oco. The defendant called upon Marcelina, but instead of delivering the said amount she asked Marcelina for P30 in the name of Joaquina who had in no way authorized her to do so. Marcelina gave her P30, believing that Joaquina had sent for it. Counsel for the defendant insisted that the complaint charged his client with two different crimes of estafa in violation of section 11 of General Orders, No. 58. In disposing of this question this court said: "The said defect constitutes one of the dilatory pleas indicated by section 21, and the accused ought to have raised the point before the trial began. Had this been done, the complaint might have been amended -in time, because it is merely a defect of form easily remedied. 564 564 PHILIPPINE REPORTS ANNOTATED United States vs. Carlos.

* * * Inasmuch as in the first instance the accused did not make the corresponding dilatory plea to the irregularity of the complaint, it must be understood that she has waived such objection, and is not now entitled to raise for the first time any question in reference thereto when submitting to this court her assignment of errors. Apart from the fact that the defense does not pretend that any of the essential rights of the accused have been injured, the allegation of the defect above alluded to, which in any case would only affect the form of the complaint, can not justify a reversal of the judgment appealed from, according to the provisions of section 10 of General Orders, No. 58." In the case at bar it is not pointed out wherein any of the essential rights of the defendant have been prejudiced by reason of the fact that the complaint covered the entire period. If twelve distinct and separate complaints had been filed against the defendant, one for each month, the sum total of the penalties imposed might have been very much greater than that imposed by the court in this case. The covering of the entire period by one charge has been beneficial, if anything, and not prejudicial to the rights of the defendant. The prosecuting attorney elected to cover the entire period with one charge and the accused having been convicted for this offense, he can not again be prosecuted for the stealing of the current at any time within that period. Then, again, we are of the opinion that the charge was properly laid. The electricity was stolen from the same person, in the same manner, and in the same place. It was substantially one continuous act, although the "jumper" might have been removed and replaced daily or monthly. The defendant was moved by one impulse to appropriate to his own

use the current, and the means adopted by him for the taking of the current were in the execution of a general fraudulent plan. "A person stole gas for the use of a manufactory by means of a pipe, which drew off the gas from the main without allowing it to pass through the meter. The gas from this pipe was burnt every day, and turned off at 565 VOL. 21, SEPTEMBER 1, 1911. 565 United States vs. Carlos. night. The pipe was never closed at its junction with the main, and consequently always remained full of gas. It was held, that if the pipe always remained full, there was, in fact, a continuous taking of the gas and not a series of separate takings. It was held also that even if the pipe had not been kept full, the taking would have been continuous, as it was substantially all one transaction." (Regina vs. Firth, L. R., 1 C. C., 172; 11 Cox C. C., 234. Cited on p. 758 of Wharton's Criminal Law, vol. 1, 10th ed.) The value of the electricity taken by the defendant was found by the trial court to be P865.26. This finding is fully in accordance with the evidence presented. So no error was committed in sentencing the defendant to indemnify the company in this amount, or to suffer the corresponding subsidiary imprisonment in case of insolvency. The judgment being strictly in accordance with the law and the merits of the case, same is hereby affirmed, with costs against the appellant. Arellano, C. J., Torres, Mapa, and Carson, JJ.

MORELAND, J., dissenting: I feel myself compelled to dissent because, in my judgment, there is no evidence before this court, and there was none bef ore the court below, establishing the most essential element of the crime of larceny, namely, the taking without the consent of the owner. As I read the record, there is no evidence showing that the electricity alleged to have been stolen was taken without the consent of the complaining company. The fact is that there was not a witness who testified for the prosecution who was authorized in law, or who claimed to be authorized in fact, to testify as to whether or not the alleged taking of the electricity was without the consent of the company or, even, that said company had not been paid for all electricity taken. Not one of them was, as a matter of law, competent to testify to either of those facts. Not one of them was an officer of the company. The leading witness for the people, Kay, was only an inspector of electric lights. Another, McGeachim, was 566 566 PHILIPPINE REPORTS ANNOTATED United States vs. Carlos. an electrical engineer in the employ of the company. Another, Garcia, was an electrician of the company. These witnesses all confined their testimony to technical descriptions of meters, their nature and function, of electric light wires, the wiring of defendant's house, the placing of a meter therein, the placing of a meter outside of the house in order to detect, by comparing the readings of the two, .whether the accused was actually using more electricity than the house meter registered, the

discovery that more electricity was being used than said meter registered, and of the finding of a "jumper" in defendant's possession. One of these witnesses testified also that he had suspected for a long time that the accused was "stealing" electricity and that later he was "positive of it." In order to sustain a charge of larceny under section 517 of the Penal Code, it is necessary to prove that there was a taking without the consent of the owner. This is unquestioned. The question is: Has the prosecution proved that fact? Has it proved that the electricity alleged to have been stolen was used without the consent of the company? Has it proved that the accused did not have a right to use electricity whether it went through the meter or not? Has it proved, even, that the accused did not have a right to use a "jumper?" Has it been proved that the company has not been fully paid for all the electricity which defendant used, however obtained? Not one of these facts has been proved. The only way to determine those questions was to ascertain the relations which existed between the accused and the company at the time the electricity alleged to have been stolen was used by the accused. There was certainly some relation, some contract, either express or implied, between the company and the accused or the company would not have been supplying him the electric current. What was that relation, that contract? No one can possibly tell by reading the record. There is not a single word in all the evidence even referring to it. Not one of the people's witnesses mentioned it. Not one of them, very likely, knew what it really was. The relation which a cor567 VOL. 21, SEPTEMBER 1, 1911. 567

United States vs. Carlos. poration bears to private persons for whom they are rendering service is determined by the corporation itself through the acts of its officials, and not by its employees. While an employee might, as the act of a servant, have caused the contract between the company and the accused to be signed by the accused, it was nevertheless a contract determined and prepared by the company through its officers and not one made by the employee; and unless the employee actually knew the terms of the contract signed by the accused, either by having read it, if in writing, or by having heard it agreed upon, if verbal, he would not be competent to testify to its terms except rendered so by admission of the party to be charged by it. It nowhere appears that any of the witnesses for the prosecution had any knowledge whatever of the terms of the contract between the company and the accused. It does not appear that any of them had ever seen it or heard it talked about by either party thereto. The company has offered no testimony whatever on that matter. The record is absolutely silent on that point. This being true, how can we say that the accused committed a crime? How can we say that a given act is criminal unless we know the relation of the parties to whom the act refers? Are we to presume an act wrong when it may be right? Are we to say that the accused committed a wrong when we do not know whether he did or not? If we do not know the arrangements under which the company undertook to furnish electricity to the defendant, how do we know that the accused has not lived up to them? If we do not know their contract, how do we know that the accused violated it?

It may be urged that the very fact that a meter was put in by the company is evidence that it was for the company's protection. This may be true. But is it not just as proper to presume that it was put in for defendant's protection also? Besides, it does not appear that the company really put in the meter, nor does it even appear to whom it belonged. No more does it appear on whose 568 568 PHILIPPINE REPORTS ANNOTATED United States vs. Carlos. application it was put in. The witness who installed the meter in defendant's house did not say to whom it belonged and was unable to identify the one presented by the prosecution on the trial as the one he installed. But however these things may be, courts are not justified in "assuming" men into state prison. The only inferences that courts are justified in drawing are those springing from facts which are not only proved but which are of themselves sufficient to warrant the inference. The mere fact, if it is a fact, that the company placed a meter in defendant's house is not sufficient to sustain the conclusion in a criminal case that the defendant did not have the right to use electricity which did not pass through the meter. Much less would it warrant the inference that, in so using electricity, the defendant feloniously and criminally took, stole, and carried it away without the consent of the company. An accused is presumed innocent until the contrary is proved. His guilt must be established beyond a reasonable doubt. It is incumbent on the state to prove every fact which is essential to the guilt of

the accused, and to prove every such fact as though the whole issue rested on it. The evidence of the prosecution must exclude every reasonable hypothesis of innocence. If the facts proved are as consistent with his innocence as with his guilt, he can not be convicted. But what was the necessity of all this uncertainty? What was the force which prevented the company from proving clearly and explicitly the contract between itself and the accused? What prevented it from proving clearly, explicitly, and beyond all cavil that the electricity was taken (used) without its consent? Why did not some competent official testify? Why did the company stand by wholly silent? Why did it leave its case to be proved by servants who were competent to testify, and who did actually testify, so far as legal evidence goes, only in relation to technical matters relating to meters and electric currents? Why did the prosecution place upon this court the necessity 569 VOL. 21, SEPTEMBER 1, 1911. 569 United States vs. Carlos. of deducing and inferring and concluding relative to the lack of consent of the company when a single word from the company itself would have avoided that necessity? We have only one answer to all these questions: We do not know. In the case of Bubster vs. Nebraska (33 Neb., 663), the accused was charged with the larceny of a buggy of the value of $75. He was found guilty. On appeal the judgment of conviction was reversed, the court saying:

"There are two serious objections to this verdict. First, the owner of the buggy, although apparently within reach of the process of the court, was not called as a witness. Her son-inlaw, who resided with her, testifies that he did not give his consent, and very freely testifies that his; mother-in-law did not. She was within reach of the process of the court and should have been called as a witness to prove her nonconsent. "The rule is very clearly stated in note 183, volume 1, Phillips on Evidence (4th Am. ed.). A conviction of larceny ought not to be permitted or sustained unless it appears that the property was taken without the consent of the owner, and the owner himself should be called, particularly in a case like that under consideration, when the acts complained of may be consistent with the utmost good faith. There is a failure of proof therefore on this point." In the case of State vs. Moon (41 Wis., 684), the accused was charged with the larceny of a mare. He was convicted. On appeal the court reversed the judgment of conviction, saying: "In State vs. Morey (2 Wis., 494) it was held that in prosecutions f or larceny, if the owner of the property alleged to have been stolen is known, and his attendance as a witness can be procured, his testimony that the property was taken from him without his consent is indispensable to a conviction. This is upon the principle that his testimony is the primary and best evidence that the property was taken without his consent, and hence, that secondary evi570 570 PHILIPPINE REPORTS ANNOTATED United States vs. Carlos.

dence of the fact cannot be resorted to, until the prosecution shows its inability, after due diligence, to procure the attendance of the owner." In volume 1, Phillips on Evidence (5th Am. ed., note 183, sec. 635), the author says: "In all cases, and especially in this, the larceny itself must be proved by the best evidence the nature of the case admits. * * * This should be by the testimony of the owner himself if the property was taken from his immediate possession, or if from the actual possession of another, though a mere servant or child of the owner, that other must be sworn, so that it may appear that the immediate possession was violated, and this, too, without the consent of the person holding it. Where nonconsent is an essential ingredient in the offense, as it is here, direct proof alone, from the person whose nonconsent is necessary, can satisfy the rule. You are to prove a negative, and the very person who can swear directly to the necessary negative must, if possible, always be produced. (Citing English authorities.) Other and inferior proof cannot be resorted to till it be impossible to procure this best evidence. If one person be dead who can swear directly to the negative, and another be alive who can yet swear to the same thing, he must be produced. In such cases, mere presumption, prima facie or circumstantial evidence is secondary in degree, and cannot be used until all the sources of direct evidence are exhausted." I quote these authorities not because I agree with the doctrine as therein set forth. I quote them because there is a principle inherent in the doctrine laid down which is recognized by all courts as having value and effect. It is this: Failure to call an

available witness possessing peculiar knowledge concerning facts essential to a party's case, direct or rebutting, or to examine such witness as to facts covered by his special knowledge, especially if the witness be naturally favorable to the party's contention, relying instead upon the evidence of witnesses less familiar with the matter, gives rise to an inference, sometimes denomi571 VOL. 21, SEPTEMBER 1, 1911. 571 United States vs. Carlos. nated a strong presumption of law, that the testimony of such uninterrogated witness would not sustain the contention of the party. Where the party himself is the one who fails to appear or testify, the inference is still stronger. The nonappearance of a litigant or his failure to testify as to facts material to his case and as to which he has especially full knowledge creates an inference that he refrains from appearing or testifying because the truth, if made to appear, would not aid his contention; and, in connection with an unequivocal statement on the other side, which if untrue could be disproved by his testimony, often furnishes strong evidence of the fact asserted. As to this proposition the authorities are substantially uniform. They differ only in the cases to which the principles are applied. A substantially full list of the authorities is given in 16 Cyclopedia of Law and Procedure (pp. 1062 to 1064, inclusive) from which the rules as stated above are taken. This court has recognized the value of this principle and has permitted it strongly to influence its view of the evidence in

certain cases. In the case of United States vs. Magsipoc (20 Phil. Rep., 604) one of the vital facts which the prosecution was required to establish in order to convict the accused was that a certain letter which the accused alleged he mailed to his daughter, who was attending a boarding school in Iloilo, and which the daughter testified she had received, had not really been sent by the accused and received by the daughter but, instead, had been purloined by him from the post-office after he had duly placed it therein and after it had been taken into the custody and control of the postal authorities. It was conceded that the directress of the boarding school which the daughter was at the time attending knew positively whether the daughter had received the letter in question or not. This court held that, in weighing the evidence, it would take into consideration the failure of the prosecution to produce the directress of the school as a witness in the case, she being the only person, apart from the daughter herself, who really knew the fact. 572 572 PHILIPPINE REPORTS ANNOTATED United States vs. Carlos. Another of those cases was that of U. S. vs. Casipong (20 Phil. Rep., 178) charged with maintaining a concubine outside his home with public scandal. To prove the scandalous conduct charged and its publicity, the prosecution introduced testimony, not of witnesses in the vicinity where the accused resided and where the scandal was alleged to have occurred, but those from another barrio. No witness living in the locality where the public scandal was alleged to have occurred was produced.

This court, in the decision of that case on appeal, allowed itself, in weighing the evidence of the prosecution, to be strongly influenced by the failure to produce as witnesses persons who, if there had really been public scandal, would have been the first, if not the only ones, to know it. The court said: "In this case it would have been easy to have submitted abundant evidence that Juan Casipong forsook his lawful wife and lived in concubinage in the village of Bolocboloc with his paramour Gregoria Hongoy, for there would have been an excess of witnesses to testify regarding the actions performed by the defendants, actions not of isolated occurrence but carried on for many days in sight of numerous residents scandalized by their bad example. But it is impossible to conclude from the result of the trial that the concubinage with scandal charged against the defendants has been proved, and therefore conviction of the alleged concubine Gregoria Hongoy is not according to law." In the case at bar the question of the consent of the company to the use of the electricity was the essence of the charge. The defendant denied that he had taken the electricity without the consent of the company. The prosecution did not present any officer of the corporation to offset this denial and the company itself, although represented on the trial by its own private counsel, did not produce a single witness upon that subject. In the case of Standard Oil Co. vs. State (117 Tenn., 618), the court (p. 672) said: "But the best evidence of what his instructions to Holt were and the information he had of the transaction at the 573

VOL. 21, SEPTEMBER 1, 1911. 573 United States vs. Carlos. time it was made were the letters which he wrote to Holt directing him to go to Gallatin, and the daily and semiweekly reports made to him by Holt and Rutherf ord of what was done there, which were not produced, although admitted to be then in his possession. He was aware of the value of such evidence, as he produced a copy of his letter to Holt, condemning the transaction, as evidence in behalf of the plaintiffs in error. The presumption always is that competent and pertinent evidence within the knowledge or control of a party which he withholds is against his interest and insistence." (Dunlap vs. Haynes, 4 Heisk., 476; Kirby vs. Tallmadge, 160 U. S., 379, 16 Sup. Ct., 349, 40 L. Ed., 463; Pacific Constr. Co. vs. B. W. Co., 94 Fed,, 180, 36 C. C. A., 153.) In the case of Succession of Drysdale (127 La., 890), the court held: "When a will presented for probate is attacked on the ground that it is a forgery, and there are pertinent facts relating to the will in the possession of the proponent, and he repeatedly fails to testify when his testimony could clear up many clouded and doubtful things, his failure to testify casts suspicion upon the will, especially when the one asking for the probate of the will is a principal legatee." In the case of Belknap vs. Sleeth (77 Kan., 164), the court (p. 172) said: "What effect should such conduct have in the consideration of a case, where the successful party thus living beyond the

jurisdiction. of the court has refused to testify in a material matter in behalf of the opposing party? It must be conceded that the benefit of all reasonable presumptions arising from his refusal should be given to the other party. The conduct of a party in omitting to produce evidence peculiarly within his knowledge frequently affords occasion for presumptions against him. (Kirby vs. Tallmadge, 160 U. S., 379, 16 Sup. Ct., 349, 14 L. Ed., 463.) This rule has been often applied where a party withholds evidence within his exclusive possession and the circumstances are such as to impel an honest man to produce the testimony. 574 574 PHILIPPINE REPORTS ANNOTATED United States vs. Carlos. In this case the witness not only failed but refused to testify concerning material matters that must have been within his knowledge." In the case of Heath vs. Waters (40 Mich., 457), it was held that: "It is to be presumed that when a witness refuses to explain what he can explain, the explanation would be to his prejudice." In the case of Frick vs. Barbour (64 Pa. St., 120, 121), the court said: "It has been more than once said that the testimony in a case often consists in what is not proved as well as in what is proved. Where withholding testimony raises a violent presumption that a fact not clearly proved or disproved exists,

it is not error to allude to the fact of withholding, as a circumstance strengthening the proof. That was all that was done here." In the case of Funda vs. St. Paul City Railway Co. (71 Minn., 438), the court held: "The defendant having omitted to call its motorman as a witness, although within reach and available, the court was, under the circumstances, justified in instructing the jury that, in weighing the effect of the evidence actually introduced, they were at liberty to presume that the testimony of the motorman, if introduced, would not have been favorable to the cause of defendant." In the case of Gulf, C. & S. F. Ry. Co. vs. Ellis (54 Fed. Rep., 481), the circuit court of appeals held that: "Failure to produce the engineer as a witness to rebut the inferences raised by the circumstantial evidence would justify the jury in assuming that his evidence, instead of rebutting such inferences, would support them." In Wigmore on Evidence (vol. 1, sec. 285), it is said: "The consciousness indicated by conduct may be, not an indefinite one affecting the weakness of the cause at large, but a specific one concerning the defects of a particular element in the cause. The failure to bring before the tri575 VOL. 21, SEPTEMBER 1, 1911. 575 United States vs. Carlos. bunal some circumstance, document, or witness, when either the party himself or his opponent claims that the facts would

thereby be elucidated, serves to indicate, as the most natural inference, that the party fears to do so, and this fear is some evidence that the circumstance or document or witness, if brought, would have exposed facts unfavorable to the party. These inferences, to be sure, cannot fairly be made except upon certain conditions; and they are also open always to explanation by circumstances which make some other hypothesis a more natural one than the party's fear of exposure. But the propriety of such an inference in general is not doubted. The nonproduction of evidence that would naturally have been produced by an honest and therefore fearless claimant permits the inference that its tenor is unfavorable to the party's cause * * *." Continuing this same subject the same author says: "At common law the party-opponent in a civil case was ordinarily privileged from taking the stand (post, sec. 2217); but he was also disqualified; and hence the question could rarely arise whether his failure to testify could justify any inference against him. But since the general abolition both of the privilege and the disqualification (post, secs. 2218, 577), the party has become both competent and compellable like other witnesses; and the question plainly arises whether his conduct is to be judged by the same standards of inference. This question should naturally be answered in the affirmative * * *." (See Aragon Coffee Co. vs. Rogers, 105 Va., 51.) As I stated at the outset, I have been unable to find in the record of this case any proof of legal value showing or tending to show that the electricity alleged to have been stolen was taken or used without the consent of the company. The defendant, therefore, should be acquitted.

There are other reasons why I cannot agree to the conviction of the accused. Even though the accused be found to have committed the acts charged against him, it stands conceded in this case that there is a special law passed 576 576 PHILIPPINE REPORTS ANNOTATED United States vs. Carlos. particularly and especially to meet cases of this very kind, in which the offense is mentioned by name and described in detail and is therein made a misdemeanor and punished as such. It is undisputed and admitted that heretof ore and ever since said act was passed cases such as the one at bar have uniformly and invariably been cognized and punished under said act; and that this is the first attempt ever made in these Islands to disregard utterly the plain provisions of this act, and to punish this class of offenses under the provisions of the Penal Code relating to larceny. The applicability of those provisions is, to say the very least, extremely doubtful, even admitting that they are still in force. Even though originally applicable, these provisions must now be held to be repealed by implication, at least so far as the city of Manila is concerned, by the passage of the subsequent act defining the offense in question and punishing it altogether differently. Moreover, I do not believe that electricity, in the form in which it was delivered to the accused, is susceptible of being stolen under the definition given by the law of these Islands to the crime of larceny.

Concisely, then, I dissent because (a) this court, by its decision in this case, has, in my judgment, disregarded the purpose of the Legislature, clearly expressed; because (b) it has applied a general law, of at least very doubtful application, to a situation completely dealt with, and admittedly so, by a later statute conceived and enacted solely and expressly to cover that very situation; because (c) the court makes such application in spite of the fact that, under the general law, if it is applicable, the crime in hand is a felony while under the later statute it is only a misdemeanor; because (d), in my judgment, the court modifies the definition given by the Legislature to the crime of larceny, which has been the same and has received the same interpretation in this country and in Spain for more than two centuries; because (e) the decision disregards, giving no importance to, a positive statute which is not only the last expression 577 VOL. 21, SEPTEMBER 1, 1911. 577 United States vs. Carlos. of the legislative will on the particular subject in hand, but was admittedly passed for the express purpose of covering the very situation to which the court ref uses to apply it. While the statute referred to is an act of the Municipal Board of the city of Manila, this court has held in a recent case that said board was authorized by the legislature to pass it. Therefore it is an Act of the Legislature of the Philippine Islands. In this dissent I shall assert, and, I think, demonstrate three propositions, to wit:

First. That an electric current is not a tangible thing, a chattel, but is a condition, a state, in which a thing or chattel finds itself; and that a condition or state can not be stolen independently of the thing or chattel of which it is a condition or state. That it is chattels which are subjects of larceny and not conditions. Second. That, even if an electric current is a tangible thing, a chattel, and capable of being stolen, in the case at bar no electric current was taken by the defendant, and therefore none was stolen. The defendant simply made use of the electric current, returning to the company exactly the same amount that he received. Third. That, even if an electric current is a tangible thing, a chattel, and capable of being stolen, the contract between the company and the defendant was one for use and not for consumption; and all the defendant is shown to have done, which is all he could possibly have done, was to make use of a current of electricity and not to take or consume electricity itself. I shall therefore maintain that there is no larceny even though the def endant committed all the acts charged against him. In discussing the question whether, under the law of the Philippine Islands, an electric current is the subject of larceny, I shall proceed upon the theory, universally accepted to-day, that electricity is nothing more or less than energy. As Mr. Meadowcroft says in his A B C of Electricity, in578 578 PHILIPPINE REPORTS ANNOTATED United States vs. Carlos.

dorsed by Mr. Edison, "electricity is a form of energy, or force, and is obtained by transforming some other form of energy into electrical energy." In this I do not forget the theory of the "Electron" which is now being quietly investigated and studied, which seems to tend to the conclusion that there is no difference between energy and matter, and that all matter is simply a manifestation of energy. This theory Is not established, has not been announced by any scientist as proved, and would probably have no effect on the present discussion if it were. Based on this accepted theory I draw the conclusion in the following pages that electricity is not the subject of larceny under the law of the Philippine Islands. Partida 3, title 29, law 4, thus defines "cosas muebles:" "The term muebles is applied to all the things that men can move from one place to another, and all those that can naturally move themselves: those that men can move from one place to another are such as cloths, books, provisions, wine or oil, and all other things like them; and those that can naturally move themselves are such as horses, mules, and the other beasts, and cattle, fowls and other similar things." Partida 5, title 5, law 29, contains the following: "But all the other things which are muebles and are not annexed to the house or do not appertain thereto belong to the vendor and he can take them away and do what he likes with them: such are the wardrobes, casks and the jars not fixed in the ground, and other similar things." Article 517 of the Penal Code, in that portion defining larceny, as charged against the accused in the case at bar, reads:

"ART. 517. The following are guilty of theft: "1. Those who, with intent of gain and without violence or intimidation against the person or force against things, shall take another's personal property (cosas muebles) without the owner's consent." This article of the Penal Code, as is seen, employs pre579 VOL. 21, SEPTEMBER 1, 1911. 579 United States vs. Carlos. cisely the words defined in the Partidas. The definition of the word is clear in the law as written. It is also clear in the law as interpreted. I have not been able to find a writer on Spanish or Roman criminal law who does not say clearly and positively that the only property subject to larceny is tangible movable chattels, those which occupy space, have three dimensions, have a separate and independent existence of their own apart from everything else, and can be manually seized and carried from one place to another. This was the unquestioned theory of the Roman criminal law and it is the undoubted and unquestioned theory of the Spanish criminal law. Nor do I find a writer or commentator on the Spanish or Roman Civil Law who does not define a cosa mueble in the same way. One of the leading commentators of Spain on criminal law writes thus concerning the property subject to robbery and larceny: "Personal property belonging to another.—If robbery consists in the taking of a thing for the purpose and by the means indicated in the article in question, it follows from the very

nature of this class of crimes, that only personal or movable property can be the subject thereof, because none but such property can be the subject of the contrectatio of the Romans; 'Furtum sine contrectatione non fiat,' says Ulpian. The abstraction, the rapine, the taking, and all the analogous terms and expressions used in the codes, imply the necessity that the things abstracted or taken can be carried from one place to another. Hence the legal maxim: Real property 'non contractantur, sed invaduntur.' " (6 Groizard, p. 47.) "The act of taking is what constitutes the contrectatio and the invito domino which all the great ancient and modern jurists consider as the common ingredient (in addition to the fraudulent intention of gain), of the crimes of robbery and theft. From what has been said it follows that the taking, the act of taking without violence or intimidation to the persons, or force upon the things, for the pur580 580 PHILIPPINE REPORTS ANNOTATED United States vs. Carlos. pose of gain and against the will of the owner, is what determines the nature of the crime of theft as defined in paragraph 1 of this section." (6 Groizard, pp. 261, 262.) "The material act of taking is, therefore, an element of the crime which cannot be replaced by any other equivalent element. From this principle important consequences follow which we need not now stop to consider for the reason that in speaking of the crime of robbery we have already discussed the subject at great length. Immovable and incorporeal things

cannot be the subject of theft for the reason that in neither the one or the other is it possible to effect the contrectatio, that is to say, the material act of laying hands on them for the purpose of removing the same, taking the same or abstracting the same. Hence the .legal maxims: 'Furtum non committitur in rebus immobilibus and Res incorporales nec tradi possideri possunt, ita contrectavit nec aufferri.' " (6 Groizard, p. 266.) Criticising an opinion of the supreme court of Spain which held that illuminating gas was a subject of larceny, the same writer says: "The owner of a certain store who had entered into a contract with a gas company whereby he substantially agreed to pay for the consumption of the amount of gas which passed through a meter, surreptitiously placed a pipe which he connected with the branch from the main pipe before it reached the meter and used the same for burning more lights than those for which he actually paid. The supreme court of Madrid convicted the defendant of the crime of estafa but the supreme court of Spain reversed the judgment, holding that he should be convicted of theft. The only reason which the supreme court had for so deciding was that the owner of the store had taken personal property belonging to another without the latter's consent, thereby committing the crime not of estafa but of consummated theft. But in our judgment, considering the sense and import of the section under consideration, it cannot be properly said that the owner of the store took the gas because in order to do this it would have been necessary 581 VOL. 21, SEPTEMBER 1, 1911. 581

United States vs. Carlos. that the said fluid were capable of being taken or transported, in other words, that the contrectatio, the meaning of which we have already sufficiently explained, should have taken place. "Gas is not only intangible and therefore impossible of being the subject of contrectatio, of being seized, removed, or transported from one place to another by the exercise of the means purely natural which man employs in taking possession of property belonging to another, but, by reason of its nature, it is necessary that it be kept in tanks, or that it be transmitted through tubes or pipes which by reason of their construction, or by reason of the building to which the same may be attached, partake of the nature of immovable property. There is no means, therefore, of abstracting gas from a tank, from a tunnel or from a pipe which conveys the fluid to a building, for the purpose of being consumed therein, unless the receptacle containing the same is broken, or the tank or pipe bored, and other tubes or pipes are connected therewith at the point of the opening or fracture by means of which the gas can be conveyed to a place different from that for which it was originally intended. "This exposition, or interpretation, if you choose to call it such, has a further foundation in our old laws which have not been changed but rather preserved in the definition of movable and immovable property given by the Civil Code. According to Law I, Title XVII, Partida II, personal property means those things which live and move naturally by themselves, and those which are neither living nor can naturally move, but which may be removed; and Law IV, Title XXIX, Partida III, defines

personal property as that which man can move or take f rom one place to another, and those things which naturally by themselves can move. Finally, corporeal things, according to Law I, Title III, Partida III, are those which may be the subject of possession with the assistance of the body, and incorporeal those which cannot be physically seized, and cannot be properly possessed. From these definitions it f ollows that unless we do 582 582 PHILIPPINE REPORTS ANNOTATED United States vs. Carlos. violence to the plain language of these definitions, it would be impossible to admit that gas is a corporeal thing, and much less that it is movable property." (6 Groizard, pp. 268, 269.) If the holding that gas, which is unquestionably a physical entity having a separate and independent existence and occupying space, has approached the verge of unstealable property so closely that the ablest of Spanish commentators believes that there is grave danger of the complete destruction of the ancient legislative definition of stealable property by judicial interpretation, what would be said in regard to a decision holding that an electric current is a subject of larceny? It may be well to add just here, although it may be somewhat out of its regular order, what the author above quoted regards was the crime actually committed in the case he was discussing. He says: "For us, for the reasons herein before set out, it would be more in harmony with the principles and legal texts which determine

the nature of the crimes of theft and estafa, to assign the latter designation to the fraudulent act which we have heretofore examined and which substantially consists in the alteration, by means of a fraudulent method, of the system established by an agreement to supply a store with illuminating gas and to determine the amount consumed for lighting and heating and pay its just value. We respect, however, the reasons to the contrary advanced in the hope that the supreme court in subsequent judgments will definitely fix the jurisprudence on the subject. "Nor can the abusive use of a thing determine the existence of the crime under consideration. A bailee or pledgee who disposes of the thing, bail or pledge entrusted to his custody for his own benefit is not guilty of larceny for the reason that both contracts necessarily imply the voluntary delivery of the thing by the owner thereof and a lawful possession of the same prior to the abusive use of it. "Not even a denial of the existence of the bailment or contract of pledge with intent of gain constitutes the crime 583 VOL. 21, SEPTEMBER 1, 1911. 583 United States vs. Carlos. of larceny for the reason that the material act of taking possession of the property without the consent of the owner is lacking." (6 Groizard, p. 269.) That under the Roman and Spanish law property to be the subject of larceny must be a tangible chattel which has a separate independent existence of its own apart from

everything else, which has three dimensions and occupies space so that it may of itself be bodily seized and carried away, is not an open question. That that was also the doctrine of the common law is equally beyond question. In the consideration of this case the great difficulty lies in confusing the appearance with the thing, in confounding the analogy with the things analogous. It is said that the analogy between electricity and real liquids or gas is absolutely complete; that liquids and gases pass through pipes from the place of manufacture to the place of use; and the electric current, in apparently the same manner, passes through a wire from the plant to the lamp; that it is measured by a meter like liquids and gas; that it can be diverted or drawn from the wire in which the manufacturer has placed it, to the light in the possession of another; that a designing and unscrupulous person may, by means of a wire, surreptitiously and criminally transfer from a wire owned by another all the electricity which it contains precisely as he might draw molasses f rom a barrel f or his personal use. And the question is triumphantly put, "how can you escape the inevitable results of this analogy?" The answer is that it is an analogy and nothing more. It is an appearance. The wire from which the electricity was drawn has lost nothing. It is exactly the same entity. It weighs the same, has just as many atoms, arranged in .exactly the same way, is just as hard and just as durable. It is exactly the same thing as it was bef ore it received the electricity, at the time it had it, and after it was withdrawn from it. The difference between a wire before and after the removal of the electricity is simply a difference of condition. Being charged with electricity it had a quality or condition which was capable of being transf erred

584 584 PHILIPPINE REPORTS ANNOTATED United States vs. Carlos. to some other body and, in the course of that transfer, of doing work or performing service. A body in an elevated position is in a condition different from a body at sea level or at the center of the earth. It has the quality of being able to do something, to perform some service by the mere change of location. It has potential energy, measured by the amount of work required to elevate it. The weight or monkey of a pile driver is the same weight when elevated 50 feet in air as it is when it lies on top of the pile 50 feet below, but it has altogether a different quality. When elevated it is capable of working for man by driving a pile. When lying on top of the pile, or at sea level, it has no such quality. The question is, "can you steal that quality?" Two pile drivers, owned by different persons, are located near each other. The one owner has, by means of his engine and machinery, raised his weight to its' highest elevation, ready to deliver a blow. While this owner is absent over night the owner of the other pile driver, surreptitiously and with evil design and intent, unlocks the weight and, by means of some mechanical contrivance, takes advantage of its fall in such a way that the energy thus produced raised the weight of his own pile driver to an elevation of forty feet, where it remains ready, when released, to perform service for him. What has happened? Exactly the same thing, essentially, as happened when the electric charge of one battery is transferred to another. The

condition which was inherent in the elevated weight was transferred to the weight which was not elevated; that is, the potential energy which was a condition or quality of the elevated weight was by a wrongful act transferred to another. But was that condition or quality stolen in the sense that it was a subject of larceny as that crime is defined the world over? Would the one who stole the battery after it had been elevated to the ceiling, or the weight of the pile driver after it had been elevated 50 feet in the air, be guilty of a different offense than if he stole those chattels before such elevation? Not at all. The weight elevated had more value, in a sense, than one not elevabed; and the quality of 585 VOL. 21, SEPTEMBER 1, 1911. 585 United States vs. Carlos. elevation is considered only in fixing value. It has nothing whatever to do with the nature of the crime committed. It is impossible to steal a quality or condition apart from the thing or chattel of which it is a quality or condition. The quality or condition of a thing affects the value of the thing. It is impossible to steal value. The thing, the chattel is that which is stolen. Its quality or condition is that which, with other circumstances, goes to make the value. A mill owner has collected a large amount of water in a dam at such an elevation as to be capable of running his mill for a given time. A neighboring mill owner secretly introduces a pipe in the dam and conveys the water to his own mill, using it for his own benefit. He may have stolen the water, but did he

steal the head, the elevation of the water above the wheel? The fact that the water had a head made it more valuable and that fact would be taken into consideration in fixing the penalty which ought to be imposed for the offense; but it has nothing whatever to do with determining the nature of the offense of which the man would be charged. Larceny cannot be committed against qualities or conditions. It is committed solely against chattels, tangible things. A given chattel is a composite result of all its properties, qualities, or conditions. None of the qualities which go to make up the complete thing is the subject of larceny. One cannot steal from a roof the quality of shedding rain, although he may bore it full of holes and thus spoil that quality; and this, no matter how much he might be benefited thereby himself. If, in a country where black horses were very dear and white horses very cheap, one, by a subtle process, took from a black horse the quality of being black and transferred that quality to his own horse, which formerly was white, thereby greatly increasing its value and correspondingly decreasing the value of the other horse which by the process was made white, would he be guilty of larceny? Would he be guilty of larceny who, with intent to gain, secretly and furtively and with the purpose of depriving the true owner of his property, took from a 586 586 PHILIPPINE REPORTS ANNOTATED United States vs. Carlos. bar of steel belonging to another.the quality of being hard, stiff and unyielding and transferred that quality to a willow wand

belonging to himself? Is he guilty of larceny who, with intent to defraud and to benefit himself correspondingly, takes from a copper wire belonging to another the quality of being electrified and transfers that quality to an electric light? An electric current is either a tangible thing, a chattel of and by itself, with a perfect, separate and independent existence, or else it is a mere quality, property or condition of some tangible thing or chattel which does have such an existence. The accepted theory to-day is, and it is that which must control, that electricity is not a tangible thing or chattel, that it has no qualities of its own, that it has no dimensions, that it is imponderable, impalpable, intangible, invisible, unweighable, weightless, colorless, tasteless, odorless, has no form, no mass, cannot be measured, does not occupy space, and has no separate existence. It is, it must be, therefore, simply a quality, a condition, a property of some tangible thing or chattel which has all or most of those qualities which electricity has not. Being merely the quality of a thing and not the thing itself, it cannot be the subject of larceny. To repeat: As we know it, electricity is nothing more or less than a condition of matter. It has no existence apart from the thing of which it is a condition. In other words, it has no separate, independent existence. It is immaterial, imponderable, impalpable; intangible, invisible, weightless and immeasurable, is tasteless, odorless, and colorless. It has no dimensions and occupies no space. It is the energy latent in a live horse. It is the power potential in the arm of the laborer. It is the force stored in the wound-up spring. It is an agency, not a "cosa mueble." It is a movement and not a chattel. It is energy and not a body. It is what the laborer expends and not what he

produces. It is strength stripped by an unknown process from arms of men and atoms of coal, collected and marshalled at a given place under the mysterious leash of metal, ready to spring like a living servant to the work of its master. It 587 VOL. 21, SEPTEMBER 1, 1911. 587 United States vs. Carlos. is not a chattel, it is life. It is as incapable of being stolen, by itself, as the energy latent in a live horse. It is as impossible to steal an electric current as it is to steal the energy hidden in a wound-up watch spring. One may steal the horse and with it the energy which is a quality of the horse. One may steal a watch and with it the energy which is a property of the woundup spring. But can we say that one can steal the energy in the watch spring separate from the spring itself, or electricity apart from the wire of which it is a quality or condition? A laborer has stored up in his muscles the capacity to do a day's work. He has potential energy packed away in little cells or batteries all through his body. With the proper mechanism he can enter a room which it is desired to light with electricity and, by using the stored-up energy of his body on the mechanism, light the room by transforming the energy of his muscles into the electricity which illuminates the room. We have, then, a laborer who, by moving his hands and arms in connection with the appropriate machinery, is able to light the room in which he is at the time. What causes the light? The energy in the laborer's muscles is transformed into light by means of the intermediate phenomenon known as electricity.

As a concrete result, we have the energy in the laborer's muscles transmuted into light. Now, is the energy passing through the wire, more capable of being stolen than the energy in the muscles of the laborer? Or is the light or heat any more or less a subject of larceny than the electric current of which they are a manifestation? Could the energy which performed the day's work be stolen? Could the electric current which lighted the room be stolen apart from the wire of which it was a quality? One might kidnap the laborer and with him the energy which constitutes his life; but can we say that the energy, of itself, is the subject of separate larceny? But, it, the laborer's energy cannot be stolen while it resides in and is a quality of his arm, can the same energy any more be stolen when it resides in and is a quality of a wire in the form of electricity? 588 588 PHILIPPINE REPORTS ANNOTATED United States vs. Carlos. If so, just where is the dividing line, where is the point at which this kinetic energy ceases to be incapable of being separately stolen and becomes a subject of theft? Is it at the crank by which the laborer turns the machine? Is it at the armature, the conductor, the field coils, the field magnet, the commutator, the brushes, the driving pulley, or the belt tightener? Is it where the current enters what is called the electric-light wire, or is it where it enters the bulb or arc and produces the light? In other words, at what point does the unstealable laborer's energy become stealable electrical energy?

An electric-light wire placed in a house f or the purpose of furnishing light for the same has its precise counterpart in a laborer placed therein for the same purpose. Like the laborer, it is filled with energy which will, when released, perform the service intended. The wire is simply a means of transmitting the energy of the laborer's muscles, and that stored in the tons of coal which he handles, from the electric plant or factory to the house where the light is produced. The wire simply avoids the necessity of the laborer being in the very house where he produces the light. Instead of being there, he, by means of the so-called electric-light wire, is located at a distance, but produces the light in exactly the same way, transmitting his energy for that purpose. The wire stands in exactly the same relation to the person in whose house it is put as would a laborer who had been sent to that house to render services. The energy may be diverted from the purpose for which it was intended, or a wrong account given of the amount of work performed by that energy; but it is impossible to steal, take and carry that energy away. One cannot steal days' works; and that is all an electric current is. One may use those days' works in hoeing corn when it has been agreed that they shall be used in picking cotton; but that is not larceny of the days' works, as larceny has been defined by the jurisprudence of every country. Or, one may report to the owner of those days' works that he had used three of them 589 VOL. 21, SEPTEMBER 1, 1911. 589 United States vs. Carlos.

when in reality he used thirty and pay him accordingly, but that is not larceny of the twenty-seven. But, it is argued, the illustration is not a fair one; energy in a laborer's arm or in the muscles of a horse or in a wound-up spring is, so far as its capability of being stolen is concerned, quite diffefent from energy which has been separated from the arms of the laborer or the muscles of the horse and driven through a wire; from such wire electricity may be drawn like water from a barrel; and while it is impossible to steal the energy of a man or a horse because it would destroy the life of the animal, an entirely different question is presented when the energy has actually been separated from those animals and confined in a wire. This argument has several fundamental defects. In the first place, it assumes the whole question at issue. By asserting that electricity is separable from the object of which it is a quality or state is to assume that electricity is a material thing, which is the real question to be resolved. In the second place, if electricity is, in the real sense of that term, separable from the object to which it belongs, then it must be admitted that it is capable of a separate and independent existence apart from any other object. This is not so. It is not only admitted but contended by every scientist who has touched this subject that electricity is incapable of an independent existence apart from some given material object. In the third place, this argument overlooks the fact, even if we assume that it can be separated, that the thing when separated is not the same thing that it was before separation; in other words, when the so-called separation occurs there is not only a transference of energy from the horse to the battery but there is also a transformation.

In the horse it is muscular energy. In the wire it is electrical energy. In the horse it is potential. In the wire, kinetic. It is not the same thing in the wire that it was in the horse. In the fourth place, the argument makes the stealability of a thing depend not on its nature but on where it is located. This is an assumption wholly 590 590 PHILIPPINE REPORTS ANNOTATED United States vs. Carlos. unwarranted and impossible under the law. To say that whether or not a thing is stealable depends not on its nature but on where it is located is absurd. A diamond ring in a burglar-proof safe is as much a subject of larceny, under the definition of the law, as if it lay in an open showcase. If energy is stealable at all, and it must be remembered that I am proceeding, as we must necessarily proceed, upon the accepted theory that electricity is nothing more or less than energy, it is so by reason of its nature and not by reason of its residing in a battery rather than in a horse; and if it is stealable by virtue of its nature it can be stolen from the horse as well as from the battery or wire. A thing is subject to larceny because, and only because, it is a cosa mueble, not because it is inside a horse, a wire or a safe. If it is a cosa mueble it is the subject of larceny although it be located on the moon; and if it is not a cosa mueble it is not subject to larceny although it be placed in a den of thieves. The difficulty or case of getting at a thing has nothing whatever to do with its stealability. In the fifth place, this argument overlooks the very important fact, to be dealt

with more at length later, that the electric current used by the accused was returned to the company, after use, absolutely undiminished in quantity. What, then, is the difference between corn, for example, and an electric current? It is this. One is a cosa mueble while the other is not; one is produced by a wholly different process from the other and from wholly different materials, if we may call materials those changes which result in the immaterial thing called an electric current; in the case of corn we deal not with the quality or energy of corn, but with corn as a composite and concrete result of all its qualities and uses; we deal with a tangible thing, a chattel, and not with a condition or quality of a tangible thing; we deal with things instead of ideas,—with things which exist separate and independent and which do not depend, as does electricity, wholly upon some body not only for the capability of manifesting its existence, but also for very existence itself; because we deal with something which 591 VOL. 21, SEPTEMBER 1, 1911. 591 United States vs. Carlos. changes its form but never its nature as a physical entity. It is always a chattel, a tangible thing, a cosa mueble. On the other hand, in the case of the electric current we deal not with a thing, a chattel, a cosa mueble, but with a condition or quality, a property of a cosa mueble; with an idea which always, before it has any significance or meaning whatever, associates itself with an entity, a body or chattel, as a characteristic or quality of such body or chattel; with lines of

force which are merely and solely a quality, a property, a characteristic of the magnet, instead of with grains of corn which are absolute entities, independent of and apart from everything else, and not mere characteristics or qualities of some entity or body which does exist as an absolute physical entity in itself; with the rose and the violet and not their perfume; with the lily and not its beauty; with the clouds and not their color; with entities and not accidents; with realities and not the imponderable, impalpable ideas and qualities which make up the reality. As has already been said, the difficulty in the elucidation of the question comes from the confusion of qualities with things, of appearances with realities. Apparently an electric current does things. It produces phenomena. It, therefore, appears to be something. But it must not be f orgotten that many times appearances are deceitf ul. They do not always insure realities. It is not judicial to say that, because a thing looks so, it is so. It is not judicial to say that, simply because it looks as if one committed larceny, therefore he is guilty of larceny. Before we may legally convict one of larceny, we must know exactly what he did. Justice is not founded on guess work nor on appearances. Men's rights are preserved by definitions, and definitions are founded on facts, not fancies, on realities, not appearances. Because, when one taps an electrically charged wire belonging to another and, by means of a contrivance, transfers the charge to his own uses, it looks as if he was stealing something, is not sufficient to convict him of larceny. We must first know what larceny is, as well as what an electric current is, and what is meant by its

592 592 PHILIPPINE REPORTS ANNOTATED United States vs. Carlos. use in producing light. To know what larceny is we must know what legislators and judges during the development of jurisprudence have always said and agreed it is. In other words, we must know its definition. It approaches tyranny to convict one of murder when he is actually guilty of homicide only. Yet the only thing which separates the two crimes is a definition. It is wrong to convict one of robbery who is guilty only of larceny. Yet these two crimes are distinguished only by a definition. If, as in the case at bar, whether or not one is declared a felon and is sent to prison for one year eight months and twenty-one days, is forever disqualified from holding public office and of exercising the right of suffrage, or whether, instead, he is declared guilty of a misdemeanor simply and punished lightly with no accompanying disqualifications, depends upon whether he has committed larceny as defined by the Penal Code or whether he has merely violated a city ordinance, the question whether he actually committed larceny or not begins to assume importance. It assumes importance not only to him but to society as well. If a court to-day palpably modifies a definition in order to convict an offender of larceny, how can society be assured that to-morrow the same court will not modify some other definition to convict a citizen of treason? When definitions are destroyed no man is secure in his person or his property. When men act on appearances instead of realities justice will be shortlived. A whale looks like a fish, acts like a fish, swims like a fish and lives all its life in the

water like a fish. But it is not a fish. It is an animal. It is airbreathing, warm-blooded, and viviparous, and suckles its young. Now, if whether or not a whale is a fish or an animal is the potent factor determining whether a man goes to state prison as a felon with all the deplorable consequences resulting, or whether he is lightly sentenced as a mere misdemeanant, is it not of the supremest importance to determine whether a whale is a fish or an animal? I am informed that it used to be a common sight in the New York 593 VOL. 21, SEPTEMBER 1, 1911. 593 United States vs. Carlos. Zoölogical Gardens to see Mr. Crowley, the large and extremely intelligent chimpanzee, dressed in faultless attire, sit at the table and take his food and wine like a gentleman. Children believed him to be a man; and many intelligent grown people honestly believed that he was as much man as chimpanzee. But if the officials of the city of New York had been indicted for kidnaping, based upon the seizure and forcible detention of Mr. Crowley, would it not have been of the most solemn importance to them to throw away appearances and determine accurately what Mr. Crowley really was? And in case of doubt as to what he was, could they not justly have demanded the benefit of that doubt? So, where one who diverted an electric current has been accused by reason thereof of the crime of larceny, which crime, it being admitted, can be committed only against tangible things, chattels, is it not of the very greatest importance to

determine what an electric current is, that is, whether it is a tangible thing, a chattel, or not and what is the nature and meaning of the process by which it transforms itself into electric light? And in case of doubt as to what it is, cannot the accused justly demand the benefit of that doubt? To convict one of larceny it is not sufficient to show merely that a wrongful act has been done; but it must appear that a wrongful act of a particular kind has been committed. To constitute larceny it must be proved that the wrongful act was committed against chattels, against tangible things, which were seized upon and asported by the one accused. In the case at bar it has not been shown that the accused laid unlawful hands upon and asported a tangible thing, a chattel, una cosa mueble. The very least that the prosecution must necessarily admit is that no one knows what electricity really is. That being so, it seems to me to be a contradiction of terms to say that larceny, which must admittedly be committed against a known thing, can be committed against a thing absolutely unknown. At least it would seem that there is a grave doubt about the definition of larceny covering wrongful acts rela594 594 PHILIPPINE REPORTS ANNOTATED United States vs. Carlos. tive to an electric current; and by reason of that doubt the conviction ought not to be sustained. And if it is true, as I have herein attempted to show, that, under the prevailing and generally accepted theory, electricity is nothing more or less than a condition, a quality, a property of some tangible thing,

some chattel or body, then, certainly, the charge of larceny must fall, as that crime can be committed only against the thing and not against a quality of the thing. Although the only question in this case is whether electricity is such a tangible thing as can, under the definition of larceny contained in the Penal Code, be the subject of larceny, nevertheless the court dismisses that question substantially without discussion, the only reference thereto being the following: "It is true that electricity is no longer, as formerly, regarded by electricians as a fluid, but its manifestations and effects, like those of gas, may be seen and felt. The true test of what is a proper subject of larceny seems to be not whether the subject is corporeal or incorporeal, but whether it is capable of appropriation by another than the owner. * * * * * * * "Electricity, the same as gas, is a valuable article of merchandise, bought and sold like other personal property and is capable of appropriation by another. So no error was committed by the trial court in holding that electricity is a subject of larceny." This statement fails to touch the essential question involved and is wholly beside the point for the following reasons, laying aside for the moment the nature of the act which the accused actually committed, assuming that he committed the act described by the witnesses for the prosecution: In the first place, as I understand the law, the statement is not quite correct that, in the Philippine Islands, "the true test of what is a proper subject of larceny seems to be not whether the

subject is corporeal or incorporeal, but whether it is capable of appropriation," unless the word "appropria595 VOL. 21, SEPTEMBER 1, 1911. 595 United States vs. Carlos. tion" has the same meaning as the word "taking" used in the article of the Penal Code defining larceny. If the court intended to use the word "appropriation" in the sense of "taking," then its use was unnecessary and may be misleading. If it did not so intend, then the rule of law laid down by the court is not as I understand the law to be. An appropriation in addition to or different f rom the taking is not an essential of larceny anywhere. Wharton says that "larceny is the fraudulent taking and carrying away of a thing without claim of right, with the intention of converting it to a use other than that of the owner and without his consent." Article 517 of the Penal Code provides that they shall be guilty of larceny "who * * * take (toman) (not appropriate) another's cosas muebles (movable chattels) without the owner's consent." Unless, therefore, the word "appropriation" is used in the same sense as "taking," the paragraph in the court's decision above quoted does not contain a correct statement of the law. If it means the same thing then the use of the word in no way enlightens the situation; for it is just as difficult to determine whether a cosa mueble can be appropriated as it is to determine whether it can be taken. The question before us is whether or not electricity is such a cosa mueble that it can be taken under the law of larceny. To substitute in that problem the word "appropriation" for the

word "taking" does not aid in its solution in the slightest degree when it is admitted that the word substituted means exactly the same thing as the word in the place of which it was substituted. An illustration will serve further to show the fallacy inherent in the statement quoted: Let us suppose that the Penal Code defined larceny thus: "Any person who, with intent to gain, takes from another his cake without his consent shall be guilty of larceny." Let us suppose that some one should then define the subject of larceny as anything, corporeal or incorporeal, which can be "appropriated." It would be obvious that such definition would be erroneous, 596 596 PHILIPPINE REPORTS ANNOTATED United States vs. Carlos. for the reason that, while pie is as capable of being "appropriated" as cake, still, under the .terms of the law, larceny cannot be committed against pie. So that where the statute prescribes that the only thing subject to larceny is a cosa mueble and the definition of the subject of larceny is claimed to be anything that can be "appropriated," the answer at once is that such definition is inaccurate under the law as it may be too broad. There may be some things which can be "appropriated" that are not cosas muebles. In the second place, the quoted paragraph from the court's decision contains another error in the statement of the law. I am of the opinion that, under the common law, and I am sure under the Spanish law, the statement that "the true test of what is a proper subject of larceny seems to be not whether the subject is

corporeal or incorporeal * * *" is not accurate. Professor Beale, of Harvard, says in his article on larceny that— "At common law the only subjects of larceny were tangible, movable chattels; something which could be taken in possession and carried away, and which had some, although trifling, intrinsic value. Any substance which has length, breadth, and thickness may be the subject of larceny. * * * A chose in action being in its essence intangible could not be the subject of larceny at common law, and the paper evidence of the chose in action was considered merged with it." Wharton says: "Choses in action, including bonds and notes of all classes, according to the common law, are not the subjects of larceny, being mere rights of action, having no corporeal existence; ***" I have already quoted at length from writers on the Spanish and Roman law to show that only tangible, corporeal chattels can be the subject of larceny. In the third place, by entirely begging the question, it leaves the whole proposition of whether electricity is a subject of larceny not only unsolved but wholly untouched. As we have already seen, the word "appropriation" no597 VOL. 21, SEPTEMBER 1, 1911. 597 United States vs. Carlos. where appears in subdivision 1 of the Penal Code in connection with larceny. But if it were there used in connection with such crime, it would necessarily refer entirely to a cosa mueble as

that is the only thing under that article which is the subject of larceny and, therefore, of "appropriation." So that, before we can possibly know whether a thing is capable of appropriation or not under the Penal Code, we must know whether that thing is or is not a cosa mueble, as that, as we have said, is the only thing that can be taken or appropriated in committing the crime of larceny. But, as is readily seen, that brings us right back to the question we started with, What is a cosa mueble? It is more than apparent, therefore, that the quoted paragraph adds nothing whatever to the discussion. In the fourth place, the word "appropriation" in the paragraph quoted is there used with a complete misapprehension of its meaning as found in the article of the Civil Code from which it is taken. Articles 334 and 335 of the Civil Code seek to divide all property capable of appropriation into classes. They read: "ART. 334. Son bienes inmuebles: "1.° Las tierras, edificios, caminos y construcciones de todo género adheridas al suelo." * * * * * * * This article has ten subdivision dealing with all kinds of real property. It is not necessary to quote it all at this time. The English of the part quoted is as follows: "ART. 334. Real property consists of: "1. Lands, buildings, roads, and constructions of all kinds adherent to the soil." * * * * * * * "ART. 335. Se reputan bienes muebles los susceptibles de apropiación no comprendidos en el capítulo anterior, y en general todos los que se pueden transportar de un punto a otro sin menoscabo de la cosa inmueble a que estuvieren unidos."

598 598 PHILIPPINE REPORTS ANNOTATED United States vs. Carlos. This article in English is as follows: "ART. 335. Personal property is considered anything susceptible of appropriation and not included in the foregoing chapter, and, in general, all that which can be carried from one place to another without damage to the real estate to which it may be attached." As is seen from the terms of the article, two expressions are used in defining "bienes muebles," one of elimination and the other of description. The clause of elimination provides that all property subject to appropriation shall be personal property except that property described in article 334. But this description was found to be too broad. It included too much; and it was, therefore, necessary to make use of a limiting or restricting clause in connection with the exclusion clause. To that end the article further provided that appropriable property shall be, "in general, all property which can be carried from one place to another." Under this restricting clause, then, property to be personal property must be not only property not included in article 334 but also property which can be transported from one place to another. It must fulfill two requirements instead of one. Besides, under the Spanish law, real property is as much subject to appropriation as personal property. The word in Spanish seems to be broader than its legal use in English.

From the foregoing it is plain that property to be personal property must not only be susceptible of appropriation, which the court in the quoted paragraph claims is the only requirement, but it must also be capable of being of itself manually seized and transported from one place to another. This presents the fourth reason why I say that the proposition laid down by the court in the quoted paragraph is laid down under a complete misapprehension of the definition of una cosa mueble. And finally, the word "appropriate" which the court has used is found in subdivision 2 of article 517 of the Penal Code. It provides that those are guilty of larceny, "who, 599 VOL. 21, SEPTEMBER 1, 1911. 599 United States vs. Carlos. finding a thing (una cosa mueble) lost and knowing its owner, appropriate it with intent to gain." The signification which the word here has is quite different from that of the word "take" (toman) used in the first subdivision, being considerably limited in its reach. As used here it is very like "convert." There is no removal from the possession of the owner, as in the first paragraph. In the Penal Code the word "taking" means something more than "appropriation." It means a removal from the possession of the owner—a transportation or asportation of the thing from one place to another—from the possession of the owner to the possession of the thief; while "appropriation" means, rather, the making use or the converting of the property after the taking is complete, or without any "taking" at all.

Under the Spanish law, while real estate is not, of course, subject to asportation, to "taking," and, therefore, not the subject of larceny, it is subject to "appropriation." In the same way while electricity is, under the Spanish and Roman laws, wholly incapable of seizure and asportation, of the manual "taking," the trespass essential to larceny, it may possibly, in one or another sense of the word, be subject to appropriation." If at one extreme of the scale of things, namely, real estate, the thing is too tangible to be stolen, is it not logical to expect that at the opposite extreme the thing, electricity, for example,. may be found too intangible to be stolen? We have seen that, in all the history of Roman and Spanish jurisprudence, the crime of larceny has been confined to tangible things, to chattels, which have an independent existence of their own; which have three dimensions; which occupy space; which are capable of having a trespass committed against themselves; which can be, of themselves and alone, taken physically into possession and carried away (asported). We have seen that the fact that electricity is not such a thing is admitted by all. And we have asked the question, "How, then, can the charge of larceny be sustained?" 600 600 PHILIPPINE REPORTS ANNOTATED United States vs. Carlos. But let us assume, for the sake of argument, that electricity is a tangible thing, like water, for instance. Still the crime

committed, if any, is not larceny. Let us modify the illustration already given of the surreptitious removal by A of water stored in a dam by B for milling purposes. Let us suppose that B has built a reservoir on an elevated portion of his farm for the storage of water for irrigating purposes. He has built ditches or conduits from the reservoir to every part of his farm to carry the water to the places needed. During the dry season while B is engaged in irrigating his lands A surreptitiously and with intent to gain, constructs a small mill upon one of the conduits and utilizes the rapid fall and swift flow of the water to operate his mill. For many months A thus takes advantage of B's conduit and water and enriches himself by reason thereof. Did A commit the crime of larceny? The water, every drop of it, after being used by A, went to its work of irrigating the lands of B, pausing only long enough to turn the water wheel of A's mill. Certainly then, no water was stolen. A simply made use of the "head," the fall of the water. If anything was stolen it was the "head," the elevation of the water, the energy developed by its passage from high to low ground. This is precisely what happens when an electric current passes through an electric bulb or arc and produces light. Whether the current operates one light or one hundred, the volume, the amperage, of the current, that is, the 'quantity of it, if we may use the term (and it must be remembered that I am assuming electricity to be a tangible thing and will speak accordingly) remains exactly the same. The volume or quantity of the electricity is just the same when it comes out of the hundredth light as it was when it entered the first. While there is a difference between the current as it comes from the last light and as it entered the first, it is simply one of condition, or state. All of the electricity is

still there. Like the water; it has simply lost its "head," its energy. It has been deprived of its pressure, of its electromotive force; but it is the same old electricity, in the same Old 601 VOL. 21, SEPTEMBER 1, 1911. 601 United States vs. Carlos. quantity. So that, when the accused in the case at bar, by means of a "jumper," burned thirty lights, instead of the three for which he paid the company, he was not stealing electricity. Exactly as much electricity went back into the company's wire after serving the twenty-seven lights for which he did not pay as came out of that wire in the first place. The defendant took nothing; he used something. In larceny there must be a taking. Here there is only a use. Electricity is a utility, not a thing. The company, in the case at bar, lost no more than did the owner of the irrigation system in the example heretofore given. As no water was taken, so no electricity was taken. The same amount of water remained to the owner after its use by A. The same amount of electricity remained to the company after its use by the defendant. The well-known Italian author, Avv. Umberto Pipia, in his very able work entitled "L' Elettricitá nel Diritto" puts the question thus (translation of Mr. Percy R. Angell, Manila, 1911): "From the point of view of the jurist can electricity be stolen? A person connects a deflecting wire to the main conduit of electricity; he thus makes a secondary circuit in which he introduces a resistence and profits by the electro-motive power which is developed, to supply his lamps or put his motor in

movement. In such case can we apply article 402 of the Penal Code, which provides that whoever takes possession of movable property of another in order to derive profit thereby, taking it from the place where he finds it without the consent of the owner, is punished with reclusión up to three years?" The author then refers to the decisions of certain courts of Europe which hold that electricity is stealable, and continues: "The Roman court of cassation has lost sight of that fundamental principle of interpretation of law (a principle which it ought to have had well in mind before applying to new manifestations of force legislative provisions enacted in view of totally different cases) by which penal laws 602 602 PHILIPPINE REPORTS ANNOTATED United States vs. Carlos. do not extend beyond the cases and the times in them expressed. Nulla poena sine lege, is the rule in terms of penal law, unless we wish to bring about a deplorable confusion usion of powers, and the judiciary desires to usurp the authority of the legislator. If in the written laws gaps or breaks are encountered, it is the duty of the court to point them out to the legislator, to the end that he take the necessary measures; but it is not lawful for him by analogous interpretation to apply a penal provision where such has not been explicitly enacted. "In the unanimous opinion of jurists, two elements are necessary to constitute the crime of theft, legally speaking; the first is the taking possession of the personal (movable) property of another, contrectatio, and the taking away of the thing from

the place where it is found without the consent of the person to whom it belongs, ablatio. "Now we have conclusively shown that electric current is not a thing, but a state, a vibration following certain converging waves. It can not therefore be taken possession of as the personal property of another. A person who unlawfully uses electric current for his personal enjoyment places himself in a state of unlawful enjoyment of a utility, but he does not take possession of personal property. It was a grave error, that of the court of cassation, in holding electric current to be a thing imprisoned in wires, and composed of particles that can be substracted. In connecting a second circuit one does not substract electric current; not a particle of electric energy enters into the possession of the so-called thief; the same amount in amperes that was f ound and derived on connecting the second circuit, is f ound at the end of this circuit. The current has only suffered a, diminution of potential; while continuing to be of the same volume, it becomes less adapted for the use intended, because, having overcome a resistence, it has lost in potential, its electro-motive power. " * * * It leaves the circuit in the same amount in which it entered. Only its power for work has diminished. Not a single particle or molecule of electric current is taken 603 VOL. 21, SEPTEMBER 1, 1911. 603 United States vs. Carlos. by such abusive use, only the state of undulation. The movement that first follows the principal, and then the second

circuit, and by these undulations the so-called thief illegally derives benefit. But the extraordinary provisions of crime are not applicable to all illegal actions. "Another powerful argument in favor of my position is this: That in no case of usurpation, the using of things protected by law (diritto) that are not material things, do we speak of thef t. To repress abuses the legislator has been obliged to establish special provisions of law, but has explicitly recognized those relating to theft to be inapplicable. A trade-mark, trade-name, modello de fabrica, a scientific or artistic work, undoubtedly constitute objects of law similar to things; form the contents of various juridical relations; have a more or less economic value; pertain to the patrimony of the person who has produced them or brought them into being. If a third person makes use of the trade-mark or trade-name, the scientific work or artistic production of another, nobody denies that he takes possession of a utility that does not belong to him; that by the very illegal act he derives profit, and at the same time diminishes the patrimony of the person having legitimate rights herein. But with all that, it has never occurred to anyone to bring an action for theft against the usurper of the firm name, the counterfeiter of the trade-mark or the plagiarist. The legislator, desiring to protect this new species of property, has provided special repressive measures; but in their absence, the courts can not apply the actio furti, because it is not applicable to cases and conditions other than those provided for. "If this be so, why different conceptions on the score of electricity? Here likewise, there is no substraction of personal property, but the illegal use of an advantage, of the right

pertaining to another, which remain however unchanged. Hence the legal solution should be the same. "The second and not less essential condition of theft is that of the ablatio, the necessity of taking the thing from the place where it is found. But here we have nothing of 604 604 PHILIPPINE REPORTS ANNOTATED United States vs. Carlos. that; the current is deviated from its course, true, but it returns to the place where it was undiminished. The statement in the foregoing decision that there are particles transportable from place to place is inexact; the undulation is in itself, it has its own efficiency, but it is neither taken away nor substracted. It has been justly said that all that is done is to erect a bridge over which the undulations of the particles are transported in the wire attached, but nothing corporeal passes from one wire to another, since not one of the vibrating particles moves with the current which flows through the connected wire. "Consequently, in whatever aspect the question is considered the presumption of theft grows less. In fine, although there be a usurpation of a utility to the prejudice of another, it should not be held to constitute theft, because that is the vulgar, not the legal conception. That in civil and commercial law we may resort to analogous interpretation, and that, in the absence of special provisions we should apply the rules which govern similar matters and analogous cases, there is no doubt. The courts can not refuse to say what the law is (dire ie diritto) nor dismiss the litigants on the pretext that the law had made no

provision for their case; and it is from this concept that electricity, as a rule, in the various relations where it constitutes the object, is considered to be a thing, with all the attributes of such. But the penal law is restrictive; under certain aspects it is exceptional. Here we have to do with limitations and restrictions on the most sacred rights of persons, the right to liberty, the right to honor. And these rights can not be abridged without definite and explicit provisions of the law. Where these are lacking we can pray, as I do, that they be supplied., but a decision in such case is an arbitrary act (arbitrio), not justice: nulla poena sine lege. * * * * * * * "So in the wrongful use of electric current; profit is derived from its high potential which is produced by the work and expenditure of money on the part of the furnish605 VOL. 21, SEPTEMBER 1, 1911. 605 United States vs. Carlos. ing company; the current is returned exactly as it was delivered except it has lost a certain amount of electromotive power that was illegally (antigiuridicamente) employed to overcome the resistance introduced by the third party. * * * * * * * "* * * Penal law must be strictly construed (e di interpretazione restrittiva). It punishes the contrectatio of a movable thing which is taken from the place where it is found without the consent of the owner. In the proposition under discussion, we have not to do with movable things, there is no true

transporting to another place; therefore the figura giuridica of theft is wanting. "It can not be doubted that by movable things is meant even liquids and fluids, because these are material, concrete, and corporeal things, but their physical external manifestations can not affect the juridical relation. But in our case there is not a thing, fluid or liquid; there is a state of undulation, of movement, which one uses illegally, assuming however the obligation to indemnify for all the damages resulting from his illicit action, but there is no theft, any more than there would be where a person applied a pulley to the shaft of an engine in order to put his own machinery in motion, so far as there would be no appropriation. The current which injuriously traverses the lamp or electric motor is not appropriated or destroyed by the person who uses it; it flows out from the lights and continues its course in the circuit undiminished in intensity; it has only lost part of its power, because, having encountered a resistance, it has developed certain energy to overcome it, energy which has produced light, traction, or mechanical work. "Nor may it be said that electricity would then be deprived of any legal protection. Do we not have articles 1511 et seq. of the Civil Code that provide for fraud? Is there not the civil crime and quasi crime? To protect electric energy is it necessary to imprison one who uses it antigiuridicamente, while the letter of the law does not 606 606 PHILIPPINE REPORTS ANNOTATED United States vs. Carlos.

consent? In any case it is known that adducere inconveniens non est solvere argumentum. As in the laws of our country provision is made for the illegal use of a firm name, trade-mark and works of genius (l' ingegno); in England, where provision has been made for the matter we are discussing, they have enacted a law imposing severe penalties upon persons who illegally use electric energy, and I am of the first to applaud them. But let there be laws, not merely judicial opinion (arbitria di interpretati). "Nor does it avail to argue that when we have to do with benefits that are useful to man, which serve his ends, that he can appropriate, these benefits are considered as things in the eyes of the law. But it is necessary to make a distinction. From the standpoint of the, civil law, they are, because a wide and analogous construction is permissible and permitted; but from that of the penal law, they are not, because such construction is expressly forbidden by article 4 of the preliminary provisions of the Civil Code. "If a trade-mark is not a benefit to man, in what does it serve him? Is not a literary or artistic production such? Does not the counterfeiter illegally appropriate such benefits? But if it is required to inflict criminal penalties upon him, a special law must be enacted; the provisions relative to theft can not be applied in his case. * * * * * * * "Nor is it a conclusive argument to say that the manufacturer spends large sums of money and erects costly machinery to generate the electricity, and when others steal it from him, such action, according to juridical conscience and social morals, constitutes theft.

"Let us suppose an individual acquires a ticket of admission, and enters a hall where there is being produced a play of some sort. He, on the strength of the legal negotiation with the impresario and the acquisition of the ticket has a right to the most ample enjoyment that his optical and acoustic senses are able to realize. But he arranges a phonograph and a cinematograph, and surreptitiously fixes and appropriates part of the acoustic and visual enjoyment that 607 VOL. 21, SEPTEMBER 1, 1911. 607 United States vs. Carlos. does not belong to him, takes it outside of the theater and later avails himself thereof to his benefit by reproducing the harmony of the sounds and the optical illusion of the scene. Is he liable for theft? "From the standpoint of the doctrine I am combating, he is. The impresario has sacrificed money or work to produce the spectacle. Our friend has the right to enjoy it to the limit of the capacity of his organs of vision and hearing, but not beyond that. By means of suitable instruments he has caught up the sounds, movements, and colors for the purpose of gain, and he commits a theft because there enter the contrectatio and the ablatio. "From the point of view of the law he is not. He would be held to reimburse the impresario for all damages, but he can not be called a thief, nor be punished as such. The sounds and forms of light are states, not things; therefore they can not form subjects of theft.

"And if this is so, the same conclusion must be reached with respect to electricity." The supreme court of the German Empire, sitting at Leipsic, October 20, 1896, in a decision holding that electricity was not a subject of larceny, said: "The court below found that the act did not constitute theft or unlawful appropriation, because electricity is not to be considered a thing within the meaning of paragraph 242 of the Penal Code, and because by things the law means portions of material nature; that corporeal existence is an essential ingredient of the thing. Even the Penal Code starts from this principle. Incorporeal things, as for example rights, intellectual products and machine power, are not subjects of theft. The same must be said of electricity. Experts say that the science is not yet determined. We well know what must be done to produce electric energy, but we do not comprehend these vital operations, any more than we understand what it is that makes the muscles of the human arm capable of exerting force. In the conclusions of the Court of First Instance there is no error of law. That court starts from the principle that the corporal 608 608 PHILIPPINE REPORTS ANNOTATED United States vs. Carlos. existence of the thing must be the essential element to come within the meaning of article 242. This assumption is not based upon the precepts of the Civil Code, but, rather, upon the idea which is at the bottom of the Penal Code, namely, the movable and independent thing, which presupposes the corporeality of

the object. If then, under articles 242 and 245, the condition precedent to the commission of larceny is that the object of theft or unlawful appropriation be a piece or portion of material substance in either a solid or liquid state, or in f orm of gas, the Court of First Instance committed no error in finding there was neither theft nor illegal appropriation. Whether or not the notion of a thing, in the sense of the penal laws, requires something corporeal, is a question of law; but the question whether electricity is a substance, a corporeal thing, or a force, a movement of minute particles, is a question of fact that can not be decided by the rules of law, but by physical research alone. The consideration of the great importance of electricity in commercial life and the place awaiting it among the vital conveniences and the fact of its having commercial value, is not an argument to prove that electricity is a corporeal thing, because the quality of being a vital convenience and having commercial value does not constitute a necessary standard of corporeality, since force, operations, intellectual products are vital conveniences (beni) and have commercial value. When, in the jurisprudence of the day the need for penal laws for the punishment of unjust appropriation of electric current becomes apparent, the legislator should provide them. The courts can not be called upon to supply the lack of legal provisions by analogous applications of rules not made to fit the circumstance. In penal law the principle nulla poena sine lege is supreme." These authorities fully support my contention that electricity is not stealable under the provisions of the Spanish Penal Code. They also support the proposition that even if electricity is a tangible thing, like water, and therefore stealable, the crime, if

any, committed by the defendant in this case is not larceny, because the company had just as much 609 VOL. 21, SEPTEMBER 1, 1911. 609 United States vs. Carlos. electricity after the illegal act as it had before. In other words, it has lost no electricity. Having lost no electricity it can not charge anyone with stealing it. If a thousand lights were burned, no more electricity would be consumed than if one light were burned, just as, no more water is consumed in running a thousand water wheels placed one below another than in running one. Just as much water flows over the thousandth wheel as flowed over the first. In the same manner there is just as much electricity flowing out of the thousandth light as flowed into the first. Just as, in using the water, nothing is consumed but the head, the quantity of water remaining the same, so, in using electricity, nothing is consumed but the head (the pressure, the potential, the electro-motive force), the electricity itself remaining undiminished. No electricity was taken. It was used and then returned to its owner. For a clear understanding of this problem, and a logical and philosophical, as well as legal, solution thereof, we must never, for a moment, forget the fact that the real contract between the company and the defendant was one to furnish labor and services; a lease, if you please, of an agency, a contract of precisely the same nature as one by which the company lets to the defendant the use of one of the company's workmen to turn by hand, in the defendant's own house, an electrical machine

and thereby produce light for defendant's use. This is the crux of the whole question. While no contract was proved we know of necessity, from the principles which underlie and govern electric lighting, that the contract must have been as above stated. If the defendant should require the laborer thus placed in his house to work overtime and should not pay the company therefor, thus taking advantage of the situation, there would be no larceny. To be sure, the defendant would return the workman to the company fatigued and reduced in strength by reason of the overtime he had required him to put in, but it would be the same workman which he had received. It is this which shows the absurdity of the claim that the defendant in this case is guilty of larceny. The company 610 610 PHILIPPINE REPORTS ANNOTATED United States vs. Carlos. never intended to sell the workman to the defendant and the defendant never expected to buy him. It was the use that was the basis of the contract. In exactly the same manner, the company never intended to sell electricity to the defendant and the defendant never intended to buy electricity. The basis of the contract was the use of electricity. Just as the laborer was returned by defendant to the company fatigued and reduced in strength by reason of the overtime which the defendant had wrongfully and illegally required him to put in, so the current of electricity was returned by the defendant to the company fatigued and reduced in strength by reason of the lights which the defendant had wrongfully and illegally caused it to supply;

and just as, notwithstanding the reduction in strength, it was the same identical workman returned that was sent out, so the electric current returned to the company after the illegal use by defendant was the same identical current which the company had furnished him. Where then, is the foundation for the charge of larceny? Let us now see what are the results of the holding of the court that electricity is subject to larceny. The Spanish Law of the Philippine Islands has not been changed by any legislative enactment. A cosa mueble is the same now as it was in the days of the Partidas. No legislature has changed the law of larceny as it came from the jurisprudence of Rome and Spain. Nor has any legislature touched the law of the personal chattel to give it a new definition or one which changes its ancient signification, Its present definition is the same as that given by Sanchez Roman, Pacheco, Scaevola, Manresa, and Groizard as drawn from the decrees of kings and acts of legislatures. That definition having been framed by the lawmaking power of Spain, from the Partidas down to the Penal Code, it ought not to be changed by any agency short of the lawmaking power of the United States. The substance and nature of crime ought not to be changed by courts in a country where crimes are purely statutory. It has the appearance of a 611 VOL. 21, SEPTEMBER 1, 1911. 611 United States vs. Carlos.

usurpation of the functions of the lawmaking body, an unwarrantable assumption of legislative attributes. The holding of the court in this case is, in effect, an amendment to the Penal Code. It has changed materially the definition of a cosa mueble and, therefore, of the crime of larceny, as made by the lawmaking bodies of Spain and the United States. I do not assert that the courts have not the right to determine whether a given set of facts do or do not fulfill the definition of a given crime. What I do say is that the very greatest care should be exercised in cases which may involve as a consequence of their decision the changing of the scope of the substantive law of crime. The fact, admitted by all, that whether the phenomenon which we call electricity really is a "cosa mueble," under the accepted definition of that word, is open to doubt, should give us pause. Before holding that electricity is a cosa mueble, the fact whether it is or not ought to be substantially free from doubt. This is particularly true in a country where crimes are purely statutory, and in which, therefore, the legislature is presumed to have had in mind in framing its definition of "cosas muebles" only such chattels, or those of the same nature, as were known to the legislature at the time it acted. At the time the Penal Code became operative substantially nothing was known by those who created it of the phenomenon, electricity. It is more than clear that at the time of the enactment of the laws relating to larceny, of which article 517 of the Penal Code is a reproduction, nothing whatever was known of that phenomenon. We have, therefore, no means of knowing what would have been the legislative action in relation thereto. The legislative authorities of those times might have treated it as substantially every other legislative body has

treated it that has touched the question; namely, as a thing separate and distinct from chattels, and unlawful acts affecting it and its use as crimes distinct from the crimes against tangible property, such as robbery and larceny. In this jurisdiction the legislature is the only authority for the 612 612 PHILIPPINE REPORTS ANNOTATED United States vs. Carlos. definition of crime. Where a new situation arises by virtue of discoveries which reveal agencies never known before, and whose real nature is unknown even to the discoverers, the legislature is the body to take the initiative in determining the position of such agencies among the affairs of men, unless they clearly fall within a class already established and defined; and it appears that some legislative bodies have done that very thing and have passed special laws touching the place which should be given electricity in the civil and criminal law. This was done here by the passage of the ordinance of the city of Manila. The fact that legislatures in many jurisdictions have enacted special laws relative to electricity is the very clearest proof that there was the gravest doubt among learned men of the applicability of existing laws to acts committed against the rights of producers of electricity. The legislature of the Islands having acted through the council of the city of Manila and by such action made illegal acts against the producers of electricity a special crime wholly distinct from larceny, such act should be conclusive on this court as to the legislative intent.

Section 649 of the Revised Ordinances of the city of Manila provides in part: "No person shall, for any purpose whatsoever, use or enjoy the benefits of any device by means of which he may fraudulently obtain any current of electricity or any telephone or telegraph service; and the existence in any building or premises of any such device shall, in the absence of satisfactory explanation, be deemed sufficient evidence of such use by the persons benefiting thereby." This section was enacted under the authority of the Legislature of the Philippine Islands, as was section 930 of said ordinances, by the terms of which one who violates the provisions of section 649 "shall be punished by a fine of not more than two hundred pesos or by imprisonment for not more than six months, or by both such fine and imprisonment, in the discretion of the court, for each offense." Articles 517 and 518 of the Penal Code read in part as follows: 613 VOL. 21, SEPTEMBER 1, 1911. 613 United States vs. Carlos. "ART. 517. The following are guilty of theft: "1. Those who, with intent of gain and without violence or intimidation against the person or force against the things, shall take another's personal property (cosa mueble) without the owner's consent. * * * * * * * "ART. 518. Those guilty of theft shall be punished:

"1. With the penalty of presidio correccional in its medium and maximum degrees if the value of the stolen property should exceed 6,250 pesetas. "2. With the penalty of presidio correccional in its minimum and medium degrees should it not exceed 6,250 pesetas and be more than 1,250 pesetas. "3. With arresto mayor in its medium degree to presidio correccional in its minimum degree should it not exceed 1,250 pesetas and be more than 250 pesetas. "4. With arresto mayor to its fullest extent should it be more than 25 but not exceed 250 pesetas. "5. With arresto mayor in its minimum and medium degrees if it should not exceed 25 pesetas; if exceeding 25 and not more than 65 pesetas, a theft of nutritious grains, fruits, or wood shall be punished with a fine of from 325 to 500 pesetas." Under subdivision 2 of the article last quoted, which is the paragraph under which the accused is punished in the case at bar, the penalty prescribed is from six months and one day to four years and two months. The accused in this case was actually sentenced to one year eight months and twenty-one days of presidio correccional, to indemnify the company in the sum of P865.26, to the corresponding subsidiary imprisonment in case of failure to pay said sum, and to the accessory penalties provided by law. Having before us these two laws, we may now see to what untoward and unfortunate results the majority opinion leads us in holding that a person who commits a crime against an electric current can be punished under either, or both. of two different statutes. As we have seen al-

614 614 PHILIPPINE REPORTS ANNOTATED United States vs. Carlos. ready, there is, relatively speaking, an enormous difference in the penalties prescribed by said laws. That imposed by the ordinance of the city of Manila can not in any event exceed six months' imprisonment and a fine of P200; while that provided in the Penal Code may be as severe as four years and two months imprisonment, with indemnity equal to the value of the property stolen, with corresponding subsidiary imprisonment in case of nonpayment. To this must be added all those accessory penalties prescribed by the code, such as suspension from any public office, profession or trade, and from the right of suffrage. To me it is wholly unbelievable that, under the circumstances of this case and the nature of the off ense itself, it was the intention of the legislative authority to permit the concurrent existence of two laws, both in force, punishing the same crime with penalties which bear no relation to each other and which are widely different in severity. Note what results from such a holding. Prosecution under the ordinance must be in the municipal court. Prosecution under the Penal Code may be in the municipal court or it may be and generally must be, as in this case, in the Court of First Instance. But it is certain that, under the ordinance, every case may be prosecuted in the municipal court, whatever the value of the electricity taken; or, if the value is sufficient, the prosecution may be brought in the Court of First Instance. The selection of the court is left to the complainant. This means that the complainant is able to say within certain limits what punishment shall be inflicted; for, if

he desires that the accused shall be lightly punished he will bring the action in the municipal court, which he always can do if he wish, and if he desires to punish him very severely he will bring it in the Court of First Instance, which he can generally do if he cares to. It is inconceivable that the legislature intended that such a condition should exist. It is in violation of every sense of fairness, is against every rule of statutory construction, and is clearly inimical to public policy. To assert that the complaining party in a criminal prosecution may select not only the court 615 VOL. 21, OCTOBER 19, 1911. 615 United States vs. Mesina. in which he shall prosecute the accused but also, in eff ect, the crime of which he shall be charged, as the decision in this case holds in effect, is to assert a proposition, the bare statement of which is its own completest refutation. For these reasons the judgment of conviction should be reversed. Judgment affirmed. [United States vs. Carlos., 21 Phil., 553(1911)]

G.R. No. 155076. January 13, 2009.* LUIS MARCOS P. LAUREL, petitioner, vs. HON. ZEUS C. ABROGAR, Presiding Judge of the Regional Trial Court, Makati City, Branch 150, PEOPLE OF THE PHILIPPINES & PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, respondents. Criminal Law; Theft; Elements of theft.—The elements of theft under Article 308 of the Revised Penal Code are as follows: (1) that there be taking of personal property; (2) that said property belongs to another; (3) that the taking be done with intent to gain; (4) that the taking be done without the consent of the owner; and (5) that the taking be accomplished without the use of violence against or intimidation of persons or force upon things. Same; Same; Property; The only requirement for a personal property to be the object of theft under the Penal Code is that it be capable of appropriation.—The only requirement for a personal property to be the object of theft under the penal code is that it be capable of appropriation. It need not be capable of “asportation,” which is defined as “carrying away.” Jurisprudence is settled that to “take” under the theft provision of the penal code does not require asportation or carrying away. To appropriate means to deprive the lawful owner of the thing. The word “take” in the Revised Penal Code in_______________ ** Per Special Order No. 545, dated December 16, 2008, signed by Chief Justice Reynato S. Puno, designating Associate Justice Minita V. Chico-Nazario to replace Associate Justice Renato C. Corona, who is on leave.

* EN BANC. 42 42SUPREME COURT REPORTS ANNOTATED Laurel vs. Abrogar cludes any act intended to transfer possession which, as held in the assailed Decision, may be committed through the use of the offenders’ own hands, as well as any mechanical device, such as an access device or card as in the instant case. This includes controlling the destination of the property stolen to deprive the owner of the property, such as the use of a meter tampering, as held in Natividad v. Court of Appeals, 1 SCRA 380 (1961), use of a device to fraudulently obtain gas, as held in United States v. Tambunting, and the use of a jumper to divert electricity, as held in the cases of United States v. Genato, United States v. Carlos, and United States v. Menagas, 11 N.E. 2d 403 (1937). Same; Same; The act of conducting International Simple Resale (ISR) operations by illegally connecting various equipment or apparatus to private respondent Philippine Long Distance Telephone’s (PLDT’s) telephone system, through which petitioner is able to resell or re-route international long distance calls using respondent Philippine Long Distance Telephone’s (PLDT’s) facilities constitutes all three acts of subtraction mentioned above.—The acts of “subtraction” include: (a) tampering with any wire, meter, or other apparatus installed or used for generating, containing, conducting, or measuring electricity, telegraph or telephone service; (b) tapping or otherwise wrongfully deflecting or taking any electric current from such wire, meter, or other apparatus; and (c) using or enjoying the benefits of any device by means of

which one may fraudulently obtain any current of electricity or any telegraph or telephone service. In the instant case, the act of conducting ISR operations by illegally connecting various equipment or apparatus to private respondent PLDT’s telephone system, through which petitioner is able to resell or re-route international long distance calls using respondent PLDT’s facilities constitutes all three acts of subtraction mentioned above. Same; Same; Telecommunication Industry; Property; The business of providing telecommunication or telephone service is likewise personal property which can be the object of theft under Article 308 of the Revised Penal Code.—The business of providing telecommunication or telephone service is likewise personal property which can be the object of theft under Article 308 of the Revised Penal Code. Business may be appropriated under Section 2 of Act No. 3952 (Bulk Sales Law), hence, could be object of theft. Civil Law; Property; Interest in business was declared to be personal property since it is capable of appropriation and not included in the enumeration of real properties.—Interest in business was not specifically enumerated as personal property in the Civil Code in force at the time the above decision was rendered. Yet, interest in business was declared to be personal property 43 VOL. 576, JANUARY 13, 200943 Laurel vs. Abrogar since it is capable of appropriation and not included in the enumeration of real properties. Article 414 of the Civil Code

provides that all things which are or may be the object of appropriation are considered either real property or personal property. Business is likewise not enumerated as personal property under the Civil Code. Just like interest in business, however, it may be appropriated. Following the ruling in Strochecker v. Ramirez, 44 Phil. 933 (1922), business should also be classified as personal property. Since it is not included in the exclusive enumeration of real properties under Article 415, it is therefore personal property. Same; Same; Electricity; Electricity is personal property under Article 416(3) of the Civil Code, which enumerates “forces of nature which are brought under control by science.”—It was conceded that in making the international phone calls, the human voice is converted into electrical impulses or electric current which are transmitted to the party called. A telephone call, therefore, is electrical energy. It was also held in the assailed Decision that intangible property such as electrical energy is capable of appropriation because it may be taken and carried away. Electricity is personal property under Article 416 (3) of the Civil Code, which enumerates “forces of nature which are brought under control by science.” Same; Same; Telecommunication Industry; It is the use of these telecommunications facilities without the consent of Philippine Long Distance Telephone (PLDT) that constitutes the crime of theft, which is the unlawful taking of the telephone services and business.—While it may be conceded that “international long distance calls,” the matter alleged to be stolen in the instant case, take the form of electrical energy, it cannot be said that such international long distance calls were personal properties belonging to PLDT since the latter could

not have acquired ownership over such calls. PLDT merely encodes, augments, enhances, decodes and transmits said calls using its complex communications infrastructure and facilities. PLDT not being the owner of said telephone calls, then it could not validly claim that such telephone calls were taken without its consent. It is the use of these communications facilities without the consent of PLDT that constitutes the crime of theft, which is the unlawful taking of the telephone services and business. Same; Same; Same; The business of providing telecommunication and the telephone service are personal property under Article 308 of the Revised Penal Code (RPC), and the act of engaging in International Simple Resale (ISR) is an act of “subtraction” penalized under said article.—The business of providing telecommunication and the telephone service are personal property under Article 308 of the Revised Penal Code, and the act of engaging in ISR 44 44SUPREME COURT REPORTS ANNOTATED Laurel vs. Abrogar is an act of “subtraction” penalized under said article. However, the Amended Information describes the thing taken as, “international long distance calls,” and only later mentions “stealing the business from PLDT” as the manner by which the gain was derived by the accused. In order to correct this inaccuracy of description, this case must be remanded to the trial court and the prosecution directed to amend the Amended Information, to clearly state that the property subject of the theft are the services and business of respondent PLDT.

Parenthetically, this amendment is not necessitated by a mistake in charging the proper offense, which would have called for the dismissal of the information under Rule 110, Section 14 and Rule 119, Section 19 of the Revised Rules on Criminal Procedure. To be sure, the crime is properly designated as one of theft. The purpose of the amendment is simply to ensure that the accused is fully and sufficiently apprised of the nature and cause of the charge against him, and thus guaranteed of his rights under the Constitution. CORONA, J., Separate Opinion: Civil Law; Property; Telecommunication Industry; While telephone calls take the form of electrical energy, it cannot be said that such telephone calls were personal properties belonging to Philippine Long Distance Telephone (PLDT) since the latter could not have acquired ownership over such calls.—The question of whether PLDT creates the phone calls or merely encodes and transmits them is a question of fact that can be answered by science. I agree with Justice Consuelo Ynares-Santiago that, while telephone calls “take the form of electrical energy, it cannot be said that such [telephone] calls were personal properties belonging to PLDT since the latter could not have acquired ownership over such calls. PLDT merely encodes, augments, enhances, decodes and transmits said calls using its complex infrastructure and facilites.” TINGA, J., Concurring Opinion: Civil Law; Telecommunication Industry; Criminal Law; Theft; The coursing of long distance calls through International Simple Resale (ISR) is not per se illegal.—The coursing of long distance calls through ISR is not per se illegal. For example, the Federal Communications Commission of the

United States is authorized by statute to approve long-distance calling through ISR for calls made to certain countries, as it has done so with nations such as Australia, France and Japan. However, as indicated by the Office of 45 VOL. 576, JANUARY 13, 200945 Laurel vs. Abrogar the Solicitor General’s support for the subject prosecution, there was no authority yet for the practice during the time of the subject incidents. Criminal Law; Theft; The crime of theft is penalized under Article 308 of the Revised Penal Code (RPC).—The crime of theft is penalized under Article 308 of the RPC. From that provision, we have long recognized the following as the elements of theft: (1) that there be taking of personal property; (2) that said property belongs to another; (3) that the taking be done with intent to gain; (4) that the taking be done without the consent of the owner; and (5) that the taking be accomplished without the use of violence against or intimidation of persons or force upon things. Electricity; While electricity is merely the medium through which the telephone calls are carried, it is sufficiently analogous to allow the courts to consider such calls as possessing similar physical characteristics as electricity.—Are “international long distance calls” personal property? The assailed Decision did not believe so, but I agree with the present Resolution that they are. The Court now equates telephone calls to electrical energy. To be clear, telephone calls are not exactly alike as pure electricity. They are sound waves

(created by the human voice) which are carried by electrical currents to the recipient on the other line. While electricity is merely the medium through which the telephone calls are carried, it is sufficiently analogous to allow the courts to consider such calls as possessing similar physical characteristics as electricity. Same; Property; Telecommunication Industry; Theft; Since physically a telephone call is in the form of an electric signal, our jurisprudence acknowledging that electricity is personal property which may be stolen through theft is applicable.—The assailed Decision conceded that when a telephone call was made, “the human voice [is] converted into electronic impulses or electrical current.” As the Resolution now correctly points out, electricity or electronic energy may be the subject of theft, as it is personal property capable of appropriation. Since physically a telephone call is in the form of an electric signal, our jurisprudence acknowledging that electricity is personal property which may be stolen through theft is applicable. Same; Same; Same; Same; Just because the phone calls are transmitted using the facilities and services of Philippine Long Distance Telephone (PLDT), it does not follow that PLDT is the owner of such calls.—The legal paradigm that treats PLDT as akin to a common carrier should alert against any notion that it is the owner of the “long distance overseas calls” alleged as having been stolen in the Amended Information. More precisely, it merely 46 46SUPREME COURT REPORTS ANNOTATED Laurel vs. Abrogar

transmits these calls, owned by another, to the intended recipient. Applying the common carrier paradigm, when a public transport system is contracted to transport goods or persons to a destination, the transport company does not acquire ownership over such goods or such persons, even though it is in custody of the same for the duration of the trip. Just because the phone calls are transmitted using the facilities and services of PLDT, it does not follow that PLDT is the owner of such calls. MOTION FOR RECONSIDERATION of a decision of the Supreme Court. The facts are stated in the resolution of the Court. Salonga, Hernandez & Mendoza for petitioner. Angara, Abello, Concepcion, Regala and Cruz and Kapunan, Tamano, Villodolid & Associates for respondent PLDT. RESOLUTION YNARES-SANTIAGO, J.: On February 27, 2006, this Court’s First Division rendered judgment in this case as follows: “IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed Orders of the Regional Trial Court and the Decision of the Court of Appeals are REVERSED and SET ASIDE. The Regional Trial Court is directed to issue an order granting the motion of the petitioner to quash the Amended Information. SO ORDERED.”1 By way of brief background, petitioner is one of the accused in Criminal Case No. 99-2425, filed with the Regional Trial Court of Makati City, Branch 150. The Amended Information

charged the accused with theft under Article 308 of the Revised Penal Code, committed as follows: “On or about September 10-19, 1999, or prior thereto in Makati City, and within the jurisdiction of this Honorable Court, the accused, conspiring _______________ 1 Rollo, p. 728. 47 VOL. 576, JANUARY 13, 200947 Laurel vs. Abrogar and confederating together and all of them mutually helping and aiding one another, with intent to gain and without the knowledge and consent of the Philippine Long Distance Telephone (PLDT), did then and there willfully, unlawfully and feloniously take, steal and use the international long distance calls belonging to PLDT by conducting International Simple Resale (ISR), which is a method of routing and completing international long distance calls using lines, cables, antenae, and/or air wave frequency which connect directly to the local or domestic exchange facilities of the country where the call is destined, effectively stealing this business from PLDT while using its facilities in the estimated amount of P20,370,651.92 to the damage and prejudice of PLDT, in the said amount. CONTRARY TO LAW.”2 Petitioner filed a “Motion to Quash (with Motion to Defer Arraignment),” on the ground that the factual allegations in the Amended Information do not constitute the felony of theft. The trial court denied the Motion to Quash the Amended

Information, as well as petitioner’s subsequent Motion for Reconsideration. Petitioner’s special civil action for certiorari was dismissed by the Court of Appeals. Thus, petitioner filed the instant petition for review with this Court. In the above-quoted Decision, this Court held that the Amended Information does not contain material allegations charging petitioner with theft of personal property since international long distance calls and the business of providing telecommunication or telephone services are not personal properties under Article 308 of the Revised Penal Code. Respondent Philippine Long Distance Telephone Company (PLDT) filed a Motion for Reconsideration with Motion to Refer the Case to the Supreme Court En Banc. It maintains that the Amended Information charging petitioner with theft is valid and sufficient; that it states the names of all the accused who were specifically charged with the crime of theft of PLDT’s international calls and business of providing telecommunication or telephone service on or about September 10 to 19, 1999 in Makati City by conducting ISR or Interna_______________ 2 Id., at pp. 57-58. 48 48SUPREME COURT REPORTS ANNOTATED Laurel vs. Abrogar tional Simple Resale; that it identifies the international calls and business of providing telecommunication or telephone service of PLDT as the personal properties which were unlawfully taken by the accused; and that it satisfies the test of

sufficiency as it enabled a person of common understanding to know the charge against him and the court to render judgment properly. PLDT further insists that the Revised Penal Code should be interpreted in the context of the Civil Code’s definition of real and personal property. The enumeration of real properties in Article 415 of the Civil Code is exclusive such that all those not included therein are personal properties. Since Article 308 of the Revised Penal Code used the words “personal property” without qualification, it follows that all “personal properties” as understood in the context of the Civil Code, may be the subject of theft under Article 308 of the Revised Penal Code. PLDT alleges that the international calls and business of providing telecommunication or telephone service are personal properties capable of appropriation and can be objects of theft. PLDT also argues that “taking” in relation to theft under the Revised Penal Code does not require “asportation,” the sole requisite being that the object should be capable of “appropriation.” The element of “taking” referred to in Article 308 of the Revised Penal Code means the act of depriving another of the possession and dominion of a movable coupled with the intention, at the time of the “taking,” of withholding it with the character of permanency. There must be intent to appropriate, which means to deprive the lawful owner of the thing. Thus, the term “personal properties” under Article 308 of the Revised Penal Code is not limited to only personal properties which are “susceptible of being severed from a mass or larger quantity and of being transported from place to place.”

PLDT likewise alleges that as early as the 1930s, international telephone calls were in existence; hence, there is no basis for this Court’s finding that the Legislature could not have contemplated the theft of international telephone calls and the unlawful transmission and routing of electronic voice signals or impulses emanating from such calls by unlawfully tampering with the telephone device as within the coverage of the Revised Penal Code. 49 VOL. 576, JANUARY 13, 200949 Laurel vs. Abrogar According to respondent, the “international phone calls” which are “electric currents or sets of electric impulses transmitted through a medium, and carry a pattern representing the human voice to a receiver,” are personal properties which may be subject of theft. Article 416(3) of the Civil Code deems “forces of nature” (which includes electricity) which are brought under the control by science, are personal property. In his Comment to PLDT’s motion for reconsideration, petitioner Laurel claims that a telephone call is a conversation on the phone or a communication carried out using the telephone. It is not synonymous to electric current or impulses. Hence, it may not be considered as personal property susceptible of appropriation. Petitioner claims that the analogy between generated electricity and telephone calls is misplaced. PLDT does not produce or generate telephone calls. It only provides the facilities or services for the transmission and switching of the calls. He also insists that “business” is not personal property. It is not the “business” that is protected but

the “right to carry on a business.” This right is what is considered as property. Since the services of PLDT cannot be considered as “property,” the same may not be subject of theft. The Office of the Solicitor General (OSG) agrees with respondent PLDT that “international phone calls and the business or service of providing international phone calls” are subsumed in the enumeration and definition of personal property under the Civil Code hence, may be proper subjects of theft. It noted that the cases of United States v. Genato,3 United States v. Carlos4 and United States v. Tambunting,5 which recognized intangible properties like gas and electricity as personal properties, are deemed incorporated in our penal laws. Moreover, the theft provision in the Revised Penal Code was deliberately couched in broad terms precisely to be allencompassing and embracing even such scenario that could not have been easily anticipated. _______________ 3 15 Phil. 170 (1910). 4 21 Phil. 553 (1911). 5 41 Phil. 364 (1921). 50 50SUPREME COURT REPORTS ANNOTATED Laurel vs. Abrogar According to the OSG, prosecution under Republic Act (RA) No. 8484 or the Access Device Regulations Act of 1998 and RA 8792 or the Electronic Commerce Act of 2000 does not preclude prosecution under the Revised Penal Code for the crime of theft. The latter embraces unauthorized appropriation or use of PLDT’s international calls, service and business, for

personal profit or gain, to the prejudice of PLDT as owner thereof. On the other hand, the special laws punish the surreptitious and advanced technical means employed to illegally obtain the subject service and business. Even assuming that the correct indictment should have been under RA 8484, the quashal of the information would still not be proper. The charge of theft as alleged in the Information should be taken in relation to RA 8484 because it is the elements, and not the designation of the crime, that control. Considering the gravity and complexity of the novel questions of law involved in this case, the Special First Division resolved to refer the same to the Banc. We resolve to grant the Motion for Reconsideration but remand the case to the trial court for proper clarification of the Amended Information. Article 308 of the Revised Penal Code provides: “Art. 308. Who are liable for theft.—Theft is committed by any person who, with intent to gain but without violence against, or intimidation of persons nor force upon things, shall take personal property of another without the latter’s consent.” The elements of theft under Article 308 of the Revised Penal Code are as follows: (1) that there be taking of personal property; (2) that said property belongs to another; (3) that the taking be done with intent to gain; (4) that the taking be done without the consent of the owner; and (5) that the taking be accomplished without the use of violence against or intimidation of persons or force upon things. Prior to the passage of the Revised Penal Code on December 8, 1930, the definition of the term “personal property” in the penal code provision on theft had been established in

Philippine jurisprudence. This Court, in United States v. Genato, United States v. Carlos, and United States v. Tambunting, consistently ruled that any personal 51 VOL. 576, JANUARY 13, 200951 Laurel vs. Abrogar property, tangible or intangible, corporeal or incorporeal, capable of appropriation can be the object of theft. Moreover, since the passage of the Revised Penal Code on December 8, 1930, the term “personal property” has had a generally accepted definition in civil law. In Article 335 of the Civil Code of Spain, “personal property” is defined as “anything susceptible of appropriation and not included in the foregoing chapter (not real property).” Thus, the term “personal property” in the Revised Penal Code should be interpreted in the context of the Civil Code provisions in accordance with the rule on statutory construction that where words have been long used in a technical sense and have been judicially construed to have a certain meaning, and have been adopted by the legislature as having a certain meaning prior to a particular statute, in which they are used, the words used in such statute should be construed according to the sense in which they have been previously used.6 In fact, this Court used the Civil Code definition of “personal property” in interpreting the theft provision of the penal code in United States v. Carlos. Cognizant of the definition given by jurisprudence and the Civil Code of Spain to the term “personal property” at the time the old Penal Code was being revised, still the legislature did not limit or qualify the definition of “personal property” in the

Revised Penal Code. Neither did it provide a restrictive definition or an exclusive enumeration of “personal property” in the Revised Penal Code, thereby showing its intent to retain for the term an extensive and unqualified interpretation. Consequently, any property which is not included in the enumeration of real properties under the Civil Code and capable of appropriation can be the subject of theft under the Revised Penal Code. The only requirement for a personal property to be the object of theft under the Penal Code is that it be capable of appropriation. It need not be capable of “asportation,” which is defined as “carrying _______________ 6 Krivenko v. Register of Deeds, 79 Phil. 461 (1947). 52 52SUPREME COURT REPORTS ANNOTATED Laurel vs. Abrogar away.”7 Jurisprudence is settled that to “take” under the theft provision of the penal code does not require asportation or carrying away.8 To appropriate means to deprive the lawful owner of the thing.9 The word “take” in the Revised Penal Code includes any act intended to transfer possession which, as held in the assailed Decision, may be committed through the use of the offenders’ own hands, as well as any mechanical device, such as an access device or card as in the instant case. This includes controlling the destination of the property stolen to deprive the owner of the property, such as the use of a meter tampering, as held in Natividad v. Court of Appeals,10 use of a device to

fraudulently obtain gas, as held in United States v. Tambunting, and the use of a jumper to divert electricity, as held in the cases of United States v. Genato, United States v. Carlos, and United States v. Menagas.11 As illustrated in the above cases, appropriation of forces of nature which are brought under control by science such as electrical energy can be achieved by tampering with any apparatus used for generating or measuring such forces of nature, wrongfully redirecting such forces of nature from such apparatus, or using any device to fraudulently obtain such forces of nature. In the instant case, petitioner was charged with engaging in International Simple Resale (ISR) or the unauthorized routing and completing of international long distance calls using lines, cables, antennae, and/or air wave frequency and connecting these calls directly to the local or domestic exchange facilities of the country where destined. As early as 1910, the Court declared in Genato that ownership over electricity (which an international long distance call consists of), as well as telephone service, is protected by the provisions on theft of the Penal Code. The pertinent provision of the Revised Ordinance of the City of Manila, which was involved in the said case, reads as follows: _______________ 7 People v. Mercado, 65 Phil. 665 (1938). 8 Id.; Duran v. Tan, 85 Phil. 476 (1950). 9 Regalado, Criminal Law Conspectus (2000 ed.), p. 520. 10 G.R. No. L-14887, January 31, 1961, 1 SCRA 380. 11 11 N.E. 2d 403 (1937). 53 VOL. 576, JANUARY 13, 200953

Laurel vs. Abrogar “Injury to electric apparatus; Tapping current; Evidence.—No person shall destroy, mutilate, deface, or otherwise injure or tamper with any wire, meter, or other apparatus installed or used for generating, containing, conducting, or measuring electricity, telegraph or telephone service, nor tap or otherwise wrongfully deflect or take any electric current from such wire, meter, or other apparatus. No person shall, for any purpose whatsoever, use or enjoy the benefits of any device by means of which he may fraudulently obtain any current of electricity or any telegraph or telephone service; and the existence in any building premises of any such device shall, in the absence of satisfactory explanation, be deemed sufficient evidence of such use by the persons benefiting thereby.” It was further ruled that even without the above ordinance the acts of subtraction punished therein are covered by the provisions on theft of the Penal Code then in force, thus: “Even without them (ordinance), the right of the ownership of electric current is secured by Articles 517 and 518 of the Penal Code; the application of these articles in cases of subtraction of gas, a fluid used for lighting, and in some respects resembling electricity, is confirmed by the rule laid down in the decisions of the supreme court of Spain of January 20, 1887, and April 1, 1897, construing and enforcing the provisions of Articles 530 and 531 of the Penal Code of that country, Articles 517 and 518 of the code in force in these islands.” The acts of “subtraction” include: (a) tampering with any wire, meter, or other apparatus installed or used for generating,

containing, conducting, or measuring electricity, telegraph or telephone service; (b) tapping or otherwise wrongfully deflecting or taking any electric current from such wire, meter, or other apparatus; and (c) using or enjoying the benefits of any device by means of which one may fraudulently obtain any current of electricity or any telegraph or telephone service. In the instant case, the act of conducting ISR operations by illegally connecting various equipment or apparatus to private respondent PLDT’s telephone system, through which petitioner is able to resell or re-route international long distance calls using respondent PLDT’s facilities constitutes all three acts of subtraction mentioned above. 54 54SUPREME COURT REPORTS ANNOTATED Laurel vs. Abrogar The business of providing telecommunication or telephone service is likewise personal property which can be the object of theft under Article 308 of the Revised Penal Code. Business may be appropriated under Section 2 of Act No. 3952 (Bulk Sales Law), hence, could be object of theft: “Section 2. Any sale, transfer, mortgage, or assignment of a stock of goods, wares, merchandise, provisions, or materials otherwise than in the ordinary course of trade and the regular prosecution of the business of the vendor, mortgagor, transferor, or assignor, or any sale, transfer, mortgage, or assignment of all, or substantially all, of the business or trade theretofore conducted by the vendor, mortgagor, transferor or assignor, or all, or substantially all, of the fixtures and equipment used in and about the business of the vendor,

mortgagor, transferor, or assignor, shall be deemed to be a sale and transfer in bulk, in contemplation of the Act. x x x.” In Strochecker v. Ramirez,12 this Court stated: “With regard to the nature of the property thus mortgaged, which is one-half interest in the business above described, such interest is a personal property capable of appropriation and not included in the enumeration of real properties in Article 335 of the Civil Code, and may be the subject of mortgage.” Interest in business was not specifically enumerated as personal property in the Civil Code in force at the time the above decision was rendered. Yet, interest in business was declared to be personal property since it is capable of appropriation and not included in the enumeration of real properties. Article 414 of the Civil Code provides that all things which are or may be the object of appropriation are considered either real property or personal property. Business is likewise not enumerated as personal property under the Civil Code. Just like interest in business, however, it may be appropriated. Following the ruling in Strochecker v. Ramirez, business should also be classified as personal property. Since it is not included in the exclusive enumera_______________ 12 44 Phil. 933 (1922). 55 VOL. 576, JANUARY 13, 200955 Laurel vs. Abrogar tion of real properties under Article 415, it is therefore personal property.13

As can be clearly gleaned from the above disquisitions, petitioner’s acts constitute theft of respondent PLDT’s business and service, committed by means of the unlawful use of the latter’s facilities. In this regard, the Amended Information inaccurately describes the offense by making it appear that what petitioner took were the international long distance telephone calls, rather than respondent PLDT’s business. A perusal of the records of this case readily reveals that petitioner and respondent PLDT extensively discussed the issue of ownership of telephone calls. The prosecution has taken the position that said telephone calls belong to respondent PLDT. This is evident from its Comment where it defined the issue of this case as whether or not “the unauthorized use or appropriation of PLDT international telephone calls, service and facilities, for the purpose of generating personal profit or gain that should have otherwise belonged to PLDT, constitutes theft.”14 In discussing the issue of ownership, petitioner and respondent PLDT gave their respective explanations on how a telephone call is generated.15 For its part, respondent PLDT explains the process of generating a telephone call as follows: “38. The role of telecommunication companies is not limited to merely providing the medium (i.e. the electric current) through which the human voice/voice signal of the caller is transmitted. Before the human voice/voice signal can be so transmitted, a telecommunication company, using its facilities, must first break down or decode the human voice/voice signal into electronic impulses and subject the same to further augmentation and enhancements. Only after such process of conversion will the resulting electronic impulses be transmitted

by a telecommunication company, again, through the use of its facilities. Upon reaching the destination of the call, the telecommunication company will again break down or decode the electronic _______________ 13 II Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines 26 (1992 ed.). 14 Rollo, p. 902. 15 Id., at pp. 781-783; 832-837; 872, 874-877. 56 56SUPREME COURT REPORTS ANNOTATED Laurel vs. Abrogar impulses back to human voice/voice signal before the called party receives the same. In other words, a telecommunication company both converts/reconverts the human voice/voice signal and provides the medium for transmitting the same. 39. Moreover, in the case of an international telephone call, once the electronic impulses originating from a foreign telecommunication company country (i.e. Japan) reaches the Philippines through a local telecommunication company (i.e. private respondent PLDT), it is the latter which decodes, augments and enhances the electronic impulses back to the human voice/voice signal and provides the medium (i.e. electric current) to enable the called party to receive the call. Thus, it is not true that the foreign telecommunication company provides (1) the electric current which transmits the human voice/voice signal of the caller and (2) the electric current for the called party to receive said human voice/voice signal.

40. Thus, contrary to petitioner Laurel’s assertion, once the electronic impulses or electric current originating from a foreign telecommunication company (i.e. Japan) reaches private respondent PLDT’s network, it is private respondent PLDT which decodes, augments and enhances the electronic impulses back to the human voice/voice signal and provides the medium (i.e. electric current) to enable the called party to receive the call. Without private respondent PLDT’s network, the human voice/voice signal of the calling party will never reach the called party.”16 In the assailed Decision, it was conceded that in making the international phone calls, the human voice is converted into electrical impulses or electric current which are transmitted to the party called. A telephone call, therefore, is electrical energy. It was also held in the assailed Decision that intangible property such as electrical energy is capable of appropriation because it may be taken and carried away. Electricity is personal property under Article 416 (3) of the Civil Code, which enumerates “forces of nature which are brought under control by science.”17 Indeed, while it may be conceded that “international long distance calls,” the matter alleged to be stolen in the instant case, take the form of electrical energy, it cannot be said that such international long distance calls were personal properties belonging to PLDT since _______________ 16 Id., at pp. 875-877. 17 Supra note 13. 57 VOL. 576, JANUARY 13, 200957

Laurel vs. Abrogar the latter could not have acquired ownership over such calls. PLDT merely encodes, augments, enhances, decodes and transmits said calls using its complex communications infrastructure and facilities. PLDT not being the owner of said telephone calls, then it could not validly claim that such telephone calls were taken without its consent. It is the use of these communications facilities without the consent of PLDT that constitutes the crime of theft, which is the unlawful taking of the telephone services and business. Therefore, the business of providing telecommunication and the telephone service are personal property under Article 308 of the Revised Penal Code, and the act of engaging in ISR is an act of “subtraction” penalized under said article. However, the Amended Information describes the thing taken as, “international long distance calls,” and only later mentions “stealing the business from PLDT” as the manner by which the gain was derived by the accused. In order to correct this inaccuracy of description, this case must be remanded to the trial court and the prosecution directed to amend the Amended Information, to clearly state that the property subject of the theft are the services and business of respondent PLDT. Parenthetically, this amendment is not necessitated by a mistake in charging the proper offense, which would have called for the dismissal of the information under Rule 110, Section 14 and Rule 119, Section 19 of the Revised Rules on Criminal Procedure. To be sure, the crime is properly designated as one of theft. The purpose of the amendment is simply to ensure that the accused is fully and sufficiently

apprised of the nature and cause of the charge against him, and thus guaranteed of his rights under the Constitution. ACCORDINGLY, the motion for reconsideration is GRANTED. The assailed Decision dated February 27, 2006 is RECONSIDERED and SET ASIDE. The Decision of the Court of Appeals in CA-G.R. SP No. 68841 affirming the Order issued by Judge Zeus C. Abrogar of the Regional Trial Court of Makati City, Branch 150, which denied the Motion to Quash (With Motion to Defer Arraignment) in Criminal Case No. 992425 for theft, is AFFIRMED. The case is remanded to the trial court and the Public Prosecutor of Makati City is hereby DIRECTED to amend the Amended Information to show that the 58 58SUPREME COURT REPORTS ANNOTATED Laurel vs. Abrogar property subject of the theft were services and business of the private offended party. SO ORDERED. Puno (C.J.), Quisumbing, Carpio, Austria-Martinez, CarpioMorales, Azcuna, Chico-Nazario, Velasco, Jr., Nachura, Leonardo-De Castro and Brion, JJ., concur. Corona, J., See Separate Opinion. Tinga, J., Please see Concurring Opinion. SEPARATE OPINION CORONA, J.: The bone of contention in this case is: who owns the telephone calls that we make? If respondent Philippine Long Distance Telephone Company (PLDT) can claim ownership over them,

then petitioner Luis Marcos P. Laurel (Laurel) can be charged with theft of such telephone calls under Article 308 of the Revised Penal Code. If PLDT does not own them, then the crime of theft was not committed and Laurel cannot be charged with this crime. One view is that PLDT owns the telephone calls because it is responsible for creating such calls. The opposing view is that it is the caller who owns the phone calls and PLDT merely encodes and transmits them. The question of whether PLDT creates the phone calls or merely encodes and transmits them is a question of fact that can be answered by science. I agree with Justice Consuelo Ynares-Santiago that, while telephone calls “take the form of electrical energy, it cannot be said that such [telephone] calls were personal properties belonging to PLDT since the latter could not have acquired ownership over such calls. PLDT merely encodes, augments, enhances, decodes and transmits said calls using its complex infrastructure and facilites.” In my view, it is essential to differentiate between the conversation of a caller and recipient of the call, and the telephone service that 59 VOL. 576, JANUARY 13, 200959 Laurel vs. Abrogar made the call possible. Undoubtedly, any conversation between or among individuals is theirs alone. For example, if two children use two empty cans and a string as a makeshift play phone, they themselves create their “phone call.” However, if individuals separated by long distances use the telephone and

have a conversation through the telephone lines of the PLDT, then the latter owns the service which made possible the resulting call. The conversation, however, remains protected by our privacy laws. Accordingly, I vote to GRANT the motion for reconsideration. CONCURRING OPINION TINGA, J.: I do not have any substantive disagreements with the ponencia. I write separately to flesh out one of the key issues behind the Court’s present disposition—whether the Philippine Long Distance Company (PLDT) can validly claim ownership over the telephone calls made using its telephone services. As the subject Amended Information had alleged that petitioners had “unlawfully and feloniously take, steal and use the international long distance calls belonging to PLDT,” said information could have been sustained only if its premise were accepted that PLDT indeed owned those phone calls. I. It is best to begin with an overview of the facts that precede this case. Among many other services, PLDT operates an International Gateway Facility (IGF),1 through which pass phone calls originating from overseas to local PLDT phones. However, there exists a method of routing and completing international long distance calls called International Simple Resale (ISR), which makes use of International Private Leased Lines (IPL). Because IPL lines may be linked to switching equipment connected to a PLDT phone line, it becomes _______________ 1 Other telecommunication companies authorized to operate an IGF are Globe Telecommunications (Globe), Eastern Telecoms

(ETPI), Digitel Communications (Digitel) and Telecommunications Company (Bayantel). 60 60SUPREME COURT REPORTS ANNOTATED Laurel vs. Abrogar

Bayan

possible to make an overseas phone call to the Philippines without having to pass through the IGF.2 Petitioner Laurel was, until November of 1999, the Corporate Secretary of Baynet Co., Ltd. (Baynet), as well as a member of its Board of Directors.3 Baynet was in the business of selling phone cards to people who wished to call people in the Philippines. Each phone card, which apparently was sold in Japan, contained an ISR telephone number and a PIN. For the caller to use the phone card, he or she would dial the ISR number indicated, and would be connected to an ISR operator. The caller would then supply the ISR operator with the PIN, and the operator would then connect the caller with the recipient of the call in the Philippines through the IPL lines. Because the IPL lines bypass the IGF, PLDT as operator of the IGF would have no way of knowing that the long-distance call was being made.4 Apparently, the coursing of long distance calls through ISR is not per se illegal. For example, the Federal Communications Commission of the United States is authorized by statute to approve long-distance calling through ISR for calls made to certain countries, as it has done so with nations such as Australia, France and Japan.5 However, as indicated by the Office of the Solicitor General’s support for the subject

prosecution, there was no authority yet for the practice during the time of the subject incidents. Taking issue with this scheme, PLDT filed a complaint against Baynet “for network fraud.”6 A search warrant issued caused the seizure of various equipment used in Baynet’s operations. However, after the inquest investigation, the State Prosecutor, on 28 January 2000, issued a Resolution finding probable cause “for theft under Article 308” of the RPC and for violating Presidential Decree No. 401, a law which criminalizes the installation of a telephone connection without the prior authority from the PLDT, or the tampering of its _______________ 2 Supra note 1 at p. 251. 3 Id., at p. 255. 4 Id., at p. 252. 5 See International Bureau International Simple Resale, http://www.fcc.gov/ib/pd/pf/isr.html (Last visited, 6 September 2007). 6 Supra note 1, at p. 253. 61 VOL. 576, JANUARY 13, 200961 Laurel vs. Abrogar lines.7 However, when the Information was filed against petitioner with the Regional Trial Court (RTC) of Makati on 8 February 2000, the Information charged petitioner only with theft under Article 308 of the RPC. The accusatory portion of the Amended Information reads as follows: “On or about September 10-19, 1999, or prior thereto, in Makati City, and within the jurisdiction of this Honorable

Court, the accused, conspiring and confederating together and all of them mutually helping and aiding one another, with intent to gain and without the knowledge and consent of the Philippine Long Distance Telephone (PLDT), did then and there willfully, unlawfully and feloniously take, steal and use the international long distance calls belonging to PLDT by conducting International Simple Resale (ISR), which is a method of routing and completing international long distance calls using lines, cables, antennae, and/or air wave frequency which connect directly to the local or domestic exchange facilities of the country where the call is destined, effectively stealing this business from PLDT while using its facilities in the estimated amount of P20,370,651.92 to the damage and prejudice of PLDT, in the said amount.”8 Prior to arraignment, petitioner filed a Motion to Quash on the ground that the factual allegations in the Amended Information do not constitute the felony of theft under Article 308 of the Revised Penal Code. He claimed, among others, that telephone calls with the use of PLDT telephone lines, whether domestic or international, belong to the persons making the call, not to PLDT. The RTC denied the Motion to Quash, and the Court of Appeals affirmed the denial of the motion. However, in its Decision now sought to be reconsidered the Court reversed the lower courts and directed the quashal of the Amended Information. II. Preliminarily, it should be noted that among the myriad possible crimes with which petitioner could have been charged, he was charged with theft, as defined in the RPC provision which has remained in its vestal 1930 form. Even our earlier

Decision now as_______________ 7 Id., at p. 254. 8 Id., at p. 255. Emphasis not mine. 62 62SUPREME COURT REPORTS ANNOTATED Laurel vs. Abrogar sailed pointed out that petitioner could have been charged instead with estafa under the RPC, or with violation of the Access Devices Regulation Act of 1998.9 Moreover, it appears that PLDT’s original complaint was for “network fraud,” and that the State Prosecutor had initially recommended prosecution as well under P.D. 401, a law specifically designed against tampering with the phone service operations of PLDT. Facially, it would appear that prosecution of petitioner under any of these other laws would have been eminently more appropriate than the present recourse, which utilizes the same provision used to penalize pickpockets. But since the State has preferred to pursue this more cumbersome theory of the case, we are now belabored to analyze whether the facts _______________ 9 “In the Philippines, Congress has not amended the Revised Penal Code to include theft of services or theft of business as felonies. Instead, it approved a law, Republic Act No. 8484, otherwise known as the Access Devices Regulation Act of 1998, on February 11, 1998. Under the law, an access device means any card, plate, code, account number, electronic serial

number, personal identification number and other telecommunication services, equipment or instrumentalitiesidentifier or other means of account access that can be used to obtain money, goods, services or any other thing of value or to initiate a transfer of funds other than a transfer originated solely by paper instrument. Among the prohibited acts enumerated in Section 9 of the law are the acts of obtaining money or anything of value through the use of an access device, with intent to defraud or intent to gain and fleeing thereafter; and of effecting transactions with one or more access devices issued to another person or persons to receive payment or any other thing of value. Under Section 11 of the law, conspiracy to commit access devices fraud is a crime. However, the petitioner is not charged of violation of R.A. 8484. Significantly, a prosecution under the law shall be without prejudice to any liability for violation of any provisions of the Revised Penal Code inclusive of theft under Rule 308 of the Revised Penal Code and estafa under Article 315 of the Revised Penal Code. Thus, if an individual steals a credit card and uses the same to obtain services, he is liable of the following: theft of the credit card under Article 308 of the Revised Penal Code; violation of Republic Act No. 8484; and estafa under Article 315(2)(a) of the Revised Penal Code with the service provider as the private complainant. The petitioner is not charged of estafa before the RTC in the Amended Information.” Laurel v. Abrogar, G.R. 155706, 27 February 2006, 483 SCRA 243. 63 VOL. 576, JANUARY 13, 200963

Laurel vs. Abrogar as alleged in the Amended Information could somehow align with the statutory elements of theft under the RPC. The crime of theft is penalized under Article 308 of the RPC. From that provision, we have long recognized the following as the elements of theft: (1) that there be taking of personal property; (2) that said property belongs to another; (3) that the taking be done with intent to gain; (4) that the taking be done without the consent of the owner; and (5) that the taking be accomplished without the use of violence against or intimidation of persons or force upon things.10 In analyzing whether the crime of theft had been committed given the allegations in this case, it is against these five elements that the facts must be tested. We can agree outright that the “taking” alleged in this case was accomplished without the use of violence against or intimidation of persons or force upon things. It can also be conceded for now that the element of animo lucrandi, or intent to gain, does not bear materiality to our present discussion and its existence may be presumed for the moment. Let us discuss the remaining elements of theft as they relate to the Amended Information, and its contentious allegation that petitioner did “unlawfully and feloniously take, steal and use the international long distance calls belonging to PLDT.” Are “international long distance calls” personal property? The assailed Decision did not believe so, but I agree with the present Resolution that they are. The Court now equates telephone calls to electrical energy. To be clear, telephone calls

are not exactly alike as pure electricity. They are sound waves (created by the human voice) which are carried by electrical currents to the recipient on the other line.11 While electricity is merely the medium through which the telephone calls are carried, it is sufficiently analogous to allow the courts to _______________ 10See e.g. People v. Bustinera, G.R. No. 148233, 8 June 2004, 431 SCRA 284, 291, citing People v. Sison, 322 SCRA 345, 363-364 (2000). 11 “When a person speaks into a telephone, the sound waves created by his voice enter the mouthpiece. An electric current carries the sound to the telephone of the person he is talking to.” See How the Telephone Works, at http://areaonline.com/phone/telworks.html. 64 64SUPREME COURT REPORTS ANNOTATED Laurel vs. Abrogar consider such calls as possessing similar physical characteristics as electricity. The assailed Decision conceded that when a telephone call was made, “the human voice [is] converted into electronic impulses or electrical current.”12 As the Resolution now correctly points out, electricity or electronic energy may be the subject of theft, as it is personal property capable of appropriation. Since physically a telephone call is in the form of an electric signal, our jurisprudence acknowledging that electricity is personal property which may be stolen through theft is applicable. III.

I now turn to the issue of the legal ownership of the “international long distance calls,” or telephone calls in general for that matter. An examination of the physical characteristics of telephone calls is useful for our purposes. As earlier stated, telephone calls take on the form of electrical current, though they are distinguished from ordinary electricity in that they are augmented by the human voice which is transmitted from one phone to another. A material inquiry is how these calls are generated in the first place? It bears significance that neither the RTC nor the Court of Appeals concluded that PLDT owns the telephone calls. Instead, they concluded that PLDT owns the telephone service, a position that is intellectually plausible, unlike the contention that PLDT owns the actual calls themselves. Yet PLDT is willing to make the highly controversial claim that it owns the phone calls, despite the absence of any reliable or neutral evidence to that effect. PLDT argues that it does not merely transmit the telephone calls but “actually creates them.” The claim should beggar belief, if only for the underlying implication that if PLDT “creates” telephone calls, such calls can come into existence without the participation of a caller, or a human voice for that matter. _______________ 12 Id., at p. 273. 65 VOL. 576, JANUARY 13, 200965 Laurel vs. Abrogar

Let us examine the analysis of the American law professors Benjamin, Lichtman and Shelanski in their textbook Telecommunications Law and Policy. In illustrating the “telephone system vocabulary,” they offer the following discussion: “Consumers have in their homes standard equipment (like telephones) capable of encoding and receiving voice communications. Businesses have similar basic equipment. This equipment is what insiders call customer premises equipment, which is abbreviated ‘CPE’. The Telecommunications Act of 1996 defines CPE as ‘equipment employed on the premises of a person (other than a carrier) to originate, route or terminate telecommunications.’ 47 U.S.C. §153(14). This category, as implemented by the FCC, includes not only basic telephones but also answering machines, fax machines, modems, and even private branch exchange (PBX) equipment (in which a large entity maintains, in effect, its own switch-board to various internal extensions).”13 It has been suggested that PLDT owns the phone calls because it is the entity that encodes or decodes such calls even as they originate from a human voice. Yet it is apparent from the above discussion that the device that encodes or decodes telephone calls is the CPE, more particularly the telephone receiver. It is the telephone receiver, which is in the possession of the telephone user, which generates the telephone call at the initiative of the user. Now it is known from experience that while PLDT does offer its subscribers the use of telephone receivers marked with the PLDT logo, subscribers are free to go to Abenson and purchase a telephone receiver manufactured by an entity other than PLDT, such as Sony or Bell Siemens or

Panasonic. Since such is the case, it cannot be accurately said that the encoding or decoding of Philippine telephone calls is done through the exclusive use of PLDT equipment, because the telephone receivers we use are invariably purchased directly by the very same people who call or receive the phone calls. It likewise appears from the particular facts of this case that some, if not many of the phone calls alleged to have been stolen from PLDT were generated by calls originating not from the Philippines, but from _______________ 13 S. Benjamin, D. Lichtman & H. Shelanski, Telecommunications Law and Policy (2001 ed.), at p. 613. 66 66SUPREME COURT REPORTS ANNOTATED Laurel vs. Abrogar Japan. Assuming that the telephone company exclusively generates the phone calls, those calls originating from Japan were not generated by PLDT, but by KDDI, NTT, Japan Telecom, Verizon Japan, and all the other long distance telephone service providers in Japan. If PLDT were indeed the owner of the telephone calls, then it should be able to demonstrate by which mode did it acquire ownership under the Civil Code. Under that Code, ownership may be acquired by occupation, by intellectual creation, by law, by donation, by testate and intestate succession, by prescription, and in consequence of certain contracts, by tradition.14 Under which mode of acquisition could PLDT deemed as acquiring ownership over the telephone calls? We

can exclude outright, without need of discussion, such modes as testate and intestate succession, prescription, and tradition. Neither can the case be made that telephone calls are susceptible to intellectual creation. Donation should also be ruled out, since a donation must be accepted in writing by the donee in order to become valid, and that obviously cannot apply as to telephone calls. Can telephone calls be acquired by “occupation”? According to Article 713, properties which are acquired by occupation are “things appropriable by nature which are without an owner, such as animals that are the object of hunting and fishing, hidden treasure and abandoned movables.” It is not possible to establish a plausible analogy between telephone calls and “animals that are the object of hunting or fishing,” or of “hidden treasure” and of “abandoned movables.” Is it possible that PLDT somehow acquired ownership over the phone calls by reason of law? No law vesting ownership over the phone calls to PLDT or any other local telephone service provider is in existence. All these points demonstrate the strained reasoning behind the claim that PLDT owns the international long distance calls. Indeed, applying the traditional legal paradigm that governs the regulation of telecommunications companies, it becomes even clearer that PLDT cannot validly assert such ownership. Telephone companies have _______________ 14 See Article 712, Civil Code. 67 VOL. 576, JANUARY 13, 200967 Laurel vs. Abrogar

historically been regulated as common carriers.15 The 1936 Public Service Act classifies wire or wireless communications systems as a “public service,” along with other common carriers.16 In the United States, telephone providers were expressly decreed to operate as common carriers in the MannElkins Act of 1910,17 utilizing an analogy typically akin to the regulation of railroads.18 Under the Public Service Act, a telephone communication system is classified as a “public service,” not a “common carrier.” That fact might seem to imply that the two phrases are mutually exclusive, despite the fact that the Public Service Act does categorize as belonging to “public service,” “any common carrier, railroad, street railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed route and whatever may be its classification, freight or carrier service of any class, express service, steamboat, or steamship, or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or freight or both.”19 It may be correct to say that under the Civil Code, a telephone system is not a common carrier, the civil law definition of such term limited to “persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water or air...”20 Still, it cannot be denied that the weight of authorities have accepted that the traditional regulation regime of _______________ 15 See Globe Telecom, Inc. v. National Telecommunications Commission, G.R. No. 143964, 26 July 2004, 435 SCRA 110, 121; citing K. Middleton, R. Trager & B. Chamberlin, The

Law of Public Communication (5th ed., 2001), at p. 578; in turn citing 47 U.S.C Secs. 201, 202. 16 See Sec. 13(b), Public Service Act, as amended (1936). 17 See H. Zuckman, R. Corn-Revere, R. Frieden, C. Kennedy, Modern Communications Law (1999 ed.), at p. 911. 18 Id., at p. 912. 19 See also De Guzman v. Court of Appeals, 168 SCRA 612 (1988), “So understood, the concept of ‘common carrier’ under Article 1732 [of the Civil Code] may be seen to coincide neatly with the notion of ‘public service,’ under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially supplements the law on common carriers set forth in the Civil Code.” 20 See Article 1732, Civil Code. 68 68SUPREME COURT REPORTS ANNOTATED Laurel vs. Abrogar telephone service providers has been akin to common carriers, both in the United States and the Philippines.21 The legal paradigm that treats PLDT as akin to a common carrier should alert against any notion that it is the owner of the “long distance overseas calls” alleged as having been stolen in the Amended Information. More precisely, it merely transmits these calls, owned by another, to the intended recipient. Applying the common carrier paradigm, when a public transport system is contracted to transport goods or persons to a destination, the transport company does not acquire ownership over such goods or such persons, even though it is in custody of the same for the duration of the trip. Just because the phone

calls are transmitted using the facilities and services of PLDT, it does not follow that PLDT is the owner of such calls. On this score, the distinction must be made between a telephone company such as PLDT, and a power company such as Meralco. Both companies are engaged in the business of distributing electrical energy to end-users. In the case of Meralco, it is pure electricity, while in PLDT’s case, it is an electronic signal converted out of an indispensable element which is the human voice and transformed back to the original voice at the point of reception. Neither Meralco nor PLDT created the electronic energy it transmits. But in Meralco’s case, it purchases the electricity from a generating company such as the National Power Corporation, and it may thus be considered as the owner of such electricity by reason of the sale. PLDT’s case is different, as it does not purchase the electronic signals it transmits. These signals are created by the interaction between the human voice and the electrical current. Indeed, the logical consequences should it be held that PLDT owns these “long distance overseas calls” are quite perilous. PLDT, as owner of these calls (or any telephone calls made for that matter), _______________ 21 See Globe Telecom, Inc. v. National Telecommunications Commission, G.R. No. 143964, 26 July 2004, 435 SCRA 110, 121, citing K. Middleton, R. Trager & B. Chamberlin, The Law of Public Communication (5th ed., 2001), at p. 578, in turn citing 47 U.S.C. Secs. 201, 202. 69 VOL. 576, JANUARY 13, 200969 Laurel vs. Abrogar

would have in theory, the right to record these calls and sell them.22 That is a circumstance not one of us wants to contemplate. At the very least, it is clear that the caller or the recipient of the phone call has a better right to assert ownership thereof than the telephone company. And critically, the subject Amended Information does not allege that the “international long distance calls” were taken without the consent of either the caller or the recipient. I am thus hard pressed to conclude that the Amended Information as it stands was able to allege one of the essential elements of the crime of theft, that the personal property belonging to another was taken without the latter’s consent. All the Amended Information alleged was that the taking was without PLDT’s consent, a moot point considering that PLDT is most definitely not the owner of the phone calls. The consensus of the majority has been to direct the amendment of the subject Amended Information to sustain the current prosecution of the petitioners without suggesting in any way that PLDT is the owner of those “international long distance calls.” Said result is acceptable to me, and I concur therein. Motion for Reconsideration granted, assailed judgment reconsidered and set aside. Note.—Theft is produced when there is deprivation of personal property due to its taking by one with intent to gain, and, viewed from that perspective, it is immaterial to the product of the felony that the offender, once having committed all the acts of execution for theft, is able or unable to freely dispose of the

property stolen since the deprivation from the owner alone has already ensued from such acts of execution. (Valenzuela vs. People, 525 SCRA 306 [2007]) ——o0o—— [Laurel vs. Abrogar, 576 SCRA 41(2009)]

INVOLUNTARY INSOLVENCY OF PAUL STROCHECKER, appellee, vs. ILDEFONSO RAMIREZ, creditor and appellant. WILLIAM EDMONDS, assignee. 1. CHATTEL MORTGAGE; INTEREST IN A BUSINESS.— An interest in a business may be the subject of mortgage, for it is a personal property, being capable of appropriation, and not included among the real properties enumerated in article 335 of the Civil Code. 2. ID.; ID.; DESCRIPTION; SUFFICIENCY OF.—Where the description of the chattel mortgaged is such as to enable the .parties to the mortgage or any other person to identify the same after a reasonable investigation or inquiry, the description is sufficient. Thus, if the thing is described as the half interest of the debtor in the drug business known as Antigua Botica Ramirez (owned by a certain person therein named and the mortgagor) located at Nos. 123 and 125, Calle Real, District of Intramuros, Manila, P. I., the description meets the requirements of the law. 3. ID.; PREFERENCE; PURCHASE PRICE; POSSESSION.—The vendor of a chattel, who is a creditor for the purchase price, has no preference over a creditor holding a mortgage on that chattel where the vendor is not in possession of the thing mortgaged. 934 934 PHILIPPINE REPORTS ANNOTATED Involuntary Insolvency of Strochecker vs. Ramirez 4. ID.; ID.; RETROACTIVITY; PERSONAL SECURITY.—A junior mortgage can have no preference over a senior mortgage by the mere fact that prior to said junior mortgage a personal

security had been stipulated between the junior mortgagee and the debtor, because the second mortgage cannot be given effect as of the date the personal security was stipulated. APPEAL from a judgment of the Court of First Instance of Manila. Concepcion, J. The facts are stated in the opinion of the court. Lim & Lim f or -appellant. Ross & Lawrence and Antonio T. Carrascoso, jr., for the Fidelity & Surety Co. ROMUALDEZ, J.: The question at issue in this appeal is, which of the two mortgages here in question must be given preference? Is it the one in favor of the Fidelity & Surety Co., or that in favor of Ildefonso Ramirez. The first was declared by the trial court to be entitled to preference. In the lower court there were three mortgagees each of whom claimed pref erence. They were the two above mentioned and Concepcion Ayala. The latter's claim was rejected by the trial court, and from that ruling she did not appeal. There is no question as to the priority in time of the mortgage in favor of the Fidelity & Surety Co. which was executed on March 10, 1919, and registered in due time in the registry of property, that in favor of the appellant being dated September 22, 1919, and registered also in the registry. The appellant claims preference on these grounds: (a) That the first mortgage above-mentioned is not valid because the property which is the subject-matter thereof is not capable of being mortgaged, and the description of said property is not sufficient; and (b) that the amount due the appellant is a purchase price, citing article 1922 of the

935 VOL. 44, SEPTEMBER 26, 1922 935 Involuntary Insolvency of Strochecker vs. Ramirez Civil Code in support thereof, and that his mortgage is but a modification of the security given by the debtor on February 15, 1919, that is, prior to the mortgage executed in favor of the Fidelity & Surety Co. As to the first ground, the thing that was mortgaged to this corporation is described in the document as follows: " * * * his half interest in the drug business known as Antigua Botica Ramirez (owned by Srta. Dolores del Rosario and the mortgagor herein referred to as the partnership), located at Calle Real Nos. 123 and 125, District of Intramuros, Manila, Philippine Islands." With regard to the nature of the property thus mortgaged, which is one-half interest in the business above described, such interest is a personal property capable of appropriation and not included in the enumeration of real properties in article 335 of the Civil Code, and may be the subject of mortgage. All personal property may be mortgaged. (Sec. 2, Act No. 1508.) The description contained in the document is sufficient. The law (sec. 7, Act No. 1508) requires only a description of the following nature: "The description of the mortgaged property shall be such as to enable the parties to the mortgage, or any other person, after reasonable inquiry and investigation, to identify the same." Turning to the second error assigned, numbers 1, 2, and 3 of article 1922 of the Civil Code invoked by the appellant are not

applicable. Neither he, as debtor, nor the debtor himself, is in possession of the property mortgaged, which is, and since the registration of the mortgage has been, legally in possession of the Fidelity & Surety Co. (Sec. 4, Act No. 1508; Meyers vs. Thein, 15 Phil., 303.) In no way can the mortgage executed in favor of the appellant on September 22, 1919, be given effect as of February 15, 1919, the date of the sale of the drug store in question. On the 15th of February of that year, there was 936 936 PHILIPPINE REPORTS ANNOTATED Involuntary Insolvency of Strochecker vs. Ramirez a stipulation about a personal security, but not a mortgage upon any property, and much less upon the property in question. Moreover, the appellant cannot deny the preferential character of the mortgage in favor of the Fidelity & Surety Co. because in the very document executed in his favor it was stated that his mortgage was a second mortgage, subordinate to the one made in favor of the Fidelity & Surety Co. The judgment appealed from is affirmed with costs against the appellant. So ordered. Araullo, C. J., Street, Malcolm, Avanceña, Villamor, Ostrand, and Johns, JJ., concur. Judgment affirmed. [Involuntary Insolvency of Strochecker vs. Ramirez, 44 Phil. 933(1922)]

No. L-61311. September 21,1987.*FIRST DIVISION. 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. Property; Place occupied by petitioner found to be a public plaza.—There is no question that the place occupied by the peti tioners 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 ______________ * FIRST DIVISION. 143 VOL. 154, SEPTEMBER 21, 1987 143 Villanueva vs. Castañeda, Jr. 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. Same; Same; Lease; It is elementary that a public plaza is beyond the commerce of man, lease thereon is null and void— 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 v. Rojas, decided 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. Same; Same; Same; Same; Petitioners had no right to occupy the disputed premises by invoking lease contracts.—Applying this wellsettled 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 municipal council 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. Same; Same; Same; Same; Same; Mayor has duty to clear the area and restore it as a parking place and public plaza; No whimsical action was taken in the demolition of the stalls.—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 stalls 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. There is evidence that the petitioners were notified of this hearing, which they chose to disregard. Photographs of the disputed area, which does 144 144 SUPREME COURT REPORTS ANNOTATED Villanueva us. Castañeda, Jr. 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 all taint of arbitrariness in the action he was called upon to take. Constitutional Law; Police Power was validly exercised in this case.—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. 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 case through the adoption of Resolution No. 29, series of 1964, by the municipal council of San Fernando. Same; Same; Rule that police power cannot be surrendered or bargained away through the medium of a contract is settled— 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. 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. 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. PETITION for certiorari to review the decision of the Court of First Instance of Pampanga, Br. III. Castañeda, Jr., J. The facts are stated in the opinion of the Court. 145 VOL. 154, SEPTEMBER 21, 1987 145 Villanueva vs. Castañeda, Jr. 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.1Rollo, pp. 47-48. 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 stalls and sell in the above-mentioned place.2Ibid., p. 33. The action was pro tested 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 constracting the said stalls until final resolution of the controversy.3Id., p.67. On January 18, 1964, while this case was pending, the municipal council of San Fernando adopted Resolution No. 29, which declared the subject area as "the parking place and as the public plaza of the municipality,"4Id., p. 65. 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.5Id., pp. 68-71. The writ of preliminary injunction was made permanent.6Id, p. 72. _______________ 1 Rollo, pp. 47-48. 2 Ibid., p. 33. 3 Id., p.67. 4 Id., p. 65. 5 Id., pp. 68-71. 6 Id, p. 72. 146 146 SUPREME COURT REPORTS ANNOTATED Villanueva vs. Castañeda, Jr. The decision was apparently not enforced, for the petitioners were not evicted from the place; in fact, according to them, 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.7Id., p. 4. 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."8id., pp. 75-76.

Acting thereon after an investigation conducted by the municipal attorney,9id., pp. 10-12. 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 1,1982.10Id., pp. 1012. The reaction of the petitioners was to file a petition for prohibition with the Court of First Instance of Pampanga, docketed as Civil Case No. 6470, on June 26,1982. The respondent judge denied the petition on July 19,1982," and the motion for reconsideration on August 5, 1982,12Id., p. 44. prompting the petitioners to come to this Court on certiorari to challenge his decision.13Id., pp. 3-8. As required, respondent Macalino filed his comment14id., pp. 55-64. on the petition, and the petitioners countered with their reply.15id., pp. 98-101. In compliance with our resolution of February 2, 1983, the petitioners submitted their memorandum16Id., pp. 126-130. and respondent _______________ 7 Id., p. 4. 8 id., pp. 75-76. 9 id., pp. 10-12. 10 Id., pp. 10-12. 11 Id., pp. 30-39. 12 Id., p. 44. 13 Id., pp. 3-8. 14 id., pp. 55-64. 15 id., pp. 98-101. 16 Id., pp. 126-130.

147 VOL. 154, SEPTEMBER 21, 1987 147 Villanueva vs. Castañeda, Jr. Macalino, for his part, asked that his comment be considered his memorandum.17Id., pp. 120-121. 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.18Id., p. 177 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 f inding 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. 29.19Id., pp. 69-70. It does not appear that the decision in this case was appealed or has been reversed. In Civil Case 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.20Id., pp. 30-39.

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.21Id., p .30. 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 _______________ 17 Id., pp. 120-121. 18 Id., p. 177 19 Id., pp. 69-70. 20 Id., pp. 30-39. 21 Id., p .30. 148 148 SUPREME COURT REPORTS ANNOTATED Villanueva vs. Castañeda, Jr. indicated that the period of the leases was from day to day.22Id., p. 32. 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 v. Rojas, 2330 Phil. 602. decided 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 OF 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 contract."

In Muyot v. de la Fuente,24G.R. No. L-6534, 48 O.G. 4860. it was held that the City of _______________ 22 Id., p. 32. 23 30 Phil. 602. 24 G.R. No. L-6534, 48 O.G. 4860. 149 VOL. 154, SEPTEMBER 21, 1987 149 Villanueva vs. Castañeda, Jr. 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; "Appelants claim that they had obtained permit from the government of the City of Manila, to construct 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 al., 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 dear 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 purposes as provided by ordinance or regulation; x x x.' (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 free passage of pedestrians who had to take the plaza itself which used to be clogged with vehicular traffic.'' Exactly in point is Espiritu v. Municipal Council of Pozorrubio,25102 Phil. 869-870. 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 commerce 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 peti_______________ 25 102 Phil. 869-870. 150 150 SUPREME COURT REPORTS ANNOTATED Villanueva vs. Castañeda, Jr. tioners 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 municipal council 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 stalls constructed in the disputed area. As officer-incharge 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.26Rollo, pp. 32-34. There is evidence that the petitioners were notified of this hearing,27Ibid, p. 84. which they chose to disregard. Photographs of the disputed area,28Id., p. 82. 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 _______________ 26 Rollo, pp. 32-34. 27 Ibid, p. 84. 28 Id., p. 82. 151 VOL. 154, SEPTEMBER 21, 1987 151 Villanueva vs. Castañeda, Jr. deference to the requirements of due process, to remove all taint of arbitrariness in the action he was called 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 stalls 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.29Section 2238, Revised Administrative Code. 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 in_______________ 29 Section 2238, Revised Administrative Code. 152 152 SUPREME COURT REPORTS ANNOTATED Villanueva vs. Castañeda, Jr.

habitants thereof, and for the protection of property therein." This authority was validly exercised in this case through 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.3016 C.S.S. 549; 37 Am.Jur. 901. In fact, every contract affecting the public interest suf fers a congenital infirmity in that it contains an implied reservation of the police power as a postulate of the existing legal order.31Stone v. Mississipi, 101 U.S. 814. 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.32Ortigas & Co. v. Feati Bank, 94 SCRA 533. 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 all 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 def erence 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 ________________ 30 16 C.S.S. 549; 37 Am.Jur. 901. 31 Stone v. Mississipi, 101 U.S. 814. 32 Ortigas & Co. v. Feati Bank, 94 SCRA 533. 153 VOL. 154, SEPTEMBER 21, 1987 153 Rosales vs. CFI of Lanao del Norte, Br. III absent here. What we find, sad to say, is a cynical disdaining of the spirit of "bayanihan," a selfish rejection of the cordial virtues of "pakikisama" and "pagbibigayan" which are the hallmarks of our people. WHEREFORE, the petition is DISMISSED. The decision dated July 19, 1982, and the order dated August 5, 1982, are AFFIRMED. The temporary restraining order dated August 9, 1982, is LIFTED. This decision is immediately executory. Costs against the petitioners. SO ORDERED. Teehankee (C.J.), Narvasa and Paras, JJ., concur. Gancayco, J., on leave. Petition dismissed. Decision and order affirmed.

Notes.—Property already devoted to public use and public service, is outside the commerce of man and could no longer be subject to private registration. (Municipality of Antipolo vs. Zapanta, 133 SCRA 820.) A conveyance of public land in excess of the Constitutional limitation is malum prohibitum only. (Guiang vs. Kintanar, 106 SCRA 49.) ——oOo—— [Villanueva vs. Castañeda, Jr., 154 SCRA 142(1987)]

G.R. No. 92013. July 25, 1990.*EN BANC. SALVADOR H. LAUREL, petitioner, vs. RAMON GARCIA, as head of the Asset Privatization Trust, RAUL MANGLAPUS, as Secretary of Foreign Affairs, and CATALINO MACARAIG, as Executive Secretary, respondents. G.R. No. 92047. July 25, 1990.*EN BANC. DIONISIO S. OJEDA, petitioner, vs. EXECUTIVE SECRETARY MACARAIG, JR., ASSETS PRIVATIZATION TRUST CHAIRMAN RAMON T. GARCIA, AMBASSADOR RAMON DEL ROSARIO, et al., as members of the PRINCIPAL AND BIDDING COMMITTEES ON THE UTILIZATION/DISPOSITION OF PHILIPPINE GOVERNMENT PROPERTIES IN _______________ * EN BANC. 798 798 SUPREME COURT REPORTS ANNOTATED Laurel vs. Garcia JAPAN, respondents. Civil Law; Property; Roppongi property is of public dominion.—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. Same; Same; Same; As property of public dominion, the Roppongi lot is outside the commerce of man and can not be alienated.—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 appropriation. Same; Same; Same; Roppongi property correctly classified under paragraph 2 of Article 420 of the Civil Code as property belonging to the State and intended for some public service.— 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. Same; Same; Same; 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.—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. Same; Same; Same; Same; An abandonment of the intention to use the Roppongi property for public service and to make it patrimonial property under Article 422 of the Civil Code must be definite.—The respondents enumerate various pronouncements by concerned public officials insinuating a

change of intention. We emphasize, however, that an abandonment of the intention to use the Roppongi property for public service and to make it patrimonial property under Article 422 of the Civil Code must be definite. Abandonment cannot be inferred from 799 VOL. 187, JULY 25, 1990 799 Laurel vs. Garcia 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. Same; Same; Same; Same; A mere transfer of the Philippine Embassy to Nampeidai in 1976 is not relinquishment of the Roppongi property’s original purpose.—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. Same; Same; Same; Same; Republic Act No. 6657 (the CARP Law) does not authorize the Executive Department to sell the Roppongi property.—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. Administrative Law; Political Law; President can not convey valuable real property of the government on his or her own sole will; Conveyance must be authorized and approved by a law enacted by Congress.—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. Same; Same; Same; 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 800 800 SUPREME COURT REPORTS ANNOTATED Laurel vs. Garcia

sale.—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. CRUZ, J., Concurring Property.—The sale of the property may be authorized only by Congress through a duly enacted statute and there is no such law. PADILLA, J., Concurring Statement Property.—It is Congress which can decide and declare the conversion of Roppongi from a public dominion property to a state patrimonial property. Congress has made no such decision or declaration. It is clear that the President cannot sell or order the sale of Roppongi thru public bidding or otherwise without a prior congressional approval, first, converting Roppongi from a public dominion property to a State patrimonial property and second, authorizing the President to sell the same. FELICIANO, J., Dissenting Property.—The only requirement which is legitimately imposable is that the intent to convert must be reasonably clear from a consideration of the act or acts of the Executive Department or of the Legislative Department which are said to have effected such conversion.

Same.—Assuming that the majority opinion is right in saying that Executive Order No. 296 is insufficient to authorize the sale of the Roppongi property; it is here submitted with respect that Executive Order No. 296 is more than sufficient to indicate an intention to convert the property previously devoted to public service into patrimonial property that is capable of being sold or otherwise dispose of. 801 VOL. 187, JULY 25, 1990 801 Laurel vs. Garcia SARMIENTO, J., Concurring: Property; To turn public property to patrimonial, a legislative or executive declaration is necessary, not were non-use thereof.—In holding that there is “a need for a law or formal declaration to withdraw the Roppongi property from public domain to make it alienable and a land for legislative authority to allow the sale of the property,” the majority lays stress to the fact that: (1) An affirmative act—executive or legislative—is necessary to reclassify property of the public dominion, and (2) a legislative decree is required to make it alienable. It also clears the uncertainties brought about by earlier interpretations that the nature of property—whether public or patrimonial—is predicated on the manner it is actually used, or not used, and in the same breath, repudiates the Government’s position that the continuous non-use of “Roppongi”, among other arguments, for “diplomatic purposes”, has turned it into State patrimonial property. PETITIONS for prohibition and mandamus to review the decision of the Executive Secretary.

The facts are stated in the opinion of the Court. Arturo M. Tolentino for petitioner in 92013. 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 inspite 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 802 802 SUPREME COURT REPORTS ANNOTATED Laurel vs. Garcia on March 27, 1990 when the memoranda of the parties in the Laurel case were deliberated upon.

The Court could not act on these cases immediately because the respondents filed a motion for an extension of thirty (30) days to file comment in G.R. No. 92047, followed by a second motion for an extension of another thirty (30) days which we granted on May 8, 1990, a third motion for extension of time granted on May 24, 1990 and a fourth motion for extension of time which we granted on June 5, 1990 but calling the attention of the respondents to the length of time the petitions have been pending. After the comment was filed, the petitioner in G.R. No. 92047 asked for thirty (30) days to file a reply. We noted his motion and resolved to decide the two (2) cases. I The subject property in this case is one of the four (4) properties in Japan acquired by the Philippine government under the Reparations Agreement entered into with Japan on May 9, 1956, the other lots being: (1) The Nampeidai Property at 11-24 Nampeidai-machi, Shibuya-ku, Tokyo which has an area of approximately 2,489.96 square meters, and is at present the site of the Philippine Embassy Chancery; (2) The Kobe Commercial Property at 63 Naniwa-cho, Kobe, with an area of around 764.72 square meters and categorized as a commercial lot now being used as a warehouse and parking lot for the consulate staff; and (3) The Kobe Residential Property at 1-980-2 Obanoyamacho, 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, Repara803 VOL. 187, JULY 25, 1990 803 Laurel vs. Garcia tions 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 804 804 SUPREME COURT REPORTS ANNOTATED Laurel vs. Garcia

Administrative Order No. 3, followed by Administrative Orders Numbered 3-A, B, C and D. On July 25, 1987, the President issued Executie Order No. 296 entitling non-Filipino citizens or entities to avail of reparations’ 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 nonFilipino citizens and entities. He also questions the bidding procedures of the Committee on the Utilization or Disposition of Philippine Government Properties in Japan for being discriminatory against Filipino citizens and Filipino-owned entities by denying them the right to be informed about the bidding 805 VOL. 187, JULY 25, 1990 805 Laurel vs. Garcia 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 argu806 806 SUPREME COURT REPORTS ANNOTATED Laurel vs. Garcia

ment 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). (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); 807 VOL. 187, JULY 25, 1990 807 Laurel vs. Garcia (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 II, 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 acquired 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 808 808 SUPREME COURT REPORTS ANNOTATED Laurel vs. Garcia 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 appropriation. (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 809 VOL. 187, JULY 25, 1990 809 Laurel vs. Garcia being such (Ignacio v. Director of Lands, 108 Phil. 335 [1960]). The respondents enumerate various pronouncements by concerned public officials insinuating a change of intention. We emphasize, however, that an abandonment of the intention to use the Roppongi property for public service and to make it patrimonial property under Article 422 of the Civil Code must be definite. Abandonment cannot be inferred from the non-use alone specially if the non-use was attributable not to the government’s own deliberate and indubitable will but to a lack of financial support to repair and improve the property (See Heirs of Felino Santiago v. Lazaro, 166 SCRA 368 [1988]). Abandonment must be a certain and positive act based on correct legal premises. A mere transfer of the Philippine Embassy to Nampeidai in 1976 is not relinquishment of the Roppongi property’s original purpose. Even the failure by the government to repair the

building in Roppongi is not abandonment since as earlier stated, there simply was a shortage of government funds. The recent Administrative Orders authorizing a study of the status and conditions of government properties in Japan were merely directives for investigation but did not in any way signify a clear intention to dispose of the properties. Executive Order No. 296, though its title declares an “authority to sell”, does not have a provision in its text expressly authorizing the sale of the four properties procured from Japan for the government sector. The executive order does not declare that the properties lost their public character. It merely intends to make the properties available to foreigners and not to Filipinos alone in case of a sale, lease or other disposition. It merely eliminates the restriction under Rep. Act No. 1789 that reparations goods may be sold only to Filipino citizens and one hundred (100%) percent Filipino-owned entities. The text of Executive Order No. 296 provides: “Section 1. The provisions of Republic Act No. 1789, as amended, and of other laws to the contrary notwithstanding, the abovementioned 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.” 810 810 SUPREME COURT REPORTS ANNOTATED Laurel vs. Garcia 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 provisions—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 assumed 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 essen811 VOL. 187, JULY 25, 1990 811 Laurel vs. Garcia tial 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 pro812 812 SUPREME COURT REPORTS ANNOTATED Laurel vs. Garcia vides: “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.” (Italics 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.” (Italics 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 813 VOL. 187, JULY 25, 1990 813 Laurel vs. Garcia 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 x x x 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 814 814 SUPREME COURT REPORTS ANNOTATED Laurel vs. Garcia

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, inspite of the lapse of 45 years since the war ended, inspite 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. x x x.” (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 peti815 VOL. 187, JULY 25, 1990 815 Laurel vs. Garcia tions are GRANTED. A writ of prohibition is issued enjoining the respondents from proceeding with the sale of the Roppongi property in Tokyo, Japan. The February 20, 1990 Temporary Restraining Order is made PERMANENT. SO ORDERED. Melencio-Herrera, Paras, Bidin, Griño-Aquino and Regalado, JJ., concur. Fernan (C.J.), Narvasa, Gancayco, Cortés and Medialdea, JJ., join Justice Feliciano’s dissent. Cruz, J., See concurrence. Feliciano, J., See separate dissent. Padilla, J., See concurring statement. Sarmiento, J., See Concurring Opinion.

CRUZ, J., Concurring: I concur completely with the excellent ponencia of Mr. Justice Gutierrez and will add the following observations only for emphasis. It is clear that the respondents have failed to show the President’s legal authority to sell the Roppongi property. When asked to do so at the hearing on these petitions, the Solicitor General was at best ambiguous, although I must add in fairness that this was not his fault. The fact is that there is no such authority. Legal expertise alone cannot conjure that statutory permission out of thin air. Exec. Order No. 296, which reads like so much legislative double talk, does not contain such authority. Neither does Rep. Act No. 6657, which simply allows the proceeds of the sale of our properties abroad to be used for the comprehensive agrarian reform program. Senate Res. No. 55 was a mere request for the deferment of the scheduled sale of the Roppongi property, possibly to stop the transaction altogether; and in any case it is not a law. The sale of the said property may be authorized only by Congress through a duly enacted statute, and there is no such law. Once again, we have affirmed the principle that ours is a government of laws and not of men, where every public official, from the lowest to the highest, can act only by virtue of a valid 816 816 SUPREME COURT REPORTS ANNOTATED Laurel vs. Garcia

authorization. I am happy to note that in the several cases where this Court has ruled against her, the President of the Philippines has submitted to this principle with becoming grace. PADILLA, J., Concurring Statement I concur in the decision penned by Mr. Justice Gutierrez, Jr., I only wish to make a few observations which could help in further clarifying the issues. Under our tri-partite system of government ordained by the Constitution, it is Congress that lays down or determines policies. The President executes such policies. The policies determined by Congress are embodied in legislative enactments that have to be approved by the President to become law. The President, of course, recommends to Congress the approval of policies but, in the final analysis, it is Congress that is the policy-determining branch of government. The judiciary interprets the laws and, in appropriate cases, determines whether the laws enacted by Congress and approved by the President, and presidential acts implementing such laws, are in accordance with the Constitution. The Roppongi property was acquired by the Philippine government pursuant to the reparations agreement between the Philippine and Japanese governments. Under such agreement, this property was acquired by the Philippine government for a specific purpose, namely, to serve as the site of the Philippine Embassy in Tokyo, Japan. Consequently, Roppongi is a property of public dominion and intended for public service, squarely falling within that class of property under Art. 420 of the Civil Code, which provides:

“Art. 420. The following things are property of public dominion: (1) x x x (2) “Those which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth. (339a)” Public dominion property intended for public service cannot be alienated unless the property is first transformed into private property of the state otherwise known as patrimonial 817 VOL. 187, JULY 25, 1990 817 Laurel vs. Garcia property of the state.1Art. 422 of the Civil Code provides:“Property of public dominion, when no longer intended for public use or public service, shall form part of the patrimonial property of the State. (341a) The transformation of public dominion property to state patrimonial property involves, to my mind, a policy decision. It is a policy decision because the treatment of the property varies according to its classification. Consequently, it is Congress which can decide and declare the conversion of Roppongi from a public dominion property to a state patrimonial property. Congress has made no such decision or declaration. Moreover, the sale of public property (once converted from public dominion to state patrimonial property) must be approved by Congress, for this again is a matter of policy (i.e. to keep or dispose of the property). Sec. 48, Book 1 of the Administrative Code of 1987 provides:

“SEC. 48. Official Authorized to Convey Real Property.— Whenever real property of the Government is authorized by law to be conveyed, the deed of conveyance shall be executed in behalf of the government by the following: ‘(1) For property belonging to and titled in the name of the Republic of the Philippines, by the President, unless the authority therefor is expressly vested by law in another officer. ‘(2) For property belonging to the Republic of the Philippines but titled in the name of any political subdivision or of any corporate agency or instrumentality, by the executive head of the agency or instrumentality.’ ” (Italics supplied) But the record is bare of any congressional decision or approval to sell Roppongi. The record is likewise bare of any congressional authority extended to the President to sell Roppongi thru public bidding or otherwise. It is therefore, clear that the President cannot sell or order the sale of Roppongi thru public bidding or otherwise without a prior congressional approval, first, converting Roppongi from a public dominion property to a state patrimonial property, and, second, authorizing the President to sell the same. _______________ 1 Art. 422 of the Civil Code provides: “Property of public dominion, when no longer intended for public use or public service, shall form part of the patrimonial property of the State. (341a) 818 818 SUPREME COURT REPORTS ANNOTATED Laurel vs. Garcia

ACCORDINGLY, my vote is to GRANT the petition and to make PERMANENT the temporary restraining order earlier issued by this Court. SARMIENTO, J., Concurring Opinion The central question, as I see it, is whether or not the socalled “Roppongi property” has lost its nature as property of public dominion, and hence, has become patrimonial property of the State. I understand that the parties are agreed that it was property intended for “public service” within the contemplation of paragraph (2), of Article 430, of the Civil Code, and accordingly, land of State dominion, and beyond human commerce. The lone issue is, in the light of supervening developments, that is,—non-user thereof by the National Government (for diplomatic purposes) for the last thirteen years; the issuance of Executive Order No. 296 making it available for sale to any interested buyer; the promulgation of Republic Act No. 6657, the Comprehensive Agrarian Reform Law, making available for the program’s financing, State assets sold; the approval by the President of the recommendation of the investigating committee formed to study the property’s utilization; and the issuance of Resolution No. 55 of the Philippine Senate requesting for the deferment of its disposition—it, “Roppongi”, is still property of the public dominion, and if it is not, how it lost that character. When land of the public dominion ceases to be one, or when the change takes place, is a question our courts have debated early. In a 1906 decision,1Municipality of Oas v. Roa, 7 Phil. 20 (1906). it was held that property of the public dominion, a public plaza in this instance, becomes patrimonial upon use thereof for purposes other than a plaza. In a later

case,2Municipality of Hinunangan v. Director of Lands, 24 Phil. 124 (1913). The property involved here was a fortress. this ruling was reiterated. Likewise, it has been held that land, originally private property, has become of public dominion upon its donation to the town and its conversion and use as a public plaza.3Harty v. Municipality of Victoria, 13 Phil. 152 (1909). It is notable that under these three cases, the _______________ 1 Municipality of Oas v. Roa, 7 Phil. 20 (1906). 2 Municipality of Hinunangan v. Director of Lands, 24 Phil. 124 (1913). The property involved here was a fortress. 3 Harty v. Municipality of Victoria, 13 Phil. 152 (1909). 819 VOL. 187, JULY 25, 1990 819 Laurel vs. Garcia character of the property, and any change occurring therein, depends on the actual use to which it is dedicated.4See also II TOLENTINO, CIVIL CODE OF THE PHILIPPINES 39 (1972 ed.), citing 3 Manresa III. See also Province of Zamboanga del Norte v. City of Zamboanga, No. L-24440, March 28, 1968, 22 SCRA 1334. Much later, however, the Court held that “until a formal declaration on the part of the Government, through the executive department or the Legislative, to the effect that the land . . . is no longer needed for [public] service, for public use or for special industries, [it] continue[s] to be part of the public [dominion], not available for private expropriation or ownership.”5Ignacio v. Director of Lands, 108 Phil. 335, 339 (1960). So also, it was ruled that a political subdivision (the

City of Cebu in this case) alone may declare (under its charter) a city road abandoned and thereafter, to dispose of it.6Cebu Oxygen & Acetylene Co., Inc. vs. Bercilles, No. L-40474, August 29, 1975, 66 SCRA 481. In holding that there is “a need for a law or formal declaration to withdraw the Roppongi property from public domain to make it alienable and a land for legislative authority to allow the sale of the property,”7G.R. Nos. 92013 & 92047, 21. the majority lays stress to the fact that: (1) An affirmative act— executive or legislative—is necessary to reclassify property of the public dominion, and (2) a legislative decree is required to make it alienable. It also clears the uncertainties brought about by earlier interpretations that the nature of property—whether public or patrimonial—is predicated on the manner it is actually used, or not used, and in the same breath, repudiates the Government’s position that the continuous nonuse of “Roppongi”, among other arguments, for “diplomatic purposes”, has turned it into State patrimonial property. I feel that this view corresponds to existing pronouncements of this Court, among other things, that: (1) Property is presumed to be State property in the absence of any showing to the contrary;8Salas v. Jarencio, No. L-29788, August 30, 1972, 46 SCRA 734; Rabuco v. Villegas, No. L-24916, February 28, 1974, 55 SCRA 658. (2) With respect to forest lands, the same continue to be lands of the public dominion unless and until reclassified by _______________ 4 See also II TOLENTINO, CIVIL CODE OF THE PHILIPPINES 39 (1972 ed.), citing 3 Manresa III. See also

Province of Zamboanga del Norte v. City of Zamboanga, No. L-24440, March 28, 1968, 22 SCRA 1334. 5 Ignacio v. Director of Lands, 108 Phil. 335, 339 (1960). 6 Cebu Oxygen & Acetylene Co., Inc. vs. Bercilles, No. L40474, August 29, 1975, 66 SCRA 481. 7 G.R. Nos. 92013 & 92047, 21. 8 Salas v. Jarencio, No. L-29788, August 30, 1972, 46 SCRA 734; Rabuco v. Villegas, No. L-24916, February 28, 1974, 55 SCRA 658. 820 820 SUPREME COURT REPORTS ANNOTATED Laurel vs. Garcia the Executive Branch of the Government;9See Lianga Bay Logging Co., Inc. v. Lopez Enage, No. L-30637, July 16, 1987, 152 SCRA 80. and (3) All natural resources, under the Constitution, and subject to exceptional cases, belong to the State.10CONST., art. XII, sec. 2. I am elated that the Court has banished previous uncertainties. FELICIANO, J., Dissenting With regret, I find myself unable to share the conclusions reached by Mr. Justice Hugo E. Gutierrez, Jr. For purposes of this separate opinion, I assume that the piece of land located in 306 Roppongi, 5-Chome, Minato-ku, Tokyo, Japan (hereinafter referred to as the “Roppongi property”) may be characterized as property of public dominion, within the meaning of Article 420 (2) of the Civil Code: “[Property] which belong[s] to the State, without being for public use, and are intended for some public service—.”

It might not be amiss, however, to note that the appropriateness of trying to bring within the confines of the simple threefold classification found in Article 420 of the Civil Code (“property for public use”, property “intended for some public service” and property intended “for the development of the national wealth”) all property owned by the Republic of the Philippines whether found within the territorial boundaries of the Republic or located within the territory of another sovereign State, is not self-evident. The first item of the classification—property intended for public use—can scarcely be properly applied to property belonging to the Republic but found within the territory of another State. The third item of the classification— property intended for the development of the national wealth— is illustrated, in Article 339 of the Spanish Civil Code of 1889, by mines or mineral properties. Again, mineral lands owned by a sovereign State are rarely, if ever, found within the territorial base of another sovereign State. The task of examining in detail _______________ 9 See Lianga Bay Logging Co., Inc. v. Lopez Enage, No. L30637, July 16, 1987, 152 SCRA 80. 10 CONST., art. XII, sec. 2. 821 VOL. 187, JULY 25, 1990 821 Laurel vs. Garcia the applicability of the classification set out in Article 420 of our Civil Code to property that the Philippines happens to own outside its own boundaries must, however, be left to academicians.

For present purposes, too, I agree that there is no question of conflict of laws that is, at the present time, before this Court. The issues before us relate essentially to authority to sell the Roppongi property so far as Philippine law is concerned. The majority opinion raises two (2) issues: (a) whether or not the Roppongi property has been converted into patrimonial property or property of the private domain of the State; and (b) assuming an affirmative answer to (a), whether or not there is legal authority to dispose of the Roppongi property. I Addressing the first issue of conversion of property of public dominion intended for some public service, into property of the private domain of the Republic, it should be noted that the Civil Code does not address the question of who has authority to effect such conversion. Neither does the Civil Code set out or refer to any procedure for such conversion. Our case law, however, contains some fairly explicit pronouncements on this point, as Justice Sarmiento has pointed out in his concurring opinion. In Ignacio v. Director of Lands (108 Phils. 335 [1960]), petitioner Ignacio argued that if the land in question formed part of the public domain, the trial court should have declared the same no longer necessary for public use or public purposes and which would, therefore, have become disposable and available for private ownership. Mr. Justice Montemayor, speaking for the Court, said: “Article 4 of the Law of Waters of 1866 provides that when a portion of the shore is no longer washed by the waters of the sea and is not necessary for purposes of public utility, or for the establishment of special industries, or for coast-guard service, the government shall declare it to be the property of the owners

of the estates adjacent thereto and as an increment thereof. We believe that only the executive and possibly the legislative departments have the authority and the power to make the declaration that any land so gained by the sea, is not necessary for purposes of public utility, or for the establishment of 822 822 SUPREME COURT REPORTS ANNOTATED Laurel vs. Garcia special industries, or for coast-guard service. If no such declaration has been made by said departments, the lot in question forms part of the public domain.” (Natividad v. Director of Lands, supra.) The reason for this pronouncement, according to this Tribunal in the case of Vicente Joven y Monteverde v. Director of Lands, 93 Phil., 134 (cited in Velayo’s Digest, Vol. 1, p. 52). ‘x x x 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.” (108 Phil. at 338-339; italics supplied) Thus, under Ignacio, either the Executive Department or the Legislative Department may convert property of the State of public dominion into patrimonial property of the State. No particular formula or procedure of conversion is specified

either in statute law or in case law. Article 422 of the Civil Code simply states that: “Property of public dominion, when no longer intended for public use or for public service, shall form part of the patrimonial property of the State”. I respectfully submit, therefore, that the only requirement which is legitimately imposable is that the intent to convert must be reasonably clear from a consideration of the acts or acts of the Executive Department or of the Legislative Department which are said to have effected such conversion. The same legal situation exists in respect of conversion of property of public dominion belonging to municipal corporations, i.e., local governmental units, into patrimonial property of such entities. In Cebu Oxygen Acetylene v. Bercilles (66 SCRA 481 [1975]), the City Council of Cebu by resolution declared a certain portion of an existing street as an abandoned road, “the same not being included in the city development plan”. Subsequently, by another resolution, the City Council of Cebu authorized the acting City Mayor to sell the land through public bidding. Although there was no formal and explicit declaration of conversion of property for public use into patrimonial property, the Supreme Court said: 823 VOL. 187, JULY 25, 1990 823 Laurel vs. Garcia “xxx xxx xxx (2) Since that portion of the city street subject of petitioner’s application for registration of title was withdrawn from public use, it follows that such withdrawn portion becomes

patrimonial property which can be the object of an ordinary contract. Article 422 of the Civil Code expressly provides that ‘Property of public dominion, when no longer intended for public use of for public service, shall form part of the patrimonial property of the State.’ Besides, the Revised Charter of the City of Cebu heretofore quoted, in very clear and unequivocal terms, states that ‘Property thus withdrawn from public servitude may be used or conveyed for any purpose for which other real property belonging to the City may be lawfully used or conveyed.’ Accordingly, the withdrawal of the property in question from public use and its subsequent sale to the petitioner is valid. Hence, the petitioner has a registrable title over the lot in question.” (66 SCRA at 484; italics supplied) Thus, again as pointed out by Sarmiento, J., in his separate opinion, in the case of property owned by municipal corporations simple non-use or the actual dedication of public property to some use other than “public use” or some “public service”, was sufficient legally to convert such property into patrimonial property (Municipality of Oas v. Roa, 7 Phil. 20 [1906]; Municipality of Hinunganan v. Director of Lands, 24 Phil. 124 [1913]; Province of Zamboanga del Norte v. City of Zamboanga, 22 SCRA 1334 (1968). I would also add that such was the case not only in respect of property of municipal corporations but also in respect of property of the State itself. Manresa in commenting on Article 341 of the 1889 Spanish Civil Code which has been carried over verbatim into our Civil Code by Article 422 thereof, wrote:

“La dificultad mayor en todo esto estriba, naturalmente, en fijar el momento en que los bienes de dominio publico dejan de serlo. Si la Administracion o la autoridad competente legislativa realizan un acto en virtud del cual cesa el destino o uso publico de los bienes de que se trata, naturalmente la dificultad queda desde el primer momento resuelta. Hay un punto de partida cierto para iniciar las relaciones juridicas a que pudiera haber lugar. Pero puede ocurrir que no haya tal declaracion expresa, legislativa or administrativa, y, sin embargo cesar de hecho el destino publico de los bienes; ahora bien, en este caso, 824 824 SUPREME COURT REPORTS ANNOTATED Laurel vs. Garcia y para los efectos juridicos que resultan de entrar la cosa en el comercio de los hombres, ?se entendera que se ha verificado la conversion de los bienes de dominio publico en bienes patrimoniales? El citado tratadista Ricci opina, respecto del antiguo Codigo italiano, por la afirmativa, y por nuestra parte creemos que tal debe ser la solucion. El destino de las cosas no depende tanto de una declaracion expresa como del uso publico de las mismas, y cuando el uso publico cese con respecto de determinados bienes, cesa tambien su situacion en el dominio publico. Si una fortaleza en ruina se abandona y no se repara, si un trozo de la via publica se abandona tambien por constituir otro nuevo en mejores condiciones . . . . ambos bienes cesan de estar adscritos al uso comun o a la defensa nacional, y ambos bienes pasan el patrimonio del Estado, y su regimen juridico es

el del presente Codigo, y las leyes especiales mas o memos administrativas.” (3 Manresa, Comentarios al Codigo Civil Español, p. 128 [7a ed.; 1952) (Italics supplied) The majority opinion says that none of the executive acts pointed to by the Government purported, expressly or definitely, to convert the Roppongi property into patrimonial property of the Republic. Assuming that to be the case, it is respectfully submitted that the cumulative effect of the executive acts here involved was to convert property originally intended for and devoted to public service into patrimonial property of the State, that is, property susceptible of disposition to and appropriation by private persons. These executive acts, in their totality if not each individual act, make crystal clear the intent of the Executive Department to effect such conversion. These executive acts include: (a) Administrative Order No. 3 dated 11 August 1985, which created a Committee to study the disposition/utilization of the Government’s property in Japan. The Committee was composed of officials of the Executive Department: the Executive Secretary; the Philippine Ambassador to Japan; and representatives of the Department of Foreign Affairs and the Asset Privatization Trust. On 19 September 1988, the Committee recommended to the President the sale of one of the lots (the lot specifically in Roppongi) through public bidding. On 4 October 1988, the President approved the recommendation of the Committee. 825 VOL. 187, JULY 25, 1990 825 Laurel vs. Garcia

On 14 December 1988, the Philippine Government by diplomatic note informed the Japanese Ministry of Foreign Affairs of the Republic’s intention to dispose of the property in Roppongi. The Japanese Government through its Ministry of Foreign Affairs replied that it interposed no objection to such disposition by the Republic. Subsequently, the President and the Committee informed the leaders of the House of Representatives and of the Senate of the Philippines of the proposed disposition of the Roppongi property. (b) Executive Order No. 296, which was issued by the President on 25 July 1987. Assuming that the majority opinion is right in saying that Executive Order No. 296 is insufficient to authorize the sale of the Roppongi property, it is here submitted with respect that Executive Order No. 296 is more than sufficient to indicate an intention to convert the property previously devoted to public service into patrimonial property that is capable of being sold or otherwise disposed of. (c) Non-use of the Roppongi lot for fourteen (14) years for diplomatic or for any other public purposes. Assuming (but only arguendo ) that non-use does not, by itself, automatically convert the property into patrimonial property. I respectfully urge that prolonged non-use, conjoined with the other factors here listed, was legally effective to convert the lot in Roppongi into patrimonial property of the State. Actually, as already pointed out, case law involving property of municipal corporations is to the effect that simple non-use or the actual dedication of public property to some use other than public use or public service, was sufficient to convert such property into patrimonial property of the local governmental entity concerned. Also as pointed out above, Manresa reached the

same conclusion in respect of conversion of property of the public domain of the State into property of the private domain of the State. The majority opinion states that “abandonment cannot be inferred from the non-use alone especially if the nonuse was attributable not to the Government’s own deliberate and indubitable will but to lack of financial support to repair and improve the property” (Majority Opinion, p. 826 826 SUPREME COURT REPORTS ANNOTATED Laurel vs. Garcia 13). With respect, it may be stressed that there is no abandonment involved here, certainly no abandonment of property or of property rights. What is involved is the change of the classification of the property from property of the public domain into property of the private domain of the State. Moreover, if for fourteen (14) years, the Government did not see fit to appropriate whatever funds were necessary to maintain the property in Roppongi in a condition suitable for diplomatic representation purposes, such circumstance may, with equal logic, be construed as a manifestation of the crystalizing intent to change the character of the property. (d) On 30 March 1989, a public bidding was in fact held by the Executive Department for the sale of the lot in Roppongi. The circumstance that this bidding was not successful certainly does not argue against an intent to convert the property involved into property that is disposable by bidding. The above set of events and circumstances makes no sense at all if it does not, as a whole, show at least the intent on the part

of the Executive Department (with the knowledge of the Legislative Department) to convert the property involved into patrimonial property that is susceptible of being sold. II Having reached an affirmative answer in respect of the first issue, it is necessary to address the second issue of whether or not there exists legal authority for the sale or disposition of the Roppongi property. The majority opinion refers to Section 79(f) of the Revised Administrative Code of 1917 which reads as follows: “SEC. 79 (f). Conveyances and contracts to which the Government is a party.—In cases in which the Government of the Republic of the Philippines is a party to any deed or other instrument conveying the title to real estate or to any other property the value of which is in excess of one hundred thousand pesos, the respective Department Secretary shall prepare the necessary papers which, together with the 827 VOL. 187, JULY 25, 1990 827 Laurel vs. Garcia 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 authority therefor be expressly vested by law in another officer.” (Italics supplied) The majority opinion then goes on to state that: “[T]he requirement has been retained in Section 4, Book I of the

Administrative Code of 1987 (Executive Order No. 292)” which reads: “SEC. 48. Official Authorized to Convey Real Property.— Whenever real property of the Government is authorized by law to be conveyed, the deed of conveyance shall be executed in behalf of the government by the following: (1) For property belonging to and titled in the name of the Republic of the Philippines, by the President, unless the authority therefor is expressly vested by law in another officer. (2) For property belonging to the Republic of the Philippines but titled in the name of any political subdivision or of any corporate agency or instrumentality, by the executive head of the agency or instrumentality.” (Italics supplied) Two points need to be made in this connection. Firstly, the requirement of obtaining specific approval of Congress when the price of the real property being disposed of is in excess of One Hundred Thousand Pesos (P100,000.00) under the Revised Administrative Code of 1917, has been deleted from Section 48 of the 1987 Administrative Code. What Section 48 of the present Administrative Code refers to is authorization by law for the conveyance. Section 48 does not purport to be itself a source of legal authority for conveyance of real property of the Government. For Section 48 merely specifies the official authorized to execute and sign on behalf of the Government the deed of conveyance in case of such a conveyance. Secondly, examination of our statute books shows that authorization by law for disposition of real property of the private domain of the Government, has been granted by Congress both in the form of (a) a general, standing authorization for disposition of patrimonial property of the

Government; and (b) specific legislation authorizing the disposition of particular pieces of the Government’s patrimonial property. 828 828 SUPREME COURT REPORTS ANNOTATED Laurel vs. Garcia Standing legislative authority for the disposition of land of the private domain of the Philippines is provided by Act No. 3038, entitled “An Act Authorizing the Secretary of Agriculture and Natural Resources to Sell or Lease Land of the Private Domain of the Government of the Philippine Islands (now Republic of the Philippines)”, enacted on 9 March 1922. The full text of this statute is as follows: “Be it enacted by the Senate and House of Representatives of the Philippines in Legislature assembled and by the authority of the same: SECTION 1. The Secretary of Agriculture and Natural Resources (now Secretary of the Environment and Natural Resources) is hereby authorized to sell or lease land of the private domain of the Government of the Philippine Islands, or any part thereof, to such persons, corporations or associations as are, under the provisions of Act Numbered Twenty-eight hundred and seventy-four, (now Commonwealth Act No. 141, as amended) known as the Public Land Act, entitled to apply for the purchase or lease or agricultural public land. SECTION 2. The sale of the land referred to in the preceding section shall, if such land is agricultural, be made in the manner and subject to the limitations prescribed in chapters five and six, respectively, of said Public Land Act, and if it be

classified differently, in conformity with the provisions of chapter nine of said Act: Provided, however, That the land necessary for the public service shall be exempt from the provisions of this Act. SECTION 3. This Act shall take effect on its approval. Approved, March 9, 1922.” (Italics supplied) Lest it be assumed that Act No. 3038 refers only to agricultural lands of the private domain of the State, it must be noted that Chapter 9 of the old Public Land Act (Act No. 2874) is now Chapter 9 of the present Public Land Act (Commonwealth Act No. 141, as amended) and that both statutes refer to: “any tract of land of the public domain which being neither timber nor mineral land, is intended to be used for residential purposes or for commercial or industrial purposes other than agricultural” (Italics supplied). In other words, the statute covers the sale or lease or residential, commercial or industrial land of the private domain of the State. Implementing regulations have been issued for the carrying 829 VOL. 187, JULY 25, 1990 829 Laurel vs. Garcia out of the provisions of Act No. 3038. On 21 December 1954, the then Secretary of Agriculture and Natural Resources promulgated Lands Administrative Orders Nos. 7-6 and 7-7 which were entitled, respectively: “Supplementary Regulations Governing the Sale of the Lands of the Private Domain of the Republic of the Philippines”; and “Supplementary Regulations Governing the Lease of Lands of Private Domain of the Republic of the Philippines” (text in 51 O.G. 28-29 [1955]).

It is perhaps well to add that Act No. 3038, although now sixtyeight (68) years old, is still in effect and has not been repealed.1We are orally advised by the Office of the Director of Lands that Act No. 3038 is very much in effect and that the Bureau of Lands continues to date to act under it. See also, in this connection, Sections 2 and 4 of Republic Act No. 477, enacted 9 June 195... Specific legislative authorization for disposition of particular patrimonial properties of the State is illustrated by certain earlier statutes. The first of these was Act No. 1120, enacted on 26 April 1904, which provided for the disposition of the friar lands, purchased by the Government from the Roman Catholic Church, to bona fide settlers and occupants thereof or to other persons. In Jacinto v. Director of Lands (49 Phil. 853 [1926]), these friar lands were held to be private and patrimonial properties of the State. Act No. 2360, enacted on 28 February 1914, authorized the sale of the San Lazaro Estate located in the City of Manila, which had also been purchased by the Government from the Roman Catholic Church. In January 1916, Act No. 2555 amended Act No. 2360 by including therein all lands and buildings owned by the Hospital and the Foundation of San Lazaro theretofor leased by private persons, and which were also acquired by the Philippine Government. After the enactment in 1922 of Act No. 3038, there appears, to my knowledge, to be only one statute authorizing the President to dispose of a specific piece of property. This statute is Republic Act No. 905, enacted on 20 June 1953, which authorized the _______________

1 We are orally advised by the Office of the Director of Lands that Act No. 3038 is very much in effect and that the Bureau of Lands continues to date to act under it. See also, in this connection, Sections 2 and 4 of Republic Act No. 477, enacted 9 June 1950 and as last amended by B.P. Blg. 233. This statute governs the disposition of lands of the public domain and of the private domain of the State, including lands previously vested in the United States Alien Property Custodian and transferred to the Republic of the Philippines. 830 830 SUPREME COURT REPORTS ANNOTATED Laurel vs. Garcia President to sell an identified parcel of land of the private domain of the National Government to the National Press Club of the Philippines, and to other recognized national associations of professionals with academic standing, for the nominal price of P1.00. It appears relevant to note that Republic Act No. 905 was not an outright disposition in perpetuity of the property involved; it provided for reversion of the property to the National Government in case the National Press Club stopped using it for its headquarters. What Republic Act No. 905 authorized was really a donation, and not a sale. The basic submission here made is that Act No. 3038 provides standing legislative authorization for disposition of the Roppongi property which, in my view, has been converted into patrimonial property of the Republic.2Since Act No. 3038 established certain qualifications for applicants for purchase or lease of land of private domain of the government, it is relevant

to note that Executive Order No. 296, promulgated at a time when the President was still exercising legis... To some, the submission that Act No. 3038 applies not only to lands of the private domain of the State located in the Philippines but also to patrimonial property found outside the Philippines, may appear strange or unusual. I respectfully submit that such position is not any more unusual or strange than the assumption that Article 420 of the Civil Code applies not only to property of the Republic located within Philippine territory but also to property found outside the boundaries of the Republic. It remains to note that under the well-settled doctrine that heads of Executive Departments are alter egos of the President (Villena v. Secretary of the Interior, 67 Phil. 451 [1939]), and in view of the constitutional power of control exercised by the President over department heads (Article VII, Section 17, 1987 Constitution), the President herself may carry out the function or duty that is specifically lodged in the Secretary of the Department of Environment and Natural Resources (Araneta v. Gat_______________ 2 Since Act No. 3038 established certain qualifications for applicants for purchase or lease of land of private domain of the government, it is relevant to note that Executive Order No. 296, promulgated at a time when the President was still exercising legislative authority, provides as follows: “Sec. 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.” (Italics supplied) 831 VOL. 187, JULY 25, 1990 831 Laurel vs. Garcia maitan, 101 Phil. 328 [1957]). At the very least, the President retains the power to approve or disapprove the exercise of that function or duty when done by the Secretary of Environment and Natural Resources. It is hardly necessary to add that the foregoing analyses and submissions relate only to the austere question of existence of legal power or authority. They have nothing to do with muchdebated questions of wisdom or propriety or relative desirability either of the proposed disposition itself or of the proposed utilization of the anticipated proceeds of the property involved. These latter types of considerations lie within the sphere of responsibility of the political departments of government—the Executive and the Legislative authorities. For all the foregoing, I vote to dismiss the Petitions for Prohibition in both G.R. Nos. 92013 and 92047. Petitions granted. ——o0o—— [Laurel vs. Garcia, 187 SCRA 797(1990)]

G.R. No. 179987. April 29, 2009.* HEIRS OF MARIO MALABANAN, petitioner, vs. REPUBLIC OF THE PHILIPPINES, respondent. Land Registration Act; Public Lands Act; Notwithstanding the passage of the Property Registration Decree and the inclusion of Section 14(1) therein, the Public Land Act has remained in effect. Both laws commonly refer to persons or their predecessors-in-interest who “have been in open, continuous, exclusive and notorious possession and occupation of alienable and disposable lands of the public domain under a bona fide claim of ownership since June 12, 1945, or earlier.”— Notwithstanding the passage of the Property Registration Decree and the inclusion of Section 14(1) therein, the Public Land Act has remained in effect. Both laws commonly refer to persons or their predecessors-in-interest who “have been in open, continuous, exclusive and notorious possession and occupation of alienable and disposable lands of the public domain under a bona fide claim of ownership since June 12, 1945, or earlier.” That circumstance may have led to the impression that one or the other is a redundancy, or that Section 48(b) of the Public Land Act has somehow been repealed or mooted. That is not the case. Same; Same; Section 48 of the Public Land Act is more descriptive of the nature of the right enjoyed by the possessor than Section 14 of the Property Registration Decree, which

seems to presume the pre-existence of the right, rather than establishing the right itself for the first time.—It is clear that Section 48 of the Public Land Act is more descriptive of the nature of the right enjoyed by the possessor than Section 14 of the Property Registration Decree, which seems to presume the pre-existence of the right, rather than establishing the right itself for the first time. It is proper to assert that it is the Public Land Act, as amended by P.D. No. 1073 effective 25 January 1977, that has primarily established the right of a Filipino citizen who has been “in open, continuous, exclusive, and notorious possession and occupation of alienable and disposable lands of the public domain, under a bona fide claim of acquisition of ownership, since _______________ * EN BANC. 173 VOL. 587, APRIL 29, 2009173 Heirs of Mario Malabanan vs. Republic June 12, 1945” to perfect or complete his title by applying with the proper court for the confirmation of his ownership claim and the issuance of the corresponding certificate of title. Civil Law; Prescription; Under the Civil Code that where lands of the public domain are patrimonial in character, they are susceptible to acquisitive prescription.—It is clear under the Civil Code that where lands of the public domain are patrimonial in character, they are susceptible to acquisitive prescription. On the other hand, among the public domain lands that are not susceptible to acquisitive prescription are

timber lands and mineral lands. The Constitution itself proscribes private ownership of timber or mineral lands. Same; Land Registration Act; Prescription; Alienable and disposable lands are expressly declared by the State to be no longer intended for public service or for the development of the national wealth that the period of acquisitive prescription can begin to run. Such declaration shall be in the form of a law duly enacted by Congress or a Presidential Proclamation in cases where the President is duly authorized by law.—There must be an express declaration by the State that the public dominion property is no longer intended for public service or the development of the national wealth or that the property has been converted into patrimonial. Without such express declaration, the property, even if classified as alienable or disposable, remains property of the public dominion, pursuant to Article 420(2), and thus incapable of acquisition by prescription. It is only when such alienable and disposable lands are expressly declared by the State to be no longer intended for public service or for the development of the national wealth that the period of acquisitive prescription can begin to run. Such declaration shall be in the form of a law duly enacted by Congress or a Presidential Proclamation in cases where the President is duly authorized by law. Land Registration Act; Prescription; Public Land Act; If a public land is declared patrimonial by law or proclamation, can the period of possession prior to such conversion be reckoned in counting the period of prescription? No.—The limitation imposed by Article 1113 dissuades us from ruling that the period of possession before the public domain land becomes patrimonial may be counted for the purpose of completing the

prescriptive period. Possession of public dominion property before it becomes patrimonial cannot be the object of prescription according to the Civil Code. As the application for 174 174SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic registration under Section 14(2) falls wholly within the framework of prescription under the Civil Code, there is no way that possession during the time that the land was still classified as public dominion property can be counted to meet the requisites of acquisitive prescription and justify registration. Are we being inconsistent in applying divergent rules for Section 14(1) and Section 14(2)? There is no inconsistency. Section 14(1) mandates registration on the basis of possession, while Section 14(2) entitles registration on the basis of prescription. Registration under Section 14(1) is extended under the aegis of the Property Registration Decree and the Public Land Act while registration under Section 14(2) is made available both by the Property Registration Decree and the Civil Code. CHICO-NAZARIO, J., Concurring and Dissenting Opinion: Land Registration Act; Public Land Act; Prescription; Lands belonging to the public domain may not be acquired by prescription.—Section 14(2) of the Property Registration Decree clearly and explicitly refers to “private lands,” without mention at all of public lands. There is no other way to understand the plain language of Section 14(2) of the Property Registration Decree except that the land was already private when the applicant for registration acquired ownership thereof

by prescription. The prescription therein was not the means by which the public land was converted to private land; rather, it was the way the applicant acquired title to what is already private land, from another person previously holding title to the same. The provision in question is very clear and unambiguous. Well-settled is the rule that when the law speaks in clear and categorical language, there is no reason for interpretation or construction, but only for application. Same; Same; Same; Sec. 14(2) of the Property Registration Decree applies only to what already are private lands, which can be acquired by prescription.—With the understanding that Section 14(2) of the Property Registration Decree applies only to what are already private lands, then, there is no question that the same can be acquired by prescription under the provisions of the Civil Code, because, precisely, it is the Civil Code which governs rights to private lands. 175 VOL. 587, APRIL 29, 2009175 Heirs of Mario Malabanan vs. Republic Supreme Court; Judgments; The acquisition of an imperfect title to a disposable land of the public domain was raised as an issue in the Herbieto case and passed upon.—It must be emphasized that the acquisition of an imperfect title to alienable and disposable land of the public domain under Section 48(b) of the Public Land Act, as amended, was directly raised as an issue in the Petition in Herbieto and discussed extensively by the parties in their pleadings. That the application of Jeremias and David Herbieto could already be dismissed on the ground of lack of proper publication of the

notice of hearing thereof, did not necessarily preclude the Court from resolving the other issues squarely raised in the Petition before it. Thus, the Court dismissed the application for registration of Jeremias and David Herbieto on two grounds: (1) the lack of jurisdiction of the land registration court over the application, in light of the absence of proper publication of the notice of hearing; and (2) the evident lack of merit of the application given that the applicants failed to comply with the requirements for judicial confirmation of an imperfect title under Section 48(b) of the Public Land Act, as amended. This is only in keeping with the duty of the Court to expeditiously and completely resolve the cases before it and, once and for all, settle the dispute and issues between the parties. Without expressly discussing and categorically ruling on the second ground, Jeremias and David Herbieto could have easily believed that they could re-file their respective applications for registration, just taking care to comply with the publication-ofnotice requirement. Land Registration Act; Public Land Act; Requisites for Judicial Confirmation of an Imperfect Title.—Judicial confirmation and registration of an imperfect title, under Section 48(b) of the Public Land Act, as amended, and Section 14(1) of the Property Registration Decree, respectively, should only be granted when: (1) a Filipino citizen, by himself or through his predecessors-in-interest, have been in open, continuous, exclusive, and notorious possession and occupation of agricultural land of the public domain, under a bona fide claim of acquisition of ownership, since 12 June 1945, or earlier; and (2) the land in question, necessarily, was already declared alienable and disposable also by 12 June 1945 or earlier.

Same; Same; When an individual acquires an imperfect title, he acquires a right to a grant by operation of law.—Stringency and prudence in interpreting and applying Section 48(b) of the Public 176 176SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic Land Act, as amended, is well justified by the significant consequences arising from a finding that a person has an imperfect title to agricultural land of the public domain. Not just any lengthy occupation of an agricultural public land could ripen into an imperfect title. An imperfect title can only be acquired by occupation and possession of the land by a person and his predecessors-in-interest for the period required and considered by law sufficient as to have segregated the land from the mass of public land. When a person is said to have acquired an imperfect title, by operation of law, he acquires a right to a grant, a government grant to the land, without the necessity of a certificate of title being issued. As such, the land ceased to be part of the public domain and goes beyond the authority of the State to dispose of. An application for confirmation of title, therefore, is but a mere formality. BRION, J., Concurring and Dissenting Opinion: Constitutional Law; Land Registration Act; Public Land Act; Any consideration of lands of the public domain must begin with the Constitution and its Regalian doctrine and the special laws thereon.—In light of our established hierarchy of laws, particularly the supremacy of the Philippine Constitution, any consideration of lands of the public domain should start with

the Constitution and its Regalian doctrine; all lands belong to the State, and he who claims ownership carries the burden of proving his claim. Next in the hierarchy is the PLA for purposes of the terms of the grant, alienation and disposition of the lands of the public domain, and the PRD for the registration of lands. The PLA and the PRD are special laws supreme in their respective spheres, subject only to the Constitution. The Civil Code, for its part, is the general law on property and prescription and should be accorded respect as such. In more concrete terms, where alienable and disposable lands of the public domain are involved, the PLA is the primary law that should govern, and the Civil Code provisions on property and prescription must yield in case of conflict. Same; Same; Same; Presidential Decree No. 1073 should have provided January 24, 1947 and not June 12, 1945 as its cut-off date.—PD 1073 should have thus provided January 24, 1947 and not 177 VOL. 587, APRIL 29, 2009177 Heirs of Mario Malabanan vs. Republic June 12, 1945 as its cut-off date, yet the latter date is the express legal reality. The reconciliation, as properly defined by jurisprudence, is that where an applicant has satisfied the requirements of Section 48 (b) of CA 141, as amended by RA 1942, prior to the effectivity of PD 1073, the applicant is entitled to perfect his or her title, even if possession and occupation does not date back to June 12, 1945. For purposes of the present case, a discussion of the cut-off date has been fully made to highlight that it is a date whose significance and

import cannot be minimized nor glossed over by mere judicial interpretation or by judicial social policy concerns; the full legislative intent must be respected. Same; Same; Same; Congress extended the period for filing applications for judicial confirmation of imperfect titles to December 31, 2020.—RA 6940 extended the period for filing applications for free patent and judicial confirmation of imperfect title to December 31, 2000. The law now also allows the issuance of free patents for lands not in excess of 12 hectares to any natural-born citizen of the Philippines who is not the owner of more than 12 hectares and who, for at least 30 years prior to the effectivity of the amendatory Act, has continuously occupied and cultivated, either by himself or through his predecessors-in-interest, a tract or tracts of agricultural public lands subject to disposition. Congress recently extended the period for filing applications for judicial confirmation of imperfect and incomplete titles to alienable and disposable lands of the public domain under RA 9176 from December 31, 2000 under RA 6940 to December 31, 2020. Same; Same; Same; The Court acted ultra vires in its interpretation of Sec. 48(b), as amended by Presidential Decree No. 1073.—This Court acts beyond the limits of the constitutionally-mandated separation of powers in giving Section 48(b), as amended by PD 1073, an interpretation beyond its plain wording. Even this Court cannot read into the law an intent that is not there even your purpose is to avoid an absurd situation. If we feel that a law already has absurd effects because of the passage of time, our role under the principle of separation of powers is not to give the law an interpretation that is not there in order to avoid the perceived absurdity. We

thereby dip into the realm of policy—a role delegated by the Constitution to the Legislature. If only for this reason, we should avoid 178 178SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic expanding—through Naguit and the present ponencia—the plain meaning of Section 48(b) of the PLA, as amended by PD 1073. Same; Same; Same; Prescription; A public land, even if alienable is State property and prescription does not run against the State.—The purpose is to determine whether a grant or disposition of an alienable and disposable land of the public domain has been made, then the PLA primarily applies and the Civil Code applies only suppletorily. The possession and occupation that the PLA recognizes is based on its Section 48(b) and, until the requirements of this Section are satisfied, the alienable and disposable land of the public domain remains a State property that can be disposed only under the terms of Section 11 of the PLA. In the face of this legal reality, the question of whether—for purposes of prescription—an alienable and disposable land of the public domain is patrimonial or not becomes immaterial; a public land, even if alienable and disposable, is State property and prescription does not run against the State. In other words, there is no room for any hair-splitting that would allow the inapplicable concept of prescription under the Civil Code to be directly applied to an alienable and disposable land of the public domain before this

land satisfies the terms of a grant under Section 48(b) of the PLA. Same; Same; Same; Same; Public land may become private by the government’s declaration in which case prescription under the Civil Code can run.—I agree with this statement as it describes a clear case when the property has become private by the government’s own declaration so that prescription under the Civil Code can run. Note in this regard that there is no inconsistency between this conclusion and the hierarchy of laws on lands of the public domain that I expounded on. To reiterate, the PLA applies as a special and primary law when a public land is classified as alienable and disposable, and remains fully and exclusively applicable until the State itself expressly declares that the land now qualifies as a patrimonial property. At that point, the application of the Civil Code and its law on prescription are triggered. The application of Section 14(2) of the PRD follows. 179 VOL. 587, APRIL 29, 2009179 Heirs of Mario Malabanan vs. Republic Same; Same; Same; Same; Supreme Court; Stare Decisis; The ruling in Republic vs. Court of Appeals and Naguit (442 SCRA 445) must be abandoned.—Naguit must be abandoned and rejected for being based on legally-flawed premises and for being an aberration in land registration jurisprudence. At the very least, the present ponencia cannot be viewed as an authority on the effective pos-session prior to classification since this ruling, by the ponencia’s own admission, is not necessary for the resolution of the present case.

PETITION for review on certiorari of the decision and resolution of the Court of Appeals. The facts are stated in the opinion of the Court. Fortun, Narvasa & Salazar for petitioners. The Solicitor General for respondent. Tinga, J.: One main reason why the informal sector has not become formal is that from Indonesia to Brazil, 90 percent of the informal lands are not titled and registered. This is a generalized phenomenon in the so-called Third World. And it has many consequences. xxx The question is: How is it that so many governments, from Suharto’s in Indonesia to Fujimori’s in Peru, have wanted to title these people and have not been able to do so effectively? One reason is that none of the state systems in Asia or Latin America can gather proof of informal titles. In Peru, the informals have means of proving property ownership to each other which are not the same means developed by the Spanish legal system. The informals have their own papers, their own forms of agreements, and their own systems of registration, all of which are very clearly stated in the maps which they use for their own informal business transactions. If you take a walk through the countryside, from Indonesia to Peru, and you walk by field after field—in each field a different dog is going to bark at you. Even dogs know what private property is all 180 180SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic

about. The only one who does not know it is the government. The issue is that there exists a “common law” and an “informal law” which the Latin American formal legal system does not know how to recognize. - Hernando De Soto1 This decision inevitably affects all untitled lands currently in possession of persons and entities other than the Philippine government. The petition, while unremarkable as to the facts, was accepted by the Court en banc in order to provide definitive clarity to the applicability and scope of original registration proceedings under Sections 14(1) and 14(2) of the Property Registration Decree. In doing so, the Court confronts not only the relevant provisions of the Public Land Act and the Civil Code, but also the reality on the ground. The countrywide phenomenon of untitled lands, as well as the problem of informal settlement it has spawned, has unfortunately been treated with benign neglect. Yet our current laws are hemmed in by their own circumscriptions in addressing the phenomenon. Still, the duty on our part is primarily to decide cases before us in accord with the Constitution and the legal principles that have developed our public land law, though our social obligations dissuade us from casting a blind eye on the endemic problems. I. On 20 February 1998, Mario Malabanan filed an application for land registration covering a parcel of land identified as Lot 9864-A, Cad-452-D, Silang Cadastre,2 situated in Barangay Tibig, Silang Cavite, and consisting of 71,324 _______________

1 “Hernando de Soto Interview” by Reason Magazine dated 30 November 1999, at http://www.reason.com/news/show/32213.html (Last visited, 21 April 2009). 2 More particularly described and delineated in Plan CSD-04017123. Records, p. 161. 181 VOL. 587, APRIL 29, 2009181 Heirs of Mario Malabanan vs. Republic square meters. Malabanan claimed that he had purchased the property from Eduardo Velazco,3 and that he and his predecessors-in-interest had been in open, notorious, and continuous adverse and peaceful possession of the land for more than thirty (30) years. The application was raffled to the Regional Trial Court of (RTC) Cavite-Tagaytay City, Branch 18. The Office of the Solicitor General (OSG) duly designated the Assistant Provincial Prosecutor of Cavite, Jose Velazco, Jr., to appear on behalf of the State.4 Apart from presenting documentary evidence, Malabanan himself and his witness, Aristedes Velazco, testified at the hearing. Velazco testified that the property was originally belonged to a twenty-two hectare property owned by his great-grandfather, Lino Velazco. Lino had four sons—Benedicto, Gregorio, Eduardo and Esteban— the fourth being Aristedes’s grandfather. Upon Lino’s death, his four sons inherited the property and divided it among themselves. But by 1966, Esteban’s wife, Magdalena, had become the administrator of all the properties inherited by the Velazco sons from their father, Lino. After the death of

Esteban and Magdalena, their son Virgilio succeeded them in administering the properties, including Lot 9864-A, which originally belonged to his uncle, Eduardo Velazco. It was this property that was sold by Eduardo Velazco to Malabanan.5 _______________ 3 But see note 5. 4 Id. 5 The trial court decision identified Eduardo Velazco as the vendor of the property, notwithstanding the original allegation in the application that Malabanan purchased the same from Virgilio Velazco. See note 3. In his subsequent pleadings, including those before this Court, Malabanan or his heirs stated that the property was purchased from Eduardo Velazco, and not Virgilio. On this point, the appellate court made this observation: “More importantly, Malabanan failed to prove his ownership over Lot 9864-A. In his application for land registration, Malabanan alleged that he purchased the subject lot from Virgilio Velazco. Dur182 182SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic Assistant Provincial Prosecutor Jose Velazco, Jr. did not crossexamine Aristedes Velazco. He further manifested that he “also [knew] the property and I affirm the truth of the testimony given by Mr. Velazco.”6 The Republic of the Philippines likewise did not present any evidence to controvert the application.

Among the evidence presented by Malabanan during trial was a Certification dated 11 June 2001, issued by the Community Environment & Natural Resources Office, Department of Environment and Natural Resources (CENRO-DENR), which stated that the subject property was “verified to be within the Alienable or Disposable land per Land Classification Map No. 3013 established under Project No. 20-A and approved as such under FAO 4-1656 on March 15, 1982.”7 On 3 December 2002, the RTC rendered judgment in favor of Malabanan, the dispositive portion of which reads: _______________ ing the trial of the case, however, Malabanan testified that he purchased the subject lot from Eduardo Velazco, which was corroborated by his witness, Aristedes Velazco, a son of Virgilio Velazco, who stated that Eduardo was a brother of his grandfather. As aptly observed by the Republic, no copy of the deed of sale covering Lot 9864-A, executed either by Virgilio or Eduardo Velazco, in favor of Malabanan was marked and offered in evidence. In the appealed Decision, the court a quo mentioned of a deed of sale executed in 1995 by Eduardo Velazco in favor of Malabanan which was allegedly marked as Exhibit “I.” It appears, however, that what was provisionally marked as Exhibit “I” was a photocopy of the deed of sale executed by Virgilio Velazco in favor of Leila Benitez and Benjamin Reyes. Section 34, Rule 132 of the Rules of Court provides that the court shall consider no evidence which has not been formally offered. The offer is necessary because it is the duty of a judge to rest his findings of facts and his judgment only and strictly upon the evidence offered by the parties at the trial. Thus, Malabanan has not proved that

Virgilio or Eduardo Velazco was his predecessor-in-interest.” Rollo, pp. 39-40. 6 Rollo, p. 74. 7 Id., at p. 38. Emphasis supplied. 183 VOL. 587, APRIL 29, 2009183 Heirs of Mario Malabanan vs. Republic “WHEREFORE, this Court hereby approves this application for registration and thus places under the operation of Act 141, Act 496 and/or P.D. 1529, otherwise known as Property Registration Law, the lands described in Plan Csd-04-0173123D, Lot 9864-A and containing an area of Seventy One Thousand Three Hundred Twenty Four (71,324) Square Meters, as supported by its technical description now forming part of the record of this case, in addition to other proofs adduced in the name of MARIO MALABANAN, who is of legal age, Filipino, widower, and with residence at Munting Ilog, Silang, Cavite. Once this Decision becomes final and executory, the corresponding decree of registration shall forthwith issue. SO ORDERED.” The Republic interposed an appeal to the Court of Appeals, arguing that Malabanan had failed to prove that the property belonged to the alienable and disposable land of the public domain, and that the RTC had erred in finding that he had been in possession of the property in the manner and for the length of time required by law for confirmation of imperfect title. On 23 February 2007, the Court of Appeals rendered a Decision8 reversing the RTC and dismissing the application of

Malabanan. The appellate court held that under Section 14(1) of the Property Registration Decree any period of possession prior to the classification of the lots as alienable and disposable was inconsequential and should be excluded from the computation of the period of possession. Thus, the appellate court noted that since the CENRO-DENR certification had verified that the property was declared alienable and disposable only on 15 March 1982, the Velazcos’ possession prior to that date could not be factored in the computation of the period of possession. This interpretation of the Court of Appeals _______________ 8 Penned by Associate Justice Marina Buzon of the Court of Appeals Fifth Division, and concurred in by Associate Justices Edgardo Sundiam and Monina Arevalo-Zenarosa. 184 184SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic of Section 14(1) of the Property Registration Decree was based on the Court’s ruling in Republic v. Herbieto.9 Malabanan died while the case was pending with the Court of Appeals;10 hence, it was his heirs who appealed the decision of the appellate court. Petitioners, before this Court, rely on our ruling in Republic v. Naguit,11 which was handed down just four months prior to Herbieto. Petitioners suggest that the discussion in Herbieto cited by the Court of Appeals is actually obiter dictum since the Metropolitan Trial Court therein which had directed the registration of the property had no jurisdiction in the first place since the requisite notice of hearing was published only after the hearing had already begun. Naguit,

petitioners argue, remains the controlling doctrine, especially when the property in question is agricultural land. Therefore, with respect to agricultural lands, any possession prior to the declaration of the alienable property as disposable may be counted in reckoning the period of possession to perfect title under the Public Land Act and the Property Registration Decree. The petition was referred to the Court en banc,12 and on 11 November 2008, the case was heard on oral arguments. The Court formulated the principal issues for the oral arguments, to wit: “1. In order that an alienable and disposable land of the public domain may be registered under Section 14(1) of Presidential Decree No. 1529, otherwise known as the Property Registration Decree, should the land be classified as alienable and disposable as of June 12, 1945 or is it sufficient that such classification occur at any time prior to the filing of the applicant for registration provided that it is established that the applicant has been in open, continu_______________ 9 G.R. No. 156117, 26 May 2005, 459 SCRA 183. 10 See Rollo, p. 11. 11 G.R. No. 144507, 17 January 2005, 448 SCRA 442. 12 Through a Resolution dated 5 December 2007. See Rollo, p. 141. 185 VOL. 587, APRIL 29, 2009185 Heirs of Mario Malabanan vs. Republic

ous, exclusive and notorious possession of the land under a bona fide claim of ownership since June 12, 1945 or earlier? 2. For purposes of Section 14(2) of the Property Registration Decree may a parcel of land classified as alienable and disposable be deemed private land and therefore susceptible to acquisition by prescription in accordance with the Civil Code? 3. May a parcel of land established as agricultural in character either because of its use or because its slope is below that of forest lands be registrable under Section 14(2) of the Property Registration Decree in relation to the provisions of the Civil Code on acquisitive prescription? 4. Are petitioners entitled to the registration of the subject land in their names under Section 14(1) or Section 14(2) of the Property Registration Decree or both?”13 Based on these issues, the parties formulated their respective positions. With respect to Section 14(1), petitioners reiterate that the analysis of the Court in Naguit is the correct interpretation of the provision. The seemingly contradictory pronouncement in Herbieto, it is submitted, should be considered obiter dictum, since the land registration proceedings therein was void ab initio due to lack of publication of the notice of initial hearing. Petitioners further point out that in Republic v. Bibonia,14 promulgated in June of 2007, the Court applied Naguit and adopted the same observation that the preferred interpretation by the OSG of Section 14(1) was patently absurd. For its part, the OSG remains insistent that for Section 14(1) to apply, the land should have been classified as alienable and disposable as of 12 June 1945. Apart from Herbieto, the OSG also cites the

subsequent rulings in Buenaventura v. Republic,15 Fieldman Agricultural Trading v. Republic16 and Repub_______________ 13 Id., at pp. 186-187. 14 G.R. No. 157466, 21 June 2007, 525 SCRA 268. 15 G.R. No. 166865, 2 March 2007, 459 SCRA 271. 16 G.R. No. 147359, 28 March 2008, 550 SCRA 92. 186 186SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic lic v. Imperial Credit Corporation,17 as well as the earlier case of Director of Lands v. Court of Appeals.18 With respect to Section 14(2), petitioners submit that open, continuous, exclusive and notorious possession of an alienable land of the public domain for more than 30 years ipso jure converts the land into private property, thus placing it under the coverage of Section 14(2). According to them, it would not matter whether the land sought to be registered was previously classified as agricultural land of the public domain so long as, at the time of the application, the property had already been “converted” into private property through prescription. To bolster their argument, petitioners cite extensively from our 2008 ruling in Republic v. T.A.N. Properties.19 The arguments submitted by the OSG with respect to Section 14(2) are more extensive. The OSG notes that under Article 1113 of the Civil Code, the acquisitive prescription of properties of the State refers to “patrimonial property,” while Section 14(2) speaks of “private lands.” It observes that the Court has yet to decide a case that presented Section 14(2) as a

ground for application for registration, and that the 30-year possession period refers to the period of possession under Section 48(b) of the Public Land Act, and not the concept of prescription under the Civil Code. The OSG further submits that, assuming that the 30-year prescriptive period can run against public lands, said period should be reckoned from the time the public land was declared alienable and disposable. Both sides likewise offer special arguments with respect to the particular factual circumstances surrounding the subject property and the ownership thereof. _______________ 17 G.R. No. 173088, 25 June 2008, 555 SCRA 314. 18 G.R. No. 85322, 30 April 1991, 178 SCRA 708. 19 G.R. No. 154953, 16 June 2008. 187 VOL. 587, APRIL 29, 2009187 Heirs of Mario Malabanan vs. Republic II. First, we discuss Section 14(1) of the Property Registration Decree. For a full understanding of the provision, reference has to be made to the Public Land Act. A. Commonwealth Act No. 141, also known as the Public Land Act, has, since its enactment, governed the classification and disposition of lands of the public domain. The President is authorized, from time to time, to classify the lands of the public domain into alienable and disposable, timber, or mineral lands.20 Alienable and disposable lands of the public domain are further classified according to their uses into (a)

agricultural; (b) residential, commercial, industrial, or for similar productive purposes; (c) educational, charitable, or other similar purposes; or (d) reservations for town sites and for public and quasi-public uses.21 May a private person validly seek the registration in his/her name of alienable and disposable lands of the public domain? Section 11 of the Public Land Act acknowledges that public lands suitable for agricultural purposes may be disposed of “by confirmation of imperfect or incomplete titles” through “judicial legalization.”22 Section 48(b) of the Public Land Act, as amended by P.D. No. 1073, supplies the details and unmistakably grants that right, subject to the requisites stated therein: “Sec. 48. The following described citizens of the Philippines, occupying lands of the public domain or claiming to own any such land or an interest therein, but whose titles have not been perfected or completed, may apply to the Court of First Instance of the prov_______________ 20 Section 6, Com. Act No. 141, as amended 21 Section 9, Com. Act No. 141, as amended. 22 Section 11, Com. Act No. 141, as amended. 188 188SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic ince where the land is located for confirmation of their claims and the issuance of a certificate of title therefor, under the Land Registration Act, to wit: xxx

(b) Those who by themselves or through their predecessors in interest have been in open, continuous, exclusive, and notorious possession and occupation of alienable and disposable lands of the public domain, under a bona fide claim of acquisition of ownership, since June 12, 1945, or earlier, immediately preceding the filing of the application for confirmation of title except when prevented by war or force majeure. These shall be conclusively presumed to have performed all the conditions essential to a Government grant and shall be entitled to a certificate of title under the provisions of this chapter.” Section 48(b) of Com. Act No. 141 received its present wording in 1977 when the law was amended by P.D. No. 1073. Two significant amendments were introduced by P.D. No. 1073. First, the term “agricultural lands” was changed to “alienable and disposable lands of the public domain.” The OSG submits that this amendment restricted the scope of the lands that may be registered.23 This is not actually the case. Under Section 9 of the Public Land Act, “agricultural lands” are a mere subset of “lands of the public domain alienable or open to disposition.” Evidently, alienable and disposable lands of the public domain are a larger class than only “agricultural lands.” Second, the length of the requisite possession was changed from possession for “thirty (30) years immediately preceding the filing of the application” to possession “since June 12, 1945 or earlier.” The Court in Naguit explained: “When the Public Land Act was first promulgated in 1936, the period of possession deemed necessary to vest the right to

register their title to agricultural lands of the public domain commenced _______________ 23 OSG Memorandum, p. 13. 189 VOL. 587, APRIL 29, 2009189 Heirs of Mario Malabanan vs. Republic from July 26, 1894. However, this period was amended by R.A. No. 1942, which provided that the bona fide claim of ownership must have been for at least thirty (30) years. Then in 1977, Section 48(b) of the Public Land Act was again amended, this time by P.D. No. 1073, which pegged the reckoning date at June 12, 1945. xxx” It bears further observation that Section 48(b) of Com. Act No, 141 is virtually the same as Section 14(1) of the Property Registration Decree. Said Decree codified the various laws relative to the registration of property, including lands of the public domain. It is Section 14(1) that operationalizes the registration of such lands of the public domain. The provision reads: “SECTION 14. Who may apply.—The following persons may file in the proper Court of First Instance an application for registration of title to land, whether personally or through their duly authorized representatives: (1) those who by themselves or through their predecessorsin-interest have been in open, continuous, exclusive and notorious possession and occupation of alienable and disposable lands of the public domain under a bona fide claim of ownership since June 12, 1945, or earlier.”

Notwithstanding the passage of the Property Registration Decree and the inclusion of Section 14(1) therein, the Public Land Act has remained in effect. Both laws commonly refer to persons or their predecessors-in-interest who “have been in open, continuous, exclusive and notorious possession and occupation of alienable and disposable lands of the public domain under a bona fide claim of ownership since June 12, 1945, or earlier.” That circumstance may have led to the impression that one or the other is a redundancy, or that Section 48(b) of the Public Land Act has somehow been repealed or mooted. That is not the case. The opening clauses of Section 48 of the Public Land Act and Section 14 of the Property Registration Decree warrant comparison: 190 190SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic “Sec. 48 [of the Public Land Act].—The following described citizens of the Philippines, occupying lands of the public domain or claiming to own any such land or an interest therein, but whose titles have not been perfected or completed, may apply to the Court of First Instance of the province where the land is located for confirmation of their claims and the issuance of a certificate of title therefor, under the Land Registration Act, to wit: xxx Sec. 14 [of the Property Registration Decree].—Who may apply.—The following persons may file in the proper Court of First Instance an application for registration of title to land,

whether personally or through their duly authorized representatives: xxx” It is clear that Section 48 of the Public Land Act is more descriptive of the nature of the right enjoyed by the possessor than Section 14 of the Property Registration Decree, which seems to presume the pre-existence of the right, rather than establishing the right itself for the first time. It is proper to assert that it is the Public Land Act, as amended by P.D. No. 1073 effective 25 January 1977, that has primarily established the right of a Filipino citizen who has been “in open, continuous, exclusive, and notorious possession and occupation of alienable and disposable lands of the public domain, under a bona fide claim of acquisition of ownership, since June 12, 1945” to perfect or complete his title by applying with the proper court for the confirmation of his ownership claim and the issuance of the corresponding certificate of title. Section 48 can be viewed in conjunction with the afore-quoted Section 11 of the Public Land Act, which provides that public lands suitable for agricultural purposes may be disposed of by confirmation of imperfect or incomplete titles, and given the notion that both provisions declare that it is indeed the Public Land Act that primarily establishes the substantive ownership of the possessor who has been in possession of the property since 12 June 1945. In turn, Section 14(a) of the 191 VOL. 587, APRIL 29, 2009191 Heirs of Mario Malabanan vs. Republic

Property Registration Decree recognizes the substantive right granted under Section 48(b) of the Public Land Act, as well provides the corresponding original registration procedure for the judicial confirmation of an imperfect or incomplete title. There is another limitation to the right granted under Section 48(b). Section 47 of the Public Land Act limits the period within which one may exercise the right to seek registration under Section 48. The provision has been amended several times, most recently by Rep. Act No. 9176 in 2002. It currently reads thus: “Section 47. The persons specified in the next following section are hereby granted time, not to extend beyond December 31, 2020 within which to avail of the benefits of this Chapter: Provided, That this period shall apply only where the area applied for does not exceed twelve (12) hectares: Provided, further, That the several periods of time designated by the President in accordance with Section Forty-Five of this Act shall apply also to the lands comprised in the provisions of this Chapter, but this Section shall not be construed as prohibiting any said persons from acting under this Chapter at any time prior to the period fixed by the President.”24 Accordingly under the current state of the law, the substantive right granted under Section 48(b) may be availed of only until 31 December 2020. B. Despite the clear text of Section 48(b) of the Public Land Act, as amended and Section 14(a) of the Property Registration Decree, the OSG has adopted the position that for one to acquire the right to seek registration of an alienable and disposable land of the public domain, it is not enough that the

applicant and his/her predecessors-in-interest be in possession under a bona fide claim of ownership since 12 June 1945; _______________ 24 Section 47, Public Land Act, as amended by Rep. Act No. 9176. 192 192SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic the alienable and disposable character of the property must have been declared also as of 12 June 1945. Following the OSG’s approach, all lands certified as alienable and disposable after 12 June 1945 cannot be registered either under Section 14(1) of the Property Registration Decree or Section 48(b) of the Public Land Act as amended. The absurdity of such an implication was discussed in Naguit. “Petitioner suggests an interpretation that the alienable and disposable character of the land should have already been established since June 12, 1945 or earlier. This is not borne out by the plain meaning of Section 14(1). “Since June 12, 1945,” as used in the provision, qualifies its antecedent phrase “under a bonafide claim of ownership.” Generally speaking, qualifying words restrict or modify only the words or phrases to which they are immediately associated, and not those distantly or remotely located.25 Ad proximum antecedents fiat relation nisi impediatur sentencia. Besides, we are mindful of the absurdity that would result if we adopt petitioner’s position. Absent a legislative amendment, the rule would be, adopting the OSG’s view, that all lands of the public domain which were not declared alienable or

disposable before June 12, 1945 would not be susceptible to original registration, no matter the length of unchallenged possession by the occupant. Such interpretation renders paragraph (1) of Section 14 virtually inoperative and even precludes the government from giving it effect even as it decides to reclassify public agricultural lands as alienable and disposable. The unreasonableness of the situation would even be aggravated considering that before June 12, 1945, the Philippines was not yet even considered an independent state.” Accordingly, the Court in Naguit explained: “[T]he more reasonable interpretation of Section 14(1) is that it merely requires the property sought to be registered as already alienable and disposable at the time the application for registration of title is filed. If the State, at the time the application is made, has _______________ 25 R. Agpalo, Statutory Construction (3rd ed., 1995) at p. 182. 193 VOL. 587, APRIL 29, 2009193 Heirs of Mario Malabanan vs. Republic not yet deemed it proper to release the property for alienation or disposition, the presumption is that the government is still reserving the right to utilize the property; hence, the need to preserve its ownership in the State irrespective of the length of adverse possession even if in good faith. However, if the property has already been classified as alienable and disposable, as it is in this case, then there is already an intention on the part of the State to abdicate its exclusive prerogative over the property.”

The Court declares that the correct interpretation of Section 14(1) is that which was adopted in Naguit. The contrary pronouncement in Herbieto, as pointed out in Naguit, absurdly limits the application of the provision to the point of virtual inutility since it would only cover lands actually declared alienable and disposable prior to 12 June 1945, even if the current possessor is able to establish open, continuous, exclusive and notorious possession under a bona fide claim of ownership long before that date. Moreover, the Naguit interpretation allows more possessors under a bona fide claim of ownership to avail of judicial confirmation of their imperfect titles than what would be feasible under Herbieto. This balancing fact is significant, especially considering our forthcoming discussion on the scope and reach of Section 14(2) of the Property Registration Decree. Petitioners make the salient observation that the contradictory passages from Herbieto are obiter dicta since the land registration proceedings therein is void ab initio in the first place due to lack of the requisite publication of the notice of initial hearing. There is no need to explicitly overturn Herbieto, as it suffices that the Court’s acknowledgment that the particular line of argument used therein concerning Section 14(1) is indeed obiter. 194 194SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic It may be noted that in the subsequent case of Buenaventura,26 the Court, citing Herbieto, again stated that “[a]ny period of possession prior to the date when the [s]ubject [property was]

classified as alienable and disposable is inconsequential and should be excluded from the computation of the period of possession…” That statement, in the context of Section 14(1), is certainly erroneous. Nonetheless, the passage as cited in Buenaventura should again be considered as obiter. The application therein was ultimately granted, citing Section 14(2). The evidence submitted by petitioners therein did not establish any mode of possession on their part prior to 1948, thereby precluding the application of Section 14(1). It is not even apparent from the decision whether petitioners therein had claimed entitlement to original registration following Section 14(1), their position being that they had been in exclusive possession under a bona fide claim of ownership for over fifty (50) years, but not before 12 June 1945. Thus, neither Herbieto nor its principal discipular ruling Buenaventura has any precedental value with respect to Section 14(1). On the other hand, the ratio of Naguit is embedded in Section 14(1), since it precisely involved situation wherein the applicant had been in exclusive possession under a bona fide claim of ownership prior to 12 June 1945. The Court’s interpretation of Section 14(1) therein was decisive to the resolution of the case. Any doubt as to which between Naguit or Herbieto provides the final word of the Court on Section 14(1) is now settled in favor of Naguit. We noted in Naguit that it should be distinguished from Bracewell v. Court of Appeals27 since in the latter, the application for registration had been filed before the land was declared alienable or disposable. The dissent though pronounces Bracewell as the better rule between the two. Yet

two years after Bracewell, its ponente, the esteemed Justice Consuelo _______________ 26 See note 3. 27 380 Phil. 156; 323 SCRA 193 (2000). 195 VOL. 587, APRIL 29, 2009195 Heirs of Mario Malabanan vs. Republic Ynares-Santiago, penned the ruling in Republic v. Ceniza,28 which involved a claim of possession that extended back to 1927 over a public domain land that was declared alienable and disposable only in 1980. Ceniza cited Bracewell, quoted extensively from it, and following the mindset of the dissent, the attempt at registration in Ceniza should have failed. Not so. “To prove that the land subject of an application for registration is alienable, an applicant must establish the existence of a positive act of the government such as a presidential proclamation or an executive order; an administrative action; investigation reports of Bureau of Lands investigators; and a legislative act or a statute. In this case, private respondents presented a certification dated November 25, 1994, issued by Eduardo M. Inting, the Community Environment and Natural Resources Officer in the Department of Environment and Natural Resources Office in Cebu City, stating that the lots involved were “found to be within the alienable and disposable (sic) Block-I, Land Classification Project No. 32-A, per map 2962 4-I555 dated December 9, 1980.” This is sufficient evidence to show the real character of the land subject of private respondents’

application. Further, the certification enjoys a presumption of regularity in the absence of contradictory evidence, which is true in this case. Worth noting also was the observation of the Court of Appeals stating that: [n]o opposition was filed by the Bureaus of Lands and Forestry to contest the application of appellees on the ground that the property still forms part of the public domain. Nor is there any showing that the lots in question are forestal land....” Thus, while the Court of Appeals erred in ruling that mere possession of public land for the period required by law would entitle its occupant to a confirmation of imperfect title, it did not err in ruling in favor of private respondents as far as the first requirement in Section 48(b) of the Public Land Act is concerned, for they were _______________ 28 Also known as Republic v. Court of Appeals, 440 Phil. 697; 392 SCRA 190 (2002). 196 196SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic able to overcome the burden of proving the alienability of the land subject of their application. As correctly found by the Court of Appeals, private respondents were able to prove their open, continuous, exclusive and notorious possession of the subject land even before the year 1927. As a rule, we are bound by the factual findings of the Court of Appeals. Although there are exceptions, petitioner did not show that this is one of them.”29

Why did the Court in Ceniza, through the same eminent member who authored Bracewell, sanction the registration under Section 48(b) of public domain lands declared alienable or disposable thirty-five (35) years and 180 days after 12 June 1945? The telling difference is that in Ceniza, the application for registration was filed nearly six (6) years after the land had been declared alienable or disposable, while in Bracewell, the application was filed nine (9) years before the land was declared alienable or disposable. That crucial difference was also stressed in Naguit to contradistinguish it from Bracewell, a difference which the dissent seeks to belittle. III. We next ascertain the correct framework of analysis with respect to Section 14(2). The provision reads: “SECTION 14. Who may apply.—The following persons may file in the proper Court of First Instance an application for registration of title to land, whether personally or through their duly authorized representatives: xxx (2) Those who have acquired ownership over private lands by prescription under the provisions of existing laws.” _______________ 29 Id., at pp. 710-712; pp. 201-202. 197 VOL. 587, APRIL 29, 2009197 Heirs of Mario Malabanan vs. Republic The Court in Naguit offered the following discussion concerning Section 14(2), which we did even then recognize,

and still do, to be an obiter dictum, but we nonetheless refer to it as material for further discussion, thus: “Did the enactment of the Property Registration Decree and the amendatory P.D. No. 1073 preclude the application for registration of alienable lands of the public domain, possession over which commenced only after June 12, 1945? It did not, considering Section 14(2) of the Property Registration Decree, which governs and authorizes the application of “those who have acquired ownership of private lands by prescription under the provisions of existing laws.” Prescription is one of the modes of acquiring ownership under the Civil Code.30 There is a consistent jurisprudential rule that properties classified as alienable public land may be converted into private property by reason of open, continuous and exclusive possession of at least thirty (30) years.31 With such conversion, such property may now fall within the contemplation of “private lands” under Section 14(2), and thus susceptible to registration by those who have acquired ownership through prescription. Thus, even if possession of the alienable public land commenced on a date later than June 12, 1945, and such possession being been open, continuous and exclusive, then the possessor may have the right to register the land by virtue of Section 14(2) of the Property Registration Decree.” Naguit did not involve the application of Section 14(2), unlike in this case where petitioners have based their registration bid primarily on that provision, and where the evidence definitively establishes their claim of possession only as far back as 1948. It is in this case that we can properly appreciate the nuances of the provision.

_______________ 30 See Civil Code, Art. 1113. 31 See e.g., Director of Lands v. Intermediate Appellate Court, G.R. No. 65663, 16 October 1992, 214 SCRA 604, 611; Republic v. Court of Appeals, G.R. No. 108998, 24 August 1994, 235 SCRA 567, 576; Group Commander, Intelligence and Security Group v. Dr. Malvar, 438 Phil. 252, 275; 389 SCRA 493, 509 (2002). 198 198SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic A. The obiter in Naguit cited the Civil Code provisions on prescription as the possible basis for application for original registration under Section 14(2). Specifically, it is Article 1113 which provides legal foundation for the application. It reads: “All things which are within the commerce of men are susceptible of prescription, unless otherwise provided. Property of the State or any of its subdivisions not patrimonial in character shall not be the object of prescription.” It is clear under the Civil Code that where lands of the public domain are patrimonial in character, they are susceptible to acquisitive prescription. On the other hand, among the public domain lands that are not susceptible to acquisitive prescription are timber lands and mineral lands. The Constitution itself proscribes private ownership of timber or mineral lands. There are in fact several provisions in the Civil Code concerning the acquisition of real property through prescription. Ownership of real property may be acquired by

ordinary prescription of ten (10) years,32 or through extraordinary prescription of thirty (30) years.33 Ordinary acquisitive prescription requires possession in good faith,34 as well as just title.35 When Section 14(2) of the Property Registration Decree explicitly provides that persons “who have acquired ownership over private lands by prescription under the provisions of existing laws,” it unmistakably refers to the Civil Code as a valid basis for the registration of lands. The Civil Code is the _______________ 32 See Article 1134, Civil Code. 33 See Article 1137, Civil Code. 34 See Article 1117 in relation to Article 1128, Civil Code. See also Articles 526, 527, 528 & 529, Civil Code on the conditions of good faith required. 35 See Article 1117, in relation to Article 1129, Civil Code. 199 VOL. 587, APRIL 29, 2009199 Heirs of Mario Malabanan vs. Republic only existing law that specifically allows the acquisition by prescription of private lands, including patrimonial property belonging to the State. Thus, the critical question that needs affirmation is whether Section 14(2) does encompass original registration proceedings over patrimonial property of the State, which a private person has acquired through prescription. The Naguit obiter had adverted to a frequently reiterated jurisprudence holding that properties classified as alienable public land may be converted into private property by reason of open, continuous and exclusive possession of at least thirty

(30) years.36 Yet if we ascertain the source of the “thirty-year” period, additional complexities relating to Section 14(2) and to how exactly it operates would emerge. For there are in fact two distinct origins of the thirty (30)-year rule. The first source is Rep. Act No. 1942, enacted in 1957, which amended Section 48(b) of the Public Land Act by granting the right to seek original registration of alienable public lands through possession in the concept of an owner for at least thirty years. “The following-described citizens of the Philippines, occupying lands of the public domain or claiming to own any such lands or an interest therein, but whose titles have not been perfected or completed, may apply to the Court of First Instance of the province where the land is located for confirmation of their claims and the issuance of a certificate of title therefor, under the Land Registration Act, to wit: xxx xxx xxx (b) Those who by themselves or through their predecessors in interest have been in open, continuous, exclusive and notorious _______________ 36 Citing Director of Lands v. Intermediate Appellate Court, G.R. No. 65663, 16 October 1992, 214 SCRA 604, 611; Republic v. Court of Appeals, G.R. No. 108998, 24 August 1994, 235 SCRA 567, 576; Group Commander, Intelligence and Security Group v. Dr. Malvar, 438 Phil. 252, 275; 389 SCRA 493, 509 (2002). 200 200SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic

possession and occupation of agricultural lands of the public domain, under a bona fide claim of acquisition of ownership, for at least thirty years immediately preceding the filing of the application for confirmation of title, except when prevented by war or force majeure. These shall be conclusively presumed to have performed all the conditions essential to a Government grant and shall be entitled to a certificate of title under the provisions of this Chapter. (emphasis supplied)”37 This provision was repealed in 1977 with the enactment of P.D. 1073, which made the date 12 June 1945 the reckoning point for the first time. Nonetheless, applications for registration filed prior to 1977 could have invoked the 30-year rule introduced by Rep. Act No. 1942. The second source is Section 14(2) of P.D. 1529 itself, at least by implication, as it applies the rules on prescription under the Civil Code, particularly Article 1113 in relation to Article 1137. Note that there are two kinds of prescription under the Civil Code–ordinary acquisitive prescription and extraordinary acquisitive prescription, which, under Article 1137, is completed “through uninterrupted adverse possession… for thirty years, without need of title or of good faith.” Obviously, the first source of the thirty (30)-year period rule, Rep. Act No. 1942, became unavailable after 1977. At present, the only legal basis for the thirty (30)-year period is the law on prescription under the Civil Code, as mandated _______________ 37 Section 48(b) of the Public Land Act, immediately before its amendment by Rep. Act No. 1942, reads as follows: “Those who by themselves or through their predecessors in interest have been in open, continuous, exclusive and notorious

possession and occupation of agricultural lands of the public domain, under a bona fide claim of acquisition of ownership, except as against the Government, since July twenty-sixth, eighteen hundred and ninety-four, except when prevented by war or force majeure. These shall be conclusively presumed to have performed all the conditions essential to a Government grant and shall be entitled to a certificate of title under the provisions of this Chapter.” 201 VOL. 587, APRIL 29, 2009201 Heirs of Mario Malabanan vs. Republic under Section 14(2). However, there is a material difference between how the thirty (30)-year rule operated under Rep. Act No. 1942 and how it did under the Civil Code. Section 48(b) of the Public Land Act, as amended by Rep. Act No. 1942, did not refer to or call into application the Civil Code provisions on prescription. It merely set forth a requisite thirty-year possession period immediately preceding the application for confirmation of title, without any qualification as to whether the property should be declared alienable at the beginning of, and continue as such, throughout the entire thirty-(30) years. There is neither statutory nor jurisprudential basis to assert Rep. Act No. 1942 had mandated such a requirement,38 similar to our earlier finding with respect to the present language of Section 48(b), which now sets 12 June 1945 as the point of reference. Then, with the repeal of Rep. Act No. 1942, the thirty-year possession period as basis for original registration became Section 14(2) of the Property Registration Decree, which

entitled those “who have acquired ownership over private lands by prescription under the provisions of existing laws” to apply for original registration. Again, the thirty-year period is derived from the rule on extraordinary prescription under Article 1137 of the Civil Code. At the same time, Section 14(2) puts into operation the entire regime of prescription under the Civil Code, a fact which does not hold true with respect to Section 14(1). B. Unlike Section 14(1), Section 14(2) explicitly refers to the principles on prescription under existing laws. Accordingly, we are impelled to apply the civil law concept of prescription, _______________ 38 Again, Section 48(b) of the Public Land Act, as amended by Rep. Act No. 1942, was superseded by P.D. No. 1073, which imposed the 12 June 1945 reckoning point, and which was then incorporated in Section 14(1) of the Property Registration Decree. 202 202SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic as set forth in the Civil Code, in our interpretation of Section 14(2). There is no similar demand on our part in the case of Section 14(1). The critical qualification under Article 1113 of the Civil Code is thus: “[p]roperty of the State or any of its subdivisions not patrimonial in character shall not be the object of prescription.” The identification what consists of patrimonial property is provided by Articles 420 and 421, which we quote in full:

“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. It is clear that property of public dominion, which generally includes property belonging to the State, cannot be the object of prescription or, indeed, be subject of the commerce of man.39 Lands of the public domain, whether declared alienable and disposable or not, are property of public dominion and thus insusceptible to acquisition by prescription. Let us now explore the effects under the Civil Code of a declaration by the President or any duly authorized government officer of alienability and disposability of lands of the public domain. Would such lands so declared alienable and disposable be converted, under the Civil Code, from property of the public dominion into patrimonial property? After all, by connotative definition, alienable and disposable lands may be _______________ 39 See Villarico v. Sarmiento, G.R. No. 136438, 11 November 2004, 442 SCRA 110. 203 VOL. 587, APRIL 29, 2009203 Heirs of Mario Malabanan vs. Republic

the object of the commerce of man; Article 1113 provides that all things within the commerce of man are susceptible to prescription; and the same provision further provides that patrimonial property of the State may be acquired by prescription. Nonetheless, Article 422 of the Civil Code states that “[p]roperty of public dominion, when no longer intended for public use or for public service, shall form part of the patrimonial property of the State.” It is this provision that controls how public dominion property may be converted into patrimonial property susceptible to acquisition by prescription. After all, Article 420 (2) makes clear that those property “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” are public dominion property. For as long as the property belongs to the State, although already classified as alienable or disposable, it remains property of the public dominion if when it is “intended for some public service or for the development of the national wealth.” Accordingly, there must be an express declaration by the State that the public dominion property is no longer intended for public service or the development of the national wealth or that the property has been converted into patrimonial. Without such express declaration, the property, even if classified as alienable or disposable, remains property of the public dominion, pursuant to Article 420(2), and thus incapable of acquisition by prescription. It is only when such alienable and disposable lands are expressly declared by the State to be no longer intended for public service or for the development of the

national wealth that the period of acquisitive prescription can begin to run. Such declaration shall be in the form of a law duly enacted by Congress or a Presidential Proclamation in cases where the President is duly authorized by law. 204 204SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic It is comprehensible with ease that this reading of Section 14(2) of the Property Registration Decree limits its scope and reach and thus affects the registrability even of lands already declared alienable and disposable to the detriment of the bona fide possessors or occupants claiming title to the lands. Yet this interpretation is in accord with the Regalian doctrine and its concomitant assumption that all lands owned by the State, although declared alienable or disposable, remain as such and ought to be used only by the Government. Recourse does not lie with this Court in the matter. The duty of the Court is to apply the Constitution and the laws in accordance with their language and intent. The remedy is to change the law, which is the province of the legislative branch. Congress can very well be entreated to amend Section 14(2) of the Property Registration Decree and pertinent provisions of the Civil Code to liberalize the requirements for judicial confirmation of imperfect or incomplete titles. The operation of the foregoing interpretation can be illustrated by an actual example. Republic Act No. 7227, entitled “An Act Accelerating The Conversion Of Military Reservations Into Other Productive Uses, etc.,” is more commonly known as the BCDA law. Section 2 of the law authorizes the sale of certain

military reservations and portions of military camps in Metro Manila, including Fort Bonifacio and Villamor Air Base. For purposes of effecting the sale of the military camps, the law mandates the President to transfer such military lands to the Bases Conversion Development Authority (BCDA)40 which in turn is authorized to own, hold and/or administer them.41 The President is authorized to sell portions of the military camps, in whole or in part.42 Accordingly, the BCDA law itself declares that the military lands subject thereof are “alienable and disposable pursuant to the provi_______________ 40 Rep. Act No. 7227, Sec. 7. 41 Rep. Act No. 7227, Sec. 4(a). 42 Rep. Act No. 7227, Sec. 7. 205 VOL. 587, APRIL 29, 2009205 Heirs of Mario Malabanan vs. Republic sions of existing laws and regulations governing sales of government properties.”43 From the moment the BCDA law was enacted the subject military lands have become alienable and disposable. However, said lands did not become patrimonial, as the BCDA law itself expressly makes the reservation that these lands are to be sold in order to raise funds for the conversion of the former American bases at Clark and Subic.44 Such purpose can be tied to either “public service” or “the development of national wealth” under Article 420(2). Thus, at that time, the lands remained property of the public dominion under Article 420(2), notwithstanding their status as alienable and disposable. It is

upon their sale as authorized under the BCDA law to a private person or entity that such lands become private property and cease to be property of the public dominion. C. Should public domain lands become patrimonial because they are declared as such in a duly enacted law or duly promulgated proclamation that they are no longer intended for public service or for the development of the national wealth, would the period of possession prior to the conversion of such public dominion into patrimonial be reckoned in counting the prescriptive period in favor of the possessors? We rule in the negative. The limitation imposed by Article 1113 dissuades us from ruling that the period of possession before the public domain land becomes patrimonial may be counted for the purpose of completing the prescriptive period. Possession of public dominion property before it becomes patrimonial cannot be the object of prescription according to the Civil Code. As the application for registration under Section 14(2) falls wholly within the framework of prescription under the Civil Code, _______________ 43 Id. 44 Section 2, Rep. Act No. 7227. 206 206SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic there is no way that possession during the time that the land was still classified as public dominion property can be counted to meet the requisites of acquisitive prescription and justify registration.

Are we being inconsistent in applying divergent rules for Section 14(1) and Section 14(2)? There is no inconsistency. Section 14(1) mandates registration on the basis of possession, while Section 14(2) entitles registration on the basis of prescription. Registration under Section 14(1) is extended under the aegis of the Property Registration Decree and the Public Land Act while registration under Section 14(2) is made available both by the Property Registration Decree and the Civil Code. In the same manner, we can distinguish between the thirty-year period under Section 48(b) of the Public Land Act, as amended by Rep. Act No. 1472, and the thirty-year period available through Section 14(2) of the Property Registration Decree in relation to Article 1137 of the Civil Code. The period under the former speaks of a thirty-year period of possession, while the period under the latter concerns a thirty-year period of extraordinary prescription. Registration under Section 48(b) of the Public Land Act as amended by Rep. Act No. 1472 is based on thirty years of possession alone without regard to the Civil Code, while the registration under Section 14(2) of the Property Registration Decree is founded on extraordinary prescription under the Civil Code. It may be asked why the principles of prescription under the Civil Code should not apply as well to Section 14(1). Notwithstanding the vaunted status of the Civil Code, it ultimately is just one of numerous statutes, neither superior nor inferior to other statutes such as the Property Registration Decree. The legislative branch is not bound to adhere to the framework set forth by the Civil Code when it enacts

subsequent legislation. Section 14(2) manifests a clear intent to interrelate the registration allowed under that provision with 207 VOL. 587, APRIL 29, 2009207 Heirs of Mario Malabanan vs. Republic the Civil Code, but no such intent exists with respect to Section 14(1). IV. One of the keys to understanding the framework we set forth today is seeing how our land registration procedures correlate with our law on prescription, which, under the Civil Code, is one of the modes for acquiring ownership over property. The Civil Code makes it clear that patrimonial property of the State may be acquired by private persons through prescription. This is brought about by Article 1113, which states that “[a]ll things which are within the commerce of man are susceptible to prescription,” and that [p]roperty of the State or any of its subdivisions not patrimonial in character shall not be the object of prescription.” There are two modes of prescription through which immovables may be acquired under the Civil Code. The first is ordinary acquisitive prescription, which, under Article 1117, requires possession in good faith and with just title; and, under Article 1134, is completed through possession of ten (10) years. There is nothing in the Civil Code that bars a person from acquiring patrimonial property of the State through ordinary acquisitive prescription, nor is there any apparent reason to impose such a rule. At the same time, there are indispensable requisites—good faith and just title. The

ascertainment of good faith involves the application of Articles 526, 527, and 528, as well as Article 1127 of the Civil Code,45 provisions that more or less speak for themselves. On the other hand, the concept of just title requires some clarification. Under Article 1129, there is just title for the purposes of prescription “when the adverse claimant came into possession of the property through one of the modes rec_______________ 45 See Civil Code, Art. 1128. 208 208SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic ognized by law for the acquisition of ownership or other real rights, but the grantor was not the owner or could not transmit any right.” Dr. Tolentino explains: “Just title is an act which has for its purpose the transmission of ownership, and which would have actually transferred ownership if the grantor had been the owner. This vice or defect is the one cured by prescription. Examples: sale with delivery, exchange, donation, succession, and dacion in payment.”46 The OSG submits that the requirement of just title necessarily precludes the applicability of ordinary acquisitive prescription to patrimonial property. The major premise for the argument is that “the State, as the owner and grantor, could not transmit ownership to the possessor before the completion of the required period of possession.”47 It is evident that the OSG erred when it assumed that the grantor referred to in Article 1129 is the State. The grantor is the one from whom the person

invoking ordinary acquisitive prescription derived the title, whether by sale, exchange, donation, succession or any other mode of the acquisition of ownership or other real rights. Earlier, we made it clear that, whether under ordinary prescription or extraordinary prescription, the period of possession preceding the classification of public dominion lands as patrimonial cannot be counted for the purpose of computing prescription. But after the property has been become patrimonial, the period of prescription begins to run in favor of the possessor. Once the requisite period has been completed, two legal events ensue: (1) the patrimonial property is ipso jure converted into private land; and (2) the person in possession for the periods prescribed under the Civil Code acquires ownership of the property by operation of the Civil Code. _______________ 46 A. Tolentino, IV Civil Code of the Philippines (1991 ed.) at 26; citing 2 Castan 175. 47 Memorandum of the OSG, p. 21. 209 VOL. 587, APRIL 29, 2009209 Heirs of Mario Malabanan vs. Republic It is evident that once the possessor automatically becomes the owner of the converted patrimonial property, the ideal next step is the registration of the property under the Torrens system. It should be remembered that registration of property is not a mode of acquisition of ownership, but merely a mode of confirmation of ownership.48

Looking back at the registration regime prior to the adoption of the Property Registration Decree in 1977, it is apparent that the registration system then did not fully accommodate the acquisition of ownership of patrimonial property under the Civil Code. What the system accommodated was the confirmation of imperfect title brought about by the completion of a period of possession ordained under the Public Land Act (either 30 years following Rep. Act No. 1942, or since 12 June 1945 following P.D. No. 1073). The Land Registration Act49 was noticeably silent on the requisites for alienable public lands acquired through ordinary prescription under the Civil Code, though it arguably did not preclude such registration.50 Still, the gap was lamentable, considering that the Civil Code, by itself, establishes ownership over the patrimonial property of persons who have completed the prescriptive periods ordained therein. The gap was finally closed with the adoption of the Property Registration Decree in 1977, with Section 14(2) thereof expressly authorizing original registration in favor of persons who have acquired ownership over private lands by prescription under the provisions of existing laws, that is, the Civil Code as of now. V. We synthesize the doctrines laid down in this case, as follows: _______________ 48 See Angeles v. Samia, 66 Phil. 44 (1938). 49 Act No. 496. 50 See Section 19, Land Registration Act, which allowed application for registration of title by “person or persons claiming, singly or collectively, to own the legal estate in fee simple.”

210 210SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic (1) In connection with Section 14(1) of the Property Registration Decree, Section 48(b) of the Public Land Act recognizes and confirms that “those who by themselves or through their predecessors in interest have been in open, continuous, exclusive, and notorious possession and occupation of alienable and disposable lands of the public domain, under a bona fide claim of acquisition of ownership, since June 12, 1945” have acquired ownership of, and registrable title to, such lands based on the length and quality of their possession. (a) Since Section 48(b) merely requires possession since 12 June 1945 and does not require that the lands should have been alienable and disposable during the entire period of possession, the possessor is entitled to secure judicial confirmation of his title thereto as soon as it is declared alienable and disposable, subject to the timeframe imposed by Section 47 of the Public Land Act.51 (b) The right to register granted under Section 48(b) of the Public Land Act is further confirmed by Section 14(1) of the Property Registration Decree. (2) In complying with Section 14(2) of the Property Registration Decree, consider that under the Civil Code, prescription is recognized as a mode of acquiring ownership of patrimonial property. However, public domain lands become only patrimonial property not only with a declaration that these are alienable or disposable. There must also be an express government manifestation that the property is already

patrimonial or no longer retained for public service or the development of national wealth, under Article 422 of the Civil Code. And only when the property has become patrimonial can the prescriptive period for the acquisition of property of the public dominion begin to run. _______________ 51 See note 24. 211 VOL. 587, APRIL 29, 2009211 Heirs of Mario Malabanan vs. Republic (a) Patrimonial property is private property of the government. The person acquires ownership of patrimonial property by prescription under the Civil Code is entitled to secure registration thereof under Section 14(2) of the Property Registration Decree. (b) There are two kinds of prescription by which patrimonial property may be acquired, one ordinary and other extraordinary. Under ordinary acquisitive prescription, a person acquires ownership of a patrimonial property through possession for at least ten (10) years, in good faith and with just title. Under extraordinary acquisitive prescription, a person’s uninterrupted adverse possession of patrimonial property for at least thirty (30) years, regardless of good faith or just title, ripens into ownership. B. We now apply the above-stated doctrines to the case at bar. It is clear that the evidence of petitioners is insufficient to establish that Malabanan has acquired ownership over the

subject property under Section 48(b) of the Public Land Act. There is no substantive evidence to establish that Malabanan or petitioners as his predecessors-in-interest have been in possession of the property since 12 June 1945 or earlier. The earliest that petitioners can date back their possession, according to their own evidence—the Tax Declarations they presented in particular—is to the year 1948. Thus, they cannot avail themselves of registration under Section 14(1) of the Property Registration Decree. Neither can petitioners properly invoke Section 14(2) as basis for registration. While the subject property was declared as alienable or disposable in 1982, there is no competent evidence that is no longer intended for public use service or for the development of the national evidence, conformably with Article 422 of the Civil Code. The classification of the subject 212 212SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic property as alienable and disposable land of the public domain does not change its status as property of the public dominion under Article 420(2) of the Civil Code. Thus, it is insusceptible to acquisition by prescription. VI. A final word. The Court is comfortable with the correctness of the legal doctrines established in this decision. Nonetheless, discomfiture over the implications of today’s ruling cannot be discounted. For, every untitled property that is occupied in the country will be affected by this ruling. The social implications cannot be dismissed lightly, and the Court would be abdicating

its social responsibility to the Filipino people if we simply levied the law without comment. The informal settlement of public lands, whether declared alienable or not, is a phenomenon tied to long-standing habit and cultural acquiescence, and is common among the so-called “Third World” countries. This paradigm powerfully evokes the disconnect between a legal system and the reality on the ground. The law so far has been unable to bridge that gap. Alternative means of acquisition of these public domain lands, such as through homestead or free patent, have proven unattractive due to limitations imposed on the grantee in the encumbrance or alienation of said properties.52 Judicial con_______________ 52 See Section 118, Com. Act No. 141, as amended. “Except in favor of the Government or any of its branches, units, or institutions, lands acquired under free patent or homestead provisions shall not be subject to encumbrance or alienation from the date of the approval of the application and for a term of five years from and after the date of issuance of the patent or grant, nor shall they become liable to the satisfaction of any debt contracted prior to the expiration of said period, but the improvements or crops on the land may be mortgaged or pledged to qualified persons, associations, or corporations. No alienation, transfer, or conveyance of any homestead after five years and before twenty-five years after issuance of title shall be 213 VOL. 587, APRIL 29, 2009213 Heirs of Mario Malabanan vs. Republic

firmation of imperfect title has emerged as the most viable, if not the most attractive means to regularize the informal settlement of alienable or disposable lands of the public domain, yet even that system, as revealed in this decision, has considerable limits. There are millions upon millions of Filipinos who have individually or exclusively held residential lands on which they have lived and raised their families. Many more have tilled and made productive idle lands of the State with their hands. They have been regarded for generation by their families and their communities as common law owners. There is much to be said about the virtues of according them legitimate states. Yet such virtues are not for the Court to translate into positive law, as the law itself considered such lands as property of the public dominion. It could only be up to Congress to set forth a new phase of land reform to sensibly regularize and formalize the settlement of such lands which in legal theory are lands of the public domain before the problem becomes insoluble. This could be accomplished, to cite two examples, by liberalizing the standards for judicial confirmation of imperfect title, or amending the Civil Code itself to ease the requisites for the conversion of public dominion property into patrimonial. One’s sense of security over land rights infuses into every aspect of well-being not only of that individual, but also to the person’s family. Once that sense of security is deprived, life and livelihood are put on stasis. It is for the political branches to bring welcome closure to the long pestering problem. WHEREFORE, the Petition is DENIED. The Decision of the Court of Appeals dated 23 February 2007 and Resolution dated

2 October 2007 are AFFIRMED. No pronouncement as to costs. _______________ valid without the approval of the Secretary of Agriculture and Commerce, which approval shall not be denied except on constitutional and legal grounds.” 214 214SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic SO ORDERED. Ynares-Santiago, Carpio, Austria-Martinez, Carpio-Morales, Velasco, Jr., Nachura, Peralta and Bersamin, JJ., concur. Puno (C.J.), I join J. Nazario. Quisumbing, J., On Official Business. Corona, J., I join the dissent of Mr. Justice Brion. Chico-Nazario, J., Please See Concurring and Dissenting Opinion. De Castro, J., I join the Concurring and Dissenting Opinion of Justice Nazario. Brion, J., I Dissent — See Opinion. CONCURRING AND DISSENTING OPINION CHICO-NAZARIO, J.: I concur in the majority opinion in dismissing the application for registration of a piece of land originally filed by the late Mario Malabanan (Malabanan), petitioners’ predecessor-ininterest. The land subject of the instant Petition, being alienable and disposable land of the public domain, may not be acquired by prescription under the provisions of the Civil Code, nor

registered pursuant to Section 14(2) of the Property Registration Decree. At the outset, it must be made clear that the Property Registration Decree governs registration of land under the Torrens system. It can only identify which titles, already existing or vested, may be registered under the Torrens system; but it cannot be the source of any title to land. It merely confirms, but does not confer ownership.1 _______________ 1 Republic v. Court of Appeals, G.R. No. 108998, 24 August 1994, 235 SCRA 567, 576. 215 VOL. 587, APRIL 29, 2009215 Heirs of Mario Malabanan vs. Republic Section 14(2) of the Property Registration Decree allows “those who have acquired ownership of private lands by prescription under the provisions of existing laws,” to apply for registration of their title to the lands. Petitioners do not fall under such provision, taking into account that the land they are seeking to register is alienable and disposable land of the public domain, a fact which would have several substantial implications. First, Section 14(2) of the Property Registration Decree clearly and explicitly refers to “private lands,” without mention at all of public lands. There is no other way to understand the plain language of Section 14(2) of the Property Registration Decree except that the land was already private when the applicant for registration acquired ownership thereof by prescription. The prescription therein was not the means by which the public

land was converted to private land; rather, it was the way the applicant acquired title to what is already private land, from another person previously holding title to the same.2 The provision in question is very clear and unambiguous. Wellsettled is the rule that when the law speaks in clear and categorical language, there is no reason for interpretation or construction, but only for application.3 With the understanding that Section 14(2) of the Property Registration Decree applies only to what are already private lands, then, there is no question that the same can be acquired by prescription under the provisions of the Civil Code, because, precisely, it is the Civil Code which governs rights to private lands. _______________ 2 As in the case where the land was already the subject of a grant by the State to a private person, but the latter failed to immediately register his title, thus, allowing another person to acquire title to the land by prescription under the provisions of the Civil Code. 3 Department of Agrarian Reform v. Court of Appeals, 327 Phil. 1048, 1052; 258 SCRA 404 (1996). 216 216SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic Second, Section 11 of Commonwealth Act No. 141, otherwise known as the Public Land Act, as amended, reads: “Section 11. Public lands suitable for agricultural purposes can be disposed of only as follows: (1) For homestead settlement;

(2) By sale; (3) By lease; and (4) By confirmation of imperfect or incomplete titles; (a) By judicial legalization; or (b) By administrative legalization (free patent).” (Emphasis ours.) The afore-quoted provision recognizes that agricultural public lands may be disposed of by the State, and at the same time, mandates that the latter can only do so by the modes identified in the same provision. Thus, the intent of the legislature to make exclusive the enumeration of the modes by which agricultural public land may be disposed of by the State in Section 11 of the Public Land Act, as amended, is not only readily apparent, but explicit. And, undeniably, the enumeration of the modes for acquiring agricultural public land in the said provision does not include prescription, in the concepts described and periods prescribed by the Civil Code. Neither the Civil Code nor the Property Registration Decree can overcome the express restriction placed by the Public Land Act, as amended, on the modes by which the State may dispose of agricultural public land. The Public Land Act, as amended, is a special law specifically applying to lands of the public domain, except timber and mineral lands. The Public Land Act, as amended, being a special law, necessarily prevails over the Civil Code, a general law. Basic is the rule in statutory construction that “where two statutes are of equal theoretical application to a particu217 VOL. 587, APRIL 29, 2009217 Heirs of Mario Malabanan vs. Republic

lar case, the one designed therefor specially should prevail.” Generalia specialibus non derogant.4 As for the Property Registration Decree, it must be stressed that the same cannot confer title to land and can only confirm title that already exists or has vested. As has already been previously discussed herein, title to agricultural public land vests or is acquired only by any of the modes enumerated in Section 11 of the Public Land Act, as amended. And, third, Section 48(b) of the Public Land Act was amended several times, changing the period of possession required for acquiring an imperfect title to agricultural public land: “Under the public land act, judicial confirmation of imperfect title required possession en concepto de dueño since time immemorial, or since July 26, 1894. Under C.A. No. 141, this requirement was retained. However, on June 22, 1957, Republic Act No. 1942 was enacted amending C.A. No. 141. This later enactment required adverse possession for a period of only thirty (30) years. On January 25, 1977, the President enacted P.D. No. 1073, further amending C.A. No. 141, extending the period for filing applications for judicial confirmation of imperfect or incomplete titles to December 31, 1987. Under this decree, “the provisions of Section 48 (b) and Section 48 (c), Chapter VIII, of the Public Land Act are hereby amended in the sense that these provisions shall apply only to alienable and disposable land of the public domain which have been in open, continuous, exclusive and notorious possession and occupation by the applicant himself or thru his predecessor-in-interest under a bona fide claim of acquisition of ownership, since June 12, 1945.”5 (Emphasis ours.)

Prior to Presidential Decree No. 1073, imperfect title to agricultural land of the public domain could be acquired by adverse possession of 30 years. Presidential Decree No. 1073, issued on 25 January 1977, amended Section 48(b) of the _______________ 4 See De Guzman v. Court of Appeals, 358 Phil. 397, 408; 297 SCRA 743, 751 (1998). 5 Public Estates Authority v. Court of Appeals, 398 Phil. 901, 909-910; 345 SCRA 96, 102 (2000). 218 218SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic Public Land Act by requiring possession and occupation of alienable and disposable land of the public domain since 12 June 1945 or earlier for an imperfect title. Hence, by virtue of Presidential Decree No. 1073, the requisite period of possession for acquiring imperfect title to alienable and disposable land of the public domain is no longer determined according to a fixed term (i.e., 30 years); instead, it shall be reckoned from a fixed date (i.e., 12 June 1945 or earlier) from which the possession should have commenced. If the Court allows the acquisition of alienable and disposable land of the public domain by prescription under the Civil Code, and registration of title to land thus acquired under Section 14(2) of the Property Registration Decree, it would be sanctioning what is effectively a circumvention of the amendment introduced by Presidential Decree No. 1073 to Section 48(b) of the Public Land Act. Acquisition of alienable and disposable land of the public domain by possession would

again be made to depend on a fixed term (i.e., 10 years for ordinary prescription and 30 years for extraordinary prescription), rather than being reckoned from the fixed date presently stipulated by Section 48(b) of the Public Land Act, as amended. There being no basis for petitioners’ application for registration of the public agricultural land in question, accordingly, the same must be dismissed. I, however, must express my dissent to the discussion in the majority opinion concerning the contradictory pronouncements of the Court in Republic v. Naguit6 and Republic v. Herbieto,7 on imperfect titles to alienable and disposable lands of the public domain, acquired in accordance with Section 48(b) of the Public Land Act, as amended, and registered pursuant to Section 14(1) of the Property Registration Decree. _______________ 6 G.R. No. 144057, 17 January 2005, 448 SCRA 442. 7 G.R. No. 156117, 459 SCRA 183. 219 VOL. 587, APRIL 29, 2009219 Heirs of Mario Malabanan vs. Republic According to Naguit, a person seeking judicial confirmation of an imperfect title under Section 48(b) of the Public Land Act, as amended, need only prove that he and his predecessors-ininterest have been in possession and occupation of the subject land since 12 June 1945 or earlier, and that the subject land is alienable and disposable at the time of filing of the application for judicial confirmation and/or registration of title. On the other hand, it was held in Herbieto that such a person must

establish that he and his predecessors-in-interest have been in possession and occupation of the subject land since 12 June 1945 or earlier, and that the subject land was likewise already declared alienable and disposable since 12 June 1945 or earlier. The majority opinion upholds the ruling in Naguit, and declares the pronouncements on the matter in Herbieto as mere obiter dictum. As the ponente of Herbieto, I take exception to the dismissive treatment of my elucidation in said case on the acquisition of imperfect title to alienable and disposable land of the public domain, as mere obiter dictum. An obiter dictum has been defined as an opinion expressed by a court upon some question of law which is not necessary to the decision of the case before it. It is a remark made, or opinion expressed, by a judge, in his decision upon a cause, “by the way,” that is, incidentally or collaterally, and not directly upon the question before him, or upon a point not necessarily involved in the determination of the cause, or introduced by way of illustration, or analogy or argument. Such are not binding as precedent.8 To recall, the Republic of the Philippines opposed in Herbieto the registration of certain parcels of land of the public domain in the names of Jeremias and David Herbieto, based on two grounds, one substantive and the other procedural, i.e., (1) the applicants for registration failed to prove that they _______________ 8 Delta Motors Corporation v. Court of Appeals, 342 Phil. 173, 186; 276 SCRA 212, 223 (1997). 220 220SUPREME COURT REPORTS ANNOTATED

Heirs of Mario Malabanan vs. Republic possessed the subject parcels of land for the period required by law; and (2) the application for registration suffers from fatal infirmity as the subject of the application consisted of two parcels of land individually and separately owned by two applicants. The Court, in Herbieto, addressed the procedural issue first, and held that the alleged infirmity in the application constituted a misjoinder of causes of action which did not warrant a dismissal of the case, only the severance of the misjoined causes of action so that they could be heard by the court separately. The Court though took note of the belated publication of the notice of hearing on the application for registration of Jeremias and David Herbieto, the hearing was already held before the notice of the same was published. Such error was not only procedural, but jurisdictional, and was fatal to the application for registration of Jeremias and David Herbieto. The Court then proceeded to a determination of the substantive issue in Herbieto, particularly, whether Jeremias and David Herbieto possessed the parcels of land they wish to register in their names for the period required by law. The Court ruled in the negative. Section 48(b) of the Public Land Act, as amended, on judicial confirmation of imperfect title, requires possession of alienable and disposable land of the public domain since 12 June 1945 or earlier. Given that the land sought to be registered was declared alienable and disposable only on 25 June 1963, and the period of possession prior to such declaration should not be counted in favor of the

applicants for registration, then Jeremias and David Herbieto could not be deemed to have possessed the parcels of land in question for the requisite period as to acquire imperfect title to the same. The discussion in Herbieto on the acquisition of an imperfect title to alienable and disposable land of the public domain, which could be the subject of judicial confirmation, was not unnecessary to the decision of said case. It was not a 221 VOL. 587, APRIL 29, 2009221 Heirs of Mario Malabanan vs. Republic mere remark made or opinion expressed upon a cause, “by the way,” or only incidentally or collaterally, and not directly upon a question before the Court; or upon a point not necessarily involved in the determination of the cause; or introduced by way of illustration, or analogy or argument, as to constitute obiter dictum. It must be emphasized that the acquisition of an imperfect title to alienable and disposable land of the public domain under Section 48(b) of the Public Land Act, as amended, was directly raised as an issue in the Petition in Herbieto and discussed extensively by the parties in their pleadings. That the application of Jeremias and David Herbieto could already be dismissed on the ground of lack of proper publication of the notice of hearing thereof, did not necessarily preclude the Court from resolving the other issues squarely raised in the Petition before it. Thus, the Court dismissed the application for registration of Jeremias and David Herbieto on two grounds: (1) the lack of jurisdiction of the land registration court over

the application, in light of the absence of proper publication of the notice of hearing; and (2) the evident lack of merit of the application given that the applicants failed to comply with the requirements for judicial confirmation of an imperfect title under Section 48(b) of the Public Land Act, as amended. This is only in keeping with the duty of the Court to expeditiously and completely resolve the cases before it and, once and for all, settle the dispute and issues between the parties. Without expressly discussing and categorically ruling on the second ground, Jeremias and David Herbieto could have easily believed that they could re-file their respective applications for registration, just taking care to comply with the publication-ofnotice requirement. Of particular relevance herein is the following discourse in Villanueva v. Court of Appeals9 on what constitutes, or more appropriately, what does not constitute obiter dictum: _______________ 9 429 Phil. 194, 203-204; 379 SCRA 463, 469-470 (2002). 222 222SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic “It has been held that an adjudication on any point within the issues presented by the case cannot be considered as obiter dictum, and this rule applies to all pertinent questions, although only incidentally involved, which are presented and decided in the regular course of the consideration of the case, and led up to the final conclusion, and to any statement as to matter on which the decision is predicated. Accordingly, a point expressly decided does not lose its value as a precedent

because the disposition of the case is, or might have been, made on some other ground, or even though, by reason of other points in the case, the result reached might have been the same if the court had held, on the particular point, otherwise than it did. A decision which the case could have turned on is not regarded as obiter dictum merely because, owing to the disposal of the contention, it was necessary to consider another question, nor can an additional reason in a decision, brought forward after the case has been disposed of on one ground, be regarded as dicta. So, also, where a case presents two (2) or more points, any one of which is sufficient to determine the ultimate issue, but the court actually decides all such points, the case as an authoritative precedent as to every point decided, and none of such points can be regarded as having the status of a dictum, and one point should not be denied authority merely because another point was more dwelt on and more fully argued and considered, nor does a decision on one proposition make statements of the court regarding other propositions dicta.” An adjudication on any point within the issues presented by the case cannot be considered a dictum; and this rule applies as to all pertinent questions, although only incidentally involved, which are presented and decided in the regular course of the consideration of the case, and lead up to the final conclusion, and to any statement in the opinion as to a matter on which the decision is predicated. Accordingly, a point expressly decided does not lose its value as a precedent because the disposition of the case is or might have been made on some other ground, or even though, by reason of other points in the case, the result reached might have been

223 VOL. 587, APRIL 29, 2009223 Heirs of Mario Malabanan vs. Republic the same if the court had held, on the particular point, otherwise than it did.10 I submit that Herbieto only applied the clear provisions of the law and established jurisprudence on the matter, and is binding as a precedent. Section 14(b) of the Public Land Act, as amended, explicitly requires for the acquisition of an imperfect title to alienable and disposable land of the public domain, possession by a Filipino citizen of the said parcel of land since 12 June 1945 or earlier, to wit: “Section 48. The following-described citizens of the Philippines, occupying lands of the public domain or claiming to own any such lands or an interest therein, but whose titles have not been perfected or completed, may apply to the Court of First Instance of the province where the land is located for confirmation of their claims and the issuance of a certificate of title thereafter, under the Land Registration Act, to wit: xxxx (b) Those who by themselves or through their predecessorsin-interest have been in open, continuous, exclusive, and notorious possession and occupation of alienable and disposable lands of the public domain, under a bona fide claim of acquisition of ownership, since June 12, 1945, or earlier, immediately preceding the filing of the applications for confirmation of title, except when prevented by war or force majeure. These shall be conclusively presumed to have

performed all the conditions essential to a Government grant and shall be entitled to a certificate of title under the provisions of this chapter.” (Emphasis ours.) Section 14(1) of the Property Registration Decree, by substantially reiterating Section 48(b) of the Public Land Act, as amended, recognizes the imperfect title thus acquired and allows the registration of the same, viz.: _______________ 10 1 C.J.S. 314-315, as quoted in the dissenting opinion of Tuason, J., in Primicias v. Fugoso, 80 Phil. 71, 125 (1948). 224 224SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic “Section 14. Who may apply.—The following persons may file in the proper Court of First Instance an application for registration of title to land, whether personally or through their duly authorized representatives: (1) Those who by themselves or through their predecessorsin-interest have been in open, continuous, exclusive and notorious possession and occupation of alienable and disposable lands of the public domain under a bona fide claim of ownership since June 12, 1945, or earlier.” (Emphasis ours.) Meanwhile, jurisprudence has long settled that possession of the land by the applicant for registration prior to the reclassification of the land as alienable and disposable cannot be credited to the applicant’s favor.11 Given the foregoing, judicial confirmation and registration of an imperfect title, under Section 48(b) of the Public Land Act, as amended, and Section 14(1) of the Property Registration

Decree, respectively, should only be granted when: (1) a Filipino citizen, by himself or through his predecessors-ininterest, have been in open, continuous, exclusive, and notorious possession and occupation of agricultural land of the public domain, under a bona fide claim of acquisition of ownership, since 12 June 1945, or earlier; and (2) the land in question, necessarily, was already declared alienable and disposable also by 12 June 1945 or earlier. There can be no other interpretation of Section 48(b) of the Public Land Act, as amended, and Section 14(1) of the Prop_______________ 11 See Almeda v. Court of Appeals, G.R. No. 85322, 30 April 1991, 196 SCRA 476; Vallarta v. Intermediate Appellate Court, 235 Phil. 680, 695-696; 151 SCRA 679, 690 (1987); and Republic v. Court of Appeals, 232 Phil. 444, 457; 148 SCRA 480, 492-493 (1987), cited in Republic v. Herbieto (supra note 2). See also Republic v. Court of Appeals, 238 Phil. 475, 486-487; 154 SCRA 476, 480 (1987); Republic v. Bacus, G.R. No. 73061, 11 August 1989, 176 SCRA 376-380; Republic v. Court of Appeals, G.R. No. 38810, 7 May 1992, 208 SCRA 428, 434; De la Cruz v. Court of Appeals, 349 Phil. 898, 904; 286 SCRA 230, 235; Republic v. De Guzman, 383 Phil. 479, 485; 326 SCRA 574, 579 (2000). 225 VOL. 587, APRIL 29, 2009225 Heirs of Mario Malabanan vs. Republic erty Registration Decree, which would not run afoul of either the clear and unambiguous provisions of said laws or binding judicial precedents.

I do not agree in the observation of the majority opinion that the interpretation of Section 48(b) of the Public Land Act, as amended, adopted in Herbieto, would result in absurdity. Indeed, such interpretation forecloses a person from acquiring an imperfect title to a parcel of land declared alienable and disposable only after 12 June 1945, which could be judicially confirmed. Nonetheless, it must be borne in mind that the intention of the law is to dispose of agricultural public land to qualified individuals and not simply to dispose of the same. It may be deemed a strict interpretation and application of both law and jurisprudence on the matter, but it certainly is not an absurdity. Stringency and prudence in interpreting and applying Section 48(b) of the Public Land Act, as amended, is well justified by the significant consequences arising from a finding that a person has an imperfect title to agricultural land of the public domain. Not just any lengthy occupation of an agricultural public land could ripen into an imperfect title. An imperfect title can only be acquired by occupation and possession of the land by a person and his predecessors-in-interest for the period required and considered by law sufficient as to have segregated the land from the mass of public land. When a person is said to have acquired an imperfect title, by operation of law, he acquires a right to a grant, a government grant to the land, without the necessity of a certificate of title being issued. As such, the land ceased to be part of the public domain and goes beyond the authority of the State to dispose of. An application for confirmation of title, therefore, is but a mere formality.12 _______________

12 See National Power Corporation v. Court of Appeals, G.R. No. 4566, 29 January 1993, 218 SCRA 41, 54. 226 226SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic In addition, as was emphasized in Herbieto, Section 11 of the Public Land Act, as amended, has identified several ways by which agricultural lands of the public domain may be disposed of. Each mode of disposing of agricultural public land has its own specific requirements which must be complied with. If a person is not qualified for a judicial confirmation of an imperfect title, because the land in question was declared alienable and disposable only after 12 June 1945, he is not totally without recourse for he could still acquire the same by any of the other modes enumerated in the afore-quoted provision. Regardless of my dissent to the affirmation by the majority of the ruling in Naguit on Section 48(b) of the Public Land Act, as amended, and Section 14(1) of the Property Registration Decree, I cast my vote with the majority, to DENY the Petition at bar and AFFIRM the Decision dated 23 February 2007 and Resolution dated 2 October 2000 of the Court of Appeals dismissing, for absolute lack of basis, petitioners’ application for registration of alienable and disposable land of the public domain. CONCURRING AND DISSENTING OPINION BRION, J.: I concur with the ponencia’s modified positions on the application of prescription under Section 14(2) of the Property

Registration Decree (PRD), and on the denial of the petition of the Heirs of Mario Malabanan. I dissent in the strongest terms from the ruling that the classification of a public land as alienable and disposable can be made after June 12, 1945, in accordance with this Court’s ruling in Republic v. Court of Appeals and Naguit (Naguit)1 Effectively, what results from this decision is a new law, crafted by this Court, going beyond what the Constitution _______________ 1 G.R. No. 144507, January 17, 2005, 442 SCRA 445. 227 VOL. 587, APRIL 29, 2009227 Heirs of Mario Malabanan vs. Republic ordains and beyond the law that the Legislature passed. Because the majority has not used the standards set by the Constitution and the Public Land Act (PLA),2 its conclusions are based on a determination on what the law ought to be—an exercise in policy formulation that is beyond the Court’s authority to make. The discussions of these grounds for dissent follow, not necessarily in the order these grounds are posed above. Prefatory Statement Critical to the position taken in this Dissent is the reading of the hierarchy of laws that govern public lands to fully understand and appreciate the grounds for dissent. In the area of public law, foremost in this hierarchy is the Philippine Constitution, whose Article XII (entitled National Economy and Patrimony) establishes and fully embraces the regalian doctrine as a first and overriding principle.3 This

doctrine postulates that all lands belong to the State,4 and that no public land can be acquired by private persons without any grant, express or implied, from the State.5 In the statutory realm, the PLA governs the classification, grant, and disposition of alienable and disposable lands of the public domain and, other than the Constitution, is the country’s primary law on the matter. Section 7 of the PLA delegates to the President the authority to administer and dispose of alienable public lands. Section 8 sets out the public lands open to disposition or concession, and the requirement that they should be officially delimited and classified and, when _______________ 2 Commonwealth Act No. 141, as amended (CA 141). 3 See Collado v. Court of Appeals, G.R. No. 107764, October 4, 2002, 390 SCRA 343. 4 Constitution, Article XII, Section 2. 5 See Republic v. Herbieto, G.R. No. 156117, May 26, 2005, 459 SCRA 182. 228 228SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic practicable, surveyed. Section 11, a very significant section, states that— “Public lands suitable for agricultural purposes can be disposed of only as follows and not otherwise: (1) For homestead settlement; (2) By sale; (3) By lease; (4) By confirmation of imperfect or incomplete title;

(5) By judicial legalization; (6) By administrative legalization (free patent). Section 48 covers confirmation of imperfect title, and embodies a grant of title to the qualified occupant or possessor of an alienable public land. This section provides: “SECTION 48. The following described citizens of the Philippines, occupying lands of the public domain or claiming to own any such lands or an interest therein, but whose titles have not been perfected or completed, may apply to the Court of First Instance of the province where the land is located for confirmation of their claims and the issuance of a certificate of title therefor, under the Land Registration Act, to wit: (a) Those who prior to the transfer of sovereignty from Spain to the United States have applied for the purchase, composition or other form of grant of lands of the public domain under the laws and royal decrees then in force and have instituted and prosecuted the proceedings in connection therewith, but have, with or without default upon their part, or for any other cause, not received title therefor, if such applicants or grantees and their heirs have occupied and cultivated said lands continuously since the filing of their applications. (b) Those who by themselves or through their predecessors in interest have been in the open, continuous, exclusive, and notorious possession and occupation of agricultural lands of the public domain, under a bona fide claim of acquisition or ownership, except as against the Government, since July twenty-sixth, eighteen hundred and ninety-four, except when prevented by war or force majeure. These shall be conclusively presumed to have performed all the 229

VOL. 587, APRIL 29, 2009229 Heirs of Mario Malabanan vs. Republic conditions essential to a Government grant and shall be entitled to a certificate of title under the provisions of this chapter.” Significantly, subsection (a) has now been deleted, while subsection (b) has been amended by PD 1073 as follows: “SECTION 4. The provisions of Section 48(b) and Section 48(c), Chapter VIII of the Public Land Act are hereby amended in the sense that these provisions shall apply only to alienable and disposable lands of the public domain which have been in open, continuous, exclusive and notorious possession and occupation by the applicant himself or thru his predecessor-ininterest, under a bona fide claim of acquisition of ownership, since June 12, 1945. Complementing the PLA is the PRD.6 It was enacted to codify the various laws relating to property registration. It governs the registration of lands under the Torrens System, as well as unregistered lands, including chattel mortgages. Section 14 of the PRD provides: “SECTION 14. Who May Apply.—The following persons may file in the proper Court of First Instance an application for registration of title to land, whether personally or through their duly authorized representatives: (1) Those who by themselves or through their predecessorsin-interest have been in open, continuous, exclusive and notorious possession and occupation of alienable and disposable lands of the public domain under a bona fide claim of ownership since June 12, 1945, or earlier.

(2) Those who have acquired ownership of private lands by prescription under the provisions of existing laws. (3) Those who have acquired ownership of private lands or abandoned river beds by right of accession or accretion under the existing laws. _______________ 6 Presidential Decree (PD) No. 1529, amending Act No. 496 that originally brought the Torrens system into the Philippines in 1903. 230 230SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic (4) Those who have acquired ownership of land in any other manner provided for by law.” Subsection (1) of Section 14 is a copy of, and appears to have been lifted from, Section 48(b) of the PLA. The two provisions, however, differ in intent and legal effect based on the purpose of the law that contains them. The PLA is a substantive law that classifies and provides for the disposition of alienable lands of the public domain. The PRD, on the other hand, specifically refers to the manner of bringing registerable lands, among them alienable public lands, within the coverage of the Torrens system. Thus, the first is a substantive law, while the other is essentially procedural, so that in terms of substantive content, the PLA should prevail.7 Significantly bearing on the matter of lands in general is the Civil Code and its provisions on Property 8 and Prescription.9 The law on property assumes importance because land,

whether public or private, is property. Prescription, on the other hand, is a mode of acquiring ownership of land, al_______________ 7 Substantive law is that which creates, defines and regulates rights, or which regulates the rights and duties which give rise to a cause of action, that part of the law which courts are established to administer, as opposed to adjective or remedial law, which prescribes the method of enforcing rights or obtain redress for their invasion (Primicias v. Ocampo, 93 Phil. 446.) It is the nature and the purpose of the law which determines whether it is substantive or procedural, and not its place in the statute, or its inclusion in a code (Regalado, Remedial Law Compendium, Volume I [Ninth Revised Edition], p. 19). Note that Section 55 of the PLA refers to the Land Registration Act (the predecessor law of the PRD) on how the Torrens Title may be obtained. 8 Civil Code, Book II (Property, Ownership and its Modifications), Articles 415-711. 9 Civil Code, Book III (Different Modes of Acquiring Ownership), Articles 1106-1155. 231 VOL. 587, APRIL 29, 2009231 Heirs of Mario Malabanan vs. Republic though it is not one of the modes of disposition mentioned in the PLA. Chapter 3, Title I of Book II of the Civil Code is entitled “Property in Relation to the Person to Whom it Belongs.” On this basis, Article 419 classifies property to be property of public dominion or of private ownership. Article 420 proceeds

to further classify property of public dominion into those intended for public use, for public service, and for the development of the national wealth. Article 421 states that all other properties of the State not falling under Article 420 are patrimonial property of the State, and Article 422 adds that property of public dominion, no longer intended for public use or for public service, shall form part of the patrimonial property of the State. Under Article 425, property of private ownership, besides patrimonial property of the State, provinces, cities and municipalities, consists of all property belonging to private persons, either individually or collectively. Prescription is essentially a civil law term and is not mentioned as one of the modes of acquiring alienable public land under the PLA, (Significantly, the PLA—under its Section 48 — provides for its system of how possession can ripen into ownership; the PLA does not refer to this as acquisitive prescription but as basis for confirmation of title.) Section 14(2) of the PRD, however, specifies that “[t]hose who have acquired ownership of private lands by prescription under the provisions of existing laws” as among those who may apply for land registration. Thus, prescription was introduced into the land registration scheme (the PRD), but not into the special law governing lands of the public domain (the PLA). A starting point in considering prescription in relation with public lands is Article 1108 of the Civil Code, which states that prescription does not run against the State and its subdivisions. At the same time, Article 1113 provides that “all things which are within the commerce of men are susceptible of prescription, unless otherwise provided; property of the 232

232SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic State or any of its subdivisions not patrimonial in character shall not be the object of prescription.” The provisions of Articles 1128 to 1131 may also come into play in the application of prescription to real properties. In light of our established hierarchy of laws, particularly the supremacy of the Philippine Constitution, any consideration of lands of the public domain should start with the Constitution and its Regalian doctrine; all lands belong to the State, and he who claims ownership carries the burden of proving his claim.10 Next in the hierarchy is the PLA for purposes of the terms of the grant, alienation and disposition of the lands of the public domain, and the PRD for the registration of lands. The PLA and the PRD are special laws supreme in their respective spheres, subject only to the Constitution. The Civil Code, for its part, is the general law on property and prescription and should be accorded respect as such. In more concrete terms, where alienable and disposable lands of the public domain are involved, the PLA is the primary law that should govern, and the Civil Code provisions on property and prescription must yield in case of conflict.11 The Public Land Act At the risk of repetition, I start the discussion of the PLA with a reiteration of the first principle that under the regalian doctrine, all lands of the public domain belong to the State, and the State is the source of any asserted right to ownership in land and charged with the conservation of such _______________

10 See the consolidated cases of The Secretary of the Department of Environment and Natural Resources v. Yap, G.R. No. 167707 and Sacay v. The Secretary of the Department of Environment and Natural Resources, G.R. No. 173775, jointly decided on October 8, 2008 (the Boracay cases). 11 Civil Code, Article 18. 233 VOL. 587, APRIL 29, 2009233 Heirs of Mario Malabanan vs. Republic patrimony. Otherwise expressed, all lands not otherwise appearing to be clearly within private ownership are presumed to belong to the State.12 Thus, all lands that have not been acquired from the government, either by purchase or by grant, belong to the State as part of the inalienable public domain.13 We should never lose sight of the impact of this first principle where a private ownership claim is being asserted against the State. The PLA has undergone many revisions and changes over time, starting from the first PLA, Act No. 926; the second public land law that followed, Act No. 2874; and the present CA 141 and its amendments. Act No. 926 was described in the following terms: “The law governed the disposition of lands of the public domain. It prescribed rules and regulations for the homesteading, selling and leasing of portions of the public domain of the Philippine Islands, and prescribed the terms and conditions to enable persons to perfect their titles to public lands in the Islands. It also provided for the “issuance of

patents to certain native settlers upon public lands,” for the establishment of town sites and sale of lots therein, for the completion of imperfect titles, and for the cancellation or confirmation of Spanish concessions and grants in the Islands.” In short, the Public Land Act operated on the assumption that title to public lands in the Philippine Islands remained in the government; and that the government’s title to public land sprung from the Treaty of Paris and other subsequent treaties between Spain and the United States. The term “public land” referred to all lands of the public domain whose title still remained in the government and are thrown open to private appropriation and settlement, and excluded the patrimonial property of the government and the friar lands.”14 _______________ 12 Director of Lands and Director of Forest Development v. Intermediate Appellate Court and J. Antonio Araneta, G.R. No. 73246, March 2, 1993, 219 SCRA 339. 13 See the Boracay cases, supra note 8. 14 See the opinion of Justice Reynato S. Puno (now Chief Justice) in Cruz v. Secretary of the Department of Environment and 234 234SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic This basic essence of the law has not changed and has been carried over to the present PLA and its amendments. Another basic feature, the requirement for open, continuous, exclusive, and notorious possession and occupation of the alienable and disposable public land under a bona fide claim of ownership

also never changed. Still another consistent public land feature is the concept that once a person has complied with the requisite possession and occupation in the manner provided by law, he is automatically given a State grant that may be asserted against State ownership; the land, in other words, ipso jure becomes private land.15 The application for judicial confirmation of imperfect title shall then follow, based on the procedure for land registration.16 It is in this manner that the PLA ties up with the PRD. A feature that has changed over time has been the period for reckoning the required occupation or possession. In the first PLA, the required occupation/possession to qualify for judicial confirmation of imperfect title was 10 years preceding the effectivity of Act No. 926—July 26, 1904 (or since July 26, 1894 or earlier). This was retained up to CA 141, until this law was amended by Republic Act (RA) No. 1942 (enacted on June 22, 1957),17 which provided for a simple 30-year prescriptive period for judicial confirmation of imperfect title. This period did not last; on January 25, 1977, Presidential _______________ Natural Resources (G.R. No. 135385, December 6, 2000, 347 SCRA 128) quoted in Collado (supra note 2). 15 Enunciated in the old case of Susi v. Razon and Director of Lands, 48 Phil. 424 (1925); See Abejaron v. Nabasa, cited on p. 10 of this Dissent. 16 PLA, Sections 49-56; the reference to the Land Registration Act (Act No. 496) should now be understood to mean the PRD which repealed Act 496.

17 An Act to Amend Subsection (b) of Section Forty Eight of Commonwealth Act Numbered One Hundred Forty One, otherwise known as the The Public Land Act. 235 VOL. 587, APRIL 29, 2009235 Heirs of Mario Malabanan vs. Republic Decree No. 1073 (PD 1073)18 changed the required 30-year possession and occupation period provision, to possession and occupation of the land applied for since June 12, 1945, or earlier. PD 1073 likewise changed the lands subject of imperfect title, from agricultural lands of the public domain to alienable and disposable lands of the public domain. PD 1073 also extended the period for applications for free patents and judicial confirmation of imperfect titles to December 31, 1987. The significance of the date “June 12, 1945” appears to have been lost to history. A major concern raised against this date is that the country was at this time under Japanese occupation, and for some years after, was suffering from the uncertainties and instabilities that World War II brought. Questions were raised on how one could possibly comply with the June 12, 1945 or earlier occupation/possession requirement of PD 1073 when the then prevailing situation did not legally or physically permit it. Without the benefit of congressional records, as the enactment of the law (a Presidential Decree) was solely through the President’s lawmaking powers under a regime that permitted it, the most logical reason or explanation for the date is the possible impact of the interplay between the old law and the amendatory law. When PD 1073 was enacted, the utmost

concern, in all probability, was how the law would affect the application of the old law which provided for a thirty-year possession period. Counting 30 years backwards from the enactment of PD 1073 on January 25, 1977, PD 1073 should have provided for a January 24, 1947 cut-off date, but it did not. Instead, it provided, for unknown reasons, the date June 12, 1945. _______________ 18 Extending the Period of Filing Applications for Administrative Legislation (Free Patent) and Judicial Confirmation of Imperfect and Incomplete Titles to Alienable and Disposable Lands in the Public Domain Under Chapter VII and Chapter VIII of Commonwealth Act No. 141, As Amended, For Eleven (11) Years Commencing January 1, 1977. 236 236SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic The June 12, 1945 cut-off date raised legal concerns; vested rights acquired under the old law (CA 141, as amended by RA 1942) providing for a 30-year possession period could not be impaired by the PD 1073 amendment. We recognized this legal dilemna in Abejaron v. Nabasa,19 when we said: “However, as petitioner Abejaron’s 30-year period of possession and occupation required by the Public Land Act, as amended by R.A. 1942 ran from 1945 to 1975, prior to the effectivity of P.D. No. 1073 in 1977, the requirement of said P.D. that occupation and possession should have started on June 12, 1945 or earlier, does not apply to him. As the Susi

doctrine holds that the grant of title by virtue of Sec. 48(b) takes place by operation of law, then upon Abejaron’s satisfaction of the requirements of this law, he would have already gained title over the disputed land in 1975. This follows the doctrine laid down in Director of Lands v. Intermediate Appellate Court, et al., that the law cannot impair vested rights such as a land grant. More clearly stated, “Filipino citizens who by themselves or their predecessors-ininterest have been, prior to the effectivity of P.D. 1073 on January 25, 1977, in open, continuous, exclusive and notorious possession and occupation of agricultural lands of the public domain, under a bona fide claim of acquisition of ownership, for at least 30 years, or at least since January 24, 1947” may apply for judicial confirmation of their imperfect or incomplete title under Sec. 48(b) of the Public Land Act.” From this perspective, PD 1073 should have thus provided January 24, 1947 and not June 12, 1945 as its cut-off date, yet the latter date is the express legal reality. The reconciliation, as properly defined by jurisprudence, is that where an applicant has satisfied the requirements of Section 48 (b) of CA 141, as amended by RA 1942, prior to the effectivity of PD 1073, the applicant is entitled to perfect his or her title, even if possession and occupation does not date back to June 12, 1945. For purposes of the present case, a discussion of _______________ 19 G.R. No. 84831, June 20, 2001, 359 SCRA 47. 237 VOL. 587, APRIL 29, 2009237 Heirs of Mario Malabanan vs. Republic

the cut-off date has been fully made to highlight that it is a date whose significance and import cannot be minimized nor glossed over by mere judicial interpretation or by judicial social policy concerns; the full legislative intent must be respected. In considering the PLA, it should be noted that its amendments were not confined to RA 1942 and PD 1073. These decrees were complemented by Presidential Decree No. 892 (PD 892)20—issued on February 16, 1976—which limited to six months the use of Spanish titles as evidence in land registration proceedings.21 Thereafter, the recording of all unregistered lands shall be governed by Section 194 of the Revised Administrative Code, as amended by Act No. 3344. Section 3 of PD 1073 totally disallowed the judicial confirmation of incomplete titles to public land based on unperfected Spanish grants. _______________ 20 Discontinuance of the Spanish Mortgage System of Registration and of the Use of Spanish Titles as Evidence in Land Registration Proceedings. 21 Section 1 of PD 892 states: SECTION 1. The system of registration under the Spanish Mortgage Law is discontinued, and all lands recorded under said system which are not yet covered by Torrens title shall be considered as unregistered lands. All holders of Spanish titles or grants should apply for registration of their lands under Act No. 496, otherwise known as the Land Registration Act, within six (6) months from the effectivity of this decree. Thereafter, Spanish titles cannot be

used as evidence of land ownership in any registration proceedings under the Torrens system. Hereafter, all instruments affecting lands originally registered under the Spanish Mortgage Law may be recorded under Section 194 of the Revised Administrative Code, as amended by Act. 3344. 238 238SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic Subsequently, RA 694022 extended the period for filing applications for free patent and judicial confirmation of imperfect title to December 31, 2000. The law now also allows the issuance of free patents for lands not in excess of 12 hectares to any natural-born citizen of the Philippines who is not the owner of more than 12 hectares and who, for at least 30 years prior to the effectivity of the amendatory Act, has continuously occupied and cultivated, either by himself or through his predecessors-in-interest, a tract or tracts of agricultural public lands subject to disposition. Congress recently extended the period for filing applications for judicial confirmation of imperfect and incomplete titles to alienable and disposable lands of the public domain under RA 9176 from December 31, 2000 under RA 6940 to December 31, 2020.23 Read together with Section 11 of the PLA (which defines the administrative grant of title to alienable and disposable lands of the public domain through homestead settlement and sale, among others), RA 6940 and RA 9176 signify that despite the cut-off date of June 12, 1945 that the Legislature has provided,

ample opportunities exist under the law for the grant of alienable lands of the public domain to deserving beneficiaries. Presidential Decree No. 1529 or the Property Registration Decree As heretofore mentioned, PD 1529 amended Act No. 496 on June 11, 1978 to codify the various laws relative to registra_______________ 22 An Act Granting a Period ending on December 31, 2000 for Filing Applications for Free Patent and Judicial Confirmation of Imperfect Title to Alienable and Disposable Lands of the Public Domain under Chapters VII and VIII of the Public Land Act (CA 141, as amended). 23 R.A. No. 9176, Section 2. 239 VOL. 587, APRIL 29, 2009239 Heirs of Mario Malabanan vs. Republic tion of property. Its Section 14 describes the applicants who may avail of registration under the Decree, among them— (1) Those who by themselves or through their predecessorsin-interest have been in open, continuous, exclusive and notorious possession and occupation of alienable and disposable lands of the public domain under a bona fide claim of ownership since June 12, 1945, or earlier. (2) Those who have acquired ownership of private lands by prescription under the provision of existing laws. These subsections and their impact on the present case are separately discussed below. Section 14(1)

Section 14(1) merely repeated PD 1073 which sets a cut-off date of June 12, 1945 and which, under the conditions discussed above, may be read to be January 24, 1947. The ponencia discussed Section 48(b) of the PLA in relation with Section 14(1) of the PRD and, noted among others, that “under the current state of the law, the substantive right granted under Section 48(b) may be availed of only until December 31, 2020.” This is in light of RA 9176, passed in 2002,24 limiting the filing of an application for judicial confirmation of imperfect title to December 31, 2020. The amendatory law apparently refers only to the use of Section 14(1) of the PRD as a mode of registration. Where ownership right or title has already vested in the possessor-occupant of the land that Section 48(b) of the PLA grants by operation of law, Section 14(2) of the PRD continuous to be open for purposes of registration of a “private land” since compliance with Section 48(b) of the PLA vests title to the occupant/possessor and renders the land private in character. _______________ 24 See pp. 14-15 of the ponencia. 240 240SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic The ponencia likewise rules against the position of the Office of the Solicitor General that the public land to be registered must have been classified as alienable and disposable as of the cut-off date for possession stated in Section 48(b)—June 12, 1945. In doing this, it cites and reiterates its continuing support

for the ruling in Republic v. Court of Appeals and Naguit that held:25 “Petitioner suggests an interpretation that the alienable and disposable character of the land should have already been established since June 12, 1945 or earlier. This is not borne out by the plain meaning of Section 14(1). “Since June 12, 1945,” as used in the provision, qualifies its antecedent phrase “under a bonafide claim of ownership.” Generally speaking, qualifying words restrict or modify only the words or phrases to which they are immediately associated, and not those distantly or remotely located. Ad proximum antecedents fiat relation nisi impediatur sentencia. Besides, we are mindful of the absurdity that would result if we adopt petitioner’s position. Absent a legislative amendment, the rule would be, adopting the OSG’s view, that all lands of the public domain which were not declared alienable or disposable before June 12, 1945 would not be susceptible to original registration, no matter the length of unchallenged possession by the occupant. Such interpretation renders paragraph (1) of Section 14 virtually inoperative and even precludes the government from giving it effect even as it decides to reclassify public agricultural lands as alienable and disposable. The unreasonableness of the situation would even be aggravated considering that before June 12, 1945, the Philippines was not yet even considered an independent state. Instead, the more reasonable interpretation of Section 14(1) is that it merely requires the property sought to be registered as already alienable and disposable at the time the application for registration of title is filed. If the State, at the time the application is made, has not yet deemed it proper to release the

property for alienation or disposition, the presumption is that the government is still reserving the right to utilize the property; hence, the need to preserve its ownership in the State irrespective of _______________ 25 Supra note 1. 241 VOL. 587, APRIL 29, 2009241 Heirs of Mario Malabanan vs. Republic the length of adverse possession even if in good faith. However, if the property has already been classified as alienable and disposable, as it is in this case, then there is already an intention on the part of the State to abdicate its exclusive prerogative over the property. xxx This case is distinguishable from Bracewell v. Court of Appeals, wherein the Court noted that while the claimant had been in possession since 1908, it was only in 1972 that the lands in question were classified as alienable and disposable. Thus, the bid at registration therein did not succeed. In Bracewell, the claimant had filed his application in 1963, or nine (9) years before the property was declared alienable and disposable. Thus, in this case, where the application was made years after the property had been certified as alienable and disposable, the Bracewell ruling does not apply.” As it did in Naguit, the present ponencia as well discredits Bracewell. It does the same with Republic v. Herbieto26 that came after Naguit and should have therefore overtaken the Naguit ruling. In the process, the ponencia cites with approval

the ruling in Republic v. Ceniza,27 penned by the same ponente who wrote Bracewell. While the ponencia takes pains to compare these cases, it however completely misses the point from the perspective of whether possession of public lands classified as alienable and disposable after June 12, 1945 should be credited for purposes of a grant under Section 48(b) of the PLA, and of registration under Section 14(1) of the PRD. These cases, as analyzed by the ponencia, merely granted or denied registration on the basis of whether the public land has been classified as alienable and disposable at the time the petition for registration was filed. Thus, except for Naguit, these cases can be cited only as instances when registration was denied or granted _______________ 26 G.R. No. 156117, May 26, 2005, 459 SCRA 183, 201-202. 27 40 Phil. 697 (2002); penned by Mme. Justice Consuelo Ynares-Santiago. 242 242SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic despite the classification of the land as alienable after June 12, 1945. The ruling in Naguit is excepted because, as shown in the quotation above, this is one case that explained why possession prior to the classification of public land as alienable should be credited in favor of the possessor who filed his or her application for registration after the classification of the land as alienable and disposable, but where such classification occurred after June 12, 1945.

Closely analyzed, the rulings in Naguit that the ponencia relied upon are its statutory construction interpretation of Section 48(b) of the PLA and the observed ABSURDITY of using June 12, 1945 as the cut-off point for the classification. Five very basic reasons compel me to strongly disagree with Naguit and its reasons. First. The constitutional and statutory reasons. The Constitution classifies public lands into agricultural, mineral, and timber. Of these, only agricultural lands can be alienated.28 Without the requisite classification, there can be no basis to determine which lands of the public domain are alienable and which are not; hence, classification is a constitutionally-required step whose importance should be given full legal recognition and effect. Otherwise stated, without classification into disposable agricultural land, the land forms part of the mass of the public domain that, not being agricultural, must be mineral or timber land that are completely inalienable and as such cannot be possessed with legal effects. To allow effective possession is to do violence to the regalian doctrine; the ownership and control that the doctrine denotes will be less than full if the possession that should be with the State as owner, but is elsewhere without any authority, can anyway be recognized. _______________ 28 Constitution, Article XII, Section 2. 243 VOL. 587, APRIL 29, 2009243 Heirs of Mario Malabanan vs. Republic

From the perspective of the PLA under which grant can be claimed under its Section 48(b), it is very important to note that this law does not apply until a classification into alienable and disposable land of the public domain is made. If the PLA does not apply prior to a public land’s classification as alienable and disposable, how can possession under its Section 48(b) be claimed prior such classification? There can simply be no imperfect title to be confirmed over lands not yet classified as disposable or alienable because, in the absence of such classification, the land remains unclassified public land that fully belongs to the State. This is fully supported by Sections 6, 7, 8, 9, and 10 of CA 141.29 If the land is either mineral or timber and can never _______________ 29 SECTION 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 a like manner transfer such lands from one class to another, for the purposes of their administration and disposition. SECTION 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.

SECTION 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. However, the President may, for reasons of public interest, declare lands of the public domain 244 244SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic be the subject of administration and disposition, it defies legal logic to allow the possession of these unclassified lands to produce legal effect. Thus, the classification of public land as alienable and disposable is inextricably linked to effective possession that can ripen into a claim under Section 48(b) of the PLA. Second. The Civil Code reason. Possession is essentially a civil law term that can best be understood in terms of the Civil Code in the absence of any specific definition in the PLA other than in terms of time of possession.30 Article 530 of the Civil Code provides that “[O]nly things and rights which are susceptible of being appropriated may be the object of pos_______________ open to disposition before the same have had their boundaries established or been surveyed, or may, for the same reason, suspend their concession or disposition until they are again

declared open to concession or disposition by proclamation duly published or by Act of the National Assembly. SECTION 9. For the purpose of their administration and disposition, the lands of the public domain alienable or open to disposition shall be classified, according to the use or purposes to which such lands are destined, as follows: (a) Agricultural; (b) Residential, commercial, industrial, or for similar productive purposes; (c) Educational, charitable, or other similar purposes; (d) Reservations for town sites and for public and quasipublic uses. The President, upon recommendation by the Secretary of Agriculture and Commerce, shall from time to time make the classifications provided for in this section, and may, at any time and in a similar manner, transfer lands from one class to another. SECTION 10. The words “alienation,” “disposition,” or “concession” as used in this Act, shall mean any of the methods authorized by this Act for the acquisition, lease, use, or benefit of the lands of the public domain other than timber or mineral lands. 30 See: Article 18, Civil Code. 245 VOL. 587, APRIL 29, 2009245 Heirs of Mario Malabanan vs. Republic session.” Prior to the declaration of alienability, a land of the public domain cannot be appropriated; hence, any claimed possession cannot have legal effects. This perspective fully

complements what has been said above under the constitutional and PLA reasons. It confirms, too, that the critical difference the ponencia saw in the Bracewell and Naguit situations does not really exist. Whether an application for registration is filed before or after the declaration of alienability becomes immaterial if, in one as in the other, no effective possession can be recognized prior to the declaration of alienability. Third. Statutory construction and the cut-off date – June 12, 1945. The ponencia assumes, based on its statutory construction reasoning and its reading of Section 48(b) of the PLA, that all that the law requires is possession from June 12, 1945 and that it suffices if the land has been classified as alienable at the time of application for registration. As heretofore discussed, this cut-off date was painstakingly set by law and should be given full significance. Its full import appears from PD 1073 that amended Section 48(b), whose exact wordings state: “SECTION 4. The provisions of Section 48(b) and Section 48(c), Chapter VIII of the Public Land Act are hereby amended in the sense that these provisions shall apply only to alienable and disposable lands of the public domain which have been in open, continuous, exclusive and notorious possession and occupation by the applicant himself or thru his predecessor-ininterest, under a bona fide claim of acquisition of ownership, since June 12, 1945.” Under this formulation, it appears clear that PD 1073 did not expressly state what Section 48(b) should provide under the amendment PD 1073 introduced in terms of the exact wording of the amended Section 48(b). But under the PD 1073 formulation, the intent to count the alienability to June 12,

1945 appears very clear. The provision applies only to alienable and disposable lands of the public domain that is described in terms of the character of the possession required 246 246SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic since June 12, 1945. This intent—seen in the direct, continuous and seamless linking of the alienable and disposable lands of the public domain to June 12, 1945 under the wording of the Decree—is clear and should be respected. Fourth. Other Modes of Acquisition of lands under the PLA. Naguit’s absurdity argument that the ponencia effectively adopted is more apparent than real, since the use of June 12, 1945 as cut-off date for the declaration of alienability will not render the grant of alienable public lands out of reach. The acquisition of ownership and title may still be obtained by other modes under the PLA. Among other laws, RA 6940, mentioned above, now allows the use of free patents.31 It was approved on March 28, 1990; hence, counting 30 years backwards, possession since April 1960 or thereabouts may qualify a possessor to apply for a free patent. The administrative modes provided under Section 11 of the PLA are also open, particularly, homestead settlement and sales. Fifth. Addressing the wisdom—the absurdity—of the law. This Court acts beyond the limits of the constitutionally-mandated separation of powers in giving Section 48(b), as amended by PD 1073, an interpretation beyond its plain wording. Even this Court cannot read into the law an intent that is not there even your purpose is to avoid an absurd situation. If we feel that a

law already has absurd effects because of the passage of time, our role under the principle of separation of powers is not to give the law an interpretation that is not there in order to avoid the perceived absurdity. We thereby dip into the realm of policy—a role delegated by the Constitution to the Legislature. If only for this reason, we should avoid expanding—through Naguit and the present ponencia—the plain meaning of Section 48(b) of the PLA, as amended by PD 1073. In standing by Naguit, the ponencia pointedly discredits the ruling in Herbieto; it is, allegedly, either an incorrect _______________ 31 See: pp. 10-11 of this Dissent. 247 VOL. 587, APRIL 29, 2009247 Heirs of Mario Malabanan vs. Republic ruling or an obiter dictum. As to legal correctness, Herbieto is in full accord with what we have stated above; hence, it cannot be dismissed off-hand as an incorrect ruling. Likewise, its ruling on the lack of effective legal possession prior to the classification of a public land as alienable and disposable cannot strictly be obiter because it responded to an issue directly raised by the parties. Admittedly, its ruling on jurisdictional grounds could have fully resolved the case, but it cannot be faulted if it went beyond this threshold issue into the merits of the claim of effective possession prior to the classification of the land as alienable and disposable. To be sure, Herbieto has more to it than the Naguit ruling that the ponencia passes off as the established and definitive rule on possession under Section 14(1) of the PRD. There, too, is the

undeniable reason that no definitive ruling touching on Section 14(1) can be deemed to have been established in the present case since the applicant Heirs could only prove possession up to 1948. For this reason, the ponencia falls back on and examines Section 14(2) of the PRD. In short, if there is a perfect example of a ruling that is not necessary for the resolution of a case, that unnecessary ruling is the ponencia’s ruling that Naguit is now the established rule. Section 14(2) Section 14(2), by its express terms, applies only to private lands. Thus, on plain reading, it does not apply to alienable and disposable lands of the public domain that Section 14(1) covers. This is the difference between Sections 14(1) and 14(2). The ponencia, as originally formulated, saw a way of expanding the coverage of Section 14(2) via the Civil Code by directly applying civil law provisions on prescription on alienable and disposable lands of the public domain. To quote the obiter dictum in Naguit that the ponencia wishes to enshrine 248 248SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic as the definitive rule and leading case on Sections 14(1) and 14(2):32 “Prescription is one of the modes of acquiring ownership under the Civil Code. There is a consistent jurisprudential rule that properties classified as alienable public land may be converted into private property by reason of open, continuous and

exclusive possession of at least thirty (30) years. With such conversion, such property may now fall within the contemplation of “private lands” under Section 14(2), and thus susceptible to registration by those who have acquired ownership through prescription. Thus, even if possession of the alienable public land commenced on a date later than June 12, 1945, and such possession being open, continuous and exclusive, then the possessor may have the right to register the land by virtue of Section 14(2) of the Property Registration Decree.” The ponencia then posits that Article 1113 of the Civil Code should be considered in the interpretation of Section 14(2). Article 1113 of the Civil Code provides: “All things which are within the commerce of men are susceptible of prescription, unless otherwise provided. Property of the State or any of its subdivisions not patrimonial in character shall not be the object of prescription.” The application of Article 1113 assumes, of course, that (1) the Civil Code fully applies to alienable and disposable lands of the public domain; (2) assuming that the Civil Code fully applies, these properties are patrimonial and are therefore “private property”; and (3) assuming that the Civil Code fully applies, that these properties are within the commerce of men and can be acquired through prescription. I find the Naguit obiter to be questionable because of the above assumptions and its direct application of prescription under Section 14(2) to alienable or disposable lands of the public domain. This Section becomes relevant only once the ownership of an alienable and disposable land of _______________

32 See p. 20 of the ponencia. 249 VOL. 587, APRIL 29, 2009249 Heirs of Mario Malabanan vs. Republic the public domain vests in the occupant or possessor pursuant to the terms of Section 48(b) of the PLA, with or without judicial confirmation of title, so that the land has become a private land. At that point, Section 14(2) becomes fully operational on what had once been an alienable and disposable land of the public domain. Hierarchy of Law in Reading PRD’s Section 14(2) The hierarchy of laws governing the lands of the public domain is clear from Article XII, Section 3 of the Constitution. There are matters that the Constitution itself provides for, and some that are left for Congress to deal with. Thus, under Section 3, the Constitution took it upon itself to classify lands of the public domain, and to state that only agricultural lands may be alienable lands of the public domain. It also laid down the terms under which lands of the public domain may be leased by corporations and individuals. At the same time, it delegated to Congress the authority to classify agricultural lands of the public domain according to the uses to which they may be devoted. Congress likewise determines, by law, the size of the lands of the public domain that may be acquired, developed, held or leased, and the conditions therefor. In acting on the delegation, Congress is given the choice on how it will act, specifically, whether it will pass a general or a special law. On alienable and disposable lands of the public domain, Congress has, from the very beginning, acted through

the medium of a special law, specifically, through the Public Land Act that by its terms “shall apply to the lands of the public domain; but timber and mineral lands shall be governed by special laws.” Notably, the Act goes on to provide that nothing in it “shall be understood or construed to change or modify the administration and disposition of the lands commonly called ‘friar lands’ and those which, being privately owned, have reverted to or become property of the Commonwealth of the Philippines, which administration and disposition shall be governed by laws at present in force or which 250 250SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic may hereafter be enacted.”33 Under these terms, the PLA can be seen to be a very specific act whose coverage extends only to lands of the public domain; in this sense, it is a special law on that subject. In contrast, the Civil Code is a general law that covers general rules on the effect and application of laws and human relations; persons and family relations; property and property relations; the different modes of acquiring ownership; and obligations and contracts.34 Its general nature is best appreciated when in its Article 18, it provides that: “In matters which are governed by the Code of Commerce and special laws, their deficiency shall be supplied by the provisions of this Code.” The Civil Code has the same relationship with the PRD with respect to the latter’s special focus—land registration—and fully applies civil law provisions in so far only as they are

allowed by the PRD. One such case where the Civil Code is expressly allowed to apply is in the case of Section 14(2) of the PRD which calls for the application of prescription under existing laws. As already explained above, the PLA and the PRD have their own specific purposes and are supreme within their own spheres, subject only to what the higher Constitution provides. Thus, the PRD must defer to what the PLA provides when the matter to be registered is an alienable and disposable land of the public domain. Application of the Civil Code In its Book II, the Civil Code has very clear rules on property, including State property. It classifies property as either of public dominion or of private ownership,35 and property for _______________ 33 CA 141, Section 2. 34 These are the Introductory Chapters and Books I to IV of the Civil Code. 35 Civil Code, Article 419. 251 VOL. 587, APRIL 29, 2009251 Heirs of Mario Malabanan vs. Republic public use, public service and those for the development of the national wealth as property of the public dominion.36 All property not so characterized are patrimonial property of the State37 which are susceptible to private ownership,38 against which prescription will run.39 In reading all these provisions, it should not be overlooked that they refer to the properties of the State in general, i.e., to both

movable and immovable properties.40Thus, the Civil Code provisions on property do not refer to land alone, much less do they refer solely to alienable and disposable lands of the public domain. For this specie of land, the PLA is the special governing law and, under the Civil Code itself, the Civil Code provisions shall apply only in case of deficiency.41 This conclusion gives rise to the question – can alienable and disposable lands of the public domain at the same time be patrimonial property of the State because they are not for public use, public purpose, and for the development of national wealth? The answer to this question can be found, among others, in the interaction discussed above between the PLA and PRD, on the one hand, and the Civil Code, on the other, and will depend on the purpose for which an answer is necessary. If, as in the present case, the purpose is to determine whether a grant or disposition of an alienable and disposable land of the public domain has been made, then the PLA primarily applies and the Civil Code applies only suppletorily. The possession and occupation that the PLA recognizes is _______________ 36 Id., Article 420. 37 Id., Article 421. 38 Id., Article 425. 39 Id., Article 1108. 40 Article 415 of the Civil Code defines immovable property, while Article 416 defines movable property. 41 Civil Code, Article 18. 252 252SUPREME COURT REPORTS ANNOTATED

Heirs of Mario Malabanan vs. Republic based on its Section 48(b) and, until the requirements of this Section are satisfied, the alienable and disposable land of the public domain remains a State property that can be disposed only under the terms of Section 11 of the PLA. In the face of this legal reality, the question of whether—for purposes of prescription—an alienable and disposable land of the public domain is patrimonial or not becomes immaterial; a public land, even if alienable and disposable, is State property and prescription does not run against the State.42 In other words, there is no room for any hairsplitting that would allow the inapplicable concept of prescription under the Civil Code to be directly applied to an alienable and disposable land of the public domain before this land satisfies the terms of a grant under Section 48(b) of the PLA. Given this conclusion, any further discussion of the patrimonial character of alienable and disposable public lands under the norms of the Civil Code is rendered moot and academic. From the prism of the overriding regalian doctrine that all lands of the public domain are owned by the State, an applicant for land registration invoking Section 14(2) of the PRD to support his claim must first clearly show that the land has been withdrawn from the public domain through an express and positive act of the government.43 A clear express governmental grant or act withdrawing a particular land from the mass of the public domain is provided both in the old and the prevailing Public Land Acts. These laws invariably provide that compliance with the required possession of agricultural public land (under the first and

second PLAs) or alienable and disposable land of the public domain (under the prevailing PLA) in the manner and _______________ 42 Id., Article 1108. 43 Supra note 10, Director of Lands v. Intermediate Appellate Court. 253 VOL. 587, APRIL 29, 2009253 Heirs of Mario Malabanan vs. Republic duration provided by law is equivalent to a government grant. Thus, the land ipso jure becomes private land. It is only at that point that the “private land” requirement of Section 14(2) materializes.44 Prescription In my original Dissent (in response to the original ponencia), I discussed ordinary acquisitive prescription as an academic exercise to leave no stone unturned in rejecting the ponencia’s original conclusion that prescription directly applies to alienable and disposable lands of the public domain under Section 14(2) of the PRD. I am happy to note that the present ponencia has adopted, albeit without any attribution, part of my original academic discussion on the application of the Civil Code, particularly on the subjects of patrimonial property of the State and prescription. Specifically, I posited—assuming arguendo that the Civil Code applies—that the classification of a public land as alienable and disposable does not per se signify that the land is patrimonial under the Civil Code since property, to be patrimonial, must not be for public use, for public purpose or for the development

of national wealth. Something more must be done or shown beyond the fact of classification. The ponencia now concedes that “[T]here must also be an express government manifestation that the property is already patrimonial or no longer retained for public use or the development of the national wealth, under Article 422 of the Civil Code. And only when the property has become patrimonial can the prescriptive _______________ 44 At this point, prescription can be invoked, not by the occupant/possessor who now owns the land in his private capacity, but against the new owner by whomsoever shall then occupy the land and comply with the ordinary or extraordinary prescription that the Civil Code ordains. This assumes that the new owner has not placed the land under the Torrens system; otherwise, indefeasibility and imprescriptibility would set in. 254 254SUPREME COURT REPORTS ANNOTATED Heirs of Mario Malabanan vs. Republic period for the acquisition of property of the public domain begin to run.” I agree with this statement as it describes a clear case when the property has become private by the government’s own declaration so that prescription under the Civil Code can run. Note in this regard that there is no inconsistency between this conclusion and the hierarchy of laws on lands of the public domain that I expounded on. To reiterate, the PLA applies as a special and primary law when a public land is classified as alienable and disposable, and remains fully and exclusively applicable until the State itself expressly declares that the land

now qualifies as a patrimonial property. At that point, the application of the Civil Code and its law on prescription are triggered. The application of Section 14(2) of the PRD follows. To summarize, I submit in this Concurring and Dissenting Opinion that: 1. The hierarchy of laws on public domain must be given full application in considering lands of the public domain. Top consideration should be accorded to the Philippine Constitution, particularly its Article XII, followed by the consideration of applicable special laws—the PLA and the PRD, insofar as this Decree applies to lands of the public domain. The Civil Code and other general laws apply to the extent expressly called for by the primary laws or to supply any of the latter’s deficiencies. 2. The ruling in this ponencia and in Naguit that the classification of public lands as alienable and disposable does not need to date back to June 12, 1945 at the latest, is wrong because: a. Under the Constitution’s regalian doctrine, classification is a required step whose full import should be given full effect and recognition; giving legal effect to 255 VOL. 587, APRIL 29, 2009255 Heirs of Mario Malabanan vs. Republic possession prior to classification runs counter to the regalian doctrine. b. The Public Land Act applies only from the time a public land is classified as alienable and disposable; thus, Section

48(b) of this law and the possession it requires cannot be recognized prior to any classification. c. Under the Civil Code, “[O]nly things and rights which are susceptible of being appropriated may be the object of possession.” Prior to the classification of a public land as alienable and disposable, a land of the public domain cannot be appropriated; hence, any claimed possession cannot have legal effects. d. There are other modes of acquiring alienable and disposable lands of the public domain under the Public Land Act; this legal reality renders the ponencia’s absurdity argument misplaced. e. The alleged absurdity of the law addresses the wisdom of the law and is a matter for the Legislature, not for this Court, to address. Consequently, Naguit must be abandoned and rejected for being based on legally-flawed premises and for being an aberration in land registration jurisprudence. At the very least, the present ponencia cannot be viewed as an authority on the effective possession prior to classification since this ruling, by the ponencia’s own admission, is not necessary for the resolution of the present case. Petition denied, judgment and resolution affirmed. Note.—Factual considerations relating to lands of the public domain properly rest within the administrative competence of the Director of Lands and the Department of Environment and Natural Resources. (Estrella vs. Robles, Jr., 538 SCRA 60 [2007]). ——o0o—— [Heirs of Mario Malabanan vs. Republic, 587 SCRA 172(2009)]

ALFREDO, PRECIOSA, ANGELITA and CRISOSTOMO, all surnamed BUENAVENTURA, petitioners, vs. AMPARO PASCUAL and the REPUBLIC OF THE PHILIPPINES, respondents. Courts; Jurisdiction; Certiorari; The court has stressed that its jurisdiction in a petition for review on certiorari under Rule 45 of the Rules of Court is limited to reviewing only errors of law, not of fact, unless the findings of fact complained of are devoid of support by the evidence on record, or the assailed judgment is based on the misapprehension of facts.—Time and again, this Court has stressed that its jurisdiction in a petition for review on certiorari under Rule 45 of the Rules of Court is limited to reviewing only errors of law, not of fact, unless the findings of fact complained of are devoid of support by the evidence on record, or the assailed judgment is based on the misapprehension of facts. The trial court, having heard the witnesses and observed their demeanor and manner of testifying, is in a better position to decide the question of their credibility. Hence, the findings of the trial court must be accorded the highest respect, even finality, by this Court. Likewise, the Court has ruled that, when supported by sufficient evidence, findings of fact by the Court of Appeals affirming those of the trial court are not to be disturbed on appeal. The rationale behind this doctrine is that review of the findings of fact by the Court of Appeals is not a function this Court normally undertakes. The Court will not weigh the evidence all over again unless there is a showing that the findings of the lower court are totally devoid of support or are clearly erroneous so as to constitute serious abuse of discretion.

Land Titles; Land Registration; Any person who by themselves or through their predecessors-in-interest have been in open, continuous, exclusive and notorious possession and occupation of alienable and disposable lands of the public domain under a bona fide claim of ownership since 12 June 1945 or earlier, may file in the proper trial court an application for registration of title to land, whether personally or through their duly authorized representatives.—Being the _______________ * THIRD DIVISION. 144 144SUPREME COURT REPORTS ANNOTATED Buenaventura vs. Pascual applicants for confirmation of imperfect title, petitioners bear the burden of proving that they meet the requirements for the same, by no less than clear, positive and convincing evidence. The requirements necessary for a judicial confirmation of imperfect title are laid down in Section 14, paragraph 1 of Presidential Decree No. 1529. In accordance therewith, any person who by themselves or through their predecessors-ininterest have been in open, continuous, exclusive and notorious possession and occupation of alienable and disposable lands of the public domain under a bona fide claim of ownership since 12 June 1945 or earlier, may file in the proper trial court an application for registration of title to land, whether personally or through their duly authorized representatives. Same; Public Lands; Ownership; Such possession can never ripen into ownership, and unless the land has been classified as alienable and disposable, the rules on confirmation of

imperfect title shall not apply thereto.—This Court cannot countenance such a presumption for two reasons: First, it goes against the Regalian doctrine which states that all lands of whatever classification belong to the State. The rule applies even to privately owned unregistered lands which, unless the contrary is shown, are presumed to be public lands. Second, without a definitive date when the subject lot became alienable and disposable, the determination of whether petitioners possessed the subject lot for the time period required by law is rendered impossible, since any period of possession prior to the date when the subject lot was classified as alienable and disposable is inconsequential and should be excluded from the computation of the period of possession. Such possession can never ripen into ownership; and unless the land has been classified as alienable and disposable, the rules on confirmation of imperfect title shall not apply thereto. Same; Same; Same; To prove that the land subject of the application for registration is alienable, the applicant must establish the existence of a positive act of the government such as a presidential proclamation or an executive order, an administrative action, investigation reports of the Bureau of Lands investigators, and a legislative act or statute.—To prove that the land subject of the application for registration is alienable, the applicant must establish the existence of a positive act of the government such as a presidential proclamation or an executive order; an administrative action; investigation 145 VOL. 572, NOVEMBER 27, 2008145 Buenaventura vs. Pascual

reports of the Bureau of Lands investigators; and a legislative act or statute. No such evidence was offered by the petitioners in this case. Same; Land Registration; The rules on the confirmation of imperfect title do not apply unless and until the land subject thereof is released in an official proclamation to that effect so that it may form part of the disposable agricultural lands of the public domain.—The rules on the confirmation of imperfect title do not apply unless and until the land subject thereof is released in an official proclamation to that effect so that it may form part of the disposable agricultural lands of the public domain. Inasmuch as the petitioners failed to present any proof that the subject lot has indeed been classified as and forms part of the disposable land of the public domain, whatever possession they might have had, regardless of the length or nature thereof cannot ripen into private ownership. PETITION for review on certiorari of the decision and resolution of the Court of Appeals. The facts are stated in the opinion of the Court. Libra Law Libarios, Jalandoni, Dimayuga & Magtanong for petitioners. Cesar T. Verano for private respondent. CHICO-NAZARIO, J.: Before Us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, challenging the Decision1 dated 31 August 2004 and Resolution2 dated 30 June 2005 of the Court of Appeals in CA-G.R. CV No. 55454. In its assailed Decision, the Court of Appeals affirmed the Decision3 dated 21 November 1996 of the Regional Trial Court (RTC) of

Parañaque, Branch 257, in Land Registration Case (LRC) No. M-197, _______________ 1 Penned by Associate Justice Godardo A. Jacinto with Associate Justices Edgardo P. Cruz and Jose C. Mendoza, concurring; Rollo, pp. 84-98. 2 Rollo, pp. 100-106. 3 Penned by Judge Agnes Reyes-Carpio; Rollo, pp. 152-157. 146 146SUPREME COURT REPORTS ANNOTATED Buenaventura vs. Pascual dismissing petitioners’ claim of title to the subject property for which they sought judicial confirmation and registration. In its assailed Resolution, the appellate court denied petitioners’ Urgent Motion for Partial Reconsideration. The factual and procedural antecedents of the instant Petition are as follows: On 28 April 1993, private respondent Amparo Pascual filed with the RTC of Makati an application4 for confirmation and registration of title, in accordance with the provisions of the Public Land Act,5 as amended, to a parcel of land designated as Lot No. 5001-A, situated at San Dionisio, Parañaque, Metro Manila, with an area of 1,184.52 square meters (subject lot). Private respondent alleged, inter alia, that the subject lot was not within any reservation; that to the best of her knowledge and belief, there was no mortgage or encumbrance of any kind whatsoever affecting the said land, nor was there any person having any interest thereon; and that she was the occupant of the subject lot and had been in actual, open, continuous,

adverse and exclusive possession thereof by herself and through her predecessor-in-interest since time immemorial. Attached to the application were the following documents: (1) the tracing cloth plan and duplicate blue print plan of the subject lot6; (2) the technical description of the subject lot7; and (3) Tax Declaration No. 016-10453 covering the subject lot for the year 1993.8 Upon private respondent’s ex parte motion,9 the case was transferred to the RTC of Parañaque on 17 May 1993,10 where _______________ 4 Rollo, pp. 333-334. 5 Commonwealth Act No. 141. 6 Records, pp. 13-32. 7 Rollo, p. 335. 8 Id., at pp. 126-126(a). 9 Records, p. 29. 10 Id., at p. 24. 147 VOL. 572, NOVEMBER 27, 2008147 Buenaventura vs. Pascual the same was raffled to Branch 274, in the sala of Judge Octavio A. Astilla.11 The RTC thereafter ordered that the initial hearing of LRC Case No. M-197 be held on 27 September 1993.12 On 27 September 1993, petitioners Alfredo, Preciosa, Angelita, and Crisostomo, all surnamed Buenaventura, filed an Opposition13 to private respondent’s application for confirmation and registration of title to the subject lot, contending that they and their predecessors-in-interest were the

owners and possessors of a parcel of land known as Lot No. 5001, Cad-299, Parañaque Cadastre, of which the subject lot formed apart, since time immemorial. Not one of them gave consent to or authority for the issuance and approval of the subdivision plan where the subject lot was segregated from Lot No. 5001, and petitioner Preciosa never affixed her signature to such plan, thus, making the said subdivision plan falsified and illegal. Petitioners averred that they, instead of private respondent, were entitled to the confirmation of their title to the subject lot and to the registration of the same in their names. The Republic of the Philippines, through the Office of the Solicitor General, likewise filed an Opposition14 dated 10 February 1994 to private respondent’s application in LRC Case No. M-197, on the grounds that: (1) neither private respondent nor her predecessors-in-interest had been in open, continuous, exclusive and notorious possession and occupation of the subject lot since 12 June 1945 or prior thereto; (2) the muniments of title and/or the tax declaration attached to private respondent’s application did not constitute competent and sufficient evidence of a bona fide acquisition of the subject lot or her open, continuous, exclusive and notorious pos_______________ 11 Id., at p. 25. 12 Id., at p. 25. 13 Rollo, pp. 336-338. 14 Records, pp. 66-67. 148 148SUPREME COURT REPORTS ANNOTATED Buenaventura vs. Pascual

session and occupation thereof in the concept of an owner, since 12 June 1945 or earlier; (3) the muniments of title did not appear to be genuine and the tax declaration appeared to be of recent vintage; (4) the claim of ownership in fee simple of the subject lot on the basis of a Spanish title or grant could no longer be availed of by private respondent who failed to file an appropriate application for registration of her title within the period of six months from the effectivity of Presidential Decree No. 892 on 16 February 197615 inasmuch as the instant application was filed only on 28 April 1993; and (5) the subject lot applied for was a portion of the public domain belonging to the Republic of the Philippines, which was not subject to private appropriation. Hearings on LRC Case No. M-197 were held where the parties presented their respective evidence. According to private respondent’s evidence, the subject lot was originally owned by her grandfather Mariano Pascual (Mariano).16 Upon Mariano’s death, he was succeeded by his two sons, Arcadio and Agripino.17 As early as when she was 12 years old, private respondent was already aware that her father, Arcadio, owned the subject lot where she used to play, gather fish from a fishpond, and get fruits from the trees growing thereon.18 Her brother Ruben, however, claimed to be already 40 years old when he first saw the subject lot.19 Upon the death of Arcadio and his wife Josefa, the subject lot passed on to their three children: private respondent, Ruben, and Jose. Ruben and Jose executed on 8 March 1993 an Affidavit20 whereby they waived and renounced all their rights, _______________

15 Discontinuance of the Spanish Mortgage System of Registration and of the Use of Spanish Titles as Evidence in Land Registration Proceedings. 16 TSN, 20 December 1993, Records, p. 310. 17 Id.; id., at p. 312. 18 Id.; id., at pp. 316-317. 19 TSN, 15 February 1994, id., at p. 339. 20 Rollo, p. 120. 149 VOL. 572, NOVEMBER 27, 2008149 Buenaventura vs. Pascual interests, and participation over the subject lot in favor of private respondent, who could now file a petition in court and have the subject lot registered solely in her name. Other than planting trees and vegetables on the subject lot, however, private respondent and her predecessors-in-interest did not reside on or build any other improvement thereon.21 Private respondent could not definitively establish when her grandfather (Mariano), her father (Arcadio) and mother (Josefa) passed away, and the timeline when the ownership and possession of the subject lot was passed on from one person to another.22 Private respondent declared the subject lot in her name in 1993 and paid realty taxes for the same; but, aside from the said tax declaration covering the subject lot in her name, she was unable to present additional documentary evidence to prove her alleged ownership of the subject lot.23 On the other hand, petitioners presented evidence to support their claim that in 1941, brothers Arcadio and Agripino Pascual sold the subject lot to their parents Amado Buenaventura and

Irene Flores. Agripino confirmed such a sale in his Affidavit executed on 22 December 1947, which states: AFFIDAVIT “I, Agripino Pascual, of lawful age, married to Leonor de Leon, and resident of Parañaque, Rizal, after being duly sworn under oath, depose and say the following: That on March 29, 1941, my brother Arcadio Pascual and myself (sic) sold to Amado Buenaventura, married to Irene Flores of Parañaque, Rizal, a parcel of land, declared under Tax No. (sic) 10706 in the name of our late father, Mariano Pascual. That the said Mariano Pascual who was the previous absolute owner of the said parcel of land was our legitimate father and we two are the only legitimate and forced heirs to the said parcel of land. Hence, for taxation and assessment purposes I hereby testify that _______________ 21 TSN, 21 March 1994, Records, p. 374. 22 Id.; id., at pp. 368-370. 23 Id.; id., at p. 376. 150 150SUPREME COURT REPORTS ANNOTATED Buenaventura vs. Pascual the said parcel of land should now be declared in the name of the said Amado Buenaventura and Irene Flores, for they are now the absolute owners of the said property. In witness whereof, I hereby signed (sic) this affidavit in the City of Manila, this 22nd day of Dec., 1947.

(Sgd.) Affiant24 The subject lot was declared in the name of petitioners’ mother Irene in 1948, 1967, 1974 and 1984.25 In 1978, petitioners became owners and possessors of the subject lot when their parents executed a deed of sale over the same in their favor.26 The subject property was then declared in petitioners’ names in 1979 and 1985. Petitioners and their parents had been religiously paying for the realty taxes on the subject lot from 1948 up to 1994, during which LRC Case No. M-197 was being heard. As of 1994, there were no improvements on the subject lot, as petitioners were filling it up so that they could sell it for a higher price.27 The subject lot was not part of any forest, sea, military or naval reservation, or any land of the public domain; and it had been possessed by petitioners and their parents publicly, usefully, adversely, and continuously from 1941 to 1994.28 On 21 November 1996, the RTC promulgated its Decision in LRC Case No. M-197, finding the evidence of both private respondent and petitioners insufficient and far from credible, and dismissing their respective claims over the subject lot. In refusing to give credence to private respondent’s evidence, the RTC reasoned that: _______________ 24 Records, p. 139. 25 TSN, 13 June 1994, Records, p. 406. 26 Id.; id., at p. 408. 27 Id.; id., at pp. 417-418. 28 Id.; id., at p. 418. 151

VOL. 572, NOVEMBER 27, 2008151 Buenaventura vs. Pascual “A perusal of the records of this case will reveal that [herein respondent’s] claim of rightful ownership over the property in question is less than credible. Firstly, [respondent] claimed that the land applied for, consisting of 1,854.62 sq. meters, was first in the possession of her grandfather. Upon the death of the latter, which year she could not recall, the possession was then taken over by her father and her uncle. When the [respondent] was merely 12 years old, her father cultivated the land and planted the same with trees where she occasionally harvested fruits therefrom. A portion of the land was likewise covered by a fishpond where she used to catch fish at her father’s invitation. But upon marrying the late Arcadio Nicolas, the [respondent], together with her four children, was (sic) no longer in possession of the property as evidenced by her testimony that each time she and her children passed by the questioned property, she merely told her children that the same used to be owned by their family. Moreover, she further testified that “when I left the property, I didn’t see anything anymore. If there is anybody who takes anything, I don’t know about that” (tsn, Dec. 20, 1993, p. 24), which evidently proves that she was not in actual and continuous possession of the subject land. Ironically, it was only in the year 1993, when [respondent’s] two brothers allegedly decided to renounce their rights over the said property in her favor that the latter filed the instant application. Although the [respondent] may have proven her stay over the property dating back in her childhood days, such fact, however,

failed to prove that her predecessors-in-interest were actually in possession of the property publicly, peacefully and openly for more than thirty (30) years. Moreover, the Pascual brothers, in their Affidavit of Renunciation, merely made allegations that they acquired the property in question from their grandfather, but failed to prove by concrete evidence how they came into possession of the parcel of land from which they based their claim or right (even granting that the same was indeed acquired by means of succession from their grandfather as rightful owner/possessor thereof). Neither did they make mention about the manner by which their predecessors-in-interest possessed the same land. In the instant case, the [respondent] failed to present specific facts that would show the nature of such possession. x x x 152 152SUPREME COURT REPORTS ANNOTATED Buenaventura vs. Pascual Secondly, the Affidavit of Renunciation introduced in evidence by the [respondent] where her brothers renounced their rights over the subject property in her name merely evidenced the fact that the parcel of land applied for was an alienable and disposable land of the public domain but insufficient to clearly establish the length of time of the possession of their predecessors-in-interest. Finally, even assuming arguendo that the [respondent] and her predecessors-in-interest were consistent in paying the corresponding taxes over the property starting in the year 1955, the same is of no moment, since the important thing to consider

is the compliance of the thirty (30) year period of open and continuous possession of her predecessors-in-interest.”29 As to petitioners’ evidence, the RTC made the following evaluation thereof: “An evaluation of the evidence presented by the [herein petitioners] in support of their claim is likewise far from credible. The allegation of the [petitioners] that their parents already possessed the land as early as 1941 has not been duly proved nor documented. Granting that the subject lot was transferred to the parents of the [petitioners] sometime in 1947 by virtue of a sale, there was no showing that a notarized deed of sale was ever executed nor was the sale of the land entered in the Registry of Property. If indeed, a sale over the property took place, this Court cannot dismiss the fact that from 1947 until the present or approximately forty-six (46) years thereafter until the time of the filing of the land registration case, did the predecessors-in-interest of herein [petitioners] take the initiative of securing a title over the said property in their name. The contention that the subject lot has been owned by the Sps. Buenaventura by mere Affidavit of Confirmation of Sale (Exh. “1”) cannot be taken lightly. Ordinarily, where the adverse party is deprived of the opportunity to cross-examine the affiants, affidavits are generally rejected for being hearsay, unless the affiants themselves are placed on the witness stand to testify thereon. x x x _______________ 29 Rollo, pp. 155-156. 153

VOL. 572, NOVEMBER 27, 2008153 Buenaventura vs. Pascual Lastly, [petitioners’] argument that [they] took over the possession of the property by the year 1978 or after the death of their parents is untenable. [They] failed to establish the nature of their possession of the land in question, whether the same may have been acquired by means of succession or donation or otherwise, since no documentary evidence had been presented to trace the acquisition of the property from the hands of the predecessors-in-interest of [petitioners] to them.”30 In the end, the RTC held that: “It having been insufficiently established that the lots (sic) in controversy have been under the continuous, open, meritorious, peaceful and adverse possession of [herein respondent’s] and [herein petitioners’] predecessors-in-interest, in the concept of [an] owner, during the period required by law, this Court finds no legal basis to uphold their respective claims. WHEREFORE, premises considered, the application for registration of Lot No. 5001-A of Cad-299 in the name of the [petitioner] Pascual, is hereby dismissed for lack of merit. The [petitioners’] claim is likewise, (sic) dismissed for being devoid of merit.”31 Private respondent filed on 23 December 1996 a Notice of Appeal32 of the foregoing RTC Decision, while petitioners filed on 3 January 1997 a Motion for Reconsideration33 thereof. In an Order dated 5 February 1997, the RTC denied petitioners’ motion for reconsideration for being a mere reiteration of the arguments it already considered and passed

upon. Thereafter, on 27 February 1997, petitioners likewise filed their Notice of Appeal of the RTC Decision.34 The appeals of private respondent and petitioners were docketed before the Court of Appeals as CA-G.R. CV No. 55454. _______________ 30 Id., at pp. 156-157. 31 Id., at p. 157. 32 Records, p. 266. 33 Id., at pp. 268-275. 34 Id., at pp. 289-290. 154 154SUPREME COURT REPORTS ANNOTATED Buenaventura vs. Pascual On 31 August 2004, the Court of Appeals rendered its assailed Decision, disposing thus: “WHEREFORE, under the premises, the decision appealed from is hereby AFFIRMED.”35 The Court of Appeals declared that private respondent failed to discharge the burden of proving that the subject lot had been in the open, continuous, exclusive, and notorious possession by her and her predecessors-in-interest, in the concept of an owner, for the prescribed period prior to the filing of her application. Private respondent’s brother, Ruben, acknowledged that neither private respondent nor her predecessors-in-interest ever resided on the subject lot. Even private respondent herself admitted during trial that she was not the actual occupant of the subject lot. The tax declaration and realty tax receipts presented by private respondent were inconclusive evidence of her ownership. And the Affidavit of

Renunciation executed in 1993 by private respondent’s brothers Ruben and Jose over their rights, interest, and participation over the subject lot in favor of private respondent did not state how long their predecessors-in-interest possessed the subject lot. Similarly, the Court of Appeals pronounced that petitioners failed to prove that their possession of the subject property was adverse, open, continuous, exclusive, notorious, peaceful, and in the concept of owner. Petitioners were unable to present a notarized deed to evidence the alleged sale of the subject lot by the brothers Arcadio and Agripino to petitioners’ parents. It further affirmed the ruling of the RTC that the Affidavit executed by Agripino, confirming the alleged sale of the subject lot by him and his brother Arcadio to petitioner’s parents was hearsay evidence, because the adverse party was not given the opportunity to cross-examine the affiant Agripino. Moreover, petitioners—who not only opposed pri_______________ 35 Id., at p. 98. 155 VOL. 572, NOVEMBER 27, 2008155 Buenaventura vs. Pascual vate respondent’s application, but who also, in effect, presented their own application by praying that the RTC confirm their title over the subject property instead and order the registration of the same in their name—failed to comply with the requirement that an application must be accompanied by a tracing-cloth plan duly approved by the Director of Lands, as well as two blueprints or photographic copies thereof and

copies of the surveyor’s certificate. Additionally, the Notice of Hearing of LRC Case No. M-197 as published in the Official Gazette and posted in conspicuous places pertained only to private respondent’s application. As such, the Court of Appeals ruled that petitioners could not thereby insist on the registration of the subject lot in their names. Petitioners filed their Urgent Motion for Partial Reconsideration36 of the Court of Appeals Decision on 27 September 2004, while private respondent filed her Motion for Reconsideration37 of the same decision on 22 November 2004. In a Resolution38 dated 30 June 2005, the Court of Appeals found no cogent reasons to disturb its earlier Decision, and decreed: “WHEREFORE, both Motions for Reconsideration are DENIED.” On 18 July 2005, private respondent filed before this Court a Motion for Extension of Time to file a Petition for Review on Certiorari,39 docketed as G.R. No. 168701. However, she subsequently moved to withdraw the said Motion and informed the Court of her intention to pursue an administrative remedy instead.40 The Court granted private respondent’s motion _______________ 36 CA Rollo, pp. 284-323. 37 Id., at pp. 328-340. 38 Rollo, pp. 100-106. 39 Id., at pp. 414-417. 40 Id., at pp. 418-423. 156 156SUPREME COURT REPORTS ANNOTATED Buenaventura vs. Pascual

to withdraw in a Resolution41 dated 28 September 2005, and thereby declared G.R. No. 168701 terminated. Petitioners, on the other hand, filed the instant Petition for Review, submitting the following issues for the resolution by this Court: I. WHETHER OR NOT THE COURT OF APPEALS ERRED GRAVELY IN UPHOLDING THE PREVIOUS FINDING OF THE TRIAL COURT THAT THE AFFIDAVIT OF CONFIRMATION OF SALE, EVEN IF EXECUTED ALMOST 50 YEARS AGO, IS HEARSAY AND, IN THE ABSENCE OF A DULY NOTARIZED DEED OF SALE, CANNOT SUSTAIN PETITIONERS (sic) CLAIM THAT THEIR PARENTS HAVE PREVIOUSLY ACQUIRED THE PROPERTY BY WAY OF PURCHASE FROM THE APPLICANT’S PREDECESSORS. II. WHETHER OR NOT THE COURT OF APPEALS ERRED GRAVELY IN DENYING PETITIONERS (sic) COUNTERAPPLICATION FOR TITLE BY USING THE SAME SET OF LEGAL CONCLUSIONS PREVIOUSLY APPLIED AGAINST AMPARO PASCUAL’S FAILED APPLICATION. III. WHETHER OR NOT THE COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT PETITIONERS-PRIVATE OPPOSITORS, NOT HAVING INITIATED THE REGISTRATION PROCEEDINGS, CANNOT OBTAIN AN AFFIRMATIVE RELIEF OF REGISTRATION OF TITLE

FOR NON-COMPLIANCE WITH THE FORMALITIES REQUIRED BY LAW. Fundamentally, the sole issue to be resolved in this case is whether petitioners are entitled to the confirmation and registration of the title to the subject lot in their names. Petitioners want this Court to reverse the decisions of the RTC and the Court of Appeals finding that petitioners failed _______________ 41 Id., at p. 424. 157 VOL. 572, NOVEMBER 27, 2008157 Buenaventura vs. Pascual to submit sufficient evidence to establish their title over the subject property and to merit its registration in their names. However, the Court cannot grant petitioners’ prayer without reviewing the same evidence they presented and already considered by the trial and appellate courts. When a doubt or difference arises as to the truth or falsehood of alleged facts or when a query necessarily solicits calibration of the whole evidence, considering mostly the credibility of witnesses, existence and relevancy of specific surrounding circumstances, their relation to each other and to the whole and probabilities of the situation, questions or errors of fact are raised.42 The petitioners must be reminded that the Supreme Court is not a trier of facts. It is not our function to review, examine and evaluate or weigh the probative value of the evidence presented. A question of fact would arise in such event. Questions of fact cannot be raised in an appeal via certiorari

before the Supreme Court and are not proper for its consideration.43 Time and again, this Court has stressed that its jurisdiction in a petition for review on certiorari under Rule 45 of the Rules of Court is limited to reviewing only errors of law, not of fact, unless the findings of fact complained of are devoid of support by the evidence on record, or the assailed judgment is based on the misapprehension of facts. The trial court, having heard the witnesses and observed their demeanor and manner of testifying, is in a better position to decide the question of their credibility. Hence, the findings of the trial court must be accorded the highest respect, even finality, by this Court. Likewise, the Court has ruled that, when supported by sufficient evidence, findings of fact by the Court of Appeals affirming those of the trial court are not to be disturbed on appeal. The rationale behind this doctrine is that review of the find_______________ 42 See Secretary of Education v. Heirs of Rufino Dulay, Sr., G.R. No. 164748, 27 January 2006, 480 SCRA 452, 460. 43 Heirs of Simeon Borlado v. Court of Appeals, 416 Phil. 257, 262; 363 SCRA 753, 756 (2001). 158 158SUPREME COURT REPORTS ANNOTATED Buenaventura vs. Pascual ings of fact by the Court of Appeals is not a function this Court normally undertakes. The Court will not weigh the evidence all over again unless there is a showing that the findings of the

lower court are totally devoid of support or are clearly erroneous so as to constitute serious abuse of discretion.44 Although there are exceptions45 to the general rule that the Court is bound by the findings of fact of the trial court, as affirmed by the Court of Appeals, it finds that none exists in this case to justify a departure therefrom. _______________ 44 Pacific Airways Corporation v. Tonda, 441 Phil. 156, 162; 392 SCRA 625, 629 (2002). 45 The following are the recognized exceptions to the general rule: (1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the Court of Appeals went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioner’s main and reply briefs are not disputed by the respondent; (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record; and (11) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion. (Sampayan v. Court of Appeals, G.R. No. 156360, 14 January 2005, 448 SCRA 220, 229; citing Insular Life Assurance Company, Ltd.

v. Court of Appeals, G.R. No. 126850, 28 April 2004, 428 SCRA 79, 86; citing Langkaan Realty Development, Inc. v. United Coconut Planters Bank, 400 Phil. 1349, 1356; 347 SCRA 542, 549 [2000]; Nokom v. National Labor Relations Commission, 390 Phil. 1228, 1242-1243; 336 SCRA 97, 110 [2000]; Sta. Maria v. Court of Appeals, 349 Phil. 275, 282-283; 285 SCRA 351, 357 [1998]). 159 VOL. 572, NOVEMBER 27, 2008159 Buenaventura vs. Pascual Being the applicants for confirmation of imperfect title, petitioners bear the burden of proving that they meet the requirements for the same,46 by no less than clear, positive and convincing evidence.47 The requirements necessary for a judicial confirmation of imperfect title are laid down in Section 14, paragraph 1 of Presidential Decree No. 1529.48 In accordance therewith, any person who by themselves or through their predecessors-ininterest have been in open, continuous, exclusive and notorious possession and occupation of alienable and disposable lands of the public domain under a bona fide claim of ownership since 12 June 1945 or earlier, may file in the proper trial court an application for registration of title to land, whether personally or through their duly authorized representatives. Thus, any person seeking the confirmation and registration of his title under said statutory provision must specifically prove that: (1) the land forms part of the alienable and disposable land of the public domain, and (2) he has been in open, continuous, exclusive and notorious possession of the subject

land under a bona fide claim of ownership from 12 June 1945 or earlier. The RTC and the Court of Appeals dismissed petitioners’ application for having failed to establish compliance with the _______________ 46 See Collado v. Court of Appeals, 439 Phil. 149, 173; 390 SCRA 343, 361 (2002). 47 See Republic v. Enciso, G.R. No. 160145, 11 November 2005, 474 SCRA 700, 713. 48 Sec. 14. Who may apply.—The following persons may file in the proper Court of First Instance an application for registration of title to land, whether personally or through their duly authorized representatives: (1) Those who by themselves or through their predecessorsin-interest have been in open, continuous, exclusive and notorious possession and occupation of alienable and disposable lands of the public domain under a bona fide claim of ownership since June 12, 1945, or earlier. 160 160SUPREME COURT REPORTS ANNOTATED Buenaventura vs. Pascual second requirement, i.e., possession of the subject property for the period and in the nature required by law. The RTC and the Court of Appeals have carefully and meticulously dissected each piece of evidence presented by both private respondent and petitioners, and have thoroughly explained in their respective decisions the reasons why these pieces of evidence cannot be given much weight and credence.

The Court is also appalled by the utter lack of evidence on record establishing the first requirement, i.e., that the subject lot is alienable and disposable. The RTC and the Court of Appeals seemed to have merely presumed that the subject lot was already alienable and disposable. This Court cannot countenance such a presumption for two reasons: First, it goes against the Regalian doctrine which states that all lands of whatever classification belong to the State. The rule applies even to privately owned unregistered lands which, unless the contrary is shown, are presumed to be public lands.49 Second, without a definitive date when the subject lot became alienable and disposable, the determination of whether petitioners possessed the subject lot for the time period required by law is rendered impossible, since any period of possession prior to the date when the subject lot was classified as alienable and disposable is inconsequential and should be excluded from the computation of the period of possession. Such possession can never ripen into ownership; and unless the land has been classified as alienable and disposable, the rules on confirmation of imperfect title shall not apply thereto.50 Indeed, the only evidence presented by petitioners on this basic requirement is the testimony of petitioner Angelita before the RTC, to wit: _______________ 49 Cacho v. Court of Appeals, 336 Phil. 154, 165-166; 269 SCRA 159, 168 (1997). 50 Republic v. Herbieto, G.R. No. 156117, 26 May 2005, 459 SCRA 183, 201-202. 161

VOL. 572, NOVEMBER 27, 2008161 Buenaventura vs. Pascual Q: At present, will you please tell us who is in possession of the land applied for? A: We the oppositors, sir. Q: Will you please tell us if the parcel of land applied for is part of any forest, military, naval reservation and sea (sic) or land of public domain? A: No, sir.51 The self-serving testimony of one of the petitioners is clearly not enough to overcome the presumption of State ownership of the subject lot and to establish that it is alienable or disposable. To prove that the land subject of the application for registration is alienable, the applicant must establish the existence of a positive act of the government such as a presidential proclamation or an executive order; an administrative action; investigation reports of the Bureau of Lands investigators; and a legislative act or statute.52 No such evidence was offered by the petitioners in this case. Verily, the rules on the confirmation of imperfect title do not apply unless and until the land subject thereof is released in an official proclamation to that effect so that it may form part of the disposable agricultural lands of the public domain.53 Inasmuch as the petitioners failed to present any proof that the subject lot has indeed been classified as and forms part of the disposable land of the public domain, whatever possession they might have had, regardless of the length or nature thereof cannot ripen into private ownership.

Even on this ground alone, petitioners’ application for confirmation and registration of title can already be denied. _______________ 51 TSN, 13 June 1994, p. 275. 52 Republic v. Court of Appeals, 440 Phil. 697, 710-711; 392 SCRA 191, 201 (2002). 53 See Bracewell v. Court of Appeals, 380 Phil. 156, 162; 323 SCRA 193, 198 (2000). 162 162SUPREME COURT REPORTS ANNOTATED Buenaventura vs. Pascual WHEREFORE, based on the foregoing, the instant Petition is hereby DENIED. Costs against petitioners. SO ORDERED. Ynares-Santiago (Chairperson), Carpio,** Austria-Marti-nez and Reyes, JJ., concur. Petition denied. Notes.—It is doctrinally settled that a person who seeks confirmation of an imperfect or incomplete title to a piece of land on the basis of possession by himself and his predecessors-in-interest shoulders the burden of proving by clear and convincing evidence compliance with the requirements of Section 48(b) of Commonwealth Act No. 141, as amended. (Reyes vs. Republic, 512 SCRA 217 [2007]) As the law now stands, a mere showing of possession for thirty years or more is not sufficient—it must be shown, too, that possession and occupation had started on June 12, 1945 or earlier. (Republic vs. San Lorenzo Development Corporation, 513 SCRA 294 [2007])

——o0o—— 143(2008)]

[Buenaventura

vs.

Pascual,

572

SCRA

G.R. No. 73246. March 2, 1993.*SECOND DIVISION. DIRECTOR OF LANDS AND DIRECTOR OF FOREST DEVELOPMENT, petitioners, vs. INTERMEDIATE APPELLATE COURT AND J. ANTONIO ARANETA, respondents. Public Lands; Land Registration; The submission of the tracing cloth plan is a mandatory requirement for registration; Failure to submit it in evidence is fatal,—In a very recent decision of this Court, entitled The Director of Lands v. The Honorable Intermediate Appellate Court and Lino Anit, We have ruled that the submission of the tracing cloth plan is a mandatory requirement for registration. Reiterating Our ruling in Director of Lands v. Reyes, We asserted that failure to submit in evidence the original tracing cloth plan is fatal it being a statutory requirement of mandatory character. Same; Same; Failure to object to such requirement cannot be waived either expressly or impliedly.—It is of no import that petitioner failed to object to the presentation of the certified copy of the said plan. What is required is the original tracing cloth plan of the land applied for and objection to such requirement cannot be waived either expressly or impliedly. Same; Same; Court cannot go along with petitioners' position that the absence of republication of an amended application for registration is a jurisdictional flaw.—However, We cannot go along with petitioners' position that the absence of republication of an amended application for registration is a jurisdictional flaw. We should distinguish. Amendments to the application may be due to change in parties or substantial change in the boundaries or increase in the area of the land applied for.

________________ * SECOND DIVISION. 340 340 SUPREME COURT REPORTS ANNOTATED Director of Lands vs. Intermediate Appellate Court Same; Same; Republication is required if the amendment is due to substantial change in the boundaries or increase in the area of the land applied for.—In the former case, neither the Land Registration Act, as amended, nor Presidential Decree No. 1529, otherwise known as the Property Registration Decree, requires republication and registration may be allowed by the court at any stage of the proceeding upon just and reasonable terms. On the other hand, republication is required if the amendment is due to substantial change in the boundaries or increase in the area of the land applied for. Constitutional Law; Civil Law; Property; Our Constitution whether the 1973 or 1987 prohibits private corporations or associations from holding alienable lands of the public domain except by lease.—As to the second assignment of error, We are inclined to agree with petitioners that the amendment of the application from the name of Pacific Farms, Inc., as applicant, to the name of J. Antonio Araneta, was a mere attempt to evade disqualification. Our Constitution, whether the 1973 or 1987, prohibits private corporations or associations from holding alienable lands of the public domain except by lease. Apparently realizing such prohibition, respondent amended its application to conform with the mandates of the law. Same; Same; Same; Under the Regalian Doctrine, all lands not otherwise appearing to be clearly within private ownership are

presumed to belong to the State.—This is in consonance with the Regalian doctrine that all lands of the public domain belong to the State, and that the State is the source of any asserted right to ownership in land and charged with the conservation of such patrimony. Under the Regalian Doctrine, all lands not otherwise appearing to be clearly within private ownership are presumed to belong to the State. Hence, a positive act of the government is needed to declassify a forest land into alienable or disposable land for agricultural or other purposes. Same; Same; Same; Burden of proof in overcoming the presumption of state ownership is on the person applying for registration.—The burden of proof in overcoming the presumption of state ownership of the lands of the public domain is on the person applying for registration that the land subject of the application is alienable or disposable. 341 VOL. 219, MARCH 2, 1993 341 Director of Lands vs. Intermediate Appellate Court Same; Same; Same; The subject property being unclassified whatever possession the applicant may have had and however long cannot ripen into private ownership.—Since the subject property is still unclassified, whatever possession the applicant may have had and however long, cannot ripen into private ownership. The conversion of subject property does not automatically render the property as alienable and disposable. Same; Same; Same; The classification of public lands is an exclusive prerogative of the Executive Department of the Government and not of the courts.—In effect what the courts a quo have done is to release the subject property from the

unclassified category, which is beyond their competence and jurisdiction. We reiterate that the classification of public lands is an exclusive prerogative of the Executive Department of the Government and not of the Courts. In the absence of such classification, the land remains unclassified until released therefrom and rendered open to disposition. Same; Same; Same; Tax declaration and receipts are not conclusive evidence of ownership or of the right to possess land when not supported by evidence.—In any case tax declarations and receipts are not conclusive evidence of ownership or of the right to possess land when not supported by evidence. The fact that the disputed property may have been declared for taxation purposes in the names of the applicants or of their predecessors-in-interest way back in 1921 does not necessarily prove ownership. They are merely indicia of a claim of ownership. PETITION for review of the decision of the then Intermediate Appellate Court. The facts are stated in the opinion of the Court. The Solicitor General for petitioners. Jimenez, Leynes & Associates for private respondent. NOCON, J.: For review before Us is the decision of the Court of Appeals in the land registration case entitled J. Antonio Araneta v. The Director of Lands and Director of Forest Development, 342 342 SUPREME COURT REPORTS ANNOTATED Director of Lands vs. Intermediate Appellate Court

AC-G.R. CV No. 00636,1Justice Ramon G. Gaviola, Jr., ponente; Justices Eduardo R. Caquioa and Ma. Rosario Quetulio-Losa, concurring. affirming the lower court's approval of the application for registration of a parcel of land in favor of applicant therein, J. Antonio Araneta. Evidence show that the land involved is actually an island known as Tambac Island in Lingayen Gulf. Situated in the Municipality of Bani, Pangasinan, the area consists of 187,288 square meters, more or less. The initial application for registration was filed for Pacific Farms, Inc. under the provisions of the Land Registration Act, Act No. 496, as amended. The Republic of the Philippines, thru the Director of Lands opposed the application alleging that the applicant, Pacific Farms, Inc. does not possess a fee simple title to the land nor did its predecessors possess the land for at least thirty (30) years immediately preceding the filing of application. The opposition likewise specifically alleged that the applicant is a private corporation disqualified under the (1973) new Philippine Constitution from acquiring alienable lands of the public domain citing Section 11, Article 14.2Now Section 3, Art. XII of the 1987 Constitution. The Director of Forest Development also entered its opposition alleging that the land is within the unclassified public land and, hence, inalienable. Other private parties also filed their oppositions, but were subsequently withdrawn. In an amended application, Pacific Farms, Inc. filed a manifestation-motion to change the applicant from Pacific Farms, Inc. to J. Antonio Araneta. Despite the supposed amendment, there was no republication.

Evidence presented by the applicant include the testimony of Placido Orlando, fishery guard of Pacific Farms, Inc., who said that he has known the disputed land since he attained the age of reason for some forty (40) years now; that when he first came to know the property it was then owned by and in the possession of Paulino Castelo, Juan Ambrosio and Julio Castelo, and later on the whole island was bought by Atty. Vicente Castelo who in turn sold it to J. Antonio Araneta. Deposition by oral examination of Araneta was also pre________________ 1 Justice Ramon G. Gaviola, Jr., ponente; Justices Eduardo R. Caquioa and Ma. Rosario Quetulio-Losa, concurring. 2 Now Section 3, Art. XII of the 1987 Constitution. 343 VOL. 219, MARCH 2, 1993 343 Director of Lands vs. Intermediate Appellate Court sented, together with documents of sale, tax declarations and receipts, and survey of property. Applicant, however, failed to present the tracing cloth plan and instead submitted to the court certified copies thereof. While this case is pending here in Court, respondent filed an Omnibus Motion for Substitution of private respondents.3Rollo, p. 125. Apparently, Antonio Araneta had assigned his rights to and interest in Tambac Island to Amancio R. Garcia4Rollo, p. 128. who in turn assigned his rights and interest in the same property to Johnny A. Khonghun whose nationality was not alleged in the pleadings.

On October 4, 1979, the trial court rendered a decision adjudicating the subject property to J. Antonio Araneta. On appeal to the then Intermediate Appellate Court, the decision of the lower court was affirmed on December 12, 1985. Petitioners raised the following errors: I. The lower court erred in adjudicating the lands subject of registration to applicant-appellee despite his failure to present the original tracing cloth plan the submission of which is a statutory requirement of mandatory character. II. The lower court erred in not denying registration in favor of J. Antonio Araneta since the amendment of the application was simply an attempt to avoid the application of the constitutional provision disqualifying a private corporation—the Pacific Farms, Inc. in this case—from acquiring lands of public domain. III. The lower court erred in not declaring the land known as the "Tambac Island" not subject of registration it being an island formed on the seas. IV. The lower court erred in adjudicating the land to the applicant under the provisions of Presidential Decree No. 1529, otherwise known as the Property Registration Decree, despite absence of any specific invocation of this law in the original and amended application. V. The lower court erred in not granting the government's motion for reconsideration at least to enable it to present proof of the status of the land as within the unclassified public forest, and hence beyond the court's jurisdiction to adjudicate as private property. ________________ 3 Rollo, p. 125.

4 Rollo, p. 128. 344 344 SUPREME COURT REPORTS ANNOTATED Director of Lands vs. Intermediate Appellate Court VI. The lower court erred in not declaring that the applicant has failed to overthrow the presumption that the land is a portion of the public domain belonging to the Republic of the Philippines. From the foregoing it appears that the more important issues are: 1) whether the presentation of the tracing cloth plan is necessary; and 2) whether the land known as "Tambac Island" can be subject to registration. By mere consideration of the first assignment of error, We can right away glean the merit of the petition. Respondent claims that the tracing cloth plan is with the files of the Land Registration Commission, and the only evidence that can be presented to that fact is the request for the issuance of a certified copy thereof and the certified copy issued pursuant to the request.5Rollo, p. 83. Respondent further argues that failure of the petitioners to object to the presentation of the certified copy of the tracing cloth plan was the basis of the trial court's denial of petitioner's motion for reconsideration. In a very recent decision of this Court, entitled The Director of Lands v. The Honorable Intermediate Appellate Court and Lino Anit,6G.R. No. 65663, October 16, 1992 We have ruled that the submission of the tracing cloth plan is a mandatory requirement for registration. Reiterating Our ruling in Director of Lands v. Reyes,768 SCRA 177. We asserted that failure to

submit in evidence the original tracing cloth plan is fatal it being a statutory requirement of mandatory character. It is of no import that petitioner failed to object to the presentation of the certified copy of the said plan. What is required is the original tracing cloth plan of the land applied for and objection to such requirement cannot be waived either expressly or impliedly.8Director of Lands v. IAC and Anit, supra. This case is no different from the case of Director of Lands v. Reyes, supra wherein We said that if the original tracing cloth plan was indeed with the Land Registration Commission, there is no reason why the appli_________________ 5 Rollo, p. 83. 6 G.R. No. 65663, October 16, 1992 7 68 SCRA 177. 8 Director of Lands v. IAC and Anit, supra. 345 VOL. 219, MARCH 2, 1993 345 Director of Lands vs. Intermediate Appellate Court cant cannot easily retrieve the same and submit it in evidence, it being an essential requirement for registration. As to the second assignment of error, We are inclined to agree with petitioners that the amendment of the application from the name of Pacific Farms, Inc., as applicant, to the name of J. Antonio Araneta, was a mere attempt to evade disqualification. Our Constitution, whether the 19739Sec. 11, Art. XIV. or 1987,10Sec. 3, Art. XII. prohibits private corporations or associations from holding alienable lands of the public domain

except by lease. Apparently realizing such prohibition, respondent amended its application to conform with the mandates of the law. However, We cannot go along with petitioners' position that the absence of republication of an amended application for registration is a jurisdictional flaw. We should distinguish. Amendments to the application may be due to change in parties or substantial change in the boundaries or increase in the area of the land applied for. In the former case, neither the Land Registration Act, as amended, nor Presidential Decree No. 1529, otherwise known as the Property Registration Decree, requires republication and registration may be allowed by the court at any stage of the proceeding upon just and reasonable terms.11Sec. 23 of the Land Registration Act; Sec. 19 of the Property Registration Decree. On the other hand, republication is required if the amendment is due to substantial change in the boundaries or increase in the area of the land applied for. As to the fourth assignment of error, We do not see any relevant dispute in the lower court's application of Presidential Decree No. 1529, instead of Act No. 496, in adjudicating the land to the then applicant, assuming that the land involved is registrable. Both laws are existing and can stand together. P.D. 1529 was enacted to codify the various laws relative to registration of property, in order to facilitate effective implementation of said laws.12Preamble, P.D. 1529. ______________ 9 Sec. 11, Art. XIV. 10 Sec. 3, Art. XII.

11 Sec. 23 of the Land Registration Act; Sec. 19 of the Property Registration Decree. 12 Preamble, P.D. 1529. 346 346 SUPREME COURT REPORTS ANNOTATED Director of Lands vs. Intermediate Appellate Court The third, fifth and sixth assignment of errors are likewise meritorious and shall be discussed forthwith together. Respondent asserts that contrary to the allegation of petitioners, the reports of the District Land Officer of Dagupan City, Land Inspector Perfecto Daroy and Supervising Land Examiner Teodoro P. Nieva show that the subject property is an unclassified public land, not forest land. This claim is rather misleading. The report of Supervising Land Examiner Nieva specifically states that the "land is within the unclassified forest land" under the administrative jurisdiction of the then Bureau of Forest Development.13Original Records, Par. 5, p. 78. This was based on the reports of Land Inspector Daroy and District Land Officer Feliciano Liggayu. Lands of the public domain are classified under three main categories, namely: Mineral, Forest and Disposable or Alienable Lands.14Sec. 6, Commonwealth Act 141. Under the Commonwealth Constitution, only agricultural lands were allowed to be alienated. Their disposition was provided for under Commonwealth Act No. 141 (Secs. 6-7), which states that it is only the President, upon the recommendation of the proper department head, who has the authority to classify the lands of the public domain into alienable or disposable, timber

and mineral lands. Mineral and Timber or forest lands are not subject to private ownership unless they are first reclassified as agricultural lands and so released for alienation.15Director of Forestry v. Villareal, G.R. No. 32266, 27 Feb. 89. In the absence of such classification, the land remains as unclassified land until released therefrom and rendered open to disposition. Courts have no authority to do so.16Manalo vs. Intermediate Appellate Court, G.R. No. 64753 172 SCRA 795. This is in consonance with the Regalian doctrine that all lands of the public domain belong to the State, and that the State is the source of any asserted right to ownership in land and charged with the conservation of such patrimony. Under the Regalian Doctrine, all lands not otherwise appearing to be _________________ 13 Original Records, Par. 5, p. 78. 14 Sec. 6, Commonwealth Act 141. 15 Director of Forestry v. Villareal, G.R. No. 32266, 27 Feb. 89. 16 Manalo vs. Intermediate Appellate Court, G.R. No. 64753 172 SCRA 795. 347 VOL. 219, MARCH 2, 1993 347 Director of Lands vs. Intermediate Appellate Court clearly within private ownership are presumed to belong to the State. Hence, a positive act of the government is needed to declassify a forest land into alienable or disposable land for agricultural or other purposes.17Director of Lands, et al. v. Aquino, G.R. No. 31688, 192 SCRA 296.

The burden of proof in overcoming the presumption of state ownership of the lands of the public domain is on the person applying for registration that the land subject of the application is alienable or disposable.18Director vs. Aquino, Ibid. Unless the applicant succeeds in showing by convincing evidence that the property involved was acquired by him or his ancestors either by composition title from the Spanish Government or by possessory information title, or any other means for the proper acquisition of public lands, the property must be held to be part of the public domain. The applicant must present evidence and persuasive proof to substantiate his claim.19Republic v. Sayo, G.R. No. 60413, 191 SCRA 71. In this particular case, respondent presented proof that as early as 1921, the subject property has been declared for tax purposes with receipts attached, in the names of respondent's predecessors-in-interest. Nevertheless, in that span of time there had been no attempt to register the same either under Act 496 or under the Spanish Mortgage Law. It is also rather intriguing that Vicente Castelo who acquired almost 90% of the property from Alejo Ambrosio, et al. on June 18, 1958 and from Julio Castelo on June 19, 1958 immediately sold the same to applicant J. Antonio Araneta on 3 July 1958. According to the report of Land Investigator Daroy, the land was declared for taxation purposes in the name of Vicente Castelo only in 1958 and the purported old tax declarations are not on file with the Provincial Assessor's Office. In any case tax declarations and receipts are not conclusive evidence of ownership or of the right to possess land when not supported by evidence.20Director of Lands v. Court of Appeals, G.R. No. L-50340, 133 SCRA 701; Bañez v. Court of

Appeals, G.R. No. L-30351, 56 SCRA The fact that the disputed property ______________ 17 Director of Lands, et al. v. Aquino, G.R. No. 31688, 192 SCRA 296. 18 Director vs. Aquino, Ibid. 19 Republic v. Sayo, G.R. No. 60413, 191 SCRA 71. 20 Director of Lands v. Court of Appeals, G.R. No. L-50340, 133 SCRA 701; Bañez v. Court of Appeals, G.R. No. L-30351, 56 SCRA 348 348 SUPREME COURT REPORTS ANNOTATED Director of Lands vs. Intermediate Appellate Court may have been declared for taxation purposes in the names of the applicants or of their predecessors-in-interest way back in 1921 does not necessarily prove ownership. They are merely indicia of a claim of ownership.21Municipality of Antipolo v. Zapanta, G.R. No. L-65334, 133 SCRA 820; Municipality of Santiago Isabela v. Court of Appeals, 120 SCRA 734; Elumbaring v. Elumbaring, 12 Phil. 384. Respondent's contention that the BFD, LC Map No. 681, certified on August 8, 1927 which was the basis of the report and recommendation of the Land Examiner, is too antiquated; that it cannot be conclusively relied upon and was not even presented in evidence, is not well taken. As We have said in the case of Director of Lands v. CA:22Director of Lands v. CA and Valeriano, G.R. No. 58867, 129 SCRA 689 (1984); Republic v. Court of Appeals, 89 SCRA 648.

"And the fact that BF Map LC No. 673 dated March 1, 1927 showing subject property to be within unclassified region was not presented in evidence will not operate against the State considering the stipulation between the parties and under the well-settled rule that the State cannot be estopped by the omission, mistake or error of its officials or agents, if omission there was, in fact." Respondent even admitted that Tambac Island is still an unclassified public land as of 1927 and remains to be unclassified. Since the subject property is still unclassified, whatever possession the applicant may have had and however long, cannot ripen into private ownership.23Dir. of Lands v. CA, 129 SCRA 689, Adorable v. Director of Lands, 107 Phil. 401, Republic v. Court of Appeals, 89 SCRA 648. The conversion of subject property does not automatically render the property as alienable and disposable. In effect what the courts a quo have done is to release the subject property from the unclassified category, which is beyond their competence and jurisdiction. We reiterate that the classification of public lands is an exclusive prerogative of the Executive Department of the Government and not of the ______________ 15. 21 Municipality of Antipolo v. Zapanta, G.R. No. L-65334, 133 SCRA 820; Municipality of Santiago Isabela v. Court of Appeals, 120 SCRA 734; Elumbaring v. Elumbaring, 12 Phil. 384.

22 Director of Lands v. CA and Valeriano, G.R. No. 58867, 129 SCRA 689 (1984); Republic v. Court of Appeals, 89 SCRA 648. 23 Dir. of Lands v. CA, 129 SCRA 689, Adorable v. Director of Lands, 107 Phil. 401, Republic v. Court of Appeals, 89 SCRA 648. 349 VOL. 219, MARCH 2, 1993 349 Director of Lands vs. Intermediate Appellate Court Courts. In the absence of such classification, the land remains unclassified until released therefrom and rendered open to disposition.24Yngson v. Sec. of Agriculture and Natural Resources, 123 SCRA 441, Republic v. Court of Appeals, 99 SCRA 742. In fairness to respondent, the petitioners should seriously consider the matter of the reclassification of the land in question. The attempt of people to have disposable lands they have been tilling for generations titled in their name should not only be viewed with understanding attitude, but as a matter of policy encouraged.25Director of Lands v. Funtillar 142 SCRA 57. WHEREFORE, the petition is hereby GRANTED and the decisions of the courts a quo are REVERSED. SO ORDERED. Narvasa (C.J., Chairman), Padilla, Regalado and Campos, Jr., JJ., concur. Petition granted.

Note.—Tax receipts although not incontrovertible evidence of ownership, if accompanied by open, adverse and continous possession in the concept of owners, constitute evidence of great weight (Rojas vs. Court of Appeals, 192 SCRA 709). ——o0o—— [Director of Lands vs. Intermediate Appellate Court, 219 SCRA 339(1993)]

G.R. No. 129682. March 21, 2002.*FIRST DIVISION. NESTOR PAGKATIPUNAN and ROSALINA MAÑAGASPAGKATIPUNAN, petitioners, vs. THE COURT OF APPEALS and REPUBLIC OF THE PHILIPPINES, respondents. Land Registration; Public Lands; Unless public land is shown to have been reclassified or alienated to a private person by the State, it remains part of the inalienable public domain; Occupation thereof in the concept of owner, no matter how long, cannot ripen into ownership and be registered as a title.— Unless public land is shown to have been reclassified or alienated to a private person by the State, it remains part of the inalienable public domain. Occupation thereof in the concept of owner, no matter how long, cannot ripen into ownership and be registered as a title. Same; Same; Since no imperfect title can be confirmed over lands not yet classified as disposable or alienable, the title issued to herein petitioners is considered void ab initio.—This fact was even admitted by petitioners during the proceedings before the court a quo on March 10, 1986, when ______________ * FIRST DIVISION. 622 622 SUPREME COURT REPORTS ANNOTATED Pagkatipunan vs. Court of Appeals they confirmed that the land has been classified as forming part of forest land, albeit only on August 25, 1955. Since no imperfect title can be confirmed over lands not yet classified as

disposable or alienable, the title issued to herein petitioners is considered void ab initio. Same; Same; Regalian Doctrine; The Regalian doctrine also states that all lands not otherwise appearing to be clearly within private ownership are presumed to belong to the State.—Under the Regalian doctrine, all lands of the public domain belong to the State, and the State is the source of any asserted right to ownership in land and charged with the conservation of such patrimony. This same doctrine also states that all lands not otherwise appearing to be clearly within private ownership are presumed to belong to the State. To overcome such presumption, incontrovertible evidence must be shown by the applicant that the land subject of the application is alienable or disposable. Same; Same; Same; Applicant must prove not only his open, continuous, exclusive and notorious possession and occupation of the land either since time immemorial or for the period prescribed therein, but most importantly, he must prove that the land is alienable public land.—It is clear that the applicant must prove not only his open, continuous, exclusive and notorious possession and occupation of the land either since time immemorial or for the period prescribed therein, but most importantly, he must prove that the land is alienable public land. In the case at bar, petitioners failed to do so. PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. George L. Howard for petitioners. The Solicitor General for the Republic. YNARES-SANTIAGO, J.:

This is a petition for review of the decision1Promulgated on June 27, 1986; Justice Tensuan, ponente, Justices Zosa, Mendoza and Javellana, concurring. Court of Appeals Records, pp. 116-121. of the Court of Appeals nullifying the decision of the Court of First Instance of Gu______________ 1 Promulgated on June 27, 1986; Justice Tensuan, ponente, Justices Zosa, Mendoza and Javellana, concurring. Court of Appeals Records, pp. 116-121. 623 VOL. 379, MARCH 21, 2002 623 Pagkatipunan vs. Court of Appeals maca, Quezon2In LRC Case No. 91-G, LRC Rec. Case No. N19930. which confirmed petitioners’ title over the lots subject of the instant petition. Petitioners further seek to annul and set aside the resolutions3Dated December 16, 1996 and July 2, 1997 in AC-G.R. No. SP-07115, entitled Republic of the Philippines, et al. v. Getulio Pagkatipunan, et al. of the Court of Appeals denying their urgent motion to recall the judgment entered4Dated March 2, 1988. in the land registration case. The antecedent facts are as follows: Sometime in November 1960, petitioners’ predecessors-ininterest, spouses Getulio Pagkatipunan and Lucrecia Esquires, filed with the Court of First Instance of Gumaca, Quezon an application for judicial confirmation and registration of their title to Lots 1 and 2 of Plan Psu-174406 and Lots 1 and 2 of Plan Psu112066, all located in San Narciso, Quezon.5Docketed as LRC No. 91-G.

On May 4, 1961, the Court of First Instance entered an order of default against the whole world, except spouses Felicisimo Almace and Teodulo Medenilla who were given ten (10) days to file their written opposition as regards Lot No. 2 of Plan Psu-174406. Upon motion of petitioner’s predecessors, Lot No. 2 of Plan Psu-174406 was removed from the coverage of the application. The remaining parcel of land covered by Lot No. 1 has an area of 3,804.261 square meters. On June 15, 1967, the Court of First Instance promulgated a decision confirming petitioners’ title to the property. On October 23, 1967, OCT No. O-12665 was issued in the name of petitioners. Almost eighteen (18) years later, or on September 12, 1985, the Republic of the Philippines filed with the Intermediate Appellate Court an action to declare the proceedings in LRC Case No. 91-G, LRC Record No. N-19930 before the Court of First Instance of Gumaca, Quezon null and void, and to cancel Original Certificate of Title No. 0-12665 and titles derived therefrom as null and void, to ______________ 2 In LRC Case No. 91-G, LRC Rec. Case No. N-19930. 3 Dated December 16, 1996 and July 2, 1997 in AC-G.R. No. SP-07115, entitled Republic of the Philippines, et al. v. Getulio Pagkatipunan, et al. 4 Dated March 2, 1988. 5 Docketed as LRC No. 91-G. 624 624 SUPREME COURT REPORTS ANNOTATED Pagkatipunan vs. Court of Appeals

direct the register of deeds to annul said certificates of title, and to confirm the subject land as part of the public domain.6Docketed as AC-G.R. SP No. 07115, Court of Appeals Records, pp. 1-7. The Republic claimed that at the time of filing of the land registration case and of rendition of the decision on June 15, 1967, the subject land was classified as timberland under LC Project No. 15-B of San Narciso, Quezon, as shown in BF Map No. LC-1180; hence inalienable and not subject to registration. Moreover, petitioners’ title thereto can not be confirmed for lack of showing of possession and occupation of the land in the manner and for the length of time required by Section 48(b), Commonwealth Act No. 141, as amended. Neither did petitioners have any fee simple title which may be registered under Act No. 496, as amended. Consequently, the Court of First Instance did not acquire jurisdiction over the res and any proceedings had therein were null and void.7Court of Appeals Records, p. 4. On the other hand, petitioners raised the special defenses of indefeasibility of title and res judicata. They argued that due to the lapse of a considerable length of time, the judgment of the Court of First Instance of Quezon in the land registration case has become final and conclusive against the Republic. Moreover, the action for reversion of the land to the public domain is barred by prior judgment.8Ibid., pp. 33-38. In a decision promulgated on June 27, 1986, the Intermediate Appellate Court held that the land in question was forestral land; hence not registrable. There was no evidence on record to show that the land was actually and officially delimited and

classified as alienable or disposable land of the public domain. Therefore, the Court of First Instance did not acquire jurisdiction to take cognizance of the application for registration and to decide the same. Consequently, the action to declare null and void the June 15, 1967 decision for lack of jurisdiction did not prescribe. The dispositive portion of the appellate court’s decision reads: ______________ 6 Docketed as AC-G.R. SP No. 07115, Court of Appeals Records, pp. 1-7. 7 Court of Appeals Records, p. 4. 8 Ibid., pp. 33-38. 625 VOL. 379, MARCH 21, 2002 625 Pagkatipunan vs. Court of Appeals “WHEREFORE, judgment is rendered in favor of petitioner and against respondents, and as prayed for: (a) The Decision dated June 15, 1967 in LRC Case No. 91-G, LRC Record No. N-19930 is hereby declared null and void, and accordingly set aside; (b) Original Certificate of Title No. O-12665, and Transfer Certificates of Title Nos. T-84439, T-93857 and T-117618 deriving therefrom, as well as any other derivative titles, are declared null and void; (c) The respondent Register of Deeds for Quezon Province is ordered to cancel said titles; and (d) The parcels of land covered thereby are ordered reverted to the State.

Without pronouncement as to costs.”9Court of Appeals Records, pp. 116-121, at pp. 120-121. On July 16, 1986, petitioners moved for the reconsideration of the afore-cited decision10Ibid., pp. 124-155. reiterating that the land in question was agricultural because it was possessed and cultivated as such long before its classification as timberland by the Bureau of Forestry in 1955. Petitioners and their predecessors-in-interest have been in open, continuous, exclusive, notorious possession and occupation of said land for agricultural and cattle raising purposes as far back as the Spanish regime. Following the doctrine in Oracoy v. Director of Lands,1148 O.G. 3967; CA-G.R. No. 5430-R, June 13, 1962. private interest had intervened and petitioners acquired vested rights which can no longer be impaired by the subsequent classification of the land as timberland by the Director of Forestry. On August 20, 1986, the appellate court denied the motion for reconsideration for lack of merit.12Court of Appeals Records, p. 157. On December 12, 1986, the decision of June 27, 1986 attained finality and judgment was entered in the book of entries of judgments.13Ibid., pp. 158-159. On April 2, 1987, petitioners filed an urgent motion to set aside entry of judgment on the ground that Atty. Cirilo E. Doronila, petitioners’ counsel of record, was not furnished a copy of the ______________ 9 Court of Appeals Records, pp. 116-121, at pp. 120-121. 10 Ibid., pp. 124-155. 11 48 O.G. 3967; CA-G.R. No. 5430-R, June 13, 1962. 12 Court of Appeals Records, p. 157. 13 Ibid., pp. 158-159.

626 626 SUPREME COURT REPORTS ANNOTATED Pagkatipunan vs. Court of Appeals resolution denying the motion for reconsideration.14On July 16, 1986. Atty. Cirilo E. Doronila of the Quasha law firm entered his appearance as lead counsel for petitioners, in collaboration with the previous counsel, Atty. Milberto B. Zurbano. Atty. Doronila informed the court that henceforth, all copies o... In the absence of such notice, the decision of the appellate court did not become final and executory. On October 22, 1987, the Court of Appeals set aside and lifted the entry of judgment in CA-G.R. SP No. 07115 and directed the clerk of court to furnish petitioners’ counsel a copy of the August 20, 1986 resolution.15Court of Appeals Records, p. 210. For petitioners’ inaction despite service of the August 20, 1986 resolution, the June 27, 1986 decision became final and executory. On March 2, 1988, entry of judgment was again made in the land registration case. On September 4, 1995, Atty. Doronila withdrew his appearance as counsel for petitioners.16Ibid., p. 215. On April 1, 1996, petitioners, through their new counsel, Atty. George I. Howard, filed with the Court of Appeals an urgent motion to recall the entry of judgment,17Ibid., pp. 218-221. which was denied by the appellate court on December 16, 1996.18Ibid., pp. 226-228. The motion for reconsideration was likewise denied on the ground that it raised arguments already discussed and resolved

in the urgent motion to recall entry of judgment.19Court of Appeals Records, p. 254. Hence, the instant petition for review.20Rollo, pp. 8-34. Petitioners claim that their title to the land became incontrovertible and indefeasible one (1) year after issuance of the decree of registration. Hence, the Republic’s cause of action was barred by prescription and res judicata, proceedings having been initiated ______________ 14 On July 16, 1986. Atty. Cirilo E. Doronila of the Quasha law firm entered his appearance as lead counsel for petitioners, in collaboration with the previous counsel, Atty. Milberto B. Zurbano. Atty. Doronila informed the court that henceforth, all copies of motions, orders, judgments and papers relative to the land registration case should be addressed to him. 15 Court of Appeals Records, p. 210. 16 Ibid., p. 215. 17 Ibid., pp. 218-221. 18 Ibid., pp. 226-228. 19 Court of Appeals Records, p. 254. 20 Rollo, pp. 8-34. 627 VOL. 379, MARCH 21, 2002 627 Pagkatipunan vs. Court of Appeals only after about 18 years from the time the decree of registration was made. Contrary to the appellate court’s findings, the land is agricultural and the inclusion and classification thereof by the Bureau of Forestry in 1955 as

timberland can not impair the vested rights acquired by petitioners’ predecessors-in-interest who have been in open, continuous, adverse and public possession of the land in question since time immemorial and for more than thirty (30) years prior to the filing of the application for registration in 1960. Hence, the Court of Appeals committed grave error when it denied their motion to set aside entry of judgment in the land registration case. The petition lacks merit. Unless public land is shown to have been reclassified or alienated to a private person by the State, it remains part of the inalienable public domain. Occupation thereof in the concept of owner, no matter how long, cannot ripen into ownership and be registered as a title.21Menguito v. Republic, 348 SCRA 128, 139 [2000], citing De Ocampo v. Arlos, 343 SCRA 716, 724 [2000]. Evidence extant on record showed that at the time of filing of the application for land registration and issuance of the certificate of title over the disputed land in the name of petitioners, the same was timberland and formed part of the public domain, as per certification issued by the Bureau of Forest Development on April 1, 1985, thus: TO WHOM IT MAY CONCERN: This is to certify that the tract of land situated in Vigo Cantidang, San Narciso, Quezon, containing an area of 3, 804.261 square meters as described in Transfer Certificate of Title No. T-l17618 x x x registered in the name of Spouses Nestor E. Pagkatipunan and Rosalina Mañgas is verified to be within the Timberland Block-B, Project No. 15-B of San Narciso, Quezon, certified and declared as such on August 25,

1955 per BFD Map LC-1880. The land is, therefore, within the administrative jurisdiction and control of the Bureau of Forest Development, and not subject to disposition under the Public Land Law. ______________ 21 Menguito v. Republic, 348 SCRA 128, 139 [2000], citing De Ocampo v. Arlos, 343 SCRA 716, 724 [2000]. 628 628 SUPREME COURT REPORTS ANNOTATED Pagkatipunan vs. Court of Appeals [Sgd.] ARMANDO CRUZ Supervising Cartographer22Certification, Court of Appeals Records, p. 69. This fact was even admitted by petitioners during the proceedings before the court a quo on March 10, 1986, when they confirmed that the land has been classified as forming part of forest land, albeit only on August 25, 1955.23Court of Appeals’ Decision of June 27, 1986, citing TSN, March 10, 1986, p. 11. Since no imperfect title can be confirmed over lands not yet classified as disposable or alienable, the title issued to herein petitioners is considered void ab initio.24Reyes v. Court of Appeals, 295 SCRA 296, 310 [1998]. Under the Regalian doctrine, all lands of the public domain belong to the State, and the State is the source of any asserted right to ownership in land and charged with the conservation of such patrimony. This same doctrine also states that all lands not otherwise appearing to be clearly within private ownership

are presumed to belong to the State.25Director of Lands v. Intermediate Appellate Court, 219 SCRA 339, 346 [1993]. To overcome such presumption, incontrovertible evidence must be shown by the applicant that the land subject of the application is alienable or disposable.26Santiago v. De Los Santos, 61 SCRA 146, 152 [1974]. In the case at bar, there was no evidence showing that the land has been reclassified as disposable or alienable. Before any land may be declassified from the forest group and converted into alienable or disposable land for agricultural or other purposes, there must be a positive act from the government. Even rules on the confirmation of imperfect titles do not apply unless and until the land classified as forest land is released in an official proclamation to that effect so that it may form part of the disposable agricultural lands of the public domain.27Ituralde v. Falcasantos, 301 SCRA 293, 296 [1999], citing Sunbeam Convenience Foods, Inc. v. Court of Appeals, 181 SCRA 443, 448 [1990]. Declassification of forest land is an ______________ 22 Certification, Court of Appeals Records, p. 69. 23 Court of Appeals’ Decision of June 27, 1986, citing TSN, March 10, 1986, p. 11. 24 Reyes v. Court of Appeals, 295 SCRA 296, 310 [1998]. 25 Director of Lands v. Intermediate Appellate Court, 219 SCRA 339, 346 [1993]. 26 Santiago v. De Los Santos, 61 SCRA 146, 152 [1974]. 27 Ituralde v. Falcasantos, 301 SCRA 293, 296 [1999], citing Sunbeam Convenience Foods, Inc. v. Court of Appeals, 181 SCRA 443, 448 [1990].

629 VOL. 379, MARCH 21, 2002 629 Pagkatipunan vs. Court of Appeals express and positive act of Government.28Director of Lands v. Intermediate Appellate Court, supra, Note 24, at p. 347. It cannot be presumed. Neither should it be ignored nor deemed waived.29Director of Land Management v. Court of Appeals, 172 SCRA 455, 461 [1989]. It calls for proof.30Republic v. Court of Appeals, 154 SCRA 476, 481 [1987]. The court a quo found registrable title in favor of petitioners based on the Republic’s failure to show that the land is more valuable as forest land than for agricultural purposes, a finding which is based on a wrong concept of what is forest land. There is a big difference between “forest” as defined in the dictionary and “forest or timber land” as a classification of land of the public domain in the Constitution. One is descriptive of what appears on the land while the other is a legal status, a classification for legal purposes. The “forest land” started out as a “forest” or vast tracts of wooded land with dense growths of trees and underbrush. However, the cutting down of trees and the disappearance of virgin forest do not automatically convert the land of the public domain from forest or timber land to alienable agricultural land.31Ibid., at pp. 482-483. The classification of forest land, or any land for that matter, is descriptive of its legal nature or status, and does not have to be descriptive of what the land actually looks like.32Dela Cruz v. Court of Appeals, 286 SCRA 230, 236 [1998]. A person cannot enter into forest land and by the simple act of cultivating a

portion of that land, earn credits towards an eventual confirmation of imperfect title. The Government must first declare the forest land to be alienable and disposable agricultural land before the year of entry, cultivation, and exclusive and adverse possession can be counted for purposes of an imperfect title.33Republic v. Court of Appeals, supra, Note 29, at p. 482. As ruled in the case of Heirs of Jose Amunategui v. Director of Forestry:34126 SCRA 69, 75 [1983]. ______________ 28 Director of Lands v. Intermediate Appellate Court, supra, Note 24, at p. 347. 29 Director of Land Management v. Court of Appeals, 172 SCRA 455, 461 [1989]. 30 Republic v. Court of Appeals, 154 SCRA 476, 481 [1987]. 31 Ibid., at pp. 482-483. 32 Dela Cruz v. Court of Appeals, 286 SCRA 230, 236 [1998]. 33 Republic v. Court of Appeals, supra, Note 29, at p. 482. 34 126 SCRA 69, 75 [1983]. 630 630 SUPREME COURT REPORTS ANNOTATED Pagkatipunan vs. Court of Appeals A forested area classified as forest land of the public domain does not lose such classification simply because loggers or settlers may have stripped it of its forest cover. Parcels of land classified as forest land may actually be covered with grass or planted to crops by kaingin cultivators or other farmers. “Forest lands” do not have to be on mountains or in out of the way

places. Swampy areas covered by mangrove trees, nipa palms, and other trees growing in brackish or sea water may also be classified as forest land. The classification is descriptive of its legal nature or status and does not have to be descriptive of what the land actually looks like. Unless and until the land classified as “forest” is released in an official proclamation to that effect so that it may form part of the disposable agricultural lands of the public domain, the rules on confirmation of imperfect title do not apply. Moreover, the original text of Section 48 (b), Chapter VIII of the Public Land Act, which took effect on December 1, 1936, expressly provided that only agricultural land of the public domain are subject to acquisitive prescription, to wit: Section 48. x x x (a) x x x (b) Those who by themselves or through their predecessors-ininterest have been in open, continuous, exclusive, and notorious possession and occupation of agricultural lands of the public domain, under a bona fide claim of acquisition of ownership, except as against the Government, since July twenty-six, eighteen hundred and ninety-four, except when prevented by war or force majeure. These shall be conclusively presumed to have performed all the conditions essential to a Government grant and shall be entitled to a certificate of title under the provisions of this Chapter. (Emphasis supplied) Thus, it is clear that the applicant must prove not only his open, continuous, exclusive and notorious possession and occupation of the land either since time immemorial or for the period prescribed therein, but most importantly, he must prove that the

land is alienable public land.35Republic v. Doldol, 295 SCRA 359, 364 [1998]. In the case at bar, petitioners failed to do so. Petitioners’ contention that the Republic is now barred from questioning the validity of the certificate of title issued to them considering that it took the government almost eighteen (18) years ______________ 35 Republic v. Doldol, 295 SCRA 359, 364 [1998]. 631 VOL. 379, MARCH 21, 2002 631 Pagkatipunan vs. Court of Appeals to assail the same is erroneous. It is a basic precept that prescription does not run against the State.36Republic v. Court of Appeals, 171 SCRA 721, 734 [1989]. The lengthy occupation of the disputed land by petitioners cannot be counted in their favor, as it remained part of the patrimonial property of the State, which property, as stated earlier, is inalienable and indisposable.37De la Cruz v. Court of Appeals, supra, Note 31, at p. 236. In light of the foregoing, the Court of Appeals did not err when it set aside the June 15, 1967 decision of the court a quo and ordered that the subject lot be reverted back to the public domain. Since the land in question is unregistrable, the land registration court did not acquire jurisdiction over the same. Any proceedings had or judgment rendered therein is void and is not entitled to the respect accorded to a valid judgment.

Consequently, the Court of Appeals rightfully denied petitioners’ motion to set aside the judgment rendered on December 12, 1986, in the land registration case. WHEREFORE, in view of the foregoing, the decision of the Court of Appeals dated June 27, 1986 in AC-G.R. SP No. 07115, is hereby AFFIRMED in toto. Without pronouncement as to costs. SO ORDERED. Davide, Jr. (C.J., Chairman) and Kapunan, J., concur. Puno, J., On official leave. Judgment affirmed in toto. Note.—Forest lands or forest reserves are not capable of private appropriation and possession thereof, however long cannot convert them into private property. (De la Cruz vs. Court of Appeals, 286 SCRA 230 [1998]) ——o0o—— [Pagkatipunan vs. Court of Appeals, 379 SCRA 621(2002)]

G.R. No. 133250. July 9, 2002.*EN BANC. FRANCISCO I. CHAVEZ, petitioner, vs. PUBLIC ESTATES AUTHORITY and AMARI COASTAL BAY DEVELOPMENT CORPORATION, respondents. Actions: Moot and Academic Issues: The signing of the Amended Joint Venture Agreement (JVA) by the Public Estates Authority (PEA) and Amari Coastal Bay and Development Corporation (AMARI) cannot operate to moot the petition and divest the Court of its jurisdiction, as 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. 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.—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 _______________

* EN BANC. 153 VOL. 384, JULY 9, 2002 153 Chavez vs. Public Estates Authority 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. Same: Same; The instant petition is a case of first impression since all previous decisions of the Court involving Section 3, Article XII of the 1987 Constitution, or its counterpart provision in the 1973 Constitution, covered agricultural lands sold to private corporations which acquired the lands from private parties, while in the instant case, a private corporation

seeks to acquire from a public corporation, reclaimed lands and submerged areas for non-agricultural purposes by purchase under PD No. 1084 (charter of PEA) and Title II of CA No. 141.—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, 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 titles 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 nonagricultural purposes by purchase under PD No. 1084 (charter of PEA) and Title II 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. 154 154 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority

Same: Hierarchy of Courts; The principle of hierarchy of courts applies generally to cases involving factual questions, not to those raising constitutional issues of transcendental importance to the public.—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. 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. Same; Same; Administrative Law; Exhaustion of Administrative Remedies; Right to Information; Considering that PEA had an affirmative statutory duty to disclose to the public the terms and conditions of the sale of its lands, and was even in breach of this legal duty, petitioner had the right to seek direct judicial intervention.—The original JVA sought to dispose to AMARI public lands held by PEA, a government corporation. Under Section 79 of the Government Auditing Code, 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. Same; Same; Same; Same; Same; The principle of exhaustion of administrative remedies does not apply when the issue involved is a purely legal or constitutional question.— 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. 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. 155 VOL. 384, JULY 9, 2002 155 Chavez vs. Public Estates Authority Same; Parties; Taxpayer’s Suits: A citizen has standing to bring this taxpayer’s suit because the petition seeks to compel PEA to comply with its constitutional duties; Where a petition for mandamus involves the enforcement of constitutional rights—to information and to the equitable diffusion of natural resources—matters of transcendental public importance, a citizen has the requisite locus standi.—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, the Court upheld the right of a citizen to bring a taxpayer’s suit on matters of transcendental importance to the public, thus—* * * 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. Right to Information; The twin provisions of the Constitution—right to information on matters of public concern and policy of full transparency—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; An informed citizenry is essential to the existence and proper functioning of any democracy.—These twin provisions of the Constitution seek to promote transparency in policymaking and in the operations of the government, as well as provide the people sufficient information to exercise effectively other

constitutional rights. These twin provisions are essential to the exercise of freedom of expression. If the government does not disclose its official acts, transactions and decisions to citizens, whatever citizens say, even if expressed without any restraint, will be speculative and amount to nothing. These twin provisions are also essential to hold public officials “at all times x x x accountable to the people,” 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. 156 156 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority An informed citizenry is essential to the existence and proper functioning of any democracy. Same; Bids and Bidding; While information on, on-going evaluation or review of bids or proposal being undertaken by the bidding or review committee is not immediately accessible under the right to information, once the committee makes its official recommendation, there arises a “definite proposition” on the part of the government, and 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.—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 ongoing, 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. Same; The commissioners of the 1986 Constitutional Commission understood that the right to information contemplates inclusion of negotiations leading to the consummation of the transaction—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.—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 157 VOL. 384, JULY 9, 2002 157 Chavez vs. Public Estates Authority one is consummated, it may be too late for the public to expose its defects. 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.” Same; The right to information 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 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. Same; The information that a citizen 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.—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. 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. 158 158 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority Same; The right to information, however, does not extend to matters recognized as privileged information under the separation of powers.—The right to information, however, does not extend to matters recognized as privileged information under the separation of powers. 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. The right may also be subject to other limitations that Congress may impose by law. Same; The constitutional right to information includes official information on on-going negotiations before a final contract, which 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.—We rule, therefore, that the constitutional right to information includes official information on on-going negotiations before a final contract. The information, however, must constitute definite propositions by the government and should not cover recognized exceptions like privileged information, military and diplomatic secrets and similar matters affecting national security and public order.

Congress has also prescribed other limitations on the right to information in several legislations. National Economy and Patrimony; Regalian Doctrine; Foreshore and Submerged Areas; Reclamation Projects; Words and Phrases; 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.—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. 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. Same; Same; Same; Same; 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. These lands remained sui generis, as the only alienable or disposable lands of the public domain the government could not sell to private parties.—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 Consti159 VOL. 384, JULY 9, 2002 159 Chavez vs. Public Estates Authority

tution 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. These lands remained sui generis, as the only alienable or disposable lands of the public domain the government could not sell to private parties. Same; Same; Same; Same; 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.—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. Same; Same; Same; Same; One reason for the congressional authority before lands under Section 59 of CA No. 141 previously transferred to government units or entities could be sold to private parties 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.— 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. Same; Same; Same; Same; 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, though any legis160 160 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority lative 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, such legislative authority could only benefit private individuals.—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. Same; Same; Same; Same; The rationale behind the constitutional ban on corporations from acquiring, except through lease, alienable lands of the public domain is not well understood; 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; 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.—The rationale behind the constitutional ban on corporations from acquiring, except through lease, alienable lands of the public domain is not well understood. * * * 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 161 VOL. 384, JULY 9, 2002 161 Chavez vs. Public Estates Authority 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. Same; Same; Same; Same; The mere reclamation of certain 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.—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. Same; Same; Same; Same; 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, open to disposition or concession to qualified parties.—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 162 162 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority disposable lands of the public domain, open to disposition or concession to qualified parties. Same; Same; Same; Same; Spanish Law of Waters of 1866; Under the Spanish Law of Waters, 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.—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 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. 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.” Same; Same; Same; Same; Same; Article 5 of the Spanish Law of Waters must be read together with laws subsequently enacted on the disposition of public lands.—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. 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. Same; Same; Same; Same; There is no legislative or Presidential act classifying the additional 592.15 hectares submerged areas under the Amended JVA as alienable or disposable lands of the public domain open to disposition— these areas form part of the public domain, and in their present state are inalienable and outside the commerce of man.—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 disposi163 VOL. 384, JULY 9, 2002 163 Chavez vs. Public Estates Authority tion. 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. Same: Same; Same; Same; Public Estates Authority; 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.—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.” 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. Same; Same; Same; Same; Same; Section 3 of EO No. 525, by declaring that all lands reclaimed by PEA “shall belong to or be owned by PEA could not automatically operate to classify inalienable lands into alienable or disposable lands of the public domain.—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 164 164 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority

become alienable once reclaimed by PEA, whether or not classified as alienable or disposable. Same; Same; Same; Same; Same; Department of Environment and Natural Resources; As manager, conservator and overseer of the natural resources of the State, DENR exercises “supervision and control over alienable and disposable public lands.” PEA needs authorization from DENR before PEA can undertake reclamation in Manila Bay, or in any part of the country; 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.—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 6 and 7 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. Same; Same; Same; Same; Same; Same; 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.—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 165 VOL. 384, JULY 9, 2002 165 Chavez vs. Public Estates Authority 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 III of CA No. 141 and other applicable laws. Same; Same; Same; Same; Same; 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; While PEA may sell its alienable or disposable lands of the public domain to private individuals, it cannot sell any of its alienable or disposable lands of the public domain to private corporations.—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.” (Emphasis supplied) There is, therefore, legislative authority granted to PEA to sell its lands, whether patrimonial or alienable lands of the public domain. PEA may sell to private parties its patrimonial properties in accordance with the PEA charter free from constitutional limitations. The constitutional ban on private corporations from acquiring alienable lands of the public domain does not apply to the sale of PEA’s patrimonial lands. PEA may also sell its alienable or disposable lands of the public domain to private individuals since, with the legislative authority, there is no longer any statutory prohibition against such sales and the constitutional ban does not apply to individuals. PEA, however, cannot sell any of its alienable or disposable lands of the public domain to private corporations since Section 3, Article XII of the 1987 Constitution expressly prohibits such sales. The legislative

authority benefits only individuals. Private corporations remain barred from acquiring any kind of alienable land of the public domain, including government reclaimed lands. Same; Same; Same; Same; Same; The provision in PD No. 1085 stating that portions of the reclaimed lands could be transferred by PEA to the “contractor or his assignees” would not apply to private corporations but only to individuals because of the constitutional ban.—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. 166 166 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority Same; Same; Same; Same; Same; Bids and Bidding; EO No. 654, which authorized 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, but merely authorizes PEA to decide the mode of payment, whether in kind or in installment, but does not authorize PEA to dispense with public auction.—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. 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, 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. Same; Same; Same; Same; Same; Same; 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.—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. Same; Same; Same; Same; Same; Same; The failure of an earlier public bidding involving only 407.84 hectares, is not a valid justification for a subsequent negotiated sale of 750 hectares, almost double the area publicly auctioned.—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. The failure of

public bidding on December 10, 1991, involving only 407.84 hectares, 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 167 VOL. 384, JULY 9, 2002 167 Chavez vs. Public Estates Authority economic situation in the country had greatly improved during the intervening period. Same; Same; Same; Same; BOT Law (RA No. 6957); Local Government Code; Under either the BOT Law or the Local Government Code, the contractor or developer, if a corporate entity, can only be paid with lease-holds on portions of the reclaimed land, and if the contractor or developer is an individual, portions of the reclaimed land, not exceeding 12 hectares of non-agricultural lands, may be conveyed to him in ownership.—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 hectares of nonagricultural 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.

Same; Same; Same; Same; Land Registration; 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 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. The registration of lands of the public domain under the Torrens system, by itself, cannot convert public lands into private lands. Same; Same; Same; Same; Same; 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.—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

168 168 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority 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) Same; Same; Same; Same; 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.—Alienable 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. Same; Same; Same; Same; Public Estates Authority; 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.—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. 169 VOL. 384, JULY 9, 2002 169 Chavez vs. Public Estates Authority Same; Same; Same; Same; Same; The mere fact that alienable lands of the public domain 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’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. Same; Same; Same; Same; Same; Whether the Amended JVA is a sale or a joint venture, the fact remains that the Amended JVA required PEA to “cause the issuance and delivery of the certificates of title conveying AMARI’s Land Share in the name of AMARI,” a stipulation contravening Section 3, Article XII of the 1987 Constitution—the transfer of title and

ownership to AMARI clearly means that AMARI will “hold” the reclaimed lands other than by lease, and the transfer of title and ownership is a “disposition” of the reclaimed lands, a transaction considered a sale or alienation under CA No. 141, the Government Auditing Code, and Section 3, Article XII of the 1987 Constitution.—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.” This stipulation still contravenes Section 3, Article XII of the 1987 Constitution which provides 170 170 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority 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, the Government Auditing Code, and Section 3, Article XII of the 1987 Constitution.

Same; Same; Same; Same; 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.—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. SPECIAL CIVIL ACTION in the Supreme Court. Mandamus. The facts are stated in the opinion of the Court. Francisco I. Chavez for and in his own behalf. Azcuna, Yorac, Arroyo, & Chua Law Offices for Amari Coastal Bay, etc. Romulo, Mabanta, Buenaventura, Sayoc & De Los Angeles Collaborating Counsel for Amari Coastal Bay, etc.

CARPIO, J.: This is an original Petition for Mandamus with prayer for a writ of preliminary injunction and a temporary restraining order. The 171 VOL. 384, JULY 9, 2002 171 Chavez vs. Public Estates Authority 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.”1Section 4 of PD No.

1084. 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”2PEA’s Memorandum dated August 4, 1999, p. 3. 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 _______________ 1 Section 4 of PD No. 1084. 2 PEA’s Memorandum dated August 4, 1999, p. 3. 172 172 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority 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, 1984 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.”3PEA’s Memorandum, supra note 2 at 7. PEA’s Memorandum quoted extensively, in its Statement of Facts and the Case, the Statement of Facts in Senate Committee Report No. 560 dated September 16, 1997. 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 _______________ 3 PEA’s Memorandum, supra note 2 at 7. PEA’s Memorandum quoted extensively, in its Statement of Facts and the Case, the Statement of Facts in Senate Committee Report No. 560 dated September 16, 1997. 173 VOL. 384, JULY 9, 2002 173 Chavez vs. Public Estates Authority Plan of the Southern Reclamation Project-MCCRRP. PEA and AMARI entered into the JVA through negotiation without public bidding.4In Opinion No. 330 dated December 23, 1994, the Government Corporate Counsel, citing COA Audit Circular No. 89-296, advised PEA that PEA could negotiate the sale of the 157.84-hectare Freedom Islands in view of the failure of the public bidding held on Dec... On April 28, 1995, the Board of Directors of PEA, in its Resolution No. 1245, confirmed the JVA.5PEA’s Memorandum, supra note 2 at 9. On June 8, 1995, then President Fidel V. Ramos, through then Executive Secretary Ruben Torres, approved the JVA.6Ibid.

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, 1997.7The existence of this report is a matter of judicial notice pursuant to Section 1, Rule 129 of the Rules of Court which provides, “A court shall take judicial notice, without the introduction of evidence, of x x x the official acts of the legislature... 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,8Teofisto Guingona, Jr. the Chief Presidential _______________ 4 In Opinion No. 330 dated December 23, 1994, the Government Corporate Counsel, citing COA Audit Circular No. 89-296, advised PEA that PEA could negotiate the sale of the 157.84-hectare Freedom Islands in view of the failure of the public bidding held on December 10, 1991 where there was

not a single bidder. See also Senate Committee Report No. 560, p. 12. 5 PEA’s Memorandum, supra note 2 at 9. 6 Ibid. 7 The existence of this report is a matter of judicial notice pursuant to Section 1, Rule 129 of the Rules of Court which provides, “A court shall take judicial notice, without the introduction of evidence, of x x x the official acts of the legislature x x x.” 8 Teofisto Guingona, Jr. 174 174 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority Legal Counsel,9Renato Cayetano. and the Government Corporate Counsel.10Virgilio C. Abejo. The Legal Task Force upheld the legality of the JVA, contrary to the conclusions reached by the Senate Committees.11Report and Recommendation of the Legal Task Force, Annex “C”, AMARI’s Memorandum dated June 19, 1999. 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.”12AMARI’s Comment dated June 24, 1998, p. 3; Rollo, p. 68. 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. _______________ 9 Renato Cayetano. 10 Virgilio C. Abejo. 11 Report and Recommendation of the Legal Task Force, Annex “C”, AMARI’s Memorandum dated June 19, 1999. 12 AMARI’s Comment dated June 24, 1998, p. 3; Rollo, p. 68. 175

VOL. 384, JULY 9, 2002 175 Chavez vs. Public Estates Authority After several motions for extension of time,13AMARI filed three motions for extension of time to file comment (Rollo, pp. 32, 38, 48), while PEA filed nine motions for extension of time (Rollo, pp. 127, 139). 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.”14Petitioner’s Memorandum dated July 6, 1999, p. 42. The Issues The issues raised by petitioner, PEA15Represented by the Office of the Solicitor General, with Solicitor General Ricardo

P. Galvez, Assistant Solicitor General Azucena R. BalanonCorpuz, and Associate Solicitor Raymund I. Rigodon signing PEA’s Memorandum. and AMARI16Represented by Azcuna Yorac Arroyo & Chua Law Offices, and Romulo Mabanta Sayoc & De los Angeles Law Offices. are as follows: I. WHETHER THE PRINCIPAL RELIEFS PRAYED FOR IN THE PETITION ARE MOOT AND ACADEMIC BECAUSE OF SUBSEQUENT EVENTS; _______________ 13 AMARI filed three motions for extension of time to file comment (Rollo, pp. 32, 38, 48), while PEA filed nine motions for extension of time (Rollo, pp. 127, 139). 14 Petitioner’s Memorandum dated July 6, 1999, p. 42. 15 Represented by the Office of the Solicitor General, with Solicitor General Ricardo P. Galvez, Assistant Solicitor General Azucena R. Balanon-Corpuz, and Associate Solicitor Raymund I. Rigodon signing PEA’s Memorandum. 16 Represented by Azcuna Yorac Arroyo & Chua Law Offices, and Romulo Mabanta Sayoc & De los Angeles Law Offices. 176 176 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority 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. 177 VOL. 384, JULY 9, 2002 177 Chavez vs. Public Estates Authority 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.17Salonga v. Paño, 134 SCRA 438 (1985); Gonzales v. Marcos, 65 SCRA 624 (1975 ); Aquino v. Enrile, 59 SCRA 183 (1974); Dela Camara v. Enage, 41 SCRA 1 (1971). _______________ 17 Salonga v. Paño, 134 SCRA 438 (1985); Gonzales v. Marcos, 65 SCRA 624 (1975 ); Aquino v. Enrile, 59 SCRA 183 (1974); Dela Camara v. Enage, 41 SCRA 1 (1971). 178 178 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority

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,18Section 11, Article XIV. 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 titles19Manila Electric Co. v. Judge F. Castro-Bartolome, 114 SCRA 799 (1982); Republic v. CA and Iglesia, and Republic v. Cendana and Iglesia ni Cristo, 119 SCRA 449 (1982); Republic v. Villanueva and Iglesia ni Cristo, 114 SCRA 875 (1982); Director of Lands v. L... 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 II 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, 1987.20PD No. 1073. _______________ 18 Section 11, Article XIV.

19 Manila Electric Co. v. Judge F. Castro-Bartolome, 114 SCRA 799 (1982); Republic v. CA and Iglesia, and Republic v. Cendana and Iglesia ni Cristo, 119 SCRA 449 (1982); Republic v. Villanueva and Iglesia ni Cristo, 114 SCRA 875 (1982); Director of Lands v. Lood, 124 SCRA 460 (1983); Republic v. Iglesia ni Cristo, 128 SCRA 44 (1984); Director of Lands v. Hermanos y Hermanas de Sta. Cruz de Mayo, Inc., 141 SCRA 21 (1986); Director of Lands v. IAC and Acme Plywood & Veneer Co., 146 SCRA 509 (1986); Republic v. IAC and Roman Catholic Bishop of Lucena, 168 SCRA 165 (1988); Natividad v. CA, 202 SCRA 493 (1991); Villaflor v. CA and Nasipit Lumber Co., 280 SCRA 297 (1997). In Ayog v. Cusi, 118 SCRA 492 (1982), the Court did not apply the constitutional ban in the 1973 Constitution because the applicant corporation, Biñan Development Co., Inc., had fully complied with all its obligations and even paid the full purchase price before the effectivity of the 1973 Constitution, although the sales patent was issued after the 1973 Constitution took effect. 20 PD No. 1073. 179 VOL. 384, JULY 9, 2002 179 Chavez vs. Public Estates Authority 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.21Annex “B”, AMARI’s Memorandum dated June 19, 1999, Section 5.2 (c) and (e) of the Amended JVA, pp. 16-17. 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.22Chavez v. PCGG, 299 SCRA 744 (1998). 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 nonexhaustion 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. _______________ 21 Annex “B”, AMARI’s Memorandum dated June 19, 1999, Section 5.2 (c) and (e) of the Amended JVA, pp. 16-17. 22 Chavez v. PCGG, 299 SCRA 744 (1998). 180 180 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority PEA distinguishes the instant case from Tañada v. Tuvera23136 SCRA 27 (1985). 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 Code24Article 2 of the Civil Code (prior to its amendment by EO No. 200) provided as follows: “Laws shall take effect after fifteen days following the completion of their publication in the Official Gazette, unless it is provided otherwise, x x x.... and Section 1 of Commonwealth Act No. 63825Section 1 of CA No. 638 provides as follows: “There shall be published in the Official Gazette all important legislative acts and resolutions of the Congress of the Philippines; all executive and administrative orders and proclamations, except such a... 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,26Section 79 of the Government Auditing Codes provides as follows: “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... the disposition of government lands to _______________ 23 136 SCRA 27 (1985). 24 Article 2 of the Civil Code (prior to its amendment by EO No. 200) provided as follows: “Laws shall take effect after fifteen days following the completion of their publication in the Official Gazette, unless it is provided otherwise, x x x.” 25 Section 1 of CA No. 638 provides as follows: “There shall be published in the Official Gazette all important legislative acts and resolutions of the Congress of the Philippines; all executive and administrative orders and proclamations, except such as have no general applicability; x x x.” 26 Section 79 of the Government Auditing Codes provides as follows: “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 181 VOL. 384, JULY 9, 2002 181 Chavez vs. Public Estates Authority 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.27Paat v. Court of Appeals, 266 SCRA 167 (1997); Quisumbing v. Judge Gumban, 193 SCRA 520

(1991); Valmonte v. Belmonte, Jr., 170 SCRA 256 (1989). 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. _______________ 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.” 27 Paat v. Court of Appeals, 266 SCRA 167 (1997); Quisumbing v. Judge Gumban, 193 SCRA 520 (1991); Valmonte v. Belmonte, Jr., 170 SCRA 256 (1989). 182 182 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority

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 tends 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,28See note 22. 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 illgotten 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, _______________ 28 See note 22. 183 VOL. 384, JULY 9, 2002 183 Chavez vs. Public Estates Authority 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: 184 184 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority “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,”29Section 1, Article XI of the 1987 Constitution states as follows: “Public office is a public trust. Public officers and employees must at all times be accountable to the people, serve them with utmost responsibility, integrity, loyalty, and efficienc... 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.30170 SCRA 256 (1989).— _______________ 29 Section 1, Article XI of the 1987 Constitution states as follows: “Public office is a public trust. Public officers and employees must at all times be accountable to the people, serve them with utmost responsibility, integrity, loyalty, and efficiency, act with patriotism and justice, and lead modest lives.” 30 170 SCRA 256 (1989). 185 VOL. 384, JULY 9, 2002 185 Chavez vs. Public Estates Authority

“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,31See note 22. 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.”32Record of the Constitutional Commission, Vol. V, pp. 24-25 (1986). (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 _______________ 31 See note 22. 32 Record of the Constitutional Commission, Vol. V, pp. 24-25 (1986). 186 186 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority 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,33Supra, Note 22. 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 _______________ 33 Supra, Note 22.

187 VOL. 384, JULY 9, 2002 187 Chavez vs. Public Estates Authority pertain to definite propositions Of the government not necessarily to intraagency 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. 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 188 188 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority 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.34Ibid. 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.35Legaspi v. Civil Service Commission, 150 SCRA 530 (1987). The right to information, however, does not extend to matters recognized as privileged information under the separation of powers.36Almonte v. Vasquez, 244 SCRA 286 (1995). 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.37See Note 22. 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 closeddoor Cabinet meetings which, like internal-deliberations of the Supreme Court and other collegiate courts, or executive sessions of either house of Congress,38Chavez v. PCGG, see note 22; Aquino-Sarmiento v. Morato, 203 SCRA 515 (1991). are recognized as confidential. This kind of information _______________ 34 Ibid.

35 Legaspi v. Civil Service Commission, 150 SCRA 530 (1987). 36 Almonte v. Vasquez, 244 SCRA 286 (1995). 37 See Note 22. 38 Chavez v. PCGG, see note 22; Aquino-Sarmiento v. Morato, 203 SCRA 515 (1991). 189 VOL. 384, JULY 9, 2002 189 Chavez vs. Public Estates Authority 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.39Almonte v. Vasquez, see note 36. This is not the situation in the instant case. We rule, therefore, that the constitutional right to information includes official information on on-going negotiations before a final contract. The information, however, must constitute definite propositions by the government and should not cover recognized exceptions like privileged information, military and diplomatic secrets and similar matters affecting national security and public order.40People’s Movement for Press Freedom, et al. v. Hon. Raul Manglapuz, G.R. No. 84642, En Banc Resolution dated April 13, 1988; Chavez v. PCGG, see note 22. Congress has also prescribed other limitations on the right to information in several legislations.41Section 270 of the National Internal Revenue Code punishes any officer or

employee of the Bureau of Internal Revenue who divulges to any person, except as allowed by law, information regarding the business, income, or estate of any taxpayer, the secrets, o... _______________ 39 Almonte v. Vasquez, see note 36. 40 People’s Movement for Press Freedom, et al. v. Hon. Raul Manglapuz, G.R. No. 84642, En Banc Resolution dated April 13, 1988; Chavez v. PCGG, see note 22. 41 Section 270 of the National Internal Revenue Code punishes any officer or employee of the Bureau of Internal Revenue who divulges to any person, except as allowed by law, information regarding the business, income, or estate of any taxpayer, the secrets, operation, style of work, or apparatus of any manufacturer or producer, or confidential information regarding the business of any taxpayer, knowledge of which was acquired by him in the discharge of his official duties. Section 14 of R.A. No. 8800 (Safeguard Measures Act) prohibits the release to the public of confidential information submitted in evidence to the Tariff Commission. Section 3 (n) of R.A. No. 8504 (Philippine AIDS Prevention and Control Act) classifies as confidential the medical records of HIV patients. Section 6 (j) of R.A. No. 8043 (Inter-Country Adoption Act) classifies as confidential the records of the adopted child, adopting parents, and natural parents. Section 94 (f) of R.A. No. 7942 (Philippine Mining Act) requires the Department of Environment and Natural Resources to maintain the confidentiality of confidential information supplied by contractors who are parties to mineral agreements or financial and technical assistance agreements.

190 190 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority 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.42The Recopilacion de Leyes de las Indias declared that: “We, having acquired full sovereignty over the Indies, and all lands, territories, and possessions not heretofore ceded away by our royal predecessors, or by us, or in our name, still pertaining ... 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.”43Cariño v. Insular Government, 41 Phil. 935 (1909). The exception mentioned in Cariño, referring to lands in the possession of an occupant Article 339

of the Civil Code of 1889, which is now Article 420 of the Civil Code of 1950, incorporated the Regalian doctrine. _______________ 42 The Recopilacion de Leyes de las Indias declared that: “We, having acquired full sovereignty over the Indies, and all lands, territories, and possessions not heretofore ceded away by our royal predecessors, or by us, or in our name, still pertaining to the royal crown and patrimony, it is our will that all lands which are held without proper and true deeds of grant be restored to us according as they belong to us, in order that after reserving before all what to us or to our viceroys, audiencias, and governors may seem necessary for public squares, ways, pastures, and commons in those places which are peopled, taking into consideration not only their present condition, but also their future and their probable increase, and afterdistributing to the natives what may be necessary for tillage and pasturage, confirming them in what they now have and giving them more if necessary, all the rest of said lands may remain free and unencumbered for us to dispose of as we may wish.” See concurring opinion of Justice Reynato S. Puno in Republic Real Estate Corporation v. Court of Appeals, 299 SCRA 199 (1998). 43 Cariño v. Insular Government, 41 Phil. 935 (1909). The exception mentioned in Cariño, referring to lands in the possession of an occupant 191 VOL. 384, JULY 9, 2002 191 Chavez vs. Public Estates Authority

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.44Article 1 of the Spanish Law of Waters of 1866. 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, _______________ and of his predecessors-in-interest, since time immemorial, is actually a species of a grant by the State. The United States

Supreme Court, speaking through Justice Oliver Wendell Holmes, Jr., declared in Cariño: “Prescription is mentioned again in the royal cedula of October 15, 1754, cited in 3 Philippine, 546; ‘Where such possessors shall not be able to produce title deeds, it shall be sufficient if they shall show that ancient possession, as a valid title by prescription.’ It may be that this means possession from before 1700; but, at all events, the principle is admitted. As prescription, even against the Crown lands, was recognized by the laws of Spain, we see no sufficient reason for hesitating to admit that it was recognized in the Philippines in regard to lands over which Spain had only a paper sovereignty.” See also Republic v. Lee, 197 SCRA 13 (1991). 44 Article 1 of the Spanish Law of Waters of 1866. 192 192 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority 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 reclassification 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 prop193 VOL. 384, JULY 9, 2002 193

Chavez vs. Public Estates Authority erty no longer needed for public use or territorial defense before the government could lease or alienate the property to private parties.45Ignacio v. Director of Lands, 108 Phil. 335 (1960); Joven v. Director of Lands, 93 Phil. 134 (1953); Laurel v. Garcia, 187 SCRA 797 (1990). See concurring opinion of Justice Reynato S. Puno in Republic Real Estate Corporation v. Court of Appeals, 299 SCRA ... 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 GovernorGeneral 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 man_______________ 45 Ignacio v. Director of Lands, 108 Phil. 335 (1960); Joven v. Director of Lands, 93 Phil. 134 (1953); Laurel v. Garcia, 187 SCRA 797 (1990). See concurring opinion of Justice Reynato S. Puno in Republic Real Estate Corporation v. Court of Appeals, 299 SCRA 199 (1998). 194 194 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority dated 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.46Act No. 926, enacted on October 7, 1903, was also titled the Public Land Act. This Act, however, did not cover reclaimed lands. Nevertheless, Section 23 of this Act provided as follows; “x x x In no case may lands leased under the provisions of this ... 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 _______________

46 Act No. 926, enacted on October 7, 1903, was also titled the Public Land Act. This Act, however, did not cover reclaimed lands. Nevertheless, Section 23 of this Act provided as follows; “x x x In no case may lands leased under the provisions of this chapter be taken so as to gain control of adjacent land, water, stream, shore line, way, roadstead, or other valuable right which in the opinion of the Chief of the Bureau of Public Lands would be prejudicial to the interests of the public.” 195 VOL. 384, JULY 9, 2002 195 Chavez vs. Public Estates Authority 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”47Section 10 of Act No. 2874 provided as follows: “The words “alienation,” “disposition,” or “concession” as used in this Act, shall mean any of the methods authorized by this Act for the acquisition, lease, use, or ... 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 title48Title II of Act No. 2874 governed alienable lands of the public domain for agricultural purposes, while Title III of the same Act governed alienable lands of the public domain for non-agricultural purposes. 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 _______________ 47 Section 10 of Act No. 2874 provided as follows: “The words “alienation,” “disposition,” or “concession” as used in this Act, shall mean any of the methods authorized by this Act for the acquisition, lease, use, or benefit of the lands of the public domain other than timber or mineral lands.”

48 Title II of Act No. 2874 governed alienable lands of the public domain for agricultural purposes, while Title III of the same Act governed alienable lands of the public domain for non-agricultural purposes. 196 196 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority 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 GovernorGeneral to classify further such disposable lands of the public domain into government reclaimed, foreshore or marshy lands of the public domain, as well as other non-agricultural lands. Section 58 of Act No. 2874 categorically mandated that disposable lands of the public domain classified as government reclaimed, foreshore and marshy lands “shall be disposed of to private parties by lease only and not otherwise.” The GovernorGeneral, before allowing the lease of these lands to private parties, must formally declare that the lands were “not necessary for the public service.” Act No. 2874 reiterated the State policy to lease and not to sell government reclaimed, foreshore and marshy lands of the public domain, a policy first enunciated in 1907 in Act No. 1654. Government reclaimed, foreshore and marshy lands remained sui generis, as the only alienable or disposable lands of the public domain that the government could not sell to private parties.

The rationale behind this State policy is obvious. Government reclaimed, foreshore and marshy public lands for nonagricultural 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 nonagricultural 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.49Section 57 of Act No. 2874 provided as follows: “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 _______________ 49 Section 57 of Act No. 2874 provided as follows: “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 197 VOL. 384, JULY 9, 2002 197 Chavez vs. Public Estates Authority

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 _______________ otherwise disposed of in a manner affecting its title, except when authorized by the legislature; x x x.” 198 198 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority agricultural lands.50Krivenko v. Register of Deeds, 79 Phil. 461 (1947). 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 _______________ 50 Krivenko v. Register of Deeds, 79 Phil. 461 (1947). 199 VOL. 384, JULY 9, 2002 199

Chavez vs. Public Estates Authority governing the classification and disposition of lands of the public domain other than timber and mineral lands.51Section 2 of CA No. 141 states as follows: “The provisions of this Act shall apply to the lands of the public domain; but timber and mineral lands shall be governed by special laws and nothing in this Act provided shall be understood or construed to ... Section 6 of CA No. 141 empowers the President to classify lands of the public domain into “alienable or disposable”52Like Act No. 2874, Section 10 of CA No, 141 defined the terms “alienation” and “disposition” as follows: “The words “alienation,” “disposition,” or “concession” as used in this Act, shall me... 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,53R.A. No. 6657 has suspended the authority of the President to reclassify forest or mineral lands

into agricultural lands, Section 4 (a) of RA No. 6657 (Comprehensive Agrarian Reform Law of 1988) states, “No reclassification of forest or mineral lands... for the purpose of their administration and disposition. _______________ 51 Section 2 of CA No. 141 states as follows: “The provisions of this Act shall apply to the lands of the public domain; but timber and mineral lands shall be governed by special laws and nothing in this Act provided shall be understood or construed to change or modify the administration and disposition of the lands commonly called “friar lands” and those which, being privately owned, have reverted to or become the property of the Commonwealth of the Philippines, which administration and disposition shall be governed by the laws at present in force or which may hereafter be enacted.” 52 Like Act No. 2874, Section 10 of CA No, 141 defined the terms “alienation” and “disposition” as follows: “The words “alienation,” “disposition,” or “concession” as used in this Act, shall mean any of the methods authorized by this Act for the acquisition, lease, use, or benefit of the lands of the public domain other than timber or mineral lands.” 53 R.A. No. 6657 has suspended the authority of the President to reclassify forest or mineral lands into agricultural lands, Section 4 (a) of RA No. 6657 (Comprehensive Agrarian Reform Law of 1988) states, “No reclassification of forest or mineral lands to agricultural lands shall be undertaken after the approval of this Act until Congress, taking into account 200 200 SUPREME COURT REPORTS ANNOTATED

Chavez vs. Public Estates Authority 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. _______________ ecological, developmental and equity considerations, shall have delimited by law, the specific limits of the public domain.” 201 VOL. 384, JULY 9, 2002 201 Chavez vs. Public Estates Authority 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 nonagricultural 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 tended 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. 141,54Covering Sections 58 to 68 of CA No. 141. 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,55299 SCRA 199 (1998). Justice 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

_______________ 54 Covering Sections 58 to 68 of CA No. 141. 55 299 SCRA 199 (1998). 202 202 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority 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.56Section 1, Article XIII of the 1935 Constitution limited the disposition and utilization of public agricultural lands to Philippine citizens or to corporations at least sixty percent owned by Philippine citizens. This was, however, subject to the original ... These lands remained sui generis, as the only alienable or disposable lands of the public domain the government could not sell to private parties. _______________ 56 Section 1, Article XIII of the 1935 Constitution limited the disposition and utilization of public agricultural lands to Philippine citizens or to corporations at least sixty percent owned by Philippine citizens. This was, however, subject to the original Ordinance appended to the 1935 Constitution stating, among others, that until the withdrawal of United states sovereignty in the Philippines, “Citizens and corporations of the United States shall enjoy in the Commonwealth of the Philippines all the civil rights of the citizens and corporations, respectively, thereof.” 203 VOL. 384, JULY 9, 2002 203

Chavez vs. Public Estates Authority 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 nonagricultural 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 204 204 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority 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.57Section 44 of PD No. 1529 (previously Section 39 of Act No. 496) provides that “liens, claims or rights arising or existing under the laws and the Constitution of the Philippines which are not by law required to appear of record in the Registry of De... 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.58RA No. 730, which took effect on June 18, 1952 authorized the private sale of home lots to actual occupants of public lands not needed for public service. Section 1 of RA No. 730 provided as follows:“Notwithstanding the provisions of Sections 61 and ... _______________ 57 Section 44 of PD No. 1529 (previously Section 39 of Act No. 496) provides that “liens, claims or rights arising or existing under the laws and the Constitution of the Philippines which are not by law required to appear of record in the Registry of Deeds in order to be valid against subsequent purchasers or encumbrancers of record” constitute statutory liens affecting the title. 58 RA No. 730, which took effect on June 18, 1952 authorized the private sale of home lots to actual occupants of public lands

not needed for public service. Section 1 of RA No. 730 provided as follows: “Notwithstanding the provisions of Sections 61 and 67 of Commonwealth Act No. 141, as amended by RA No. 293, any Filipino citizen of legal age who is not the owner of a home lot in the municipality or city in which he resides and who had in good faith established his residence on a parcel of land of the Republic of the Philippines which is not needed for public service, shall be given preference to purchase at a private sale of which reasonable notice shall be given to him, not more than one thousand square meters at a price to be fixed by the Director of Lands with the approval of the Secretary of Agriculture and Natural Resources. x x x.” In addition, on June 16, 1948, Congress enacted R.A. No. 293 allowing the 205 VOL. 384, JULY 9, 2002 205 Chavez vs. Public Estates Authority 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.59See note 49. In the case of government reclaimed and marshy _______________ private sale of marshy alienable or disposable lands of the public domain to lessees who have improved and utilized the same as farms, fishponds or other similar purposes for at least five years from the date of the lease contract with the government. R.A. No. 293. however, did not apply to marshy lands under Section 56 (c), Title III of CA No. 141 which refers to marshy lands leased for residential, commercial, industrial or other nonagricultural purposes. 59 See note 49.

206 206 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority 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.60See note 60. If the land of public domain were neither _______________ 60 See note 60. 207 VOL. 384, JULY 9, 2002 207 Chavez vs. Public Estates Authority timber nor mineral land, it would fall under the classification of agricultural land of the public domain. Both the 1935 and 1973 Constitution, 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 4 208 208 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority 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.61Republic Real Estate Corporation v. Court of Appeals, see note 56. Submerged areas are those permanently under water regardless of the ebb and flow of the tide.62Ibid. Foreshore and submerged areas indisputably belong to the public domain63Insular Government v. Aldecoa, 19 Phil. 505 (1911); Government v. Cabangis, 53 Phil. 112 (1929). and are inalienable unless reclaimed, _______________ 61 Republic Real Estate Corporation v. Court of Appeals, see note 56. 62 Ibid. 63 Insular Government v. Aldecoa, 19 Phil. 505 (1911); Government v. Cabangis, 53 Phil. 112 (1929). 209 VOL. 384, JULY 9, 2002 209 Chavez vs. Public Estates Authority 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— 210 210 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority “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: 211 VOL. 384, JULY 9, 2002 211 Chavez vs. Public Estates Authority “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,64118 SCRA 492 (1982). 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 ‘ownercultivatorship 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 familysize farms, placing the land in the name of a corporation would be more

_______________ 64 118 SCRA 492 (1982). 212 212 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority 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;” 213 VOL. 384, JULY 9, 2002 213 Chavez vs. Public Estates Authority 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.”65Annex “B”, AMARI’s Memorandum, see note 2 at 1 & 2. 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.”66PEA’s Memorandum, see note 6. 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) _______________ 65 Annex “B”, AMARI’s Memorandum, see note 2 at 1 & 2. 66 PEA’s Memorandum, see note 6. 214 214 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority 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) 215 VOL. 384, JULY 9, 2002 215 Chavez vs. Public Estates Authority 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,67Ibid., p. 44. 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 Force68See notes 9, 10 & 11. 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 do-main.”69Annex “C”, p. 3, AMARI’s Memorandum, see note 12 at 3. 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,70This should read Article XII. 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 sub_______________ 67 Ibid., p. 44. 68 See notes 9, 10 & 11. 69 Annex “C”, p. 3, AMARI’s Memorandum, see note 12 at 3. 70 This should read Article XII.

216 216 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority merged 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.71Section 8 of CA No. 141. 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.”72Emphasis supplied. 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,73187 SCRA 797 (1990). 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 42274Article 422 of the Civil Code states as follows: “Property of public dominion, when no longer needed for public use or public

service, shall form part of the patrimonial property of the State.... 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) _______________ 71 Section 8 of CA No. 141. 72 Emphasis supplied. 73 187 SCRA 797 (1990). 74 Article 422 of the Civil Code states as follows: “Property of public dominion, when no longer needed for public use or public service, shall form part of the patrimonial property of the State.” 217 VOL. 384, JULY 9, 2002 217 Chavez vs. Public Estates Authority 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. 218 218 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority 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.”75AMARI’s Comment dated June 24, 1998, p. 20; Rollo, p. 85. 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.76Dizon v. Rodriguez, 13 SCRA 705 (1965); Republic v. Lat Vda. de Castillo, 163 SCRA 286 (1988). 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.”77Cariño v. Insular Government, 41 Phil. 935 (1909). 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 _______________ 75 AMARI’s Comment dated June 24, 1998, p. 20; Rollo, p. 85. 76 Dizon v. Rodriguez, 13 SCRA 705 (1965); Republic v. Lat Vda. de Castillo, 163 SCRA 286 (1988). 77 Cariño v. Insular Government, 41 Phil. 935 (1909). 219 VOL. 384, JULY 9, 2002 219

Chavez vs. Public Estates Authority 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.78Proclamation No. 41, issued by President Ramon Magsaysay on July 5, 1954, reserved for “National Park purposes” 464.66 hectares of the public domain in Manila Bay “situated in the cities of Manila and Pasay and the municipality of Paranaq... 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 _______________ 78 Proclamation No. 41, issued by President Ramon Magsaysay on July 5, 1954, reserved for “National Park purposes” 464.66 hectares of the public domain in Manila Bay “situated in the cities of Manila and Pasay and the municipality of Paranaque, Province of Rizal, Island of Luzon,” which area, as described in detail in the Proclamation, is “[B]ounded on the North, by Manila Bay; on the East, by Dewey Boulevard; and on the south and west, by Manila Bay.” See concurring opinion of Justice Reynato S. Puno in Republic Real Estate Corporation v. Court of Appeals, 299 SCRA 1999 (1998). Under sections 2 and 3, Article XII of the 1987 Constitution, “national parks” are inalienable natural resources of the State. 220 220 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority “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 con221 VOL. 384, JULY 9, 2002 221 Chavez vs. Public Estates Authority struct, 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.”79Fifth Whereas clause of EO No. 525. 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. 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 Envi_______________ 79 Fifth Whereas clause of EO No. 525. 222 222 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority ronment 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, impels 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; x x x (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, noncompliance 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.”80Section 4, Chapter I, Title XIV Book IV. (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 _______________ 80 Section 4, Chapter I, Title XIV Book IV. 223 VOL. 384, JULY 9, 2002 223 Chavez vs. Public Estates Authority Sections 681Section 6 of CA No. 142 provides as follows: “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. x x x.... and 782Section 7 of CA No. 141 provides as follows: “For 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... 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 do_______________ 81 Section 6 of CA No. 142 provides as follows: “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. x x x.” 82 Section 7 of CA No. 141 provides as follows: “For 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.” 224 224 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority main, open to disposition under the Constitution, Title I and Title III83On “Lands for Residential, Commercial, or Industrial and other Similar Purposes.... of CA No. 141 and other applicable laws.84RA No. 293, enacted on June 16, 1948, authorized the sale of marshy lands under certain conditions. Section 1 of RA No. 293 provided as follows: “The provisions of section sixty-one of Commonwealth Act Numbered One hundred and forty-one to the contra... 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.”85PEA’s Memorandum, see note 2 at 45. (Emphasis by PEA) In Laurel vs. Garcia,86See note 73. 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— _______________ 83 On “Lands for Residential, Commercial, or Industrial and other Similar Purposes.” 84 RA No. 293, enacted on June 16, 1948, authorized the sale of marshy lands under certain conditions. Section 1 of RA No. 293 provided as follows: “The provisions of section sixty-one of Commonwealth Act Numbered One hundred and forty-one to the contrary notwithstanding, marshy lands and lands under water bordering on shores or banks or navigable lakes or rivers which are covered by subsisting leases or leases which may hereafter be duly granted under the provisions of the said Act and are already improved and have been utilized for farming, fishpond, or similar purposes for at least five years from the date of the contract of lease, may be sold to the lessees thereof under the provisions of Chapter Five of the said Act as soon as the President, upon recommendation of the Secretary of Agriculture and Natural Resources, shall declare that the same are not necessary for the public service.” 85 PEA’s Memorandum, see note 2 at 45. 86 See note 73. 225 VOL. 384, JULY 9, 2002 225

Chavez vs. Public Estates Authority “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, to be reclaimed as provided for in the abovementioned contract. On the basis of such patents, the Land Registration Commission shall issue the corresponding certificate of title. (Emphasis supplied) 226 226 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority 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.”87Section 4(b) of PD No. 1084. (Emphasis supplied) There is, therefore, legislative authority granted to PEA to sell its lands, whether patrimonial or alienable lands of the public domain. PEA may sell to private parties its patrimonial properties in accordance with the PEA charter free from constitutional limitations. The constitutional ban on private corporations from acquiring alienable lands of the public domain does not apply to the sale of PEA’s patrimonial lands. PEA may also sell its alienable or disposable lands of the public domain to private individuals since, with the legislative authority, there is no longer any statutory prohibition against such sales and the constitutional ban does not apply to individuals. PEA, however, cannot sell any of its alienable or disposable lands of the public domain to private corporations

since Section 3, Article XII of the 1987 Constitution expressly prohibits such sales. The legislative authority benefits only individuals. Private corporations remain _______________ 87 Section 4(b) of PD No. 1084. 227 VOL. 384, JULY 9, 2002 227 Chavez vs. Public Estates Authority 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.88R.A. No. 730 allows the private sale of home lots to actual occupants of public lands. See note 63. 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. 654,89Issued on February 26, 1981. 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— _______________ 88 R.A. No. 730 allows the private sale of home lots to actual occupants of public lands. See note 63. 89 Issued on February 26, 1981. 228 228 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority “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.90While PEA claims there was a failure of public bidding on December 19, 1991, there is no showing that the Commission on Audit approved the price or consideration stipulated in the negotiated Amended JVA as required by Section 79 of the Government Auditing ... The Commission on Audit implements Section 79 of the Government Auditing Code through Circular No. 89-29691Paragraph 2 (a) of COA Circular No. 89-296, on “Sale Thru Negotiation,” states that disposal through negotiated sale may be resorted to if “[T]here was a failure of public auction.... 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 _______________ 90 While PEA claims there was a failure of public bidding on December 19, 1991, there is no showing that the Commission on Audit approved the price or consideration stipulated in the negotiated Amended JVA as required by Section 79 of the Government Auditing Code. Senate Committee Report No. 560 did not discuss this issue. 91 Paragraph 2 (a) of COA Circular No. 89-296, on “Sale Thru Negotiation,” states that disposal through negotiated sale may be resorted to if “[T]here was a failure of public auction.” 229 VOL. 384, JULY 9, 2002 229 Chavez vs. Public Estates Authority 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.92Senate Committee Report No. 560, Statement of Facts, p. 7, citing PEA Board Resolution No. 835, as appearing in the Minutes of the PEA Board of Directors Meeting held on May 30, 1991, per Certification of Jaime T. De Veyra, Corporate Secretary, dated June ... 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, 1991.93Opinion No. 330, citing COA Audit Circular No. 89-296. See note 5. 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.94PEA’s Memorandum, see note 2. The failure of public bidding on December 10, 1991, involving only 407.84 hectares,95Senate Committee Report No. 560, pp. 7-8, citing the Minutes of Meeting of the PEA Board of Directors held on December 19, 1991. 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— _______________

92 Senate Committee Report No. 560, Statement of Facts, p. 7, citing PEA Board Resolution No. 835, as appearing in the Minutes of the PEA Board of Directors Meeting held on May 30, 1991, per Certification of Jaime T. De Veyra, Corporate Secretary, dated June 11, 1991. 93 Opinion No. 330, citing COA Audit Circular No. 89-296. See note 5. 94 PEA’s Memorandum, see note 2. 95 Senate Committee Report No. 560, pp. 7-8, citing the Minutes of Meeting of the PEA Board of Directors held on December 19, 1991. 230 230 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority “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 hectares96Section 3, Article XII of the 1987 Constitution provides as follows: “x x x Citizens of the Philippines may x x x acquire not more than twelve hectares thereof by purchase, homestead or grant.” However, Section 6 of R.A. No. 6657 (Comprehensive... of non-agricultural lands, may be conveyed _______________ 96 Section 3, Article XII of the 1987 Constitution provides as follows: “x x x Citizens of the Philippines may x x x acquire

not more than twelve hectares thereof by purchase, homestead or grant.” However, Section 6 of R.A. No. 6657 (Comprehensive Agrarian Reform Law) limits the owner231 VOL. 384, JULY 9, 2002 231 Chavez vs. Public Estates Authority 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,9796 Phil. 946 (1955). 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,9848 SCRA 372 (1977). 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.” _______________ ship of “public or private agricultural land” to a maximum of five hectares per person. 97 96 Phil. 946 (1955). 98 48 SCRA 372 (1977). 232 232 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority 3. Heirs of Gregorio Tengco v. Heirs of Jose Aliwalas,99168 SCRA 198 (1988). 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,100172 SCRA 795 (1989). 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,10173 SCRA 146 (1976). 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 _______________ 99 168 SCRA 198 (1988). 100 172 SCRA 795 (1989). 101 73 SCRA 146 (1976). 233 VOL. 384, JULY 9, 2002 233 Chavez vs. Public Estates Authority 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.102Avila v. Tapucar, 201 SCRA 148 (1991). The registration of lands of the public domain under the Torrens system, by itself, cannot convert public lands into private lands.103Republic v. Ayala Cia, et al., 14 SCRA 259 (1965); Dizon v. Rodriguez, 13 SCRA 705 (1965). 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 _______________ 102 Avila v. Tapucar, 201 SCRA 148 (1991). 103 Republic v. Ayala Cia, et al., 14 SCRA 259 (1965); Dizon v. Rodriguez, 13 SCRA 705 (1965). 234 234 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority

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.104Section 44 of PD No. 1529 states as follows: “Every registered owner receiving a certificate of title in pursuance of a decree of registration, and every subsequent purchaser of registered land taking a certificate of title for value and in good fait... Alienable 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 con_______________ 104 Section 44 of PD No. 1529 states as follows: “Every registered owner receiving a certificate of title in pursuance of a decree of registration, and every subsequent purchaser of registered land taking a certificate of title for value and in good faith, shall hold the same free from all encumbrances except those noted on said certificate and any of the following encumbrances which may be subsisting, namely: First. Liens, claims or rights arising or existing under the laws and Constitution of the Philippines which are not by law required to appear of record in the Registry of Deeds in order to be valid against subsequent purchasers or encumbrancers of record. x x x.” Under Section 103 of PD No. 1529, Section 44 applies to certificates of title issued pursuant to a land patent granted by the government. 235 VOL. 384, JULY 9, 2002 235 Chavez vs. Public Estates Authority vert 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. 236 236 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority 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 237 VOL. 384, JULY 9, 2002 237 Chavez vs. Public Estates Authority 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.105Section 2, Article XIII of the 1935 Constitution. 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.” _______________ 105 Section 2, Article XIII of the 1935 Constitution. 238 238 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority 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 pplied) 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 govern239 VOL. 384, JULY 9, 2002 239 Chavez vs. Public Estates Authority ment 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.106Harty v. Municipality of Victoria, 13 Phil. 152 (1909). 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 deregistration 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 re_______________ 106 Harty v. Municipality of Victoria, 13 Phil. 152 (1909). 240 240 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority claimed 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.”107Annex “B”, AMARI’s Memorandum, see note 21 at 16, Section 5.2 (c) of the Amended JVA. 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. 141,108Section 10 of CA No. 141 provides as follows: “Sec. 10. The words “alienation,” “disposition,” or “concession” as used in this Act, shall mean any of the methods authorized by this Act for the acquisition, lease, u... the Government Auditing Code,109Section 79 of the Government Auditing Code, which requires public auction in the sale of government assets, includes all kinds of disposal or divestment of government assets. Thus, COA Audit Circular No. 86-264 dated October 16, 1986 speaks of “guide... 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 _______________ 107 Annex “B”, AMARI’s Memorandum, see note 21 at 16, Section 5.2 (c) of the Amended JVA. 108 Section 10 of CA No. 141 provides as follows: “Sec. 10. The words “alienation,” “disposition,” or “concession” as used in this Act, shall mean any of the methods authorized by this Act for the acquisition, lease, use, or benefit of the lands of the public domain other than timber or mineral lands.” 109 Section 79 of the Government Auditing Code, which requires public auction in the sale of government assets, includes all kinds of disposal or divestment of government assets. Thus, COA Audit Circular No. 86-264 dated October 16, 1986 speaks of “guidelines (which) shall govern the general procedures on the divestment or disposal of assets of governmentowned and/or controlled corporations and their subsidiaries.” Likewise, COA Audit Circular No. 89-296 dated January 27, speaks of “guidelines (which) shall be observed

and adhered to in the divestment or disposal of property and other assets of all government entities/instrumentalities” and that “divestment shall refer to the manner or scheme of taking away, depriving, withdrawing of an authority, power or title.” These COA Circulars implement Section 79 of the Government Auditing Code. 241 VOL. 384, JULY 9, 2002 241 Chavez vs. Public Estates Authority 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 evergrowing 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 hectares110The share of AMARI in the Freedom Islands is 77.34 hectares, which is 70 percent of the net usable area of 110.49 hectares. The net of the Freedom Islands, such _______________ 110 The share of AMARI in the Freedom Islands is 77.34 hectares, which is 70 percent of the net usable area of 110.49 hectares. The net 242

242 SUPREME COURT REPORTS ANNOTATED Chavez vs. Public Estates Authority 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 hectares111The share of AMARI in the submerged areas for reclamation is 290.129 hectares, which is 70 percent of the net usable area of 414.47 hectares. 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 1409112Article 1409 of the Civil Code provides as follows: “The following contracts are inexistent and void from the beginning: (1) Those whose cause, object or purpose is contrary to law; x x x; (4) Those whose object is outside the commerce of men; x x x.... 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. _______________ usable area is the total land area of the Freedom Islands less 30 percent allocated for common areas. 111 The share of AMARI in the submerged areas for reclamation is 290.129 hectares, which is 70 percent of the net usable area of 414.47 hectares. 112 Article 1409 of the Civil Code provides as follows: “The following contracts are inexistent and void from the beginning: (1) Those whose cause, object or purpose is contrary to law; x x x; (4) Those whose object is outside the commerce of men; x x x.” 243 VOL. 384, JULY 9, 2002 243 Chavez vs. Public Estates Authority 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. Davide, Jr. (C.J.), Bellosillo, Puno, Vitug, Kapunan, Mendoza, Panganiban, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Austria-Martinez and Corona, JJ., concur. Petition granted. Amended Joint Venture Agreement declared null and void. Respondents enjoined permanently from implementing the same. Notes.—Before the Treaty of Paris on April 11, 1899, our lands, whether agricultural, mineral or forest were under the exclusive patrimony and dominion of the Spanish Crown, hence, private ownership of land could only be acquired through royal concessions. (Palomo vs. Court of Appeals, 266 SCRA 392 [1997]). Only judicial review of decisions of administrative agencies made in the exercise of their quasi-judicial function is subject to the exhaustion doctrine. (Association of Philippine Coconut Desiccators vs. Philippine Coconut Authority, 286 SCRA 109 [1998]). The term “foreshore” refers to “that part of the land adjacent to the sea which is alternately covered and left dry by the ordinary flow of the tides.” (Republic vs. Court of Appeals, 299 SCRA 199 [1998]) ——o0o—— [Chavez vs. Public Estates Authority, 384 SCRA 152(2002)]

G.R. No. 135385. December 6, 2000.*EN BANC. ISAGANI CRUZ and CESAR EUROPA, petitioners, vs. SECRETARY OF ENVIRONMENT AND NATURAL RESOURCES, SECRETARY OF BUDGET AND MANAGEMENT and CHAIRMAN and COMMISSIONERS OF THE NATIONAL COMMISSION ON INDIGENOUS PEOPLES,respondents. x ----------------------------------------------------------------------- x HON. JUAN M. FLAVIER, HON. PONCIANO BENNAGEN, BAYANI ASCARRAGA, EDTAMI MANSAYANGAN, BASILIO WANDAG, EVELYN DUNUAN, YAOM TUGAS, ALFREMO CARPIANO, LIBERATO A. GABIN, MATERNIDAD M. COLAS, NARCISA M. DALUPINES, BAI KIRAM-CONNIE SATURNO, BAE MALOMOBEATRIZ T. ABASALA, DATU BALITUNGTUNGANTONIO D. LUMANDONG, DATU MANTUMUKAW TEOFISTO SABASALES, DATU EDUARDO BANDA, DATU JOEL UNAD, DATU RAMON BAYAAN, TIMUAY JOSE ANOY, TIMUAY MACARIO D. SALACAO, TIMUAY EDWIN B. ENDING, DATU SAHAMPONG MALANAW VI, DATU BEN PENDAO CABIGON, BAI NANAPNAY-LIZA SAWAY, BAI INAY DAYA-MELINDA S. REYMUNDO, BAI TINANGHAGA HELINITA T. PANGAN, DATU MAKAPUKAW ADOLINO L. SAWAY, DATU MAUDAYAW-CRISPEN SAWAY, VICKY MAKAY, LOURDES D. AMOS, GILBERT P. HOGGANG, TERESA GASPAR, MANUEL S. ONALAN, MIA GRACE L. GIRON, ROSEMARIE G. PE, BENITO CARINO, JOSEPH JUDE CARANTES, LYNETTE CARANTES-VIVAL, LANGLEY

SEGUNDO, SATUR S. BUGNAY, CARLING DOMULOT, ANDRES MENDIGORIN, LEOPOLDO ABUGAN, _______________ * EN BANC. 129 VOL. 347, DECEMBER 6, 2000 129 Cruz vs. Secretary of Environment and Natural Resources VIRGILIO CAYETANO, CONCHITA G. DESCAGA, LEVY ESTEVES, ODETTE G. ESTEVEZ, RODOLFO C. AGUILAR, MAURO VALONES, PEPE H. ATONG, OFELIA T. DAVI, PERFECTO B. GUINOSAO, WALTER N. TIMOL, MANUEL T. SELEN, OSCAR DALUNHAY, RICO O. SULATAN, RAFFY MALINDA, ALFREDO ABILLANOS, JESSIE ANDILAB, MIRLANDO H. MANGKULINTAS, SAMIE SATURNO, ROMEO A. LINDAHAY, ROEL S. MANSANGCAGAN, PAQUITO S. LIESES, FILIPE G. SAWAY, HERMINIA S. SAWAY, JULIUS S. SAWAY, LEONARDA SAWAY, JIMMY UGYUB, SALVADOR TIONGSON, VENANCIO APANG, MADION MALID, SUKIM MALID, NENENG MALID, MANGKATADONG AUGUSTO DIANO, JOSEPHINE M. ALBESO, MORENO MALID, MARIO MANGCAL, FELAY DIAMILING, SALOME P. SARZA, FELIFE P. BAGON, SAMMY SALNUNGAN, ANTONIO D. EMBA, NORMA MAPANSA GONOS, ROMEO SALIGA, SR., JERSON P. GERADA, RENATO T. BAGON, JR., SARING MASALONG, SOLEDAD M. GERARDA, ELIZABETH L. MENDI, MORANTE S. TIWAN, DANILO M. MALUDAO, MINORS

MARICEL MALID, represented by her father CORNELIO MALID, MARCELINO M. LADRA, represented by her father MONICO D. LADRA, JENNYLYN MALID, represented by her father TONY MALID, ARIEL M. EVANGELISTA, represented by her mother LINAY BALBUENA, EDWARD M. EMUY, SR., SUSAN BOLANIO, OND, PULA BATO B’LAAN TRIBAL FARMER’S ASSOCIATION, INTERPEOPLE’S EXCHANGE, INC. and GREEN FORUMWESTERN VISAYAS, intervenor. x ----------------------------------------------------------------------- x COMMISSION ON HUMAN RIGHTS, intervenor. x ----------------------------------------------------------------------- x IKALAHAN INDIGENOUS PEOPLE and HARIBON FOUNDATION FOR THE CONSERVATION OF NATURAL RESOURCES, INC., intervenor. Supreme Court; Judgments; Judicial Review; Where the votes in the Court en banc are equally divided and the necessary majority is not obtained, the case is redeliberated upon, but if after deliberation, the voting 130 130 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environment and Natural Resources remains the same, the petition is dismissed pursuant to Rule 56, Section 7 of the Rules of Civil Procedure.—After due deliberation on the petition, the members of the Court voted as follows: Seven (7) voted to dismiss the petition. Justice Kapunan filed an opinion, which the Chief Justice and Justices Bellosillo, Quisumbing, and Santiago join, sustaining the validity of the challenged provisions of R.A. 8371. Justice

Puno also filed a separate opinion sustaining all challenged provisions of the law with the exception of Section 1, Part II, Rule III of NCIP Administrative Order No. 1, series of 1998, the Rules and Regulations Implementing the IPRA, and Section 57 of the IPRA which he contends should be interpreted as dealing with the large-scale exploitation of natural resources and should be read in conjunction with Section 2, Article XII of the 1987 Constitution. On the other hand, Justice Mendoza voted to dismiss the petition solely on the ground that it does not raise a justiciable controversy and petitioners do not have standing to question the constitutionality of R.A. 8371. Seven (7) other members of the Court voted to grant the petition. Justice Panganiban filed a separate opinion expressing the view that Sections 3 (a)(b), 5, 6, 7 (a)(b), 8, and related provisions of R.A. 8371 are unconstitutional. He reserves judgment on the constitutionality of Sections 58, 59, 65, and 66 of the law, which he believes must await the filing of specific cases by those whose rights may have been violated by the IPRA. Justice Vitug also filed a separate opinion expressing the view that Sections 3(a), 7, and 57 of R.A. 8371 are unconstitutional. Justices Melo, Pardo, Buena, Gonzaga-Reyes, and De Leon join in the separate opinions of Justices Panganiban and Vitug. As the votes were equally divided (7 to 7) and the necessary majority was not obtained, the case was redeliberated upon. However, after redeliberation, the voting remained the same. Accordingly, pursuant to Rule 56, Section 7 of the Rules of Civil Procedure, the petition is DISMISSED. PUNO, J.,Separate Opinion:

National Patrimony; Regalian Doctrine; Natural Resources; Public Lands; The “Regalian Doctrine” or jura regalia is a Western legal concept that was first introduced by the Spaniards into the country through the Laws of the Indies and the Royal Cedulas.—The capacity of the State to own or acquire property is the state’s power of dominium. This was the foundation for the early Spanish decrees embracing the feudal theory of jura regalia. The “Regalian Doctrine” or jura regalia is a Western legal concept that was first introduced by the Spaniards into the country through the Laws of the Indies and the Royal Cedulas. 131 VOL. 347, DECEMBER 6, 2000 131 Cruz vs. Secretary of Environment and Natural Resources Same; Same; Same; Same; Words and Phrases; The Public Land Act (Act No. 926) operated on the assumption that title to public lands in the Philippine Islands remained in the government, and that the government’s title to public land sprung from the Treaty of Paris and other subsequent treaties between Spain and the United States; The term “public land” referred to all lands of the public domain whose title still remained in the government and are thrown open to private appropriation and settlement, and excluded the patrimonial property of the government and the friar lands.—Act No. 926, the first Public Land Act, was passed in pursuance of the provisions of the Philippine Bill of 1902. The law governed the disposition of lands of the public domain. It prescribed rules and regulations for the homesteading, selling, and leasing of portions of the public domain of the Philippine Islands, and

prescribed the terms and conditions to enable persons to perfect their titles to public lands in the Islands. It also provided for the “issuance of patents to certain native settlers upon public lands,” for the establishment of town sites and sale of lots therein, for the completion of imperfect titles, and for the cancellation or confirmation of Spanish concessions and grants in the Islands.” In short, the Public Land Act operated on the assumption that title to public lands in the Philippine Islands remained in the government; and that the government’s title to public land sprung from the Treaty of Paris and other subsequent treaties between Spain and the United States. The term “public land” referred to all lands of the public domain whose title still remained in the government and are thrown open to private appropriation and settlement, and excluded the patrimonial property of the government and the friar lands. Same; Same; Same; Same; Land Titles; Enacted by the Philippine Commission, Act 496 placed all public and private lands in the Philippines under the Torrens system.—Grants of public land were brought under the operation of the Torrens system under Act 496, or the Land Registration Law of 1903. Enacted by the Philippine Commission, Act 496 placed all public and private lands in the Philippines under the Torrens system. The law is said to be almost a verbatim copy of the Massachusetts Land Registration Act of 1898, which, in turn, followed the principles and procedure of the Torrens system of registration formulated by Sir Robert Torrens who patterned it after the Merchant Shipping Acts in South Australia. The Torrens system requires that the government issue an official certificate of title attesting to the fact that the person named is the owner of the property described therein, subject to such

liens and encumbrances as thereon noted or the law warrants or reserves. The certificate of title is indefeasible and imprescriptible and all claims to the parcel of land are quieted upon issuance of said certificate. This system highly facilitates land conveyance and negotiation. 132 132 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environment and Natural Resources Same; Same; Same; Same; The delegates to the 1935 Constitutional Convention very well knew that the concept of State ownership of land and natural resources was introduced by the Spaniards, however, they were not certain whether it was continued and applied by the Americans, so to remove all doubts, the Convention approved the provision in the Constitution affirming the Regalian doctrine.—The Regalian doctrine was enshrined in the 1935 Constitution. One of the fixed and dominating objectives of the 1935 Constitutional Convention was the nationalization and conservation of the natural resources of the country. There was an overwhelming sentiment in the Convention in favor of the principle of state ownership of natural resources and the adoption of the Regalian doctrine. State ownership of natural resources was seen as a necessary starting point to secure recognition of the state’s power to control their disposition, exploitation, development, or utilization. The delegates to the Constitutional Convention very well knew that the concept of State ownership of land and natural resources was introduced by the Spaniards, however, they were not certain whether it was continued and applied by the Americans. To remove all doubts, the

Convention approved the provision in the Constitution affirming the Regalian doctrine. Same; Indigenous Peoples Rights Act (RA. No. 8371); Ancestral Domains: Ancestral Lands; Customary Laws; The Indigenous Peoples Rights Act (IPRA) grants the indigenous cultural communities or indigenous peoples (ICCs/IPs) the ownership and possession of their ancestral domains and ancestral lands, and defines the extent of these lands and domains, and the ownership given is the indigenous concept of ownership under customary law which traces its origin to native title.—Republic Act No. 8371 is entitled “An Act to Recognize, Protect and Promote the Rights of Indigenous Cultural Communities/Indigenous Peoples, Creating a National Commission on Indigenous Peoples, Establishing Implementing Mechanisms, Appropriating Funds Therefor, and for Other Purposes.” It is simply known as “The Indigenous Peoples Rights Act of 1997” or the IPRA. The IPRA recognizes the existence of the indigenous cultural communities or indigenous peoples (ICCs/IPs) as a distinct sector in Philippine society. It grants these people the ownership and possession of their ancestral domains and ancestral lands, and defines the extent of these lands and domains. The ownership given is the indigenous concept of ownership under customary law which traces its origin to native title. Same; Same; Same; Same; Words and Phrases; Indigenous Cultural Communities or Indigenous Peoples refer to a group of people or homogeneous societies who have continuously lived as an organized community on communally bounded and defined territory.—Indigenous Cultural Com-

133 VOL. 347, DECEMBER 6, 2000 133 Cruz vs. Secretary of Environment and Natural Resources munities or Indigenous Peoples refer to a group of people or homogeneous societies who have continuously lived as an organized community on communally bounded and defined territory. These groups of people have actually occupied, possessed and utilized their territories under claim of ownership since time immemorial. They share common bonds of language, customs, traditions and other distinctive cultural traits, or, they, by their resistance to political, social and cultural inroads of colonization, non-indigenous religions and cultures, became historically differentiated from the Filipino majority. ICCs/IPs also include descendants of ICCs/IPs who inhabited the country at the time of conquest or colonization, who retain some or all of their own social, economic, cultural and political institutions but who may have been displaced from their traditional territories or who may have resettled outside their ancestral domains. Same; Same; Same; Same; The abrogation of the Filipinos’ ancestral rights in land and the introduction of the concept of public domain were the most immediate fundamental results of Spanish colonial theory and law.—All lands lost by the old barangays in the process of pueblo organization as well as all lands not assigned to them and the pueblos, were now declared to be crown lands or realengas, belonging to the Spanish king. It was from the realengas that land grants were made to nonFilipinos. The abrogation of the Filipinos’ ancestral rights in land and the introduction of the concept of public domain were

the most immediate fundamental results of Spanish colonial theory and law. The concept that the Spanish king was the owner of everything of value in the Indies or colonies was imposed on the natives, and the natives were stripped of their ancestral rights to land. Same; Same; Same; Same; Colonialism tended to divide and rule an otherwise culturally and historically related populace through a colonial system that exploited both the virtues and vices of the Filipinos.—The Moros and infieles resisted Spanish rule and Christianity. The Moros were driven from Manila and the Visayas to Mindanao; while the infieles, to the hinterlands. The Spaniards did not pursue them into the deep interior. The upland societies were naturally outside the immediate concern of Spanish interest, and the cliffs and forests of the hinterlands were difficult and inaccessible, allowing the infieles, in effect, relative security. Thus, the infieles, which were peripheral to colonial administration, were not only able to preserve their own culture but also thwarted the Christianization process, separating themselves from the newly evolved Christian community. Their own political, economic and social systems were kept constantly alive and vibrant. The pro-Christian or pro-Indio attitude of colonialism brought about a generally mutual feeling of suspicion, fear, and hostility between the Christians on the one hand and the non134 13 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environment and Natural Resources Christians on the other. Colonialism tended to divide and rule an otherwise culturally and historically related populace

through a colonial system that exploited both the virtues and vices of the Filipinos. Same; Same; Same; Same; Under the 1973 Constitution, for the first time in Philippine history, the “non-Christian tribes” or the “cultural minorities” were addressed by the highest law of the Republic, and they were referred to as “cultural communities.”—It was in the 1973 Constitution that the State adopted the following provision: “The State shall consider the customs, traditions, beliefs, and interests of national cultural communities in the formulation and implementation of State policies.” For the first time in Philippine history, the “nonChristian tribes” or the “cultural minorities” were addressed by the highest law of the Republic, and they were referred to as “cultural communities.” More importantly this time, their “uncivilized” culture was given some recognition and their “customs, traditions, beliefs and interests” were to be considered by the State in the formulation and implementation of State policies. President Marcos abolished the CNI and transferred its functions to the Presidential Adviser on National Minorities (PANAMIN). The PANAMIN was tasked to integrate the ethnic groups that sought full integration into the larger community, and at the same time “protect the rights of those who wish to preserve their original lifeways beside the larger community.” In short, while still adopting the integration policy, the decree recognized the right of tribal Filipinos to preserve their way of life. Same; Same; Same; Same; The Aquino government signified a total shift from the policy of integration to one of preservation.—The Aquino government signified a total shift from the policy of integration to one of preservation. Invoking

her powers under the Freedom Constitution, President Aquino created the Office of Muslim Affairs, Office for Northern Cultural Communities and the Office for Southern Cultural Communities all under the Office of the President. Same; Same; Same; Same; The State, by recognizing the right of tribal Filipinos to their ancestral lands and domains, has effectively upheld their right to live in a culture distinctly their own.—The 1987 Constitution carries at least six (6) provisions which insure the right of tribal Filipinos to preserve their way of life. This Constitution goes further than the 1973 Constitution by expressly guaranteeing the rights of tribal Filipinos to their ancestral domains and ancestral lands. By recognizing their right to their ancestral lands and domains, the State has effectively upheld their right to live in a culture distinctly their own. 135 VOL. 347, DECEMBER 6, 2000 135 Cruz vs. Secretary of Environment and Natural Resources Same; Same; Same; Same; Land Titles; Land titles do not exist in the indigenous peoples’ economic and social system—the concept of individual land ownership under the civil law is alien to them.—Land titles do not exist in the indigenous peoples' economic and social system. The concept of individual land ownership under the civil law is alien to them. Inherently colonial in origin, our national land laws and governmental policies frown upon indigenous claims to ancestral lands. Communal ownership is looked upon as inferior, if not inexistent.

Same; Same; Same; Same; It was to address the centuries-old neglect of the Philippine indigenous peoples that the Tenth Congress passed and approved the Indigenous Peoples Rights Act (IPRA) of 1997.—It was to address the centuries-old neglect of the Philippine indigenous peoples that the Tenth Congress of the Philippines, by their joint efforts, passed and approved R.A. No. 8371, the Indigenous Peoples Rights Act (IPRA) of 1997. The law was a consolidation of two Bills— Senate Bill No. 1728 and House Bill No. 9125. Same; Same; Same; Same; Words and Phrases; “Ancestral Domains,” Explained.—Ancestral domains are all areas belonging to ICCs/IPs held under a claim of ownership, occupied or possessed by ICCs/IPs by themselves or through their ancestors, communally or individually since time immemorial, continuously until the present, except when interrupted by war, force majeure or displacement by force, deceit, stealth or as a consequence of government projects or any other voluntary dealings with government and/or private individuals or corporations. Ancestral domains comprise lands, inland waters, coastal areas, and natural resources therein and includes ancestral lands, forests, pasture, residential, agricultural, and other lands individually owned whether alienable or not, hunting grounds, burial grounds, worship areas, bodies of water, mineral and other natural resources. They also include lands which may no longer be exclusively occupied by ICCs/IPs but from which they traditionally had access to for their subsistence and traditional activities, particularly the home ranges of ICCs/IPs who are still nomadic and/or shifting cultivators.

Same; Same; Same; Same; Same; “Ancestral Lands,” Explained.—Ancestral lands are lands held by the ICCs/IPs under the same conditions as ancestral domains except that these are limited to lands and that these lands are not merely occupied and possessed but are also utilized by the ICCs/IPs under claims of individual or traditional group ownership. These lands include but are not limited to residential lots, rice terraces or paddies, private forests, swidden farms and tree lots. 136 136 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environment and Natural Resources Same; Same; Same; Same; Land Titles; Customary Laws; The National Commission on Indigenous Peoples (NCIP) issues a Certificate of Ancestral Domain Title (CADT) in the name of the community concerned, leaving the allocation of lands within the ancestral domain to any individual or indigenous corporate (family or clan) claimants to the ICCs/IPs concerned to decide in accordance with customs and traditions while with respect to ancestral lands outside the ancestral domains, the NICP issues a Certificate of Ancestral Land Title (CALT).— Upon due application and compliance with the procedure provided under the law and upon finding by the NCIP that the application is meritorious, the NCIP shall issue a Certificate of Ancestral Domain Title (CADT) in the name of the community concerned. The allocation of lands within the ancestral domain to any individual or indigenous corporate (family or clan) claimants is left to the ICCs/IPs concerned to decide in accordance with customs and traditions. With respect to ancestral lands outside the ancestral domain, the NCIP issues a

Certificate of Ancestral Land Title (CALT). CADTs and CALTs issued under the IPRA shall be registered by the NCIP before the Register of Deeds in the place where the property is situated. Same; Same; Same; Same; Same; The IPRA categorically declares ancestral lands and domains held by native title as never to have been public land—domains and lands held under native title are, therefore, indisputably presumed to have never been public lands and are private.—Native title refers to ICCs/IPs’ preconquest rights to lands and domains held under a claim of private ownership as far back as memory reaches. These lands are deemed never to have been public lands and are indisputably presumed to have been held that way since before the Spanish Conquest. The rights of ICCs/IPs to their ancestral domains (which also include ancestral lands) by virtue of native title shall be recognized and respected. Formal recognition, when solicited by ICCs/IPs concerned, shall be embodied in a Certificate of Ancestral Domain Title (CADT), which shall recognize the title of the concerned ICCs/IPs over the territories identified and delineated. Like a Torrens title, a CADT is evidence of private ownership of land by native title. Native title, however, is a right of private ownership peculiarly granted to ICCs/IPs over their ancestral lands and domains. The IPRA categorically declares ancestral lands and domains held by native title as never to have been public land. Domains and lands held under native title are, therefore, indisputably presumed to have never been public lands andare private. Same; Same; Same; Same; Same; The concept of native title first upheld in Cariño v. Insular Government, 41 Phil 935

(1909), 212 US. 449, 53 L.Ed. 594, and enshrined in the IPRA grants ownership, albeit in limited 137 VOL. 347, DECEMBER 6, 2000 137 Cruz vs. Secretary of Environment and Natural Resources form, of the land to the ICCs/IPs.—In the Philippines, the concept of native title first upheld in Cariño and enshrined in the IPRA grants ownership, albeit in limited form, of the land to the ICCs/IPs. Native title presumes that the land is private and was never public. Cariño is the only case that specifically and categorically recognizes native title. The long line of cases citing Cariño did not touch on native title and the private character of ancestral domains and lands. Cariño was cited by the succeeding cases to support the concept of acquisitive prescription under the Public Land Act which is a different matter altogether. Under the Public Land Act, land sought to be registered must be public agricultural land. When the conditions specified in Section 48 [b] of the Public Land Act are complied with, the possessor of the land is deemed to have acquired, by operation of law, a right to a grant of the land. The land ceases to be part of the public domain, ipso jure, and is converted to private property by the mere lapse or completion of the prescribed statutory period. Same; Same; Same; Same; Same; Ancestral lands and ancestral domains are not part of the lands of the public domain; they are private and belong to the ICCs/IPs.—Thus, ancestral lands and ancestral domains are not part of the lands of the public domain. They are private and belong to the ICCs/IPs. Section 3 of Article XII on National Economy and Patrimony of the 1987

Constitution classifies lands of the public domain into four categories: (a) agricultural, (b) forest or timber, (c) mineral lands, and (d) national parks. Section 5 of the same Article XII mentions ancestral lands and ancestral domains but it does not classify them under any of the said four categories. To classify them as public lands under any one of the four classes will render the entire IPRA law a nullity. The spirit of the IPRA lies in the distinct concept of ancestral domains and ancestral lands. The IPRA addresses the major problem of the ICCs/IPs which is loss of land. Land and space are of vital concern in terms of sheer survival of the ICCs/IPs. The 1987 Constitution mandates the State to “protect the rights of indigenous cultural communities to their ancestral lands” and that “Congress provide for the applicability of customary laws x x x in determining the ownership and extent of ancestral domain.” It is the recognition of the ICCs/IPs distinct rights of ownership over their ancestral domains and lands that breathes life into this constitutional mandate. Same; Same; Same; Same; The right of ownership and possession of the ICCs/IPs to their ancestral domains is held under the indigenous concept of ownership which maintains the view that ancestral domains are the ICCs/IPs private but community property.—The right of ownership and possession of the ICCs/IPs to their ancestral domains is held under the indigenous concept of ownership. This concept maintains the view that 138 138 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environment and Natural Resources

ancestral domains are the ICCs/IPs private but community property. It is private simply because it is not part of the public domain. But its private character ends there. The ancestral domain is owned in common by the ICCs/IPs and not by one particular person. The IPRA itself provides that areas within the ancestral domains, whether delineated or not, are presumed to be communally held. These communal rights, however, are not exactly the same as co-ownership rights under the Civil Code. Co-ownership gives any co-owner the right to demand partition of the property held in common. The Civil Code expressly provides that “[n]o co-owner shall be obliged to remain in the co-ownership.” Each co-owner may demand at any time the partition of the thing in common, insofar as his share is concerned. To allow such a right over ancestral domains may be destructive not only of customary law of the community but of the very community itself. Same; Same; Same; Same; Customary Laws; The IPRA, by legislative fiat, introduces a new concept of ownership, a concept that has long existed under customary law.— Following the constitutional mandate that “customary law govern property rights or relations in determining the ownership and extent of ancestral domains,” the IPRA, by legislative flat, introduces a new concept of ownership. This is a concept that has long existed under customary law. Same; Same; Same; Same; Same; Customary law is a primary, not secondary, source of rights under the IPRA and uniquely applies to ICCs/IPs, and its recognition does not depend on the absence of a specific provision in the civil law.—Custom, from which customary law is derived, is also recognized under the Civil Code as a source of law. Some articles of the Civil Code

expressly provide that custom should be applied in cases where no codal provision is applicable. In other words, in the absence of any applicable provision in the Civil Code, custom, when duly proven, can define rights and liabilities. Customary law is a primary, not secondary, source of rights under the IPRA and uniquely applies to ICCs/IPs. Its recognition does not depend on the absence of a specific provision in the civil law. The indigenous concept of ownership under customary law is specifically acknowledged and recognized, and coexists with the civil law concept and the laws on land titling and land registration. Same; Same; Same; Same; Natural Resources; There is nothing in IPRA that grants to the ICCs/IPs ownership over the natural resources within their ancestral domains.—Examining the IPRA, there is nothing in the law that grants to the ICCs/IPs ownership over the natural resources within their ancestral domains. The right of ICCs/IPs in their ancestral 139 VOL. 347, DECEMBER 6, 2000 139 Cruz vs. Secretary of Environment and Natural Resources domains includes ownership, but this “ownership” is expressly defined and limited in Section 7 (a) as: “Sec. 7. a) Right of ownership—The right to claim ownership over lands, bodies of water traditionally and actually occupied by ICCs/IPs, sacred places, traditional hunting and fishing grounds, and all improvements made by them at any time within the domains;” The ICCs/IPs are given the right to claim ownership over “lands, bodies of water traditionally and actually occupied by ICCs/IPs, sacred places, traditional hunting and fishing

grounds, and all improvements made by them at any time within the domains.” It will be noted that this enumeration does not mention bodies of water not occupied by the ICCs/IPs, minerals, coal, wildlife, flora and fauna in the traditional hunting grounds, fish in the traditional fishing grounds, forests or timber in the sacred places, etc. and all other natural resources found within the ancestral domains. Indeed, the right of ownership under Section 7 (a) does not cover “waters, minerals, coal, petroleum and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna and all other natural resources” enumerated in Section 2, Article XII of the 1987 Constitution as belonging to the State. Same; Same; Same; Same; Same; The inclusion of “natural resources” in Section 1, Part II, Rule III of the Implementing Rules goes beyond the parameters of Section 7 (b) of the law and is contrary to Section 2, Article XII of the 1987 Constitution.—The constitutionality of Section 1, Part II, Rule III of the Implementing Rules was not specifically and categorically challenged by petitioners. Petitioners actually assail the constitutionality of the Implementing Rules in general. Nevertheless, to avoid any confusion in the implementation of the law, it is necessary to declare that the inclusion of “natural resources” in Section 1, Part II, Rule III of the Implementing Rules goes beyond the parameters of Section 7 (b) of the law and is contrary to Section 2, Article XII of the 1987 Constitution. Same; Same; Same; Same; Same; The right to negotiate the terms and conditions over the natural resources covers only their exploration which must be for the purpose of ensuring ecological and environmental protection of, and conservation

measures in the ancestral domain—it does not extend to the exploitation and development of natural resources.— Ownership over the natural resources in the ancestral domains remains with the State and the ICCs/IPs are merely granted the right to “manage and conserve” them for future generations, “benefit and share” the profits from their allocation and utilization, and “negotiate the terms and conditions for their exploration” for the purpose of “ensuring ecological and environmental protection and conservation measures.” It must be noted that the right to negotiate the terms and conditions over the natural re140 140 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environment and Natural Resources sources covers only their exploration which must be for the purpose of ensuring ecological and environmental protection of, and conservation measures in the ancestral domain. It does not extend to the exploitation and development of natural resources. Simply stated, the ICCs/IPs’ rights over the natural resources take the form of management or stewardship. For the ICCs/IPs may use these resources and share in the profits of their utilization or negotiate the terms for their exploration. At the same time, however, the ICCs/IPs must ensure that the natural resources within their ancestral domains are conserved for future generations and that the “utilization” of these resources must not harm the ecology and environment pursuant to national and customary laws.

Same; Same; Same; Same; Same; The limited rights of “management and use” in Section 7 (b) of the IPRA must be taken to contemplate small-scale utilization of natural resources as distinguished from large-scale utilization.—The limited rights of “management and use” in Section 7 (b) must be taken to contemplate small-scale utilization of natural resources as distinguished from large-scale. Small-scale utilization of natural resources is expressly allowed in the third paragraph of Section 2, Article XII of the Constitution “in recognition of the plight of forest dwellers, gold panners, marginal fishermen and others similarly situated who exploit our natural resources for their daily sustenance and survival.” Section 7 (b) also expressly mandates the ICCs/IPs to manage and conserve these resources and ensure environmental and ecological protection within the domains, which duties, by their very nature, necessarily reject utilization in a large-scale. Same; Same; Same; Same; Same; The rights granted by the IPRA to the ICCs/IPs over the natural resources in their ancestral domains merely gives the ICCs/IPs, as owners and occupants of the land on which the resources are found, the right to the small-scale utilization of these resources, and at the same time, a priority in their large-scale development and exploitation.—The rights granted by the IPRA to the ICCs/IPs over the natural resources in their ancestral domains merely gives the ICCs/IPs, as owners and occupants of the land on which the resources are found, the right to the small-scale utilization of these resources, and at the same time, a priority in their large-scale development and exploitation. Section 57 does not mandate the State to automatically give priority to the ICCs/IPs. The State has several options and it is within its

discretion to choose which option to pursue. Moreover, there is nothing in the law that gives the ICCs/IPs the right to solely undertake the large-scale development of the natural resources within their domains. The ICCs/IPs must undertake such endeavour always under State supervision or control. This 141 VOL. 347, DECEMBER 6, 2000 141 Cruz vs. Secretary of Environment and Natural Resources indicates that the State does not lose control and ownership over the resources even in their exploitation. Sections 7 (b) and 57 of the law simply give due respect to the ICCs/IPs who, as actual occupants of the land where the natural resources lie, have traditionally utilized these resources for their subsistence and survival. Same; Same; Same; Same; Ecology and Environment; Indigenous rights came as a result of both human rights and environmental protection, and have become a part of today’s priorities for the international agenda.—Presently, there is a growing concern for indigenous rights in the international scene. This came as a result of the increased publicity focused on the continuing disrespect for indigenous human rights and the destruction of the indigenous peoples’ environment, together with the national governments’ inability to deal with the situation. Indigenous rights came as a result of both human rights and environmental protection, and have become a part of today’s priorities for the international agenda. Same; Same; Same; Same; Customary Laws; If the evolution of the Filipino people into a democratic society is to truly proceed democratically, i.e., if the Filipinos as a whole are to

participate fully in the task of continuing democratization, it is the Supreme Court’s duty to acknowledge the presence of indigenous and customary laws in the country and affirm their co-existence with the land laws in our national legal system.— The struggle of the Filipinos throughout colonial history had been plagued by ethnic and religious differences. These differences were carried over and magnified by the Philippine government through the imposition of a national legal order that is mostly foreign in origin or derivation. Largely unpopulist, the present legal system has resulted in the alienation of a large sector of society, specifically, the indigenous peoples. The histories and cultures of the indigenes are relevant to the evolution of Philippine culture and are vital to the understanding of contemporary problems. It is through the IPRA that an attempt was made by our legislators to understand Filipino society not in terms of myths and biases but through common experiences in the course of history. The Philippines became a democracy a centennial ago and the decolonization process still continues. If the evolution of the Filipino people into a democratic society is to truly proceed democratically, i.e., if the Filipinos as a whole are to participate fully in the task of continuing democratization, it is this Court’s duty to acknowledge the presence of indigenous and customary laws in the country and affirm their co-existence with the land laws in our national legal system. 142 142 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environment and Natural Resources

VITUG, J., Separate Opinion: Supreme Court; Judicial Review; Procedural Rules and Technicalities; Until an exact balance is struck, the Court must accept an eclectic notion that can free itself from the bondage of legal nicety and hold trenchant technicalities subordinate to what may be considered to be of overriding concern.— Nevertheless, where a most compelling reason exists, such as when the matter is of transcendental importance and paramount interest to the nation, the Court must take the liberal approach that recognizes the legal standing of nontraditional plaintiffs, such as citizens and taxpayers, to raise constitutional issues that affect them. This Court thus did so in a case that involves the conservation of our forests for ecological needs. Until an exact balance is struck, the Court must accept an eclectic notion that can free Itself from the bondage of legal nicety and hold trenchant technicalities subordinate to what may be considered to be of overriding concern. National Patrimony; Regalian Doctrine; Natural Resources; Indigenous Peoples Rights Act (IPRA); The provisions Sections 7 and 57 of the IPRA, in their totality, are, in my view, beyond the context of the fundamental law and virtually amount to an undue delegation, if not an unacceptable abdication, of State authority over a significant area of the country and its patrimony.—IPRA effectively withdraws from the public domain the so-called ancestral domains covering literally millions of hectares. The notion of community property would comprehend not only matters of proprietary interest but also some forms of self-governance over the carved-out territory. This concept is elaborated in Section 7 of the law which states that the “rights of ownership and

possession of ICCs/IPs to their ancestral domains shall be recognized and protected,” subsumed under which would encompass the right of ownership (paragraph a); the right to develop, control and use lands and natural resources, including “the right to negotiate the terms and conditions for the exploration of natural resources in the areas for the purpose of ensuring ecological, environmental protection and the conservation measures, pursuant to national and customary laws;” (par. b); the right to stay in the territories (par. c); the right to return to their abandoned lands. In case of displacement (par. d); the right to regulate entry of migrants (par. e); the right to claim parts of ancestral domains previously reserved (par. g); and the right to resolve land conflicts. In accordance primarily with customary law (par. h). Concurrently, Section 57 states that ICCs/IPs shall be given “priority rights in the harvesting, extraction, development or exploitation of any natural resources within the ancestral domains.” These provisions of IPRA, in their totality, are, in my view, beyond the context of the fun143 VOL. 347, DECEMBER 6, 2000 143 Cruz vs. Secretary of Environment and Natural Resources damental law and virtually amount to an undue delegation, if not an unacceptable abdication, of State authority over a significant area of the country and its patrimony. Same; Same; Same; The decision of the United States Supreme Court in Cariño v. Insular Government, 41 Phil 935 (1910), holding that a parcel of land held since time immemorial by individuals under a claim of private ownership is presumed

never to have been public land and cited to downgrade the application of the regalian doctrine, cannot override the collective will of the people expressed in the Constitution.— The decision of the United States Supreme Court in Cariño vs. Insular Government, holding that a parcel of land held since time immemorial by individuals under a claim of private ownership is presumed never to have been public land and cited to downgrade the application of the regalian doctrine, cannot override the collective will of the people expressed in the Constitution. It is in them that sovereignty resides and from them that all government authority emanates. It is not then for a court ruling or any piece of legislation to be conformed to by the fundamental law, but it is for the former to adapt to the latter, and it is the sovereign act that must, between them, stand inviolate. Customary Laws; I do not see the statement in Section 5 of Article XII of the Constitution allowing Congress to provide “for the applicability of customary laws governing property rights or relations in determining the ownership and extent of ancestral domains” as saying that Congress may enact a law that would simply express that “customary laws shall govern” and end it there.—The second paragraph of Section 5 of Article XII of the Constitution allows Congress to provide “for the applicability of customary laws governing property rights or relations in determining the ownership and extent of ancestral domains.” I do not see this statement as saying that Congress may enact a law that would simply express that “customary laws shall govern” and end it there. Had it been so, the Constitution could have itself easily provided without having to still commission Congress to do it.

Same; Customary laws, when specifically enacted to become part of statutory law, must first undergo that publication to render them correspondingly binding and effective as such.— The constitutional aim, it seems to me, is to get Congress to look closely into the customary laws and, with specificity and by proper recitals, to hew them to, and make them part of, the stream of laws. The “due process clause,” as I so understand it in Tañada vs. Tuvera would require an apt publication of a legislative enactment before it is permitted to take force and effect. So, also 144 144 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environment and Natural Resources customary laws, when specifically enacted to become part of statutory law, must first undergo that publication to render them correspondingly binding and effective as such. KAPUNAN, J., Separate Opinion: Indigenous Peoples Rights Act (IPRA); Words and Phrases; International Law; In international law, the definition of what constitutes “indigenous peoples” attains some degree of controversy.—The term “indigenous” traces its origin to the Old Latin word indu, meaning “within.” In the sense the term has come to be used, it is nearer in meaning to the Latin word indigenus, which means “native.” “Indigenous” refers to that which originated or has been produced naturally in a particular land, and has not been introduced from the outside. In international law, the definition of what constitutes “indigenous peoples” attains some degree of controversy. No definition of the term “indigenous peoples” has been adopted by the United

Nations (UN), although UN practice has been guided by a working definition in the 1986 Report of UN Special Rapporteur Martinez Cobo. Same; Same; In Philippine constitutional law, the term “indigenous peoples” pertains to those groups of Filipinos who have retained a high degree of continuity from pre-Conquest culture.—In Philippine constitutional law, the term “indigenous peoples” pertains to those groups of Fili-pinos who have retained a high degree of continuity from pre-Conquest culture. Philippine legal history, however, has not been kind to the indigenous peoples, characterized them as “uncivilized,” “backward people,” with “barbarous practices” and “a low order of intelligence.” Same; Same; The extant Philippine national culture is the culture of the majority, its indigenous roots were replaced by foreign cultural elements that are decidedly pronounced, if not dominant.—Though Filipinos today are essentially of the same stock as the indigenous peoples, our national culture exhibits only the last vestiges of this native culture. Centuries of colonial rule and neocolonial domination have created a discernible distinction between the cultural majority and the group of cultural minorities. The extant Philippine national culture is the culture of the majority; its indigenous roots were replaced by foreign cultural elements that are decidedly pronounced, if not dominant. While the culture of the majority reoriented itself to Western influence, the culture of the minorities has retained its essentially native character. 145 VOL. 347, DECEMBER 6, 2000 145 Cruz vs. Secretary of Environment and Natural Resources

Supreme Court; Judicial Review; When the State machinery is set into motion to implement an alleged unconstitutional statute, the Supreme Court possesses sufficient authority to resolve and prevent imminent injury and violation of the constitutional process.—In the case at bar, there exists a live controversy involving a clash of legal rights. A law has been enacted, and the Implementing Rules and Regulations approved. Money has been appropriated and the government agencies concerned have been directed to implement the statute. It cannot be successfully maintained that we should await the adverse consequences of the law in order to consider the controversy actual and ripe for judicial resolution. It is precisely the contention of the petitioners that the law, on its face, constitutes an unconstitutional abdication of State ownership over lands of the public domain and other natural resources. Moreover, when the State machinery is set into motion to implement an alleged unconstitutional statute, this Court possesses sufficient authority to resolve and prevent imminent injury and violation of the constitutional process. Same; Same; Parties; Locus Standi; Taxpayer’s Suits; Citizen’s Suits; In a sense, all citizen’s and taxpayer’s suits are efforts to air generalized grievances about the conduct of government and the allocation of power.—In addition to the existence of an actual case or controversy, a person who assails the validity of a statute must have a personal and substantial interest in the case, such that, he has sustained, or will sustain, a direct injury as a result of its enforcement. Evidently, the rights asserted by petitioners as citizens and taxpayers are held in common by all the citizens, the violation of which may result only in a

“generalized grievance.” Yet, in a sense, all citizen’s and taxpayer’s suits are efforts to air generalized grievances about the conduct of government and the allocation of power. Same; Same; Same; Same; Same; Same; National Patrimony; The preservation of the integrity and inviolability of the national patrimony is a proper subject of a citizen’s suit.— Petitioners, as citizens, possess the “public right” to ensure that the national patrimony is not alienated and diminished in violation of the Constitution. Since the government, as the guardian of the national patrimony, holds it for the benefit of all Filipinos without distinction as to ethnicity, it follows that a citizen has sufficient interest to maintain a suit to ensure that any grant of concessions covering the national economy and patrimony strictly complies with constitutional requirements. Thus, the preservation of the integrity and inviolability of the national patrimony is a proper subject of a citizen’s suit. 146 146 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environment and Natural Resources National Patrimony; Regalian Doctrine; The theory of jura regalia was nothing more than a natural fruit of conquest; The Regalian theory does not negate native title to lands held in private ownership since time immemorial.—Generally, under the concept of jura regalia, private title to land must be traced to some grant, express or implied, from the Spanish Crown or its successors, the American Colonial government, and thereafter, the Philippine Republic. The belief that the Spanish Crown is the origin of all land titles in the Philippines has persisted because title to land must emanate from some source

for it cannot issue forth from nowhere. In its broad sense, the term “jura regalia” refers to royal rights, or those rights which the King has by virtue of his prerogatives. In Spanish law, it refers to a right which the sovereign has over anything in which a subject has a right of property or propriedad. These were rights enjoyed during feudal times by the king as the sovereign. The theory of the feudal system was that title to all lands was originally held by the King, and while the use of lands was granted out to others who were permitted to hold them under certain conditions, the King theoretically retained the title. By fiction of law, the King was regarded as the original proprietor of all lands, and the true and only source of title, and from him all lands were held. The theory of jura regalia was therefore nothing more than a natural fruit of conquest. The Regalian theory, however, does not negate native title to lands held in private ownership since time immemorial. Same; Same; Natural Resources; The mere fact that Section 3(a) of IPRA defines ancestral domains to include the natural resources, found therein does not ipso facto convert the character of such natural resources as private property of the indigenous people.—Section 3(a) merely defines the coverage of ancestral domains, and describes the extent, limit and composition of ancestral domains by setting forth the standards and guidelines in determining whether a particular area is to be considered as part of and within the ancestral domains. In other words, Section 3(a) serves only as a yardstick which points out what properties are within the ancestral domains. It does not confer or recognize any right of ownership over the natural resources to the indigenous peoples. Its purpose is definitional

and not declarative of a right or title. The specification of what areas belong to the ancestral domains is, to our mind, important to ensure that no unnecessary encroachment on private properties outside the ancestral domains will result during the delineation process. The mere fact that Section 3(a) defines ancestral domains to include the natural resources found therein does not ipso facto convert the character of such natural resources as private property of the indigenous peoples. Similarly, Section 5 in relation to Section 3(a) cannot be construed as a source of ownership rights of indigenous people over the natural resources simply 147 VOL. 347, DECEMBER 6, 2000 147 Cruz vs. Secretary of Environment and Natural Resources because it recognizes ancestral domains as their “private but community property.” Same; Same; Same; Words and Phrases; The phrase “private but community property” is merely descriptive of the indigenous peoples’ concept of ownership as distinguished from that provided in the Civil Code.—The phrase “private but community property” is merely descriptive of the indigenous peoples’ concept of ownership as distinguished from that provided in the Civil Code. In Civil Law, “ownership” is the “independent and general power of a person over a thing for purposes recognized by law and within the limits established thereby.” The civil law concept of ownership has the following attributes: jus utendi or the right to receive from the thing that which it produces, jus abutendi or the right to consume the thing by its use, jus disponendi or the power to alienate,

encumber, transform and even destroy that which is owned, and jus vindicandi or the right to exclude other persons from the possession the thing owned. In contrast, the indigenous peoples’ concept of ownership emphasizes the importance of communal or group ownership. By virtue of the communal character of ownership, the property held in common “cannot be sold, disposed or destroyed” because it was meant to benefit the whole indigenous community and not merelythe individual member. Same; Same; Same; The concept of native title to natural resources, unlike native title to land, has not been recognized in the Philippines.—Finally, the concept of native title to natural resources, unlike native title to land, has not been recognized in the Philippines. NCIP and Flavier, et al. invoke the case of Reavies v. Fianza in support of their thesis that native title to natural resources has been upheld in this jurisdiction. They insist that “it is possible for rights over natural resources to vest on a private (as opposed to a public) holder if these were held prior to the 1935 Constitution.” However, a judicious examination of Reavies reveals that, contrary to the position of NCIP and Flavier, et al., the Court did not recognize native title to natural resources. Rather, it merely upheld the right of the indigenous peoples to claim ownership of minerals under the Philippine Bill of 1902. Same; Same; Same; Upon the certification of certain areas as ancestral domain following the procedure outlined in Sections 51 to 53 of the IPRA, jurisdiction of the government agency or agencies concerned over lands forming part thereof ceases but the jurisdiction of government agencies over the natural resources within the ancestral domains does not terminate by

such certification because said agencies are mandated under existing laws to administer the natural resources for the State, which is the 148 148 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environment and Natural Resources owner thereof.—Undoubtedly, certain areas that are claimed as ancestral domains may still be under the administration of other agencies of the Government, such as the Department of Agrarian Reform, with respect to agricultural lands, and the Department of Environment and Natural Resources with respect to timber, forest and mineral lands. Upon the certification of these areas as ancestral domain following the procedure outlined in Sections 51 to 53 of the IPRA, jurisdiction of the government agency or agencies concerned over lands forming part thereof ceases. Nevertheless, the jurisdiction of government agencies over the natural resources within the ancestral domains does not terminate by such certification because said agencies are mandated under existing laws to administer the natural resources for the State, which is the owner thereof. To construe Section 52[i] as divesting the State, through the government agencies concerned, of jurisdiction over the natural resources within the ancestral domains would be inconsistent with the established doctrine that all natural resources are owned by the State. Same; Same; Same; Clearly, Section 2, Article XII, when interpreted in view of the pro-Filipino, pro-poor philosophy of our fundamental law, and in harmony with the other provisions of the Constitution rather as a sequestered pronouncement,

cannot be construed as a prohibition against any and all forms of utilization of natural resources without the State’s direct participation.—In addition to the means of exploration, development and utilization of the country’s natural resources stated in paragraph 1, Section 2 of Article XII, the Constitution itself states in the third paragraph of the same section that Congress may, by law, allow small-scale utilization of natural resources by its citizens. Further, Section 6, Article XIII, directs the State, in the disposition and utilization of natural resources, to apply the principles of agrarian reform or stewardship. Similarly, Section 7, Article XIII mandates the State to protect the rights of subsistence fishermen to the preferential use of marine and fishing resources. Clearly, Section 2, Article XII, when interpreted in view of the proFilipino, pro-poor philosophy of our fundamental law, and in harmony with the other provisions of the Constitution rather as a sequestered pronouncement, cannot be construed as a prohibition against any and all forms of utilization of natural resources without the State’s direct participation. Same; Same; Same; Land Titles; By the enactment of IPRA, Congress did not purport to annul any and all Torrens titles within areas claimed as ancestral lands or ancestral domains.— Further, by the enactment of IPRA, Congress did not purport to annul any and all Torrens titles within areas claimed as ancestral lands or ancestral domains. The statute im149 VOL. 347, DECEMBER 6, 2000 149 Cruz vs. Secretary of Environment and Natural Resources

poses strict procedural requirements for the proper delineation of ancestral lands and ancestral domains as safeguards against the fraudulent deprivation of any landowner of his land, whether or not he is member of an indigenous cultural community. In all proceedings for delineation of ancestral lands and ancestral domains, the Director of Lands shall appear to represent the interest of the Republic of the Philippines. With regard to ancestral domains, the following procedure is mandatory: first, petition by an indigenous cultural community, or motu proprio by the NCIP; second, investigation and census by the Ancestral domains Office (“ADO”) of the NCIP; third, preliminary report by the ADO; fourth, posting and publication; and lastly, evaluation by the NCIP upon submission of the final report of the ADO. With regard to ancestral lands, unless such lands are within an ancestral domain, the statute imposes the following procedural requirements: first, application; second, posting and publication; third, investigation and inspection by the ADO; fourth, delineation; lastly, evaluation by the NCIP upon submission of a report by the ADO. Hence, we cannot sustain the arguments of the petitioners that the law affords no protection to those who are not indigenous peoples. Indigenous Peoples; Due Process; The fact that the NCIP is composed of members of the indigenous peoples does not mean that it (the NCIP) is incapable, or will appear to be so incapable, of delivering justice to the non-indigenous peoples.—The fact that the NCIP is composed of members of the indigenous peoples does not mean that it (the NCIP) is incapable, or will appear to be so incapable, of delivering justice to the non-indigenous peoples. A person’s possession of

the trait of impartiality desirable of a judge has nothing to do with his or her ethnic roots. In this wise, the indigenous peoples are as capable of rendering justice as the nonindigenous peoples for, certainly, the latter have no monopoly of the concept of justice. Same; Customary Laws; The use of customary laws under the IPRA is not absolute, for the law speaks merely of primacy of use.—Anent the use of customary laws in determining the ownership and extent of ancestral domains, suffice it to say that such is allowed under paragraph 2, Section 5 of Article XII of the Constitution. Said provision states, “The Congress may provide for the applicability of customary laws governing property rights and relations in determining the ownership and extent of the ancestral domains.” Notably, the use of customary laws under IPRA is not absolute, for the law speaks merely of primacy of use. The IPRA prescribes the application of such customary laws where these present a workable solution acceptable to the parties, who are members of the same indige150 150 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environment and Natural Resources nous group. This interpretation is supported by Section 1, Rule IX of the Implementing Rules. Same; Same; When one of the parties to a dispute is a nonmember of an indigenous group, or when the indigenous peoples involved belong to different groups, the application of customary law is not required.—The application of customary law is limited to disputes concerning property rights or relations in determining the ownership and extent of the

ancestral domains, where all the parties involved are members of indigenous peoples, specifically, of the same indigenous group. It therefore follows that when one of the parties to a dispute is a non-member of an indigenous group, or when the indigenous peoples involved belong to different groups, the application of customary law is not required. Administrative Law; Presidency; Power of Control; Words and Phrases; An “independent agency” is an administrative body independent of the executive branch or one not subject to a superior head of department, as distinguished from a “subordinate agency” or an administrative body whose action is subject to administrative review or revision.—The NCIP has been designated under IPRA as the primary government agency responsible for the formulation and implementation of policies, plans and programs to promote and protect the rights and well being of the indigenous peoples and the recognition of their ancestral domain as well as their rights thereto. It has been granted administrative, quasi-legislative and quasi-judicial powers to carry out its mandate. The diverse nature of the NCIP’s functions renders it impossible to place said agency entirely under the control of only one branch of government and this, apparently, is the reason for its characterization by Congress as an independent agency. An “independent agency” is defined as an administrative body independent of the executive branch or one not subject to a superior head of department, as distinguished from a “subordinate agency” or an administrative body whose action is subject to administrative review or revision. Same; Same; Same; The NCIP, although independent to a certain degree, was placed by Congress “under the office of the

President” and, as such, is still subject to the President’s power to control and supervision with respect to its performance of administrative functions.—That Congress did not intend to place the NCIP under the control of the President in all instances is evident in the IPRA itself, which provides that the decisions of the NCIP in the exercise of its quasi-judicial functions shall be appealable to the Court of Appeals, like those of the National Labor Relations Commission (NLRC) and the Securities and Exchange Commission (SEC). Nevertheless, the NCIP, although independent to a certain degree, was 151 VOL. 347, DECEMBER 6, 2000 151 Cruz vs. Secretary of Environment and Natural Resources placed by Congress “under the office of the President” and, as such, is still subject to the President’s power of control and supervision granted under Section 17, Article VII of the Constitution with respect to its performance of administrative functions, such as the following: (1) the NCIP must secure the President’s approval in obtaining loans to finance its projects; (2) it must obtain the President’s approval for any negotiation for funds and for the acceptance of gifts and/or properties in whatever form and from whatever source; (3) the NCIP shall submit annual reports of its operations and achievements to the President, and advise the latter on all matters relating to the indigenous peoples; and (4) it shall exercise such other powers as may be directed by the President. The President is also given the power to appoint the Commissioners of the NCIP as well as

to remove them from office for cause motu proprio or upon the recommendation of any indigenous community. MENDOZA, J., Separate Opinion: Courts; Judicial Review; The judicial power vested in the Supreme Court by Art. VIII, §1 extends only to cases and controversies for the determination of such proceedings as are established by law for the protection or enforcement of rights, or the prevention, redress or punishment of wrongs.—The judicial power vested in this Court by Art. VIII, §1 extends only to cases and controversies for the determination of such proceedings as are established by law for the protection or enforcement of rights, or the prevention, redress or punishment of wrongs. In this case, the purpose of the suit is not to enforce a property right of petitioners against the government and other respondents or to demand compensation for injuries suffered by them as a result of the enforcement of the law, but only to settle what they believe to be the doubtful character of the law in question. Any judgment that we render in this case will thus not conclude or bind real parties in the future, when actual litigation will bring to the Court the question of the constitutionality of such legislation. Such judgment cannot be executed as it amounts to no more than an expression of opinion upon the validity of the provisions of the law in question. Same; Same; The statement that the judicial power includes the duty to determine whether there has been a grave abuse of discretion was inserted in Art. VIII, §1 not really to give the judiciary a roving commission to right any wrong it perceives but to preclude courts from invoking the political question doctrine in order to evade the decision of certain cases even

where violations of civil liberties are alleged.—I do not conceive it to be the function of this Court under Art. VIII, §1 of the Constitution to determine in the abstract whether or not there has been a grave abuse of 152 152 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environment and Natural Resources discretion amounting to lack or excess of jurisdiction on the part of the legislative and executive departments in enacting the IPRA. Our jurisdiction is confined to cases or controversies. No one reading Art. VIII, §5 can fail to note that, in enumerating the matters placed in the keeping of this Court, it uniformly begins with the phrase “all cases . . .” The statement that the judicial power includes the duty to determine whether there has been a grave abuse of discretion was inserted in Art. VIII, §1 not really to give the judiciary a roving commission to right any wrong it perceives but to preclude courts from invoking the political question doctrine in order to evade the decision of certain cases even where violations of civil liberties are alleged. Same; Same; The judicial power cannot be extended to matters which do not involve actual cases or controversies without upsetting the balance of power among the three branches of the government and erecting, as it were, the judiciary, particularly the Supreme Court, as a third branch of Congress, with power not only to invalidate statutes but even to rewrite them.— Indeed, the judicial power cannot be extended to matters which do not involve actual cases or controversies without upsetting the balance of power among the three branches of the

government and erecting, as it were, the judiciary, particularly the Supreme Court, as a third branch of Congress, with power not only to invalidate statutes but even to rewrite them. Yet that is exactly what we would be permitting in this case were we to assume jurisdiction and decide wholesale the constitutional validity of the IPRA contrary to the established rule that a party can question the validity of a statute only if, as applied to him, it is unconstitutional. Here the IPRA is sought to be declared void on its face. Same; Same; Freedom of Expression; “Chilling Effect” Syndrome; The only instance where a facial challenge to a statute is allowed is when it operates in the area of freedom of expression—invalidation of the statute “on its face” rather than “as applied” is permitted in the interest of preventing a “chilling” effect on freedom of expression.—The only instance where a facial challenge to a statute is allowed is when it operates in the area of freedom of expression. In such instance, the overbreadth doctrine permits a party to challenge the validity of a statute even though as applied to him it is not unconstitutional but it might be if applied to others not before the Court whose activities are constitutionally protected. Invalidation of the statute “on its face” rather than “as applied” is permitted in the interest of preventing a “chilling” effect on freedom of expression. But in other cases, even if it is found that a provision of a statute is unconstitutional, courts will decree only partial invalidity unless the invalid portion is so far in153 VOL. 347, DECEMBER 6, 2000 153 Cruz vs. Secretary of Environment and Natural Resources

separable from the rest of the statute that a declaration of partial invalidity is not possible. Same; Same; To decline the exercise of jurisdiction where there is no genuine controversy is not to show timidity but respect for the judgment of a coequal department of government whose acts, unless shown to be clearly repugnant to the fundamental law, are presumed to be valid.—To decline, therefore, the exercise of jurisdiction where there is no genuine controversy is not to show timidity but respect for the judgment of a coequal department of government whose acts, unless shown to be clearly repugnant to the fundamental law, are presumed to be valid. The polestar of constitutional adjudication was set forth by Justice Laurel in the Angara case when he said that “this power of judicial review is limited to actual cases and controversies to be exercised after full opportunity of argument by the parties, and limited further to the constitutional question raised or the very lis mota, presented.” For the exercise of this power is legitimate only in the last resort; and as a necessity in the determination of real, earnest, and vital controversy between individuals. Until, therefore, an actual case is brought to test the constitutionality of the IPRA, the presumption of constitutionality, which inheres in every statute, must be accorded to it. PANGANIBAN, J., Separate Opinion (Concurring and Dissenting): National Patrimony; Ancestral Domains; Ancestral Lands; I respectfully reject the contention that “ancestral lands and ancestral domains are not public lands and have never been owned by the State.”—It recognizes or, worse, grants rights of

ownership over lands of the public domain, waters, x x x and other natural resources” which, under Section 2, Article XII of the Constitution, “are owned by the State” and “shall not be alien-ated.” I respectfully reject the contention that “ancestral lands and ancestral domains are not public lands and have never been owned by the State.” Such sweeping statement places substantial portions of Philippine territory outside the scope of the Philippine Constitution and beyond the collective reach of the Filipino people. As will be discussed later, these real properties constitute a third of the entire Philippine territory; and the resources, 80 percent of the nation’s natural wealth. Same; Same; Same; I cannot agree to legitimize perpetual inequality of access to the nation’s wealth or to stamp the Court’s imprimatur on a law that offends and degrades the repository of the very authority of the Supreme Court—the Constitution of the Philippines.—Consistent with the social justice principle of giving more in law to those who have less in life, 154 154 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environment and Natural Resources Congress in its wisdom may grant preferences and prerogatives to our marginalized brothers and sisters, subject to the irreducible caveat that the Constitution must be respected. I personally believe in according every benefit to the poor, the oppressed and the disadvantaged, in order to empower them to equally enjoy the blessings of nationhood. I cannot, however, agree to legitimize perpetual inequality of access to the

nation’s wealth or to stamp the Court’s imprimatur on a law that offends and degrades the repository of the very authority of this Court—the Constitution of the Philippines. Same; Same; Same; Though laudable and well-meaning, IPRA, however, has provisions that run directly afoul of our fundamental law from which it claims origin and authority.— RA 8371, which defines the rights of indigenous cultural communities and indigenous peoples, admittedly professes a laudable intent. It was primarily enacted pursuant to the state policy enshrined in our Constitution to “recognize and promote the rights of indigenous cultural communities within the framework of national unity and development.” Though laudable and well-meaning, this statute, however, has provisions that run directly afoul of our fundamental law from which it claims origin and authority. More specifically, Sections 3(a) and (b), 5, 6, 7(a) and (b), 8 and other related provisions contravene the Regalian Doctrine—the basic foundation of the State’s property regime. Vested Rights; Property; Ownership; Because of the State’s implementation of policies considered to be for the common good, all those concerned have to give up, under certain conditions, even vested rights of ownership.—I submit, however, that all Filipinos, whether indigenous or not, are subject to the Constitution. Indeed, no one is exempt from its allencompassing provisions. Unlike the 1935 Charter, which was subject to “any existing right, grant, lease or concession,” the 1973 and the 1987 Constitutions spoke in absolute terms. Because of the State’s implementation of policies considered to be for the common good, all those concerned have to give up, under certain conditions, even vested rights of ownership.

National Patrimony; Ancestral Domains; Ancestral Lands; Four hundred years of Philippine political history cannot be set aside or ignored by IPRA, however well-intentioned it may be.—Verily, as petitioners undauntedly point out, four hundred years of Philippine political history cannot be set aside or ignored by IPRA, however well-intentioned it may be. The perceived lack of understanding of the cultural minorities cannot be remedied by conceding the nation’s resources to their exclusive advantage. They cannot be more privileged simply because they have chosen to ignore state laws. For having chosen not to be enfolded by statutes on 155 VOL. 347, DECEMBER 6, 2000 155 Cruz vs. Secretary of Environment and Natural Resources perfecting land titles, ICCs/IPs cannot now maintain their ownership of lands and domains by insisting on their concept of “native title” thereto. It would be plain injustice to the majority of Filipinos who have abided by the law and, consequently, deserve equal opportunity to enjoy the country’s resources. Same; Same; Same; Regalian Doctrine; The concerted effort to malign the Regalian Doctrine as a vestige of the colonial past must fail—our Constitution vests the ownership of natural resources, not in colonial masters, but in all the Filipino people.—The concerted effort to malign the Regalian Doctrine as a vestige of the colonial past must fail. Our Constitution vests the ownership of natural resources, not in colonial masters, but in all the Filipino people. As the protector of the Constitution, this Court has the sworn duty to uphold the tenets

of that Constitution—not to dilute, circumvent or create exceptions to them. Same; Same; Same; Same; Since RA 8371 defines ancestral domains as including the natural resources found therein and further states that ICCs/IPs own these ancestral domains, then it means that ICCs/IPs can own natural resources.— Respondents insist, and the ponencia agrees, that paragraphs (a) and (b) of Sections 3 are merely definitions and should not be construed independently of the other provisions of the law. But, precisely, a definition is “a statement of the meaning of a word or word group.” It determines or settles the nature of the thing or person defined. Thus, after defining a term as encompassing several items, one cannot thereafter say that the same term should be interpreted as excluding one or more of the enumerated items in its definition. For that would be misleading the people who would be bound by the law. In other words, since RA 8371 defines ancestral domains as including the natural resources found therein and further states that ICCs/IPs own these ancestral domains, then it means that ICCs/IPs can own natural resources. Same; Same; Same; Congress, through IPRA, has in effect abdicated in favor of a minority group the State’s power of ownership and full control over a substantial part of the national patrimony, in contravention of our most fundamental law.—But again, RA 8371 relinquishes this constitutional power of full control in favor of ICCs/IPs, insofar as natural resources found within their territories are concerned. Pursuant to their rights of ownership and possession, they may develop and manage the natural resources, benefit from and share in the profits from the allocation and the utilization thereof. And they

may exercise such right without any time limit, unlike nonICCs/IPs who may do so only for a period not exceeding 25 years, renewable for a like period. Consistent with the Consti156 156 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environment and Natural Resources tution, the rights of ICCs/IPs to exploit, develop and utilize natural resources must also be limited to such period. In addition, ICCs/IPs are given the right to negotiate directly the terms and conditions for the exploration of natural resources, a right vested by the Constitution only in the State. Congress, through IPRA, has in effect abdicated in favor of a minority group the State’s power of ownership and full control over a substantial part of the national patrimony, in contravention of our most fundamental law. Same; Same; Same; In giving ICCs/IPs rights in derogation of our fundamental law, Congress is effectively mandating “reverse discrimination.”—Indigenous peoples may have long been marginalized in Philippine politics and society. This does not, however, give Congress any license to accord them rights that the Constitution withholds from the rest of the Filipino people. I would concede giving them priority in the use, the enjoyment and the preservation of their ancestral lands and domains. But to grant perpetual ownership and control of the nation’s substantial wealth to them, to the exclusion of other Filipino citizens who have chosen to live and abide by our previous and present Constitutions, would be not only unjust but also subversive of the rule of law. In giving ICCs/IPs rights in derogation of our fundamental law, Congress is effectively

mandating “reverse discrimination.” In seeking to improve their lot, it would be doing so at the expense of the majority of the Filipino people. Such short-sighted and misplaced generosity will spread the roots of discontent and, in the long term, fan the fires of turmoil to a conflagration of national proportions. Social Justice; The law must help the powerless by enabling them to take advantage of opportunities and privileges that are open to all and by preventing the powerful from exploiting and oppressing them.—Peace cannot be attained by brazenly and permanently depriving the many in order to coddle the few, however disadvantaged they may have been. Neither can a just society be approximated by maiming the healthy to place them at par with the injured. Nor can the nation survive by enclaving its wealth for the exclusive benefit of favored minorities. Rather, the law must help the powerless by enabling them to take advantage of opportunities and privileges that are open to all and by preventing the powerful from exploiting and oppressing them. This is the essence of social justice— empowering and enabling the poor to he able to compete with the rich and, thus, equally enjoy the blessings of prosperity, freedom and dignity. SPECIAL CIVIL ACTION in the Supreme Court. Certiorari and Prohibition. 157 VOL. 347, DECEMBER 6, 2000 157 Cruz vs.Secretaryof Environmentand Natural Resources The facts are stated in the resolution of the Court.

Barbara Anne C. Migallos & Troy A. Luna, Raymond Parsifal A. Fortun & Bienvenido O. Bulatao for petitioners. The Solicitor General for respondents. Luna, Bonpin,Perez & Associates for intervenors. Rodolfo C. Rapista for intervenors-oppositors. Leilene Carantes-San Juan for Sioco-Cariño Family. R E S O L U TI O N PER CURIAM: Petitioners Isagani Cruz and Cesar Europa brought this suit for prohibition and mandamus as citizens and taxpayers, assailing the constitutionality of certain provisions of Republic Act No. 8371 (R.A. 8371), otherwise known as the Indigenous Peoples Rights Act of 1997 (IPRA), and its Implementing Rules and Regulations (Implementing Rules). In its resolution of September 29, 1998, the Court required respondents to comment.1Rollo, p. 114. In compliance, respondents Chairperson and Commissioners of the National Commission on Indigenous Peoples (NCIP), the government agency created under the IPRA to implement its provisions, filed on October 13, 1998 their Comment to the Petition, in which they defend the constitutionality of the IPRA andpray that thepetitionbedismissed for lack of merit. On October 19, 1998, respondents Secretary of the Department of Environment and Natural Resources (DENR) and Secretary of the Department of Budget and Management (DBM) filed through the Solicitor General a consolidated Comment. The Solicitor General is of the view that the IPRA is partly unconstitutional on the ground that it grants ownership over natural resources to indigenouspeoples and prays that thepetition begranted in part.

On November 10, 1998, a group of intervenors, composed of Sen. Juan Flavier, one of the authors of the IPRA, Mr. Ponciano Benna_______________ 1 Rollo, p. 114. 158 158 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environment and Natural Resources gen, a member of the 1986 Constitutional Commission, and the leaders and members of 112 groups of indigenous peoples (Flavier, et al.), filed their Motion for Leave to Intervene. They join the NCIP in defending the constitutionality of IPRA and praying for the dismissal of the petition. On March 22, 1999, the Commission on Human Rights (CHR) likewise filed a Motion to Intervene and/or to Appear as Amicus Curiae. The CHR asserts that IPRA is an expression of the principle of parens patriae and that the State has the responsibility to protect and guarantee the rights of those who are at a serious disadvantage like indigenous peoples. For this reason it prays that the petition be dismissed. On March 23, 1999, another group, composed of the Ikalahan Indigenous People and the Haribon Foundation for the Conservation of Natural Resources, Inc. (Haribon, et al.), filed a Motion to Intervene with attached Comment-in-Intervention. They agree with the NCIP and Flavier, et al. that IPRA is consistent with the Constitution and pray that the petition for prohibition and mandamus be dismissed.

The motions for intervention of the aforesaid groups and organizations were granted. Oral arguments were heard on April 13, 1999. Thereafter, the parties and intervenors filed their respective memoranda in which they reiterate the arguments adduced in their earlier pleadings and during the hearing. Petitioners assail the constitutionality of the following provisions of the IPRA and its Implementing Rules on the ground that they amount to an unlawful deprivation of the State’s ownership over lands of the public domain as well as minerals and other natural resources therein, in violation of the regalian doctrine embodied in Section 2, Article XII of the Constitution: “(1) Section 3(a) which defines the extent and coverage of ancestral domains, and Section 3(b) which, in turn, defines ancestral lands; “(2) Section 5, in relation to section 3(a), which provides that ancestral domains including inalienable public lands, bodies of water, mineral and other resources found within ancestral domains are private but community property of the indigenous peoples; 159 VOL. 347, DECEMBER 6, 2000 159 Cruz vs.Secretaryof Environmentand Natural Resources “(3) Section 6 in relation to Section 3(a) and 3(b) which defines the composition of ancestral domains and ancestral lands;

“(4) Section 7 which recognizes and enumerates the rights of the indigenous peoples over theancestral domains; “(5) Section 8 which recognizes and enumerates the rights of the indigenous peoples over theancestrallands; “(6) Section 57 which provides for priority rights of the indigenous peoples in the harvesting, extraction, development or exploration of minerals and other natural resources within the areas claimed to be their ancestral domains, and the right to enter into agreements with non-indigenous peoples for the development and utilization of natural resources therein for a period not exceeding 25 years, renewable for not more than 25 years;and “(7) Section 58 which gives the indigenous peoples the responsibility to maintain, develop, protect and conserve the ancestral domains and portions thereof which are found to be necessary for critical watersheds, mangroves, wildlife sanctuaries, wilderness, protected areas, forest cover or reforestation.”2Petition, Rollo, pp. 16-23. Petitioners also contend that, by providing for an allencompassing definition of “ancestral domains” and “ancestral lands” which might even include private lands found within said areas, Sections 3(a) and 3(b) violate the rights of private landowners.3Id.at 23-25. In addition, petitioners question the provisions of the IPRA defining the powers and jurisdiction of the NCIP and making customary law applicable to the settlement of disputes involving ancestral domains and ancestral lands on the ground that these provisions violate the due process clause of the Constitution.4Section 1, Article III of the Constitution states: “No person shall be deprived of life, liberty or property without

due process of law, nor shall any person be deniedthe equal protection of the laws.... These provisions are: “(1) Sections 51 to 53 and 59 which detail the process of delineation and recognition of ancestral domains and which vest on the NCIP the sole authority todelineate ancestraldomainsand ancestral lands; _______________ 2 Petition, Rollo, pp. 16-23. 3 Id.at 23-25. 4 Section 1, Article III of the Constitution states: “No person shall be deprived of life, liberty or property without due process of law, nor shall any person be deniedthe equal protection of the laws.” 160 160 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources “(2) Section 52[i] which provides that upon certification by the NCIP that a particular area is an ancestral domain and upon notification to the following officials, namely, the Secretary of Environment and Natural Resources, Secretary of Interior and Local Governments, Secretary of Justice and Commissioner of the National Development Corporation, the jurisdiction of said officials oversaid area terminates; “(3) Section 63 which provides the customary law, traditions and practices of indigenous peoples shall be applied first with respect to property rights, claims of ownership, hereditary succession and settlement of land disputes, and that any doubt

or ambiguity in the interpretation thereof shall be resolvedin favorof the indigenous peoples; “(4) Section 65 which states that customary laws and practices shall be used to resolve disputes involving indigenous peoples; and “(5) Section 66 which vests on the NCIP the jurisdiction over all claims and disputes involving rights of theindigenous peoples.”5Rollo, pp. 25-27. Finally, petitioners assail the validity of Rule VII, Part II, Section 1 of the NCIP Administrative Order No. 1, series of 1998, which provides that “the administrative relationship of the NCIP to the Office of the President is characterized as a lateral but autonomous relationship for purposes of policy and program coordination.” They contend that said Rule infringes upon the President’s power of control over executive departments under Section 17,Article VII of the Constitution.6Id.at 27-28. Petitionerspray for the following: “(1) A declaration that Sections 3, 5, 6, 7, 8, 52[i], 57, 58, 59, 63, 65 and 66 and other related provisions of R.A. 8371 are unconstitutional and invalid; “(2) The issuance of a writ of prohibition directing the Chairperson and Commissioners of the NCIP to cease and desist from implementing theassailed provisions of R.A.8371 and its Implementing Rules; “(3) The issuance of a writ of prohibition directing the Secretary of the Department of Environment and Natural Resources to cease and desist from implementing Department of Environment and Natural Resources CircularNo. 2, series of 1998;

_______________ 5 Rollo, pp. 25-27. 6 Id.at 27-28. 161 VOL. 347, DECEMBER 6, 2000 161 Cruz vs.Secretaryof Environmentand Natural Resources “(4) The issuance of a writ of prohibition directing the Secretary of Budget and Management to cease and desist from disbursing public funds for the implementation of the assailed provisions of R.A. 8371; and “(5) The issuance of a writ of mandamus commanding the Secretary of Environment and Natural Resources to comply with his duty of carrying out the State’s constitutional mandate to control and supervise the exploration, development, utilization and conservation of Philippine natural resources.”7Transcript of Stenographic Notes of the hearing held on April 13, 1999, pp. 5-6. After due deliberation on the petition, the members of the Court voted as follows: Seven (7) voted to dismiss the petition. Justice Kapunan filed an opinion, which the Chief Justice and Justices Bellosillo, Quisumbing, and Santiago join, sustaining the validity of the challenged provisions of R.A. 8371. Justice Puno also filed a separate opinion sustaining all challenged provisions of the law with the exception of Section 1, Part II, Rule III of NCIP Administrative Order No. 1, series of 1998, the Rules and Regulations Implementing the IPRA, and Section 57 of the IPRA which he contends should be interpreted as dealing with

the large-scale exploitation of natural resources and should be read in conjunction with Section 2, Article XII of the 1987 Constitution. On the other hand, Justice Mendoza voted to dismiss the petition solely on the ground that it does not raise a justiciable controversy and petitioners do not have standing toquestion the constitutionality of R.A. 8371. Seven (7) other members of the Court voted to grant the petition. Justice Panganiban filed a separate opinion expressing the view that Sections 3 (a)(b), 5, 6, 7 (a)(b), 8, and related provisions of R.A. 8371 are unconstitutional. He reserves judgment on the constitutionality of Sections 58, 59, 65, and 66 of the law, which he believes must await the filing of specific cases by those whose rights may have been violated by the IPRA. Justice Vitug also filed a separate opinion expressing the view that Sections 3(a), 7, and 57 of R.A. 8371 are unconstitutional. Justices Melo, Pardo, Buena, _______________ 7 Transcript of Stenographic Notes of the hearing held on April 13, 1999, pp. 5-6. 162 162 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources Gonzaga-Reyes, and De Leon join in the separate opinions of Justices Panganiban and Vitug. As the votes were equally divided (7 to 7) and the necessary majority was not obtained, the case was redeliberated upon. However, after redeliberation, the voting remained the same.

Accordingly, pursuant to Rule 56, Section 7 of the Rules of Civil Procedure, thepetition is DISMISSED. Attached hereto and made integral parts thereof are the separate opinions of Justices Puno, Vitug, Kapunan, Mendoza, and Panganiban. SO ORDERED. Davide, Jr. (C.J.), Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza, Panganiban, Quisumbing, Pardo, Buena, GonzagaReyes, Ynares-Santiago and De Leon, Jr., JJ., concur. SEPARATE OPINION PUNO, J: PRECIS A classic essay on the utility of history was written in 1874 by Friedrich Nietzsche entitled “On the Uses and Disadvantages of History for Life.” Expounding on Nietzsche’s essay, Judge Richard Posner1Chief Judge, US Court of Appeals for the Seventh Circuit; Senior Lecturer, University of ChicagoLaw School. wrote:2The University of Chicago Law Review, Vol. 67, Summer 2000, No. 3, p. 573. “Law is the most historically oriented, or if you like the most backward-looking, the most ‘past-dependent,’ of the professions. It venerates tradition, precedent, pedigree, ritual, custom, ancient practices, ancient texts, archaic terminology, maturity, wisdom, seniority, gerontocracy, and interpretation conceived of as a method of recovering history. It is suspicious of innovation, discontinuities, ‘paradigm shifts,’ and the energy and brashness of youth. These ingrained attitudes are obstacles to anyone who _______________

1 Chief Judge, US Court of Appeals for the Seventh Circuit; Senior Lecturer, University of ChicagoLaw School. 2 The University of Chicago Law Review, Vol. 67, Summer 2000, No. 3, p. 573. 163 VOL. 347, DECEMBER 6, 2000 163 Cruz vs. Secretary of Environment and Natural Resources wants to re-orient law in a more pragmatic direction. But, by the same token, pragmatic jurisprudence must come to terms with history.” When Congress enacted the Indigenous Peoples Rights Act (IPRA), it introduced radical concepts into the Philippine legal system which appear to collide with settled constitutional and jural precepts on state ownership of land and other natural resources. The sense and subtleties of this law cannot be appreciated without considering its distinct sociology and the labyrinths of its history. This Opinion attempts to interpret IPRA by discovering its soul shrouded by the mist of our history. After all, the IPRA was enacted by Congress not only to fulfill the constitutional mandate of protecting the indigenous cultural communities’ right to their ancestral land but more importantly, to correct a grave historical injustice to our indigenous people. This Opinion discusses the following: I. The Development of the Regalian Doctrine in the Philippine Legal System. A. The Laws of the Indies B. Valenton v. Murciano

C. The Public Land Acts and the Torrens System D. The Philippine Constitutions II. The Indigenous Peoples Rights Act (IPRA). A. Indigenous Peoples 1. Indigenous Peoples: Their History 2. Their Concept of Land III. The IPRA is a Novel Piece of Legislation. A. Legislative History IV. The Provisions of the IPRA Do Not Contravene the Constitution. A. Ancestral domains and ancestral lands are the private property of indigenous peoples and do not constitute part of the land of the public domain. 1. The right to ancestral domains and ancestral lands: how acquired 2. The concept of native title 164 164 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environment and Natural Resources (a) Cariño v. Insular Government (b) Indian Title to land (c) Why the Cariño doctrine is unique 3. The option of securing a Torrens title to the ancestral land B. The right of ownership and possession by the ICCs/IPs to their ancestral domains is a limited form of ownership and does not include the right to alienate the same. 1. The indigenous concept of ownership and customary law

C. Sections 7 (a), 7 (b) and 57 of the IPRA do not violate the Regalian Doctrine enshrined in Section 2, Article XII of the 1987 Constitution. 1. The rights of ICCs/IPs over their ancestral domains and lands 2. The right of ICCs/IPs to develop lands and natural resources within the ancestral domains does not deprive the State of ownership over the natural resources, control and supervision in their development and exploitation. (a) Section 1, Part II, Rule III of the Implementing Rules goes beyond the parameters of Section 7(a) of the law on ownership of ancestral domains and is ultra vires. (b) The small-scale utilization of natural resources in Section 7 (b) of the IPRA is allowed under Paragraph 3, Section 2, Article XII of the 1987 Constitution. (c) The large-scale utilization of natural resources in Section 57 of the IPRA may be harmonized with Paragraphs 1 and 4, Section 2, Article XII of the 1987 Constitution. V. The IPRA is a Recognition of Our Active Participation in the International Indigenous Movement. 165 VOL. 347, DECEMBER 6, 2000 165 Cruz vs.Secretaryof Environmentand Natural Resources DISCUSSION I. THE DEVELOPMENTOF THE REGALIAN DOCTRINE IN THEPHILIPPINE LEGAL SYSTEM. The capacity of the State to own or acquire property is the state’s power of dominium.3Dominium is distinguished from

imperium which is the government authority possessed by the state expressed in the concept of sovereignty—Lee Hong Hok v. David, 48 SCRA 372, 377 [1972]. This was the foundation for the early Spanish decrees embracing the feudal theory of jura regalia. The “Regalian Doctrine” or jura regalia is a Western legal concept that was first introduced by the Spaniards into the country through the Laws of the Indies and the Royal Cedulas. The Laws of the Indies, i.e., more specifically, Law 14, Title 12, Book 4 of the Novisima Recopilacion de Leyes de las Indias, set the policy of the Spanish Crown with respect to the Philippine Islands in the following manner: “We, having acquired full sovereignty over the Indies, and all lands, territories, and possessions not heretofore ceded away by our royal predecessors, or by us, or in our name, still pertaining to the royal crown and patrimony, it is our will that all lands which are held without proper and true deeds of grant be restored to us as they belong to us, in order that after reserving before all what to us or to our viceroys, audiencias, and governors may seem necessary for public squares, ways, pastures, and commons in those places which are peopled, taking into consideration not only their present condition, but also their future and their probable increase, and after distributing to the natives what may be necessary for tillage and pasturage, confirming them in what they now have and giving them more if necessary, all the rest of said lands may remain free and unencumbered for us to disposeof as we may wish. We therefore order and command that all viceroys and presidents of pretorial courts designate at such time as shall to

them seem most expedient, a suitable period within which all possessors of tracts, farms, plantations, and estates shall exhibit to them and to the court officers appointed by them for this purpose, their title deeds thereto. And those who are in possession by virtue of proper deeds and receipts, or by virtue of just _______________ 3 Dominium is distinguished from imperium which is the government authority possessed by the state expressed in the concept of sovereignty—Lee Hong Hok v. David, 48 SCRA 372, 377 [1972]. 166 166 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources prescriptive right shall be protected, and all the rest shall be restored to us tobedisposedof at our will.”4Valenton v. Murciano, 3 Phil. 537, 543 [1904]; See also Florencio D.R. Ponce, The PhilippineTorrens System, p. 13 [1964]. The Philippines passed to Spain by virtue of “discovery” and conquest. Consequently, all lands became the exclusive patrimony and dominion of the Spanish Crown. The Spanish Government took charge of distributing the lands by issuing royal grants and concessions to Spaniards, both military and civilian.5Antonio H. Noblejas, Land Titles and Deeds, p. 5 [1986]; These grants were better known as repartimientos and encomiendas. Repartimientos were handouts to the military as fitting reward for their services to the Spanish crown. The encomiendas were given to... Private land titles could only be acquired from the government either by purchase or by

thevariousmodes of landgrant from the Crown.6Narciso Pena, Registration ofLandTitlesandDeeds, p. 2 [1994]. The Laws of the Indies were followed by the Ley Hipotecaria, or the Mortgage Law of 1893.7 The Spanish Mortgage Law provided for the systematic registration of titles and deeds as well as possessory claims. The law sought to register and tax lands pursuant to the Royal Decree of 1880. The Royal Decree of 1894, or the “Maura Law,” was partly an amendment of the Mortgage Law as well as the Laws of the Indies, as already amended by previous orders and decrees.8Ponce, supra,at 15. This was the last Spanish land law promulgated in the Philippines. It required the “adjustment” or registration of all agricultural lands,otherwise the lands shall revert to the state. Four years later, by the Treaty of Paris of December 10, 1898, Spain ceded to the government of the United States all rights, interests and claims over the national territory of the Philippine Islands. In 1903, the United States colonial government, through _______________ 4 Valenton v. Murciano, 3 Phil. 537, 543 [1904]; See also Florencio D.R. Ponce, The PhilippineTorrens System, p. 13 [1964]. 5 Antonio H. Noblejas, Land Titles and Deeds, p. 5 [1986]; These grants were better known as repartimientos and encomiendas. Repartimientos were handouts to the military as fitting reward for their services to the Spanish crown. The encomiendas were given to Spaniards to administer and develop with the right to receive and enjoy for themselves the tributes of the natives assigned to them.—Ponce, supra, p. 12, citing Benitez, Historyof the Philippines, pp. 125-126.

6 Narciso Pena, Registration ofLandTitlesandDeeds, p. 2 [1994]. 7 The Mortgage Law is a misnomer because it is primarily a law on registration of property and secondarily a mortgage law—Ponce, supra, at 16. 8 Ponce, supra,at 15. 167 VOL. 347, DECEMBER 6, 2000 167 Cruz vs.Secretaryof Environmentand Natural Resources the Philippine Commission, passed Act No. 926, the first Public Land Act. In 1904, under the American regime, this Court decided the case of Valenton v. Murciano.93 Phil. 537 [1904]. Valenton resolved the question of which is the better basis for ownership of land: long-time occupation or paper title. Plaintiffs had entered into peaceful occupation of the subject land in 1860. Defendant’s predecessor-in-interest, on the other hand, purchased the land from the provincial treasurer of Tarlac in 1892. The lower court ruled against the plaintiffs on the ground that they had lost all rights to the land by not objecting to the administrative sale. Plaintiffs appealed the judgment, asserting that their 30-year adverse possession, as an extraordinary period of prescription in the Partidas and the Civil Code, had given them title to the land as against everyone, including the State; and that the State, not owning the land, couldnot validly transmit it. The Court, speaking through Justice Willard, decided the case on the basis of “those special laws which from earliest time have regulated the disposition of the public lands in the

colonies.”10Id.at 540. The question posed by the Court was: “Did these special laws recognize any right of prescription as against the State as to these lands; and if so, to what extentwas it recognized?” Prior to 1880, the Court said, there were no laws specifically providing for the disposition of land in the Philippines. However, it was understood that in the absence of any special law to govern a specific colony, the Laws of the Indies would be followed. Indeed, in the Royal Order of July 5, 1862, it was decreed that until regulations on the subject could be prepared, the authorities of the Phil-ippine Islands should follow strictly the Laws of the Indies, the Ordenanza of the Intendentes of 1786, and the Royal Cedula of 1754.11Id.at 548. _______________ 9 3 Phil. 537 [1904]. 10 Id.at 540. 11 Id.at 548. 168 168 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources Quoting the preamble of Law 14, Title 12, Book 4 of the Recopilacion de Leyes de lasIndias,the court interpreted it as follows: “In the preamble of this law there is, as is seen, a distinct statement that all those lands belong to the Crown which have not been granted by Philip, or in his name, or by the kings who preceded him. This statement excludes the idea that there might be lands not so granted, that did not belong to the king. It excludes the idea that the king was not still the owner of all

ungranted lands, because some private person had been in the adverse occupation of them. By the mandatory part of the law all the occupants of the public lands are required to produce before the authorities named, and within a time to be fixed by them, their title papers. And those who had good title or showed prescription were to be protected in their holdings. It is apparent that it was not the intention of the law that mere possession for a length of time should make the possessors the owners of the land possessed by them without any action on the part of the authorities.”12Id.at 543-544. The preamble stated that all those lands which had not been granted by Philip, or in his name, or by the kings who preceded him, belonged to the Crown.13Id.at 543. For those lands granted by the king, the decree provided for a system of assignment of such lands. It also ordered that all possessors of agricultural land should exhibit their title deed, otherwise, the land would be restored to the Crown.14Id. at 542-543. These comments by the court are clear expressions of the concept that Crown holdings embraced both imperium and dominium—Ma. Lourdes Aranal-Sereno and Roan Libarios, The Interface Between National Land Law and Kalinga Land Law, 58 P.L... The Royal Cedula of October 15, 1754 reinforced the Recopilacion when it ordered the Crown’s principal subdelegate to issue a generalorder directing thepublicationof the Crown’s instructions: “xxx to the end that any and all persons who, since the year 1700, and up to the date of the promulgation and publication of said order, shall have occupied royal lands, whether or not x xx cultivated or tenanted, may xxx appear and exhibit to said subdelegates the titles and patents by

_______________ 12 Id.at 543-544. 13 Id.at 543. 14 Id. at 542-543. These comments by the court are clear expressions of the concept that Crown holdings embraced both imperium and dominium—Ma. Lourdes Aranal-Sereno and Roan Libarios, The Interface Between National Land Law and Kalinga Land Law, 58 P.L.J. 420, 423 [1983]. 169 VOL. 347, DECEMBER 6, 2000 169 Cruz vs.Secretaryof Environmentand Natural Resources virtue of which said lands are occupied, x xx. Said subdelegates will at the same time warn the parties interested that in case of their failure to present their title deeds within the term designated, without a just and valid reason therefor, they will be deprived of and evicted from their lands, and they will begranted to others.”15Id.at 545-546. On June 25, 1880, the Crown adopted regulations for the adjustment of lands “wrongfully occupied” by private individuals in the Philippine Islands. Valenton construed these regulations together with contemporaneous legislative and executive interpretations of the law, and concluded that plaintiffs’ case fared no better under the 1880 decree and other laws which followed it, than it did under the earlier ones. Thus as a general doctrine, the Court stated: “While the State has always recognized the right of the occupant to a deed if he proves a possession for a sufficient length of time, yet it has always insisted that he must make that proof before the proper administrative officers, and obtain from

them his deed, and until he did that the State remained the absolute owner.”16Id.at 543. In conclusion, the Court ruled: “We hold that from 1860 to 1892 there was no law in force in these Islands by which the plaintiffs could obtain the ownership of these lands by prescription, without any action by the State.”17Id.at 557. Valenton had no rights other than those which accrued to mere possession. Murciano, on the other hand, was deemed to be the owner of the land by virtue of the grant by the provincial secretary. In effect, Valenton upheld the Spanish conceptof state ownershipof public land. As a fitting observation, the Court added that “[t]he policy pursued by the Spanish Government from earliest times, requiring settlers on the public lands to obtain title deeds therefor from the State, has been continued by the American Government in Act No. 926”18Id. at 553-554; Valenton was applied in Cansino v. Valdez, 6 Phil. 320 [1906]; Tiglao v. Insular Government, 7 Phil. 80 [1906]; and Cariño v. _______________ 15 Id.at 545-546. 16 Id.at 543. 17 Id.at 557. 18 Id. at 553-554; Valenton was applied in Cansino v. Valdez, 6 Phil. 320 [1906]; Tiglao v. Insular Government, 7 Phil. 80 [1906]; and Cariño v. 170 170 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources

Act No. 926, the first Public Land Act, was passed in pursuance of the provisions of the Philippine Bill of 1902. The law governed the disposition of lands of the public domain. It prescribed rules and regulations for the homesteading, selling, and leasing of portions of the public domain of the Philippine Islands, and prescribed the terms and conditions to enable persons to perfect their titles to public lands in the Islands. It also provided for the “issuance of patents to certain native settlers upon public lands,” for the establishment of town sites and sale of lots therein, for the completion of imperfect titles, and for the cancellation or confirmation of Spanish concessions and grants in the Islands.” In short, the Public Land Act operated on the assumption that title to public lands in the Philippine Islands remained in the government;19Please see Section 70, Act 926. and that the government’s title to public land sprung from the Treaty of Paris and other subsequent treaties between Spain and the United States.20Ponce, supra,at 33. The term “public land” referred to all lands of the public domain whose title still remained in the government and are thrown open to private appropriation and settlement,21Montano v. Insular Government, 12 Phil. 572 [1909]; also cited in Ponce,supra,at 32. and excluded the patrimonial property of the government and the friar lands.22Archbishop of Manila v. Director of Lands, 27 Phil. 245 [1914]; also cited in Ponce, supra,at 32. Act No. 926 was superseded in 1919 by Act 2874, the second Public Land Act. This new law was passed under the Jones Law. It was more comprehensive in scope but limited the exploitation of agricultural lands to Filipinos and Americans and citizens of other countries which gave Filipinos the same

privileges.23Antonio H. Noblejas, LandTitles and Deeds, p. 250 [1961]. After the passage of the 1935 Constitution, Act 2874 was amended in 1936 by Commonwealth Act No. 141. Commonwealth Act No. 141 remains the present Public Land Law and it is essentially the same Insular Government, 7 Phil. 132 [1906]; all decided by the Philippine Supreme Court. _______________ 19 Please see Section 70, Act 926. 20 Ponce, supra,at 33. 21 Montano v. Insular Government, 12 Phil. 572 [1909]; also cited in Ponce,supra,at 32. 22 Archbishop of Manila v. Director of Lands, 27 Phil. 245 [1914]; also cited in Ponce, supra,at 32. 23 Antonio H. Noblejas, LandTitles and Deeds, p. 250 [1961]. 171 VOL. 347, DECEMBER 6, 2000 171 Cruz vs.Secretaryof Environmentand Natural Resources as Act 2874. The main difference between the two relates to the transitory provisions on the rights of American citizens and corporations during the Commonwealth period at par with Filipino citizens and corporations.24Ponce, supra,at 32. Grants of public land were brought under the operation of the Torrens system under Act 496, or the Land Registration Law of 1903. Enacted by the Philippine Commission, Act 496 placed all public and private lands in the Philippines under the Torrens system. The law is said to be almost a verbatim copy of the Massachussetts Land Registration Act of 1898,25Peña, Registration of Land Titles and Deeds, p. 26 [1982]; Noblejas, supra,at 32. which, in turn, followed the principles and

procedure of the Torrens system of registration formulated by Sir Robert Torrens who patterned it after the Merchant Shipping Acts in South Australia. The Torrens system requires that the government issue an official certificate of title attesting to the fact that the person named is the owner of the property described therein, subject to such liens and encumbrances as thereon noted or the law warrants or reserves.26Noblejas, supra,at 32. The certificate of title is indefeasible and imprescriptible and all claims to the parcel of land are quieted upon issuance of said certificate. This system highly facilitates land conveyance and negotiation.27Ponce, supra,at 123-124; Noblejas, supra,at 33. The Regalian doctrine was enshrined in the 1935 Constitution. One of the fixed and dominating objectives of the 1935 Constitutional Convention was the nationalization and conservation of the natural resources of the country.282 Aruego, The Framing of the Philippine Constitution, p. 592 [1937]. There was an overwhelming sentiment in the Convention in favor of the principle of state ownership of natural resources and the adoption of the Regalian doctrine.29Id.at 600. State ownership of natural resources was seen as a neces_______________ 24 Ponce, supra,at 32. 25 Peña, Registration of Land Titles and Deeds, p. 26 [1982]; Noblejas, supra,at 32. 26 Noblejas, supra,at 32. 27 Ponce, supra,at 123-124; Noblejas, supra,at 33. 28 2 Aruego, The Framing of the Philippine Constitution, p. 592 [1937].

29 Id.at 600. 172 172 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources sary starting point to secure recognition of the state’s power to control their disposition, exploitation, development, or utilization.30Id.at 600-601. The delegates to the Constitutional Convention very well knew that the concept of State ownership of land and natural resources was introduced by the Spaniards, however, they were not certain whether it was continued and applied by the Americans. To remove all doubts, the Convention approved the provision in the Constitution affirming the Regaliandoctrine.31Ibid. Thus, the 1935 Constitution, in Section 1 of Article XIII on “Conservation andUtilization of Natural Resources,” reads as follows: “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 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, 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 thelimit of the grant.” The 1973 Constitution reiterated the Regalian doctrine in Section 8, Article XIV on the “National Economy and the Patrimony of the Nation,” to wit: “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 _______________ 30 Id.at 600-601. 31 Ibid. 173 VOL. 347, DECEMBER 6, 2000 173 Cruz vs. Secretary of Environment and Natural Resources 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.”

The 1987 Constitution reaffirmed the Regalian doctrine in Section 2 of Article XII on “National Economy and Patrimony,” to wit: “Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, beneficial use may be the measure and limit of the grant. x x x.” Simply stated, all lands of the public domain as well as all natural resources enumerated therein, whether on public or private land, belong to the State. It is this concept of State ownership that petitioners claim is being violated by the IPRA. II. THE INDIGENOUS PEOPLES RIGHTS ACT. Republic Act No. 8371 is entitled “An Act to Recognize, Protect and Promote the Rights of Indigenous Cultural Communities/Indigenous Peoples, Creating a National

Commission on Indigenous Peoples, Establishing Implementing Mechanisms, Appropriating Funds Therefor, and for Other Purposes.” It is simply known as “The Indigenous Peoples Rights Act of 1997” or the IPRA. The IPRA recognizes the existence of the indigenous cultural communities or indigenous peoples (ICCs/IPs) as a distinct sector in 174 174 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources Philippine society. It grants these people the ownership and possession of their ancestral domains and ancestral lands, and defines the extent of these lands and domains. The ownership given is the indigenous concept of ownership under customary law which traces its origin to native title. Other rights are also granted theICCs/IPs, and these are: - the right to developlandsand natural resources; - the right to stayinthe territories; - the right in case of displacement; - the right to safe and clean airand water; - the right to claim parts of reservations; - the right to resolveconflict;32Section 7. - the right to ancestral lands which include a. the right to transfer land/property to/among members of the same ICCs/IPs, subject to customary laws and traditions of the community concerned;

b. the right to redemption for a period not exceeding 15 years from date of transfer, if the transfer is to a non-member of the ICC/IP and is tainted by vitiated consent of the ICC/IP, or if the transferis for an unconscionable consideration.33Section 8. Within their ancestral domains and ancestral lands, the ICCs/IPs are given the right to self-governance and empowerment,34Sections 13 to20. social justice and human rights,35Sections 21 to28. the right to preserve and protect their culture, traditions, institutions and community intellectual rights, and the right to develop their own sciences and technologies.36Sections 29 to37. To carry out the policies of the Act, the law created the National Commission on Indigenous Peoples (NCIP). The NCIP is an independent agency under the Office of the President and is composed of seven (7) Commissioners belonging to ICCs/IPs from each of the ethnographic areas— Region I and the Cordilleras; Region II; the _______________ 32 Section 7. 33 Section 8. 34 Sections 13 to20. 35 Sections 21 to28. 36 Sections 29 to37. 175 VOL. 347, DECEMBER 6, 2000 175 Cruz vs.Secretaryof Environmentand Natural Resources rest of Luzon; Island groups including Mindoro, Palawan, Romblon, Panay and the rest of the Visayas; Northern and

Western Mindanao; Southern and Eastern Mindanao; and Central Mindanao.37Sections 38 and 40. The NCIP took over the functions of the Office for Northern Cultural Communities and the Office for Southern Cultural Communities created by former President Corazon Aquino which were merged under a revitalized structure.38Sections 74 to77. Disputes involving ICCs/IPs are to be resolved under customary laws and practices. When still unresolved, the matter may be brought to the NCIP, which is granted quasijudicial powers.39Section 69. The NCIP’s decisions may be appealed to the Court of Appeals by a petition for review. Any person who violates any of the provisions of the Act such as, but not limited to, unauthorized and/or unlawful intrusion upon ancestral lands and domains shall be punished in accordance with customary laws or imprisoned from 9 months to 12 years and/or fined from P100,000.00 to P500,000.00 and obliged to pay damages.40Section 73. The IPRA is a law dealing with a specific group of people, i.e., the Indigenous Cultural Communities (ICCs) or the Indigenous Peoples (IPs). The term “ICCs” is used in the 1987 Constitution while that of “IPs” is the contemporary international language in the International Labor Organization (ILO) Convention 16941Convention Concerning Indigenous and Tribal Peoples in Independent Countries, June 27, 1989. and the United Nations (UN) Draft Declaration on the Rights of Indigenous Peoples.42Guide to R.A. 8371, published by the Coalition for IPs Rights and Ancestral Domains in cooperation with the ILO and Bilance-Asia Department, p. 4 [1999]— hereinafter referred to asGuide to RA. 8371. _______________

37 Sections 38 and 40. 38 Sections 74 to77. 39 Section 69. 40 Section 73. 41 Convention Concerning Indigenous and Tribal Peoples in Independent Countries, June 27, 1989. 42 Guide to R.A. 8371, published by the Coalition for IPs Rights and Ancestral Domains in cooperation with the ILO and Bilance-Asia Department, p. 4 [1999]—hereinafter referred to asGuide to RA. 8371. 176 176 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environment and Natural Resources ICCs/IPs are defined by the IPRA as: “Sec. 3 [h]. Indigenous Cultural Communities/Indigenous Peoples.—Refer to a group of people or homogeneous societies identified by self-ascription and ascription by others, who have continuously lived as organized community on communally bounded and defined territory, and who have, under claims of ownership since time immemorial, occupied, possessed and utilized such territories, sharing common bonds of language, customs, traditions and other distinctive cultural traits, or who have, through resistance to political, social and cultural inroads of colonization, non-indigenous religions and cultures, became historically differentiated from the majority of Filipinos. ICCs/IPs shall likewise include peoples who are regarded as indigenous on account of their descent from the populations which inhabited the country, at the time of conquest or colonization, or at the time of inroads of non-indigenous

religions and cultures, or the establishment of present state boundaries, who retain some or all of their own social, economic, cultural and political institutions, but who may have been displaced from their traditional domains or who may have resettled outside their ancestral domains.” Indigenous Cultural Communities or Indigenous Peoples refer to a group of people or homogeneous societies who have continuously lived as an organized community on communally bounded and defined territory. These groups of people have actually occupied, possessed and utilized their territories under claim of ownership since time immemorial. They share common bonds of language, customs, traditions and other distinctive cultural traits, or, they, by their resistance to political, social and cultural inroads of colonization, nonindigenous religions and cultures, became historically differentiated from the Filipino majority. ICCs/IPs also include descendants of ICCs/IPs who inhabited the country at the time of conquest or colonization, who retain some or all of their own social, economic, cultural and political institutions but who may have been displaced from their traditional territories or who may have resettled outside their ancestral domains. 1. Indigenous Peoples: Their History Presently, Philippine indigenous peoples inhabit the interiors and mountains of Luzon, Mindanao, Mindoro, Negros, Samar, 177 VOL. 347, DECEMBER 6, 2000 177 Cruz vs. Secretary of Environment and Natural Resources Leyte, and the Palawan and Sulu group of islands. They are composed of 110 tribes and are as follows:

1. In the Cordillera Autonomous Region—Kankaney, Ibaloi, Bontoc, Tinggian or Itneg, Ifugao, Kalinga, Yapayao, Aeta or Agta or Pugot, and Bago of Ilocos Norte and Pangasinan; Ibanag of Isabela, Cagayan; Ilongot of Quirino and Nueva Vizcaya; Gaddang of Quirino, Nueva Vizcaya, Itawis of Cagayan; Ivatan of Batanes, Aeta of Cagayan, Quirino and Isabela. 2. In Region III—Aetas. 3. In Region IV—Dumagats of Aurora, Rizal; Remontado of Aurora, Rizal, Quezon; Alangan or Mangyan, Batangan, Buid or Buhid, Hanunuo and Iraya of Oriental and Occidental Mindoro; Tadyawan of Occidental Mindoro; Cuyonon, Palawanon, Tagbanua and Tao’t bato of Palawan. 4. In Region V—Aeta of Camarines Norte and Camarines Sur; Aeta-Abiyan, Isarog, and Kabihug of Camarines Norte; Agta, and Mayon of Camarines Sur; Itom of Albay; Cimaron of Sorsogon; and the Pullon of Masbate and Camarines Sur. 5. In Region VI—Ati of Negros Occidental, Iloilo and Antique, Capiz; the Magahat of Negros Occidental; the Corolano and Sulod. 6. In Region VII—Magahat of Negros Oriental and Eskaya of Bohol. 7. In Region IX—the Badjao numbering about 192,000 in Tawi-Tawi, Zamboanga del Sur; the Kalibugan of Basilan, the Samal, Subanon and Yakat. 8. Region X—Numbering 1.6 million in Region X alone, the IPs are: the Banwaon, Bukidnon, Matigsalog, Talaanding of Bukidnon; the Camiguin of Camiguin Island; the Higa-unon of Agusan del Norte, Agusan del Sur, Bukidnon and Misamis Occidental; the Tigwahanon of Agusan del Sur, Misamis

Oriental and and Misamis Occidental, the Manobo of the Agusan provinces, and the Umayamnon of Agusan and Bukidnon. 9. In Region XI—There are about 1,774,065 IPs in Region XI. They are tribes of the Dibabaon, Mansaka of Davao del Norte; Blaan, Kalagan, Langilad, Tboli and Talaingod of Davao del Sur; Mamamanua of Surigao del Sur; Mandaya of the Surigao provinces and Davao Oriental; Manobo Blit of South Cotabato; the Mangguangon of Davao and South Cotabato; Matigsalog of Davao del Norte and Del Sur, Tagakaolo, Tasaday and Ubo of South Cotabato; and Bagobo of Davao del Sur and South Cotabato. 178 178 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources 10. In Region XII—Ilianen, Tiruray, Maguindanao, Maranao, Tausug, Yakan/Samal, and Iranon.43Taken from the list of IPs submitted by Rep. Andolana to the House of Representatives during the deliberations on H.B. No. 9125—Interpellations of Aug. 20, 1997, pp. 00086-00095. “Lost tribes” such as the Lutangan andTatanghave not been i... How these indigenous peoples came to live in the Philippines goes back toas early as 25,000 to30,000 B.C. Before the time of Western contact, the Philippine archipelago was peopled largely by the Negritos, Indonesians and Malays.44How these people came to the Philippines may be explained by two theories. One view, generally linked to Professor Otley H. Beyer, suggests the “wave theory”—a series of arrivals in the archipelago bringing in different types and

levels o... The strains from these groups eventually gave rise to common cultural features which became the dominant influence in ethnic reformula_______________ 43 Taken from the list of IPs submitted by Rep. Andolana to the House of Representatives during the deliberations on H.B. No. 9125—Interpellations of Aug. 20, 1997, pp. 00086-00095. “Lost tribes” such as the Lutangan andTatanghave not been included. 44 How these people came to the Philippines may be explained by two theories. One view, generally linked to Professor Otley H. Beyer, suggests the “wave theory”—a series of arrivals in the archipelago bringing in different types and levels of culture. The Negritos, dark-skinned pygmies, came between 25,000 to 30,000 B.C. Their cultural remains are preserved by the Negrito-type Filipinos found in Luzon, Visayas and Mindanao. Their relatively inferior culture did not enable them to overcome the pressures from the second wave of people, the Indonesians A and B who came in 5,000 and 3,500 B.C. They are represented today by the Kalinga, Gaddang, Isneg, Mangyan, Tagbanua, Manobo, Mandaya, Subanon, and Sama. The first group was pushed inland as the second occupied the coastal and downriver settlements. The last wave involved Malay migrations between 500 B.C. and 1,500 A.D. They had a more advanced culture based on metal age technology. They are represented by the Christianized and Islamized Filipinos who pushed the Indonesian groups inland and occupied muchof the coastal,lowland and downstream areas. A second view is postulated by Robert Fox, F. Landa Jocano, Alfredo Evangelista, and Jesus Peralta. Jocano maintains that the

Negritos, Indonesians and Malays stand co-equal as ethnic groups without any one being dominant, racially or culturally. The geographic distribution of the ethno-linguistic groups, which shows overlapping of otherwise similar racial strains in both upland and lowland cultures or coastal and inland communities, suggests a random and unstructured advent of different kinds of groups in the archipelago—Samuel K. Tan, A History of the Philippines, published by the Manila Studies Association, Inc. and the Philippine National Historical Society, Inc., pp. 33-34 [1997]; Teodoro A. Agoncillo,Historyof the Filipino People,p. 21 [1990]. 179 VOL. 347, DECEMBER 6, 2000 179 Cruz vs. Secretary of Environmentand Natural Resources tion in the archipelago. Influences from the Chinese and Indian civilizations in the third or fourth millennium B.C. augmented these ethnic strains. Chinese economic and socio-cultural influences came by way of Chinese porcelain, silk and traders. Indian influence found their way into the religious-cultural aspect of precolonial society.45Tan,supra,at 35-36. The ancient Filipinos settled beside bodies of water. Hunting and food gathering became supplementary activities as reliance on them was reduced by fishing and the cultivation of the soil.46Onofre D. Corpuz, The Roots of the Filipino Nation, Philippine Centennial (1898-1998) Edition, vol. 1, p. 13, Aklahi Foundation, Inc. [1989]. It was in 800-1,000 A.D. that the Ifugaos of Northern Luzon built the rice terraces—Id.at 37. From the hinterland, coastal, and riverine communities, our ancestors evolved an essentially homogeneous culture, a

basically common way of life where nature was a primary factor. Community life throughout the archipelago was influenced by, and responded to, common ecology. The generally benign tropical climate and the largely uniform flora and fauna favored similarities, not differences.47Id. at 5-6. Life was essentiallysubsistence but not harsh.48Id.at 13. The early Filipinos had a culture that was basically Malayan in structure and form. They had languages that traced their origin to the Austronesian parent-stock and used them not only as media of daily communication but also as vehicles for the expression of their literary moods.49Teodoro A. Agoncillo,History of the FilipinoPeople,p. 54 [1990]. They fashioned concepts and beliefs about the world that they could not see, but which they sensed to be part of their lives.50Corpuz,supra,at 5. They had their own religion and religious beliefs. They believed in the immortality of the soul and life after death. Their rituals were based on beliefs in a ranking deity whom they called Bathalang Maykapal, and a host of other deities, in the environmental spirits and in soul spirits. The early Filipinos adored the sun, the moon, the animals and birds, for they seemed to consider the objects of Nature as something to be respected. They venerated _______________ 45 Tan,supra,at 35-36. 46 Onofre D. Corpuz, The Roots of the Filipino Nation, Philippine Centennial (1898-1998) Edition, vol. 1, p. 13, Aklahi Foundation, Inc. [1989]. It was in 800-1,000 A.D. that the Ifugaos of Northern Luzon built the rice terraces—Id.at 37. 47 Id. at 5-6. 48 Id.at 13.

49 Teodoro A. Agoncillo,History of the FilipinoPeople,p. 54 [1990]. 50 Corpuz,supra,at 5. 180 180 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources almost any object that was close to their daily life, indicating the importance of the relationship between man and the object of nature.51Id.at 44-45. The unit of government was the “barangay,” a term that derived its meaning from the Malay word “balangay,” meaning, a boat, which transported them to these shores.52Agoncillo,supra,at 40. The barangay was basically a family-based community and consisted of thirty to one hundred families. Each barangay was different and ruled by a chieftain called a “dato.” It was the chieftain’s duty to rule and govern his subjects and promote their welfare and interests. A chieftain had wide powers for he exercised all the functions of government. He was the executive, legislator and judge and was the supreme commander in time of war.53Id.at 40-41. Laws were either customary or written. Customary laws were handed down orally from generation to generation and constituted the bulk of the laws of the barangay. They were preserved in songs and chants and in the memory of the elder persons in the community.54Rafael Iriarte, History of the Judicial System, the Philippine Indigenous Era Prior to 1565, unpublished work submitted as entry to the Centennial EssayWriting Contest sponsored by the National Centennial Commission and the Supreme Court in 1997, p. 103, ... The

written laws were those that the chieftain and his elders promulgated from time to time as the necessity arose.55Agoncillo,supra,at 41. The oldest known written body of laws was the Maragtas Code by Datu Sumakwel at about 1250 A.D. Other old codes are the Muslim Code of Luwaran and the Principal Code of Sulu.56Amelia Alonzo, The History of the Judicial System in the Philippines, Indigenous Era Prior to 1565, unpublished work submitted as entry to the Centennial Essay-Writing Contest sponsored by the National Centennial Commission and the Supreme Court in 1997. Whether customary or written, the laws dealt with various subjects, such as inheritance, divorce, usury, loans, partnership, crime and punishment, property _______________ 51 Id.at 44-45. 52 Agoncillo,supra,at 40. 53 Id.at 40-41. 54 Rafael Iriarte, History of the Judicial System, the Philippine Indigenous Era Prior to 1565, unpublished work submitted as entry to the Centennial Essay-Writing Contest sponsored by the National Centennial Commission and the Supreme Court in 1997, p. 103, citing Perfecto V. Fernandez, Custom Laws in Pre-Conquest Philippines, UP Law Center, p. 10 [1976]. 55 Agoncillo,supra,at 41. 56 Amelia Alonzo, The History of the Judicial System in the Philippines, Indigenous Era Prior to 1565, unpublished work submitted as entry to the Centennial Essay-Writing Contest sponsored by the National Centennial Commission and the Supreme Court in 1997. 181

VOL. 347, DECEMBER 6, 2000 181 Cruz vs.Secretaryof Environmentand Natural Resources rights, family relations and adoption. Whenever disputes arose, these were decided peacefully through a court composed by the chieftain as “judge” and the barangay elders as “jury.” Conflicts arising between subjects of different barangays were resolved by arbitration in which a board composed of elders from neutral barangays acted as arbiters.57Agoncillo, supra,at 42. Baranganic society had a distinguishing feature: the absence of private property in land. The chiefs merely administered the lands in the name of the barangay. The social order was an extension of the family with chiefs embodying the higher unity of the community. Each individual, therefore, participated in the community ownership of the soil and the instruments of production as a member of the barangay.58Renato Constantino, A Past Revisited,p. 38 [1975]. This ancient communalism was practiced in accordance with the concept of mutual sharing of resources so that no individual, regardless of status, was without sustenance. Ownership of land was nonexistent or unimportant and the right of usufruct was what regulated the development of lands.59Samuel K. Tan, A History of the Philippines, published by the Manila Studies Ass’n., Inc. and the Phil. National Historical Society, Inc., p. 43 [1997]. Marine resources and fishing grounds were likewise free to all. Coastal communities depended for their economic welfare on the kind of fishing sharing concept similar to those in land communities.60Id. Recognized leaders, such as the chieftains and elders, by virtue of their positions of importance,

enjoyed some economic privileges and benefits. But their rights, related to either land and sea, were subject to their responsibility to protect the communities from danger and to provide them with the leadership and means of survival.61Id.at 43-44. Sometime in the 13th century, Islam was introduced to the archipelago in Maguindanao. The Sultanate of Sulu was established and claimed jurisdiction over territorial areas represented today by Tawi-tawi, Sulu, Palawan, Basilan and Zamboanga. Four ethnic _______________ 57 Agoncillo, supra,at 42. 58 Renato Constantino, A Past Revisited,p. 38 [1975]. 59 Samuel K. Tan, A History of the Philippines, published by the Manila Studies Ass’n., Inc. and the Phil. National Historical Society, Inc., p. 43 [1997]. 60 Id. 61 Id.at 43-44. 182 182 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources groups were within this jurisdiction: Sama, Tausug, Yakan and Subanon.62Tan, supra,at 47-48. The Sultanate of Maguindanao spread out from Cotabato toward Maranao territory, now Lanao del Norte and Lanao del Sur.63Id.at 48-49. The Muslim societies evolved an Asiatic form of feudalism where land was still held in common but was private in use. This is clearly indicated in the Muslim Code of Luwaran. The Code contains a provision on the lease of cultivated lands. It,

however, has no provisionfor the acquisition, transfer, cession or sale ofland.64Cacho v. Government of the P.I., 28 Phil. 616, 625-627 11914]; see also Ponce, The Philippine Torrens System, pp. 11-12 [1964]. In Philippine pre-colonial history, there was only one recorded transaction on the purchase of land. The Maragtas Code tells us ... The societies encountered by Magellan and Legaspi therefore were primitive economies where most production was geared to the use of the producers and to the fulfillment of kinship obligations. They were not economies geared to exchange and profit.65Constantino, supra,at 38. Moreover, the family basis of barangay membership as well as of leadership and governance worked to splinter the population of the islands into numerous small and separate communities.66Corpuz, supra,at 39. When the Spaniards settled permanently in the Philippines in 1565, they found the Filipinos living in barangay settlements scattered along water routes and river banks. One of the first tasks imposed on the missionaries and the encomenderos was to collect all scattered Filipinos together in a reduccion.67Resettlement—“bajo el son de la campana” (under the sound of the bell) or “bajo el toque dela campana”(under the peal of the bell). As early as 1551, the Spanish government assumed an unvarying solicitous attitude towards the natives.68People v. Cayat, 68 Phil. 12, 17 [1939]. The Spaniards regarded it a sacred “duty to conscience and humanity to civilize these less fortunate people _______________ 62 Tan, supra,at 47-48. 63 Id.at 48-49.

64 Cacho v. Government of the P.I., 28 Phil. 616, 625-627 11914]; see also Ponce, The Philippine Torrens System, pp. 1112 [1964]. In Philippine pre-colonial history, there was only one recorded transaction on the purchase of land. The Maragtas Code tells us of the purchase of Panay Island by ten Bornean datus led by Datu Puti from the Atis under Marikudo in the 13th century. The purchase price for the Island was a gold salakot and a long gold necklace—Agoncillo, supra,at 25. 65 Constantino, supra,at 38. 66 Corpuz, supra,at 39. 67 Resettlement—“bajo el son de la campana” (under the sound of the bell) or “bajo el toque dela campana”(under the peal of the bell). 68 People v. Cayat, 68 Phil. 12, 17 [1939]. 183 VOL. 347, DECEMBER 6, 2000 183 Cruz vs.Secretaryof Environmentand Natural Resources living in the obscurity of ignorance” and to accord them the “moral and material advantages” of community life and the “protection and vigilance afforded them by the same laws.”69Id. at 17, citing the Decree of the Governor-General of the Philippines, Jan. 14, 1887. The Spanish missionaries were ordered to establish pueblos where the church and convent would be constructed. All the new Christian converts were required to construct their houses around the church and the unbaptized were invited to do the same.70Agoncillo, supra,at 80. With the reduccion, the Spaniards attempted to “tame” the reluctant Filipinos through Christian indoctrination using the convento/casa real/plaza

complex as focal point. The reduccion, to the Spaniards, was a “civilizing” device to make the Filipinos law-abiding citizens of the Spanish Crown, and in the long run, to make them ultimately adoptHispanic culture and civilization.71Id.at 80. All lands lost by the old barangays in the process of pueblo organization as well as all lands not assigned to them and the pueblos, were now declared to be crown lands or realengas, belonging to the Spanish king. It was from the realengas that land grants were made tonon-Filipinos.72Corpuz, supra,at 277278. The abrogation of the Filipinos’ ancestral rights in land and the introduction of the concept of public domain were the most immediate fundamental results of Spanish colonial theory and law.73Id. at 277. The concept that the Spanish king was the owner of everything of value in the Indies or colonies was imposed on the natives, and the natives were stripped of theirancestral rights to land.74Id.; N.B. But see discussion in Cariño v. Insular Government, infra, where the United States Supreme Court found that the Spanish decrees in the Philippines appeared to recognize that the natives owned some land. Whether in the implementation of these... _______________ 69 Id. at 17, citing the Decree of the Governor-General of the Philippines, Jan. 14, 1887. 70 Agoncillo, supra,at 80. 71 Id.at 80. 72 Corpuz, supra,at 277-278. 73 Id. at 277. 74 Id.; N.B. But see discussion in Cariño v. Insular Government, infra, where the United States Supreme Court

found that the Spanish decrees in the Philippines appeared to recognize that the natives owned some land. Whether in the implementation of these decrees the natives’ ancestral rights to land were actually respected was not discussed by the U.S. Supreme Court; see also Note 131,infra. 184 184 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources Increasing their foothold in the Philippines, the Spanish colonialists, civil and religious, classified the Filipinos according to their religious practices and beliefs, and divided them into three types. First were the Indios, the Christianized Filipinos, who generally came from the lowland populations. Second, were the Moros or the Muslim communities, and third, were the infieles or the indigenous communities.75Tan, supra, at 49-50. The Indio was a product of the advent of Spanish culture. This class was favored by the Spaniards and was allowed certain status although below the Spaniards. The Moros and infieles were regarded as the lowest classes.76Id.at 67. The Moros and infieles resisted Spanish rule and Christianity. The Moros were driven from Manila and the Visayas to Mindanao; while the infieles, to the hinterlands. The Spaniards did not pursue them into the deep interior. The upland societies were naturally outside the immediate concern of Spanish interest, and the cliffs and forests of the hinterlands were difficult and inaccessible, allowing the infieles, in effect, relative security.77Id.at 52-53. Thus, the infieles, which were peripheral to colonial administration, were not only able to

preserve their own culture but also thwarted the Christianization process, separating themselves from the newly evolved Christian community.78Id.at 53. Their own political, economic and social systems were kept constantly alive and vibrant. The pro-Christian or pro-Indio attitude of colonialism brought about a generally mutual feeling of suspicion, fear, and hostility between the Christians on the one hand and the nonChristians on the other. Colonialism tended to divide and rule an otherwise culturally and historically related populace through a colonial system that exploitedboth the virtues and vicesof the Filipinos.79Id.at 55. President McKinley, in his instructions to the Philippine Commission of April 7,1900, addressed the existenceof the infieles: _______________ 75 Tan, supra, at 49-50. 76 Id.at 67. 77 Id.at 52-53. 78 Id.at 53. 79 Id.at 55. 185 VOL. 347, DECEMBER 6, 2000 185 Cruz vs.Secretaryof Environmentand Natural Resources “In dealing with the uncivilized tribes of the Islands, the Commission should adopt the same course followed by Congress in permitting the tribes of our North American Indians to maintain their tribal organization and government, and under which many of those tribes are now living in peace

and contentment, surrounded by civilization to which they are unable or unwilling to conform. Such tribal government should, however, be subjected to wise and firm regulation; and, without undue or petty interference, constant and active effort should be exercised to prevent barbarous practicesand introduce civilized customs.”80People v. Cayat, 68 Phil. 12, 17 [1939]. Placed in an alternative of either letting the natives alone or guiding them in the path of civilization, the American government chose “‘to adopt the latter measure as one more in accord with humanity andwith the national conscience.”81Memorandum of the Secretary of the Interior, quoted in Rubi v. Provincial Board of Mindoro, 39 Phil. 660, 714 [1919]; also cited in People v. Cayat, supra, at 17-18. The Americans classified the Filipinos into two: the Christian Filipinos and the non-Christian Filipinos. The term “nonChristian” referred not to religious belief, but to a geographical area, and more directly, “to natives of the Philippine Islands of a low grade of civilization, usually living in tribal relationship apart from settled communities.”82Rubi v. Provincial Board of Mindoro, supra, at 693. Like the Spaniards, the Americans pursued a policy of assimilation. In 1903, they passed Act No. 253 creating the Bureau of Non-Christian Tribes (BNCT). Under the Department of the Interior, the BNCTs primary task was to conduct ethnographic research among unhispanized Filipinos, including those in Muslim Mindanao, with a “special view to determining the most practicable means for bringing about their advancement in civilization and prosperity.” The BNCT was modeled after the bureau dealing with American Indians.

The agency took a keen anthropological interest in Philippine cultural minorities and produced a wealth of valuable materials about them.83Charles MacDonald, Indigenous Peoples of the Philippines: Between Segregation and Integration, Indigenous Peoples of Asia, p. 348, ed. _______________ 80 People v. Cayat, 68 Phil. 12, 17 [1939]. 81 Memorandum of the Secretary of the Interior, quoted in Rubi v. Provincial Board of Mindoro, 39 Phil. 660, 714 [1919]; also cited in People v. Cayat, supra, at 17-18. 82 Rubi v. Provincial Board of Mindoro, supra, at 693. 83 Charles MacDonald, Indigenous Peoples of the Philippines: Between Segregation and Integration, Indigenous Peoples of Asia, p. 348, ed. 186 186 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources The 1935 Constitution did not carry any policy on the nonChristian Filipinos. The raging issue then was the conservation of the national patrimony for the Filipinos. In 1957, the Philippine Congress passed RA. No. 1888, an “Act to effectuate in a more rapid and complete manner the economic, social, moral and political advancement of the nonChristian Filipinos or national cultural minorities and to render real, complete, and permanent the integration of all said national cultural minorities into the body politic, creating the Commission on National Integration charged with said functions.” The law called for a policy of integration of indigenous peoples into the Philippine mainstream and for this

purpose created the Commission on National Integration (CNI).84R.A. No. 1888 of 1957. The CNI was given, more or less, the same task as the BNCT during the American regime. The post-independence policy of integration was like the colonial policy of assimilation understood in the context ofaguardian-ward relationship.85See People v. Cayat, supra, at 21; See also Rubi v. Provincial Board of Mindoro, 39 Phil. 660, 694 [1919]. The policy of assimilation and integration did not yield the desired result. Like the Spaniards and Americans, government attempts at integration met with fierce resistance. Since World War II, a tidal wave of Christian settlers from the lowlands of Luzon and the Visayas swamped the highlands and wide open spaces in Mindanao.86MacDonald,Indigenous Peoples of the Philippines,supra, at 351. Knowledge by the settlers of the Public Land Acts and the Torrens system resulted in the titling of several ancestral lands in the settlers’ names. With government initiative and participation, this titling displaced several indigenous peoples from their lands. Worse, these peoples were also displaced by projects undertaken by the nationalgovernment in the name of nationaldevelopment.87The construction of the Ambuklao and Binga dams in the 1950’s resulted in the eviction of hundreds of Ibaloi families—Cerilo Rico S. by R.H. Barnes, A. Gray and B. Kingsbury, pub. by Association for Asian Studies [1995]. The BNCT made a Bontok and Subanon ethnography, a history of Sulu genealogy, and a compilation on unhispanized peoples in northern Luzon.—Owen J. Lynch, Jr., The Philippine Colonial Dichotomy: Attraction and Disenfranchisement, 63 P.L.J. 139140 [1988].

_______________ 84 R.A. No. 1888 of 1957. 85 See People v. Cayat, supra, at 21; See also Rubi v. Provincial Board of Mindoro, 39 Phil. 660, 694 [1919]. 86 MacDonald,Indigenous Peoples of the Philippines,supra, at 351. 87 The construction of the Ambuklao and Binga dams in the 1950’s resulted in the eviction of hundreds of Ibaloi families— Cerilo Rico S. 187 VOL. 347, DECEMBER 6, 2000 187 Cruz vs.Secretaryof Environmentand Natural Resources It was in the 1973 Constitution that the State adopted the following provision: “The State shall consider the customs, traditions, beliefs, and interests of national cultural communities in the formulation and implementation of State policies.”88Section 11, Art. XV, 1973 Constitution. For the first time in Philippine history, the “non-Christian tribes” or the “cultural minorities” were addressed by the highest law of the Republic, and they were referred to as “cultural communities.” More importantly this time, their “uncivilized” culture was given some recognition and their “customs, traditions, beliefs and interests” were to be considered by the State in the formulation and implementation of State policies. President Marcos abolished the CNI and transferred its functions to the Presidential Adviser on National Minorities (PANAMIN). The PANAMIN was tasked to integrate the ethnic groups that sought full integration into the

larger community, and at the same time “protect the rights of those who wish to preserve their original lifeways beside the larger community.”89Presidential Decrees Nos. 1017 and 1414. In short, while still adopting the integration policy, the decree recognized the right of tribal Filipinos to preserve their way of life.90The PANAMIN, however, concentrated funds and resources on image-building, publicity, and impact projects. In Mindanao, the agency resorted to a policy of forced resettlement on reservations, militarization and intimidation— MacDonald, Indigenous Peopl... In 1974, President Marcos promulgated P.D. No. 410, otherwise known as the Ancestral Lands Decree. The decree provided for the issuance of land occupancy certificates to members of the national cultural communities who were given up to 1984 to register their claims.91No occupancy certificates were issued, however, because the government failed to release the decree’s implementing rules and regulations—Abelardo, supra, at 120-121. In 1979, the Commission on the Settlement of Land Prob-Abelardo, Ancestral Domain Rights: Issues, Responses, and Recommendations, Ateneo Law Journal, vol. 38, No. 1, p. 92 [1993]. _______________ 88 Section 11, Art. XV, 1973 Constitution. 89 Presidential Decrees Nos. 1017 and 1414. 90 The PANAMIN, however, concentrated funds and resources on image-building, publicity, and impact projects. In Mindanao, the agency resorted to a policy of forced resettlement on reservations, militarization and intimidation— MacDonald, Indigenous Peoples of the Philippines, supra,at 349-350.

91 No occupancy certificates were issued, however, because the government failed to release the decree’s implementing rules and regulations—Abelardo, supra, at 120-121. 188 188 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources lems was created under E.O. No. 561 which provided a mechanism for the expeditious resolution of land problems involving small settlers, landowners, and tribal Filipinos.92Id., Note 177. Despite the promulgation of these laws, from 1974 to the early 1980’s, some 100,000 Kalingas and Bontoks of the Cordillera region were displaced by the Chico River dam project of the National Power Corporation (NPC). The Manobos of Bukidnon saw their land bulldozed by the Bukidnon Sugar Industries Company (BUSCO). In Agusan del Sur, the National Development Company was authorized by law in 1979 to take approximately 40,550 hectares of land that later became the NDC-Guthrie plantation in Agusan del Sur. Most of the land was possessed by the Agusan natives.93Id.,at 93-94. Timber concessions, water projects, plantations, mining, and cattle ranching and other projects of the national government led not only to the eviction of the indigenous peoples from their land but also to the reduction and destruction of their natural environment.94MacDonald, Indigenous Peoples of the Philippines, supra, at 351. The Aquino government signified a total shift from the policy of integration to one of preservation. Invoking her powers under the Freedom Constitution, President Aquino created the

Office of Muslim Affairs, Office for Northern Cultural Communities and the Office for Southern Cultural Communities all under the Office of the President.95E.O. Nos. 122-A, 122-B and 122-C. The preamble of E.O. No. 122-B states: “Believing that the new government is committed to formulate more vigorous policies, plans, programs, and projects for tribal Filipinos, otherwise known as Indigenous Cultural C... The 1987 Constitution carries at least six (6) provisions which insure the right of tribal Filipinos to preserve their way of life.96Article II, sec. 22; Article VI, sec. 5, par. 2; Article XII, sec. 5; Article XIII, sec. 6; Article XIV, sec. 17; and Article XVI, sec. 12. _______________ 92 Id., Note 177. 93 Id.,at 93-94. 94 MacDonald, Indigenous Peoples of the Philippines, supra, at 351. 95 E.O. Nos. 122-A, 122-B and 122-C. The preamble of E.O. No. 122-B states: “Believing that the new government is committed to formulate more vigorous policies, plans, programs, and projects for tribal Filipinos, otherwise known as Indigenous Cultural Communities, taking into consideration their communal aspirations, customs, traditions, beliefs, and interests, in order to promote and preserve their rich cultural heritage and insure their participation in the country’s development for national unity; x x x” 96 Article II, sec. 22; Article VI, sec. 5, par. 2; Article XII, sec. 5; Article XIII, sec. 6; Article XIV, sec. 17; and Article XVI, sec. 12.

189 VOL. 347, DECEMBER 6, 2000 189 Cruz vs.Secretaryof Environmentand Natural Resources This Constitution goes further than the 1973 Constitution by expressly guaranteeing the rights of tribal Filipinos to their ancestral domains and ancestral lands. By recognizing their right to their ancestral lands and domains, the State has effectively upheld their right to live ina culturedistinctly their own. 2. Their Concept of Land Indigenous peoples share distinctive traits that set them apart from the Filipino mainstream. They are non-Christians. They live in less accessible, marginal, mostly upland areas. They have a system of self-government not dependent upon the laws of the central administration of the Republic of the Philippines. They follow ways of life and customs that are perceived as different from those of the rest of the population.97MacDonald, Indigenous Peoples of the Philippines, supra, at 345. The kind of response the indigenous peoples chose to deal with colonial threat worked well to their advantage by making it difficult for Western concepts and religion to erode their customs and traditions. The “infieles societies” which had become peripheral to colonial administration, represented, from a cultural perspective, a much older base of archi-pelagic culture. The political systems were still structured on the patriarchal and kinship oriented arrangement of power and authority. The economic activities were governed by the concepts of an ancient communalism and mutual help. The social structure which emphasized division of

labor and distinction of functions, not status, was maintained. The cultural styles and forms of life portraying the varieties of social courtesies and ecological adjustments were kept constantly vibrant.98Samuel K. Tan, A Historyofthe Philippines, p. 54 [1997]. Land is the central element of the indigenous peoples’ existence. There is no traditional concept of permanent, individual, land ownership. Among the Igorots, ownership of land more accurately applies to the tribal right to use the land or to territorial control. The people are the secondary owners or stewards of the land and that if a member of the tribe ceases to work, he loses his claim of ownership, and the land reverts to the beings of the spirit world who are its true and primary owners. Under the concept of “trusteeship,” _______________ 97 MacDonald, Indigenous Peoples of the Philippines, supra, at 345. 98 Samuel K. Tan, A Historyofthe Philippines, p. 54 [1997]. 190 190 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources the right to possess the land does not only belong to the present generation but the future onesas well.99Cordillera Studies Program, Land Use and Ownership and Public Policy in the Cordillera, 29-30 [n.d.]; also cited in Dante B. Gatmaytan, Ancestral Domain Recognition in the Philippines: Trends in Jurisprudence and Legislation,5 Phil. Nat. Res.L.J. No. 1, pp... Customary law on land rests on the traditional belief that no one owns the land except the gods and spirits, and that those

who work the land are its mere stewards.100Abelardo, Ancestral Domain Rights, supra, at 98-99, citing Ponciano L. Bennagen, Indigenous Attitudes Toward Land and Natural Resources of Tribal Filipinos, 31 National Council of Churches in the Philippines Newsletter, Oct.-Dec. 1991, at 4-9. Customary law has a strong preference for communal ownership, which could either be ownership by a group of individuals or families who are related by blood or by marriage,101Id. at 99, citing June Prill-Brett, Bontok Land Tenure (UP Law library, mimeographed). or ownership by residents of the same locality who may not be related by blood or marriage. The system of communal ownership under customary laws draws its meaning from the subsistence and highly collectivized mode of economic production. The Kalingas, for instance, who are engaged in team occupation like hunting, foraging for forest products, and swidden farming found it natural that forest areas, swidden farms, orchards, pasture and burial grounds should be communallyowned.102Ma. Lourdes Aranal-Sereno and Roan Libarios, The Interface of National Land Law and Kalinga Law, 58 P.L.J. 420, 440-441 [1983]. For the Kalingas, everybody has a common right to a common economic base. Thus, as a rule, rights and obligations to the land are shared in common. Although highly bent on communal ownership, customary law on land also sanctions individual ownership. The residential lots and terrace rice farms are governed by a limited system of individual ownership. It is limited because while the individual owner has the right to use and dispose of the property, he does not possess all the rights of an exclusive and full owner as

defined under our Civil Code.103Ibid. Under Kalinga customary law, the alienation of individu_______________ 99 Cordillera Studies Program, Land Use and Ownership and Public Policy in the Cordillera, 29-30 [n.d.]; also cited in Dante B. Gatmaytan, Ancestral Domain Recognition in the Philippines: Trends in Jurisprudence and Legislation,5 Phil. Nat. Res.L.J. No. 1, pp. 47-48 [1992]. 100 Abelardo, Ancestral Domain Rights, supra, at 98-99, citing Ponciano L. Bennagen, Indigenous Attitudes Toward Land and Natural Resources of Tribal Filipinos, 31 National Council of Churches in the Philippines Newsletter, Oct.-Dec. 1991, at 4-9. 101 Id. at 99, citing June Prill-Brett, Bontok Land Tenure (UP Law library, mimeographed). 102 Ma. Lourdes Aranal-Sereno and Roan Libarios, The Interface of National Land Law and Kalinga Law, 58 P.L.J. 420, 440-441 [1983]. 103 Ibid. 191 VOL. 347, DECEMBER 6, 2000 191 Cruz vs.Secretaryof Environmentand Natural Resources ally-owned land is strongly discouraged except in marriage and succession and except to meet sudden financial needs due to sickness, death in the family, or loss of crops.104Ibid. Moreover, land to be alienated should first be offered to a clanmember before any village-member can purchase it, and in no case may land be sold to a non-member of the ili.105Ibid. Land titles do not exist in the indigenous peoples’ economic and social system. The concept of individual land ownership

under the civil law is alien to them. Inherently colonial in origin, our national land laws and governmental policies frown upon indigenous claims to ancestral lands. Communal ownership is looked upon as inferior, if not inexistent.106Ma. Lourdes Aranal-Sereno and Roan Libarios, The Interface, supra,at 420. III. THE IPRA IS A NOVEL PIECE OF LEGISLATION. It was to address the centuries-old neglect of the Philippine indigenous peoples that the Tenth Congress of the Philippines, by their joint efforts, passed and approved R.A. No. 8371, the Indigenous Peoples Rights Act (IPRA) of 1997. The law was a consolidation of two Bills—Senate Bill No. 1728 and House Bill No. 9125. Principally sponsored by Senator Juan M. Flavier,107Senate Bill No. 1728 was co-sponsored by Senator Macapagal-Arroyo and co-authored by Senators Alvarez, Magsaysay, Revilla, Mercado, Enrile, Honasan,Tatad, Maceda, Shahani,Osmena and Romulo. The Eighth Congress, through Senators Rasul, Estrada and Romulo fi... Senate Bill No. 1728 was a consolidation of four proposed measures referred to the Committees on Cultural Communities, Environment and Natu_______________ 104 Ibid. 105 Ibid. 106 Ma. Lourdes Aranal-Sereno and Roan Libarios, The Interface, supra,at 420. 107 Senate Bill No. 1728 was co-sponsored by Senator Macapagal-Arroyo and co-authored by Senators Alvarez, Magsaysay, Revilla, Mercado, Enrile, Honasan,Tatad, Maceda, Shahani,Osmena and Romulo. The Eighth Congress, through

Senators Rasul, Estrada and Romulo filed a bill to operationalize the mandate of the 1987 Constitution on indigenous peoples. The bill was reported out, sponsored and interpellated but never enacted into law. In the Ninth Congress, the bill filed by Senators Rasul and Macapagal-Arroyo was never sponsored and deliberated upon in the floor. 192 192 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources ral Resources, Ways and Means, as well as Finance. It adopted almost en toto the comprehensive version of Senate Bill Nos. 1476 and 1486 which was a result of six regional consultations and one national consultation with indigenous peoples nationwide.108Sponsorship Speech of Senator Flavier, Legislative History of SBN 1728, Tenth Congress, Second Regular Session, Senate, Oct 16, 1996, pp. 15-16. At the Second Regular Session of the Tenth Congress, Senator Flavier, in his sponsorship speech, gave a background on the situation of indigenous peoples in the Philippines, to wit: “The Indigenous Cultural Communities, including the Bangsa Moro, have long suffered from the dominance and neglect of government controlled by the majority. Massive migration of their Christian brothers to their homeland shrunk their territory and many of the tribal Filipinos were pushed to the hinterlands. Resisting the intrusion, dispossessed of their ancestral land and with the massive exploitation of their natural resources by the elite among the migrant population, they became marginalized. And the government has been an indispensable party to this insidious conspiracy against the Indigenous Cultural

Communities (ICCs). It organized and supported the resettlement of people to their ancestral land, which was massive during the Commonwealth and early years of the Philippine Republic. Pursuant to the Regalian Doctrine first introduced to our system by Spain through the Royal Decree of 13 February 1894 or the Maura Law, the government passed laws to legitimize the wholesale landgrabbing and provide for easy titling or grant of lands to migrant homesteaders within thetraditionalareas of the ICCs.”109Id. at 12. Senator Flavier further declared: The IPs are the offsprings and heirs of the peoples who have first inhabited and cared for the land long before any central government was established. Their ancestors had territories over which they ruled themselves and related with other tribes. These territories—the land—include people, their dwelling, the mountains, the water, the air, plants, forest and the animals. This is their environment in its totality. Their existence as indigenous peoples is manifested in their own lives through political, economic, socio-cultural and spiritual practices. The IPs culture is the living and irrefutableproof to this. _______________ 108 Sponsorship Speech of Senator Flavier, Legislative History of SBN 1728, Tenth Congress, Second Regular Session, Senate, Oct 16, 1996, pp. 15-16. 109 Id. at 12. 193 VOL. 347, DECEMBER 6, 2000 193 Cruz vs.Secretaryof Environmentand Natural Resources

Their survival depends on securing or acquiring land rights; asserting their rights to it; and depending on it. Otherwise, IPs shall cease to exist asdistinct peoples.”110Id. at 17-18. To recognize the rights of the indigenous peoples effectively, Senator Flavier proposed a bill based on two postulates: (1) the concept of native title; and (2) theprincipleofparens patriae. According to Senator Flavier, “[w]hile our legal tradition subscribes to the Regalian Doctrine reinstated in Section 2, Article XII of the 1987 Constitution,” our “decisional laws” and jurisprudence passed by the State have “made exception to the doctrine.” This exception was first laid down in the case of Cariño v. Insular Government where: “xxx the court has recognized long occupancy of land by an indigenous member of the cultural communities as one of private ownership, which, in legal concept, is termed “native title.” This ruling has not been overturned. In fact, it was affirmed insubsequent cases.”111Id.at 13. Following Cariño, the State passed Act No. 926, Act No. 2874, CA. No. 141, P.D. 705, P.D. 410, P.D. 1529, R.A. 6734 (the Organic Act for the Autonomous Region of Muslim Mindanao). These laws, explicitly or implicitly, and liberally or restrictively, recognized “native title” or “private right” and the existence of ancestral lands and domains. Despite the passage of these laws, however, Senator Flavier continued: “xxx the executive department of government since the American occupation has not implemented the policy. In fact, it was more honored in its breach than in its observance, its wanton disregard shown during the period unto the Commonwealth and the early years of the Philippine Republic

when government organized and supported massive resettlement of the peopletothe land of the ICCs.” Senate Bill No. 1728 seeks to genuinely recognize the IPs right to own and possess their ancestral land. The bill was prepared also under the principle of parens patriae inherent in the supreme _______________ 110 Id. at 17-18. 111 Id.at 13. 194 194 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources power of the State and deeply embedded in Philippine legal tradition. This principle mandates that persons suffering from serious disadvantage or handicap, which places them in a position of actual inequality in their relation or transaction with others, are entitled to the protection of the State. Senate Bill No. 1728 was passed on Third Reading by twentyone (21) Senators voting in favor and none against, with no abstention.112Journal of the Tenth Congress of the Philippines, Senate, Session No. 5, Aug. 5-6,1997, pp. 86-87. House Bill No. 9125 was sponsored by Rep. Zapata, Chairman of the Committee on Cultural Communities. It was originally authored and subsequently presented and defended on the floor by Rep. GregorioAndolanaof North Cotabato.113Co-authors of the bill were Reps. Ermita, Teves, Plaza, Calalay, Recto, Fua, Luciano, Abad, Cosalan, Aumentado, de la Cruz, Bautista,

Singson, Damasing, Romualdo, Montilla, Germino, Verceles— Proceedings of Sept. 4, 1997, pp. 00107-00108. Rep.Andolana’s sponsorshipspeech reads as follows: ‘This Representation, as early as in the 8th Congress, filed a bill of similar implications that would promote, recognize the rights of indigenous cultural communities within the framework of national unity and development. Apart from this, Mr. Speaker, is our obligation, the government’s obligation to assure and ascertain that these rights shall be well-preserved and the cultural traditions as well as the indigenous laws that remained long before this Republic was established shall be preserved and promoted. There is a need, Mr. Speaker, to look into these matters seriously and early approval of the substitute bill shall bring into reality the aspirations, the hope and the dreams of more than 12 million Filipinos that they be considered in the mainstream of the Philippine society as we fashion for the year 2000.”114Sponsorship speech of Rep. Andolana of House Bill No 9125 March 20, 1997. Rep. Andolana stressed that H.B. No. 9125 is based on the policy of preservation as mandated in the Constitution. He also empha_______________ 112 Journal of the Tenth Congress of the Philippines, Senate, Session No. 5, Aug. 5-6,1997, pp. 86-87. 113 Co-authors of the bill were Reps. Ermita, Teves, Plaza, Calalay, Recto, Fua, Luciano, Abad, Cosalan, Aumentado, de la Cruz, Bautista, Singson, Damasing, Romualdo, Montilla, Germino, Verceles—Proceedings of Sept. 4, 1997, pp. 0010700108.

114 Sponsorship speech of Rep. Andolana of House Bill No 9125 March 20, 1997. 195 VOL. 347, DECEMBER 6, 2000 195 Cruz vs.Secretaryof Environmentand Natural Resources sized that the rights of IPs to their land was enunciated in Cariño v. Insular Government which recognized the fact that they had vested rights prior to the establishment of the Spanish and American regimes.115Interpellationof Aug. 20, 1997, 6:16 p.m., p. 00061. After exhaustive interpellation, House Bill No. 9125, and its corresponding amendments, was approved on Second Reading with no objections. IV. THE PROVISIONS OF THE IPRA DO NOT CONTRAVENE THE CONSTITUTION. The IPRA grants to ICCs/IPs a distinct kind of ownership over ancestral domains and ancestral lands. Ancestral lands are not the same as ancestral domains. These are defined in Section 3 [a] and [b] ofthe IndigenousPeoples Right Act,viz.: “Sec. 3 a) Ancestral Domains.—Subject to Section 56 hereof, refer to all areas generally belonging to ICCs/IPs comprising lands, inland waters, coastal areas, and natural resources therein, held under a claim of ownership, occupied or possessed by ICCs/IPs by themselves or through their ancestors, communally or individually since time immemorial, continuously to the present except when interrupted by war, force majeure or displacement by force, deceit, stealth or as a consequence of government projects or any other voluntary dealings entered into by government and private

individuals/corporations, and which are necessary to ensure their economic, social and cultural welfare. It shall include ancestral lands, forests, pasture, residential, agricultural, and other lands individually owned whether alienable and disposable or otherwise, hunting grounds, burial grounds, worship areas, bodies of water, mineral and other natural resources, and lands which may no longer be exclusively occupied by ICCs/IPs but from which they traditionally had access to for their subsistence and traditional activities, particularly the home ranges of ICCs/IPs who are still nomadic and/or shifting cultivators; _______________ 115 Interpellationof Aug. 20, 1997, 6:16 p.m., p. 00061. 196 196 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources b) Ancestral Lands.—Subject to Section 56 hereof, refers to land occupied, possessed and utilized by individuals, families and clans who are members of the ICCs/IPs since time immemorial, by themselves or through their predecessors-ininterest, under claims of individual or traditional group ownership, continuously, to the present except when interrupted by war, force majeure or displacement by force, deceit, stealth, or as a consequence of government projects and other voluntary dealings entered into by government and private individuals/corporations, including, but not limited to, residential lots, rice terraces or paddies, private forests, swiddenfarms and tree lots.”

Ancestral domains are all areas belonging to ICCs/IPs held under a claim of ownership, occupied or possessed by ICCs/IPs by themselves or through their ancestors, communally or individually since time immemorial, continuously until the present, except when interrupted by war, force majeure or displacement by force, deceit, stealth or as a consequence of government projects or any other voluntary dealings with government and/or private individuals or corporations. Ancestral domains comprise lands, inland waters, coastal areas, and natural resources therein and includes ancestral lands, forests, pasture, residential, agricultural, and other lands individually owned whether alienable or not, hunting grounds, burial grounds, worship areas, bodies of water, mineral and other natural resources. They also include lands which may no longer be exclusively occupied by ICCs/IPs but from which they traditionally had access to for their subsistence and traditional activities, particularly the home ranges of ICCs/IPs who are still nomadic and/or shifting cultivators.116Section 3 [a],IPRA. Ancestral lands are lands held by the ICCs/IPs under the same conditions as ancestral domains except that these are limited to lands and that these lands are not merely occupied and possessed but are also utilized by the ICCs/IPs under claims of individual or traditional group ownership. These lands include but are not limited to residential lots, rice terraces or paddies, private forests, swidden farms and tree lots.117Section 3 [b], IPRA. _______________ 116 Section 3 [a],IPRA. 117 Section 3 [b], IPRA.

197 197 VOL. 347, DECEMBER 6, 2000 Cruz vs.Secretaryof Environmentand Natural Resources The procedures for claiming ancestral domains and lands are similar to the procedures embodied in Department Administrative Order (DAO) No. 2, series of 1993, signed by then Secretary of the Department of Environment and Natural Resources (DENR) Angel Alcala.118Guide to R.A. 8371, p. 14. DAO No. 2 allowed the delineation of ancestral domains by special task forces and ensured the issuance of Certificates of Ancestral Land Claims (CALC’s) and Certificates of Ancestral Domain Claims (CADC’s) toIPs. The identification and delineation of these ancestral domains and lands is a power conferred by the IPRA on the National Commission on Indigenous Peoples (NCIP).119Section 44 [e], IPRA. The guiding principle in identification and delineation is self-delineation.120Section 51, IPRA. This means that the ICCs/IPs have a decisive role in determining the boundaries of theirdomainsand in all the activities pertinent thereto.121Guide to R.A. 8371, p. 15. The procedure for the delineation and recognition of ancestral domains is set forth in Sections 51 and 52 of the IPRA. The identification, delineation and certification of ancestral lands is in Section53 of saidlaw. Upon due application and compliance with the procedure provided under the law and upon finding by the NCIP that the application is meritorious, the NCIP shall issue a Certificate of Ancestral Domain Title (CADT) in the name of the community concerned.122A CADT refers to a title formally recognizing

the right of possession and ownership of ICCs/IPs over their ancestral domains identified and delineated in accordance with the IPRA—Rule II [c], Rules & Regulations Implementing the IPRA, NCIP Admin... The allocation of lands within the ancestral domain to any individual or indigenous corporate (family or clan) claimants is left to the ICCs/IPs concerned to decide in accordance with customs and traditions.123Section 53 [a], IPRA. With respect to ancestral lands outside the ances_______________ 118 Guide to R.A. 8371, p. 14. 119 Section 44 [e], IPRA. 120 Section 51, IPRA. 121 Guide to R.A. 8371, p. 15. 122 A CADT refers to a title formally recognizing the right of possession and ownership of ICCs/IPs over their ancestral domains identified and delineated in accordance with the IPRA—Rule II [c], Rules & Regulations Implementing the IPRA, NCIP Admin. Order No. 1. 123 Section 53 [a], IPRA. 198 198 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources tral domain, the NCIP issues a Certificate of Ancestral Land Title (CALT).124A CALT refers to a title formally recognizing the rights of the ICCs/IPs over their ancestral lands—Rule II [d], Implementing Rules NCIPA.O. No. 1. CADT’s and CALT’s issued under the IPRA shall be registered by the NCIP before the Register of Deeds in the place where the property is situated.125Section 52 [k], IPRA.

(1) Right to Ancestral Domains and Ancestral Lands: How Acquired The rights of the ICCs/IPs to their ancestral domains and ancestral lands may be acquired in two modes: (1) by native title over both ancestral lands and domains; or (2) by Torrens title under the Public Land Act and the Land Registration Act with respect to ancestral lands only. (2) The Concept of Native Title Native title is defined as: “Sec. 3 [1]. Native Title—refers to pre-conquest rights to lands and domains which, as far back as memory reaches, have been held under a claim of private ownership by ICCs/IPs, have never been public lands and are thus indisputably presumed to have been held that way since before the Spanish Conquest.”126Section 3 [1], IPRA. Native title refers to ICCs/IPs’ preconquest rights to lands and domains held under a claim of private ownership as far back as memory reaches. These lands are deemed never to have been public lands and are indisputably presumed to have been held that way since before the Spanish Conquest. The rights of ICCs/IPs to their ancestral domains (which also include ancestral lands) by virtue of native title shall be recognized and respected.127Section 11, IPRA. Formal recognition, when solicited by ICCs/IPs concerned, shall be embodied in a Certificate of Ancestral Domain Title (CADT), which _______________ 124 A CALT refers to a title formally recognizing the rights of the ICCs/IPs over their ancestral lands—Rule II [d], Implementing Rules NCIPA.O. No. 1. 125 Section 52 [k], IPRA.

126 Section 3 [1], IPRA. 127 Section 11, IPRA. 199 VOL. 347, DECEMBER 6, 2000 199 Cruz vs.Secretaryof Environmentand Natural Resources shall recognize the title of the concerned ICCs/IPs over the territories identified and delineated.128Ibid. Like a Torrens title, a CADT is evidence of private ownership of land by native title. Native title, however, is a right of private ownership peculiarly granted to ICCs/IPs over their ancestral lands and domains. The IPRA categorically declares ancestral lands and domains held by native title as never to have been public land. Domains and lands held under native title are, therefore, indisputably presumed to have never been public lands and are private. (a) Cariño v. Insular Government12941 Phil. 935 (1909), 212 U.S. 449, 53 L.Ed. 594. The concept of native title in the IPRA was taken from the 1909 case of Cariño v. Insular Government.130Sponsorship Speech of Senator Juan Flavier, Leg. History of SBN 1728, Tenth Congress, Second Regular Session, Oct. 16, 1996, p. 13. Cariño firmly established a concept of private land title that existed irrespective of any royal grant from the State. In 1903, Don Mateo Cariño, an Ibaloi, sought to register with the land registration court 146 hectares of land in Baguio Municipality, Benguet Province. He claimed that this land had been possessed and occupied by his ancestors since time immemorial; that his grandfather built fences around the property for the holding of cattle and that his father cultivated

some parts of the land. Cariño inherited the land in accordance with Igorot custom. He tried to have the land adjusted under the Spanish land laws, but no document issued from the Spanish Crown.131It was the practice of the Spanish colonial government not to issue titles to Igorots—Owen J. Lynch, Jr., Invisible Peoples and a Hidden Agenda: The Origins of Contemporary Philippine Land Laws (1900-1913), 63 P.L.J. 249, 288 [1988], citing the testi... In 1901, Cariño obtained a possessory title to the land under the Spanish Mortgage Law.132Maura Law or the Royal Decree of Feb. 13, 1894. The North American colonial government, however, ignored his possessory title and built a public road on the land prompting him _______________ 128 Ibid. 129 41 Phil. 935 (1909), 212 U.S. 449, 53 L.Ed. 594. 130 Sponsorship Speech of Senator Juan Flavier, Leg. History of SBN 1728, Tenth Congress, Second Regular Session, Oct. 16, 1996, p. 13. 131 It was the practice of the Spanish colonial government not to issue titles to Igorots—Owen J. Lynch, Jr., Invisible Peoples and a Hidden Agenda: The Origins of Contemporary Philippine Land Laws (1900-1913), 63 P.L.J. 249, 288 [1988], citing the testimony of Benguet Provincial Governor William F. Pack, Records at 47,Cariño. 132 Maura Law or the Royal Decree of Feb. 13, 1894. 200 200 SUPREME COURT REPORTSANNOTATED Cruz vs. Secretaryof Environmentand Natural Resources

to seek a Torrens title to his property in the land registration court. While his petition was pending, a U.S. military reservation133Later namedCamp John Hay. was proclaimed over his land and, shortly thereafter, a military detachment was detailed on the property with orders to keep cattle and trespassers, including Cariño, off the land.134Lynch,Invisible Peoples, supra, at 288-289. In 1904, the land registration court granted Cariño’s application for absolute ownership to the land. Both the Government of the Philippine Islands and the U.S. Government appealed to the C.F.I. of Benguet which reversed the land registration court and dismissed Cariño’s application. The Philippine Supreme Court1357 Phil. 132 [1906]. affirmed the C.F.I, by applying the Valenton ruling. Cariño took the case to the U.S. Supreme Court.136In 1901, Cariño had entered into a promissory agreement with a U.S. merchant in Manila.The note obliged Cariño to sell the land at issue “as soon as he obtains from the Government of the United States, or its representatives in the Philippi... On one hand, the Philippine government invoked the Regalian doctrine and contended that Cariño failed to comply with the provisions of the Royal Decree of June 25, 1880, which required registration of land claims within a limited period of time. Cariño, on the other, asserted that he was the absolute owner of the land jure gentium, and that the land neverformed part of the public domain. In a unanimous decision written by Justice Oliver Wendell Holmes, theU.S.Supreme Court held: “It is true that Spain, in its earlier decrees, embodied the universal feudal theory that all lands were held from the

Crown, and perhaps the general attitude of conquering nations toward people not recognized as entitled to the treatment accorded to those in the same zone of civilization with themselves. It is true, also, that in legal theory, sovereignty is absolute, and that, as against foreign nations, the United States may assert, as Spain asserted, absolute power. But it does not follow that, as against the inhabitants of the Philippines, the United States asserts that Spain _______________ 133 Later namedCamp John Hay. 134 Lynch,Invisible Peoples, supra, at 288-289. 135 7 Phil. 132 [1906]. 136 In 1901, Cariño had entered into a promissory agreement with a U.S. merchant in Manila.The note obliged Cariño to sell the land at issue “as soon as he obtains from the Government of the United States, or its representatives in the Philippines, real and definitivetitle.”See Lynch, Invisible Peoples, supra,at290, citing Government’s Exhibit G, Records, at 137-138,Cariño. 201 VOL. 347, DECEMBER 6, 2000 201 Cruz vs.Secretaryof Environmentand Natural Resources had such power. When theory is left on one side, sovereignty is a question of strength, and may vary in degree. How far a new sovereign shall insist upon the theoretical relation of the subjects to the head in the past, and how far it shall recognize actual facts, are mattersfor it to decide.”137Cariño v. Insular Government, supra, at 939.

The U.S. Supreme Court noted that it need not accept Spanish doctrines. The choice was with the new colonizer. Ultimately, the matter had tobe decidedunder U.S. law. The Cariño decision largely rested on the North American constitutionalist’s concept of “due process” as well as the pronounced policy “‘to do justice to the natives.”138Ibid. It was based on the strong mandate extended to the Islands via the Philippine Bill of 1902 that “No law shall be enacted in said islands which shall deprive any person of life, liberty, or property without due process of law, or deny to any person therein the equal protection of the laws.” The court declared: “The acquisition of the Philippines was not like the settlement of the white race in the United States. Whatever consideration may have been shown to the North American Indians, the dominant purpose of the whites in America was to occupy land. It is obvious that, however stated, the reason for our taking over the Philippines was different. No one, we suppose, would deny that, so far as consistent with paramount necessities, our first object in the internal administration of the islands is to do justice to the natives, not to exploit their country for private gain. By the Organic Act of July 1, 1902, chapter 1369, section 12 (32 Statutes at Large, 691), all the property and rights acquired there by the United States are to be administered ‘for the benefit of the inhabitants thereof.’ It is reasonable to suppose that the attitude thus assumed by the United States with regard to what was unquestionably its own is also its attitude in deciding what it will claim for its own. The same statute made a bill of rights, embodying the safeguards of the Constitution, and, like the Constitution, extends those safeguards to all. It provides that ‘no law shall be

enacted in said islands which shall deprive any person of life, liberty, or property without due process of law, or deny to any person therein the equal protection of the laws.’ In the light of the declaration that we have quoted from section 12, it is hard to believe that the United States was ready to declare in the next breath that “any person” did not embrace the inhabitants of Benguet, _______________ 137 Cariño v. Insular Government, supra, at 939. 138 Ibid. 202 202 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources or that it meant by “property” only that which had become such by ceremonies of which presumably a large part of the inhabitants never had heard, and that it proposed to treat as public land what they, by native custom and by long association,—of the profoundest factors in human thought,— regarded as their own.”139Id.at 940. The Courtwent further: “[E]very presumption is and ought to be against the government in a case like the present. It might, perhaps, be proper and sufficient to say that when, as far back as testimony or memory goes, the land has been held by individuals under a claim of private ownership, it will be presumed to have been held in the same way from before the Spanish conquest, and never to have been public land. Certainly in a case like this, if there is doubt or ambiguity in the Spanish law, we ought to give the applicant the benefit of the doubt.”140Id.at 941.

The court thus laid down the presumption of a certain title held (1) as far back as testimony or memory went, and (2) under a claim of private ownership. Land held by this title is presumed to “never have beenpublic land.” Against this presumption, the U.S. Supreme Court analyzed the Spanish decrees upheld in the 1904 decision of Valenton v. Murciano. The U.S. Supreme Court found no proof that the Spanish decrees did not honor native title. On the contrary, the decrees discussed in Valenton appeared to recognize that the natives owned some land, irrespective of any royal grant. The Regalian doctrine declared in the preamble of the Recopilacion was all “theory and discourse” and it was observed that titles were admitted to existbeyond thepowers of the Crown,viz.: “If the applicant’s case is to be tried by the law of Spain, we do not discover such clear proof that it was bad by that law as to satisfy us that he does not own the land. To begin with, the older decrees and laws cited by the counsel for the plaintiff in error seem to indicate pretty clearly that the natives were recognized as owning some lands, irrespective of any royal grant. In other words, Spain did not assume to convert all the native in_______________ 139 Id.at 940. 140 Id.at 941. 203 VOL. 347, DECEMBER 6, 2000 203 Cruz vs.Secretaryof Environmentand Natural Resources habitants of the Philippines into trespassers or even into tenants at will. For instance, Book 4, title 12, Law 14 of the

Recopilacion de Leyes de las Indias, cited for a contrary conclusion in Valenton v. Murciano, 3 Philippine 537, while it commands viceroys and others, when it seems proper, to call for the exhibition of grants, directs them to confirm those who hold by good grants or justa prescripcion. It is true that it begins by the characteristic assertion of feudal overlordship and the origin of all titles in the King or his predecessors. That was theory and discourse. The fact was that titles were admitted to exist that owed nothing to the powers of Spain beyond this recognition in their books” (Emphasis supplied).141Id.at 941-942. The court further stated that the Spanish “adjustment” proceedings never held sway over unconquered territories. The wording of the Spanish laws were not framed in a manner as to convey to the natives that failure to register what to them has always been their own would mean loss of such land. The registration requirement was “not to confer title, but simply to establish it”; it was “not calculated to convey to the mind of an Igorot chief the notion that ancient family possessions were in danger, if he had read every word of it.” By recognizing this kind of title, the court clearly repudiated the doctrine of Valenton. It was frank enough, however, to admit the possibility that the applicant might have been deprived of his land under Spanish law because of the inherent ambiguity of the decrees and concomitantly, the various interpretations which may be given them. But precisely because of the ambiguity and of the strong “due process mandate” of the Constitution, the court validated this kind of title.142Aranal-Sereno and Libarios, The Interface Between Kalinga Land Law, supra at 428—This article was one of those

circulated among the Constitutional Commissioners in the formulation of Sec. 5, Article XII of the 1987 Constitution (4 Record of the Const... This title was sufficient, even without government administrative action, and entitled the holder to a Torrens certificate. Justice Holmes explained: “It will be perceived that the rights of the applicant under the Spanish law present a problem not without difficulties for courts of a legal tradition. We have deemed it proper on that account to notice the possible _______________ 141 Id.at 941-942. 142 Aranal-Sereno and Libarios, The Interface Between Kalinga Land Law, supra at 428—This article was one of those circulated among the Constitutional Commissioners in the formulation of Sec. 5, Article XII of the 1987 Constitution (4 Record of the Constitutional Commission 33). 204 204 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources effect of the change of sovereignty and the act of Congress establishing the fundamental principles now to be observed. Upon a consideration of the whole case we are of the opinion that law and justice require that the applicant should be granted what he seeks, and should not be deprived of what, by the practice and belief of those among whom he lived, was his property, through a refined interpretation of an almost forgotten law of Spain.”143Id.at 944. Thus, the court ruled in favor of Cariño and ordered the registrationof the148hectares inBaguio Municipality in

hisname.144Certificate of Title No. 2 covering the 148 hectares of Baguio Municipality was issued not in the name of Cariño who died on June 6, 1908, but to his lawyers John Hausserman and Charles Cohn and his attorney-in-fact Metcalf Clarke. Hausserman, Cohn an... Examining Cariño closer, the U.S. Supreme Court did not categorically refer to the title it upheld as “native title.” It simply said: “The Province of Benguet was inhabited by a tribe that the Solicitor-General, in his argument, characterized as a savage tribe that never was brought under the civil or military government of the Spanish Crown. It seems probable, if not certain, that the Spanish officials would not have granted to anyone in that province the registration to which formerly the plaintiff was entitled by the Spanish Laws, and which would have made his title beyond question good. Whatever may have been the technical position of Spain it does not follow that, in the view of the United States, he had lost all rights and was a mere trespasser when the present government seized his land. The argument to that effect seems to amount to a denial of native titles through an important part of the Island of Luzon, at least, for the want of ceremonies which the Spaniards would not have permitted and had not the power to enforce.”145Id.at 939. This is the only instance when Justice Holmes used the term “native title” in the entire length of the Cariño decision. It is observed that the widespread use of the term “native title” may be traced to Professor Owen James Lynch, Jr., a Visiting Professor at ______________

143 Id.at 944. 144 Certificate of Title No. 2 covering the 148 hectares of Baguio Municipality was issued not in the name of Cariño who died on June 6, 1908, but to his lawyers John Hausserman and Charles Cohn and his attorney-in-fact Metcalf Clarke. Hausserman, Cohn and Clarke sold the land to the U.S. Government in a Deed of Quitclaim—Richel B. Langit, Igorot Descendants Claim Rights to Camp John Hay, Manila Times, p. 1, Jan. 12, 1998. 145 Id.at 939. 205 VOL. 347, DECEMBER 6, 2000 205 Cruz vs.Secretaryof Environmentand Natural Resources the University of the Philippines College of Law from the Yale University Law School. In 1982, Prof. Lynch published an article in the Philippine Law Journal entitled Native Title, Private Right and Tribal Land Law.14657 P.L.J. 268, 293-296 [1982]. This article was made after Professor Lynch visited over thirty tribal communities throughout the country and studied the origin and development of Philippine land laws.147Prom 1987 to 1988, Prof. Lynch allowed the P.L.J. to publish parts of his doctoral dissertation at the Yale Law School entitled “Invisible Peoples: A History of Philippine Land Law.” Please see The Legal Bases of Philippine Colonial Sovereignty... He discussed Cariño extensively and used the term “native title” to refer to Cariño’s title as discussed and upheld by the U.S. Supreme Court in said case. (b) Indian Title

In a footnote in the same article, Professor Lynch stated that the concept of “native title” as defined by Justice Holmes in Cariño “is conceptually similar to “aboriginal title” of the American Indians.148“Native title” is a common law recognition of pre-existing aboriginal land interests in Australia—Maureen Tehan, Customary Title, Heritage Protection, and Property Rights in Australia: Emerging Patterns of Land Use in the Post-Mabo Era, 7... This is not surprising, according to Prof. Lynch, considering that during the American regime, government policy towards ICCs/IPs was consistently made in reference to native Americans.149Lynch,Native Titles, supra, Note 164, p. 293. This was clearly demonstrated in the case of Rubi v. Provincial Board of Mindoro.15039 Phil. 660 [1919]. In Rubi, the Provincial Board of Mindoro adopted a Resolution authorizing the provincial governor to remove the Mangyans from ________________ 146 57 P.L.J. 268, 293-296 [1982]. 147 Prom 1987 to 1988, Prof. Lynch allowed the P.L.J. to publish parts of his doctoral dissertation at the Yale Law School entitled “Invisible Peoples: A History of Philippine Land Law.” Please see The Legal Bases of Philippine Colonial Sovereignty: An Inquiry, 62 P.L.J. 279 [1987]; Land Rights, Land Laws and Land Usurpation: The Spanish Era (15681898), 63 P.L.J. 82 [1988]; The Colonial Dichotomy: Attraction and Disenfranchisement, 63 P.L.J. 112; Invisible Peoples and a Hidden Agenda: The Origins of Contemporary Philippine Land Laws (1900-1913), 63 P.L.J. 249.

148 “Native title” is a common law recognition of pre-existing aboriginal land interests in Australia—Maureen Tehan, Customary Title, Heritage Protection, and Property Rights in Australia: Emerging Patterns of Land Use in the Post-Mabo Era, 7 Pacific Rim Law & Policy Journal, No. 3, p. 765 [June 1998]. 149 Lynch,Native Titles, supra, Note 164, p. 293. 150 39 Phil. 660 [1919]. 206 206 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources their domains and place them in a permanent reservation in Sitio Tigbao, Lake Naujan. Any Mangyan who refused to comply was to be imprisoned. Rubi and some Mangyans, including one who was imprisoned for trying to escape from the reservation, filed for habeas corpus claiming deprivation of liberty under the Board Resolution. This Court denied the petition on the ground of police power. It upheld government policy promoting the idea that a permanent settlement was the only successful method for educating the Mangyans, introducing civilized customs, improving their health and morals, and protecting the public forests in which they roamed.151Id.at 712-713. Speaking throughJustice Malcolm, the court said: “Reference was made in the President’s instructions to the Commission to the policy adopted by the United States for the Indian Tribes. The methods followed by the Government of the Philippine Islands in its dealings with the so-called nonChristian people is said, on argument, to be practically

identical with that followed by the United States Government in its dealings with the Indian tribes. Valuable lessons, it is insisted, can be derived byaninvestigation of the AmericanIndian policy. From the beginning of the United States, and even before, the Indians have been treated as “in a state of pupilage.” The recognized relation between the Government of the United States and the Indians may be described as that of guardian and ward. It is for the Congress to determine when and how the guardianship shall be terminated. The Indians are alwayssubject to theplenary authority ofthe United States.152Id.at 694. x x x. As to the second point, the facts in the Standing Bear case and the Rubi case are not exactly identical. But even admitting similarity of facts, yet it is known to all that Indian reservations do exist in the United States, that Indians have been taken from different parts of the country and placed on these reservations, without any previous consultation as to their own wishes, and that, when once so located, they have been made to remain on the reservation for their own good and for the general good of the country. If any lesson can be drawn from the Indian policy of the United States, it is that the determination of this policy is for the legislative and executive branches of the government and that when once so decided upon, the courts should not interfere to upset a carefully planned _______________ 151 Id.at 712-713. 152 Id.at 694. 207 VOL. 347, DECEMBER 6, 2000 207

Cruz vs.Secretaryof Environmentand Natural Resources governmental system. Perhaps, just as many forceful reasons exist for the segregation of the Manguianes in Mindoro as existed for the segregation of the different Indiantribes in the United States.”153Id.at 700. Rubi applied the concept of Indian land grants or reservations in the Philippines. An Indian reservation is a part of the public domain set apart by proper authority for the use and occupation of a tribe or tribes of Indians.15442 C.J.S., Indians,Sec. 29 [1944 ed.]. It may be set apart by an act of Congress, by treaty, or by executive order, but it cannot be established by custom and prescription.155There are 3 kinds of Indian reservations: (a) those created by treaties prior to 1871; (b) those created by acts of Congress since 1871; and (c) those made by Executive Orders where the President has set apart public lands for the use of the Indians in ord... Indian title to land, however, is not limited to land grants or reservations. It also covers the “aboriginal right of possession or occupancy.”15642 C.J.S. Indians,Sec. 28 [1944 ed.]. The aboriginal right of possession depends on the actual occupancy of the lands in question by the tribe or nation as their ancestral home, in the sense that such lands constitute definable territory occupied exclusively by the particular tribe or nation.157Ibid; see also U.S. v. Santa Fe Pac. R. Co., Ariz., 62 S. Ct. 248, 314 U.S. 339, 86 L. Ed. 260 [1941]. It ________________ 153 Id.at 700. 154 42 C.J.S., Indians,Sec. 29 [1944 ed.].

155 There are 3 kinds of Indian reservations: (a) those created by treaties prior to 1871; (b) those created by acts of Congress since 1871; and (c) those made by Executive Orders where the President has set apart public lands for the use of the Indians in order to keep them within a certain territory—42 C.J.S., Indians, Sec. 29 citing Sioux Tribe of Indians v. U.S., 94 Ct. Cl. 150, 170, certiorari granted 62 S. Ct. 631, 315 U. S. 790, 86 L. Ed. 1194, affirmed 62 S. Ct. 1095, 316 U.S. 317, 86 L.Ed. 1501. It is observed that the first two kinds may include lands possessed by aboriginal title. The last kind covers Indian reservations proper. Until 1871, Indian tribes were recognized by the United States as possessing the attributes of nations to the extent that treaties were made with them. In that year, however, Congress, by statute, declared its intention thereafter to make the Indian tribes amenable directly to the power and authority of the United States by the immediate exercise of its legislative power over them, instead of by treaty. Since then, Indian affairs have been regulated by acts of Congress and by contracts with the Indian tribes practically amounting to treaties—41 Am Jur 2d, Indians, Sec. 55 [1995 ed.]. 156 42 C.J.S. Indians,Sec. 28 [1944 ed.]. 157 Ibid; see also U.S. v. Santa Fe Pac. R. Co., Ariz., 62 S. Ct. 248, 314 U.S. 339, 86 L. Ed. 260 [1941]. 208 208 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources is a right which exists apart from any treaty, statute, or other governmental action, although in numerous instances treaties have been negotiated with Indian tribes, recognizing their

aboriginal possession and delimiting their occupancy rights or settling and adjusting theirboundaries.158Ibid. American jurisprudence recognizes the Indians’ or native Americans’ rights to land they have held and occupied before the “discovery” of the Americas by the Europeans. The earliest definitive statement by the U.S. Supreme Court on the nature of aboriginal title was made in 1823 in Johnson & Graham’s Lessee v. M'Intosh.1598 Wheat 543, 5 L. Ed. 681 [1823]. In Johnson, the plaintiffs claimed the land in question under two (2) grants made by the chiefs of two (2) Indian tribes. The U.S. Supreme Court refused to recognize this conveyance, the plaintiffs being private persons. The only conveyance that was recognized was that made by the Indians to the government of the European discoverer. Speaking for the court, Chief Justice Marshall pointed out that the potentates of the old world believed that they had made ample compensation to the inhabitants of the new world by bestowing civilization and Christianity upon them; but in addition, said the court, they found it necessary, in order to avoid conflicting settlements and consequent war, to establish the principle that discovery gives title to the government by whose subjects, or by whose authority, the discovery was made, against all other European governments, which title might be consummated by possession.160Id.at 680. The exclusion of all other Europeans gave to the nation making the discovery the sole right of acquiring the soil from the natives and establishing settlements upon it. As regards the natives, the court further stated that: “Those relations which were to exist between the discoverer and the natives were to be regulated by themselves. The rights

thus acquired being exclusive, no otherpowercould interpose between them. In the establishment of these relations, the rights of the original inhabitants were, in no instance, entirely disregarded; but were necessarily, ________________ 158 Ibid. 159 8 Wheat 543, 5 L. Ed. 681 [1823]. 160 Id.at 680. 209 VOL. 347, DECEMBER 6, 2000 209 Cruz vs.Secretaryof Environmentand Natural Resources to a considerable extent, impaired. They were admitted to be the rightful occupants of the soil, with a legal as well as just claim to retain possession of it, and to use it according to their own discretion; but their rights to complete sovereignty, as independent nations, were necessarily diminished, and their power to dispose of the soil at their own will, to whomsoever they pleased, was denied by the fundamental principle that discovery gave exclusive titleto those who made it. While the different nations of Europe respected the right of the natives as occupants, they asserted the ultimate dominion to be in themselves; and claimed and exercised, as a consequence of this ultimate dominion, a power to grant the soil, while yet in possession of the natives. These grants have been understood by all to convey a title to the grantees, subject only to the Indian right of occupancy.”161Id.at 689. Thus, the discoverer of new territory was deemed to have obtained the exclusive right to acquire Indian land and

extinguish Indian titles. Only to the discoverer—whether to England, France, Spain or Holland—did this right belong and not to any other nation or private person. The mere acquisition of the right nonetheless did not extinguish Indian claims to land. Rather, until the discoverer, by purchase or conquest, exercised its right, the concerned Indians were recognized as the “rightful occupants of the soil, with a legal as well as just claim to retain possession of it.” Grants made by the discoverer to her subjects of lands occupied by the Indians were held to convey a title to the grantees, subject only to the Indian right of occupancy. Once the discoverer purchased the land from the Indians or conquered them, it was only then that the discoverer gained an absolute title unrestricted by Indian rights. The court concluded, in essence, that a grant of Indian lands by Indians could not convey a title paramount to the title of the United States itself tootherparties, saying: It has never been contended that the Indian title amounted to nothing. Their right of possession has never been questioned. The claim of government extends to the complete ultimate title, charged with this right of possession, and to the exclusive power of acquiring that right.”162Id. at 696; see also 41 ALR Fed 425, Annotation: Proof and Extinguishment of Aboriginal Title to Indian Lands, Sec. 2 [a] [1979]. _______________ 161 Id.at 689. 162 Id. at 696; see also 41 ALR Fed 425, Annotation: Proof and Extinguishment of Aboriginal Title to Indian Lands, Sec. 2 [a] [1979]. 210 210 SUPREME COURT REPORTS ANNOTATED

Cruz vs.Secretaryof Environmentand Natural Resources It has been said that the history of America, from its discovery to the present day, proves the universal recognition of this principle.163Buttz v. Northern Pac. R. Co., Dak., 7 S. Ct. 100, 119 U.S. 55, 30 L.Ed. 330, 335 [1886]. The Johnson doctrine was a compromise. It protected Indian rights and their native lands without having to invalidate conveyances made by the government to many U.S. citizens.164Lynch, Native Title, supra, at 293-294; Cohen, Original Indian Title,32 Minn. L.R. 48-49 [1947]. Johnson was reiterated in the case of Worcester v. Georgia.1656 Pet 515, 8 L.Ed. 483 [1832]. In this case, the State of Georgia enacted a law requiring all white persons residing within the Cherokee nation to obtain a license or permit from the Governor of Georgia; and any violation of the law was deemed a high misdemeanor. The plaintiffs, who were white missionaries, did not obtain said license and were thus charged with a violation ofthe Act. The U.S. Supreme Court declared the Act as unconstitutional for interfering with the treaties established between the United States and the Cherokee nation as well as the Acts of Congress regulating intercourse with them. It characterized the relationship between the United States government and the Indians as: “The Indian nations were, from their situation, necessarily dependent on some foreign potentate for the supply of their essential wants, and for their protection from lawless and injurious intrusions into their country. That power was naturally termed their protector. They had been arranged under

the protection of Great Britain; but the extinguishment of the British power in their neighborhood, and the establishment of that of the United States in its place, led naturally to the declaration, on the part of the Cherokees, that they were under the protection of the United States, and of no other power. They assumed the relation with the United States which had before subsisted with Great Britain. This relation was that of a nation claiming and receiving the protection of one more powerful, not that of individuals abandoning their national character,and submitting as subjects tothelaws of a master.”166Id.at 499. _______________ 163 Buttz v. Northern Pac. R. Co., Dak., 7 S. Ct. 100, 119 U.S. 55, 30 L.Ed. 330, 335 [1886]. 164 Lynch, Native Title, supra, at 293-294; Cohen, Original Indian Title,32 Minn. L.R. 48-49 [1947]. 165 6 Pet 515, 8 L.Ed. 483 [1832]. 166 Id.at 499. 211 VOL. 347, DECEMBER 6, 2000 211 Cruz vs.Secretaryof Environmentand Natural Resources It was the policy of the U.S. government to treat the Indians as nations with distinct territorial boundaries and recognize their right of occupancy over all the landswithin theirdomains. Thus: “From the commencement of our government Congress has passed acts to regulate trade and intercourse with the Indians; which treat them as nations, respect their rights, and manifest a firm purpose to afford that protection which treaties stipulate. All these acts, and especially that of 1802, which is still in

force, manifestly consider the several Indian nations as distinct political communities, having territorial boundaries, within which their authority is exclusive, and having a right to all the lands within those boundaries, which is not only acknowledged, but guaranteed by the United States. x x x. “The Indian nations had always been considered as distinct, independent political communities, retaining their original natural rights, as the undisputed possessors of the soil from time immemorial, with the single exception of that imposed by irresistible power, which excluded them from intercourse with any other European potentate than the first discoverer of the coast of the particular region claimed: and this was a restriction which those European potentates imposed on themselves, as well as on the Indians. The very term “nation,” so generally applied to them, means “a people distinct from others.” x xx.167Id.at 500. The Cherokee nation, then, is a distinct community, occupying its own territory, with boundaries accurately described, in which the laws of Georgia can have no force, and which the citizens of Georgia have no right to enter but with the assent of the Cherokees themselves or in conformity with treaties and with the acts of Congress. The whole intercourse between the United States and this nation is, by our Constitution and laws, vestedin the government of the United States.”168Id. at 501. The discovery of the American continent gave title to the government of the discoverer as against all other European governments. Designated as the naked fee,169The title of the government to Indian lands, the naked fee, is a sovereign title, government having no landlord from whom it holds the fee—

Shoshone Tribe of Indians of Wind River Reservation in Wyoming v. this title was to be consum_______________ 167 Id.at 500. 168 Id. at 501. 169 The title of the government to Indian lands, the naked fee, is a sovereign title, government having no landlord from whom it holds the fee—Shoshone Tribe of Indians of Wind River Reservation in Wyoming v. 212 212 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources mated by possession and was subject to the Indian title of occupancy. The discoverer acknowledged the Indians’ legal and just claim to retain possession of the land, the Indians being the original inhabitants of the land. The discoverer nonetheless asserted the exclusive right to acquire the Indians’ land—either by purchase, “defensive” conquest, or cession— and in so doing, extinguish the Indian title. Only the discoverer could extinguish Indian title because it alone asserted ultimate dominion in itself. Thus, while the different nations of Europe respected the rights of the natives as occupants, they all asserted the ultimate dominion and title to be in themselves.170Buttz v. Northern Pac. R. Co., Dak., at 30 L. Ed. 330, 335; Beecher v. Wetherby, Wis., 95 U.S. 517, 24 L. Ed. 440, 441 [1877]; see also 42 C.J.S.,Indians,Sec. 28 [1944 ed.]. As early as the 19th century, it became accepted doctrine that although fee title to the lands occupied by the Indians when the

colonists arrived became vested in the sovereign—first the discovering European nation and later the original 13 States and the United States—a right of occupancy in the Indian tribes was nevertheless recognized. The Federal Government continued the policy of respecting the Indian right of occupancy, sometimes called Indian title, which it accorded the protection of complete ownership.171Annotation, Proof and Extinguishment of Aboriginal Title to Indian Lands, 41 ALR Fed 425, Sec. 2 [b] [1979]—hereinafter cited as Aboriginal Title to IndianLands. But this aboriginal Indian interest simply constitutes “permission” from the whites to occupy the land, and means mere possession not specifically recognized as ownership by Congress.172Ibid.; see also Tee Hit Ton Indians v. U.S., 348 U.S. 272, 99 L. Ed. 314, 320, 75 S. Ct. 313 [1955], reh den 348 U.S. 965, 99 L. Ed. 753, 75 S. Ct. 521. It is clear that this right of occupancy based upon aboriginal possession is not a property right.173Ibid.;Tee Hit Ton Indians v.U.S.,at 99 L. Ed. 320. It is vulnerable to affirmative action by the federal government who, as sovereign, possessed exclusive power to _______________ U.S., 85 Ct. Cl. 331, certiorari granted U.S. v. Shoshone Tribe of Indians, 58 S. Ct. 609, 303 U.S. 629, 82 L. Ed. 1090, affirmed 58 S. Ct. 794, 304 U.S. 111, 82 L.Ed. 1213, 12181219 [1938]. 170 Buttz v. Northern Pac. R. Co., Dak., at 30 L. Ed. 330, 335; Beecher v. Wetherby, Wis., 95 U.S. 517, 24 L. Ed. 440, 441 [1877]; see also 42 C.J.S.,Indians,Sec. 28 [1944 ed.]. 171 Annotation, Proof and Extinguishment of Aboriginal Title to Indian Lands, 41 ALR Fed 425, Sec. 2 [b] [1979]— hereinafter cited as Aboriginal Title to IndianLands.

172 Ibid.; see also Tee Hit Ton Indians v. U.S., 348 U.S. 272, 99 L. Ed. 314, 320, 75 S. Ct. 313 [1955], reh den 348 U.S. 965, 99 L. Ed. 753, 75 S. Ct. 521. 173 Ibid.;Tee Hit Ton Indians v.U.S.,at 99 L. Ed. 320. 213 VOL. 347, DECEMBER 6, 2000 213 Cruz vs.Secretaryof Environmentand Natural Resources extinguish the right of occupancy at will.174Oneida Indian Nation v. County of Oneida, 414 U.S. 661, 39 L. Ed. 2d 73, 94 S Ct. 772 [1974]; U.S. v. Alcea Bank of Tillamooks, 329 U.S. 40, 91 L. Ed. 29. 67 S. Ct. 167 [1946].Thus, aboriginal title is not the same as legal title. Aboriginal title rests on actual, exclusive and continuous use and occupancy for a long time.175For compensation under the Indian Claims Commission Act, the proof of aboriginal title rests on actual, exclusive and continuous use and occupancy for a long time prior to the loss of the property. (The Indian Claims Commission Act awards compensation to I...It entails that land owned by Indian title must be used within the tribe, subject to its laws and customs, and cannot be sold to another sovereign government nor to any citizen.176Aboriginal Title to Indian Lands, supra, at Sec. 2[b], p. 435. Such title as Indians have to possess and occupy land is in the tribe, and not in the individual Indian; the right of individual Indians to share in the tribal property usually depends upon tribal membership, the property of the tribe generally beingheld in communal ownership.17741 Am Jr 2d, Indians,Sec. 59[1995 ed.]. As a rule, Indian lands are not included in the term “public lands,” which is ordinarily used to designate such lands as are

subject to sale or other disposal under general laws.178An allotment of Indian land contains restrictions on alienation of the land. These restrictions extend to a devise of the land by will—Missouri, K. & T R. Co. v. U.S., 235 U.S. 37, 59 L. Ed. 116, 35 S. Ct. 6 [1914]; A railroad land grant that fa... Indian land which has been abandoned is deemed to fall into the public do_______________ 174 Oneida Indian Nation v. County of Oneida, 414 U.S. 661, 39 L. Ed. 2d 73, 94 S Ct. 772 [1974]; U.S. v. Alcea Bank of Tillamooks, 329 U.S. 40, 91 L. Ed. 29. 67 S. Ct. 167 [1946]. 175 For compensation under the Indian Claims Commission Act, the proof of aboriginal title rests on actual, exclusive and continuous use and occupancy for a long time prior to the loss of the property. (The Indian Claims Commission Act awards compensation to Indians whose aboriginal titles were extinguished by the government through military conquest, creation of a reservation, forced confinement of Indians and removal of Indians from certain portions of the land and the designation of Indian land into forest preserve, grazing district, etc.)—Aboriginal Title to Indian Lands, supra, atSecs. 2[a], 3[a],pp. 431, 433, 437. 176 Aboriginal Title to Indian Lands, supra, at Sec. 2[b], p. 435. 177 41 Am Jr 2d, Indians,Sec. 59[1995 ed.]. 178 An allotment of Indian land contains restrictions on alienation of the land. These restrictions extend to a devise of the land by will—Missouri, K. & T R. Co. v. U.S., 235 U.S. 37, 59 L. Ed. 116, 35 S. Ct. 6 [1914]; A railroad land grant that falls within Indian land is null and void—Northern P. R. Co. v.

U.S., 227 U.S. 355, 57 L. Ed. 544, 33 S. Ct. 368 [1913]; Portions of Indian land necessary for a railroad right of way were, by the terms of the treaty, declared “public land,” implying that land beyond the right of way was private— Kindred v. Union P.R. Co., 225 U.S. 582, 56 L. Ed. 1216, 32 S. Ct. 780 [1912]; see also 41 Am Jur 2d, Indians, Sec. 58 [1995 ed.]. 214 214 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretaryof Environmentand Natural Resources main.179Aboriginal Title to Indian Lands, supra, at Sec. 2[a], p. 433. On the other hand, an Indian reservation is a part of the public domain set apart for the use and occupation of a tribe of Indians.18042 C.J.S. Indians,Sec. 29 [1944 ed.] Once set apart by proper authority, the reservation ceases to be public land, and until the Indian title is extinguished, no one but Congress can initiate any preferential right on, or restrict the nation’s power to dispose of,them.181Ibid. The American judiciary struggled for more than 200 years with the ancestral land claims of indigenous Americans.182North American Indians have made much progress in establishing a relationship with the national government and developing their own laws. Some have their own government-recognized constitutions. Usually the recognition of Indian tribes depends on whether t... And two things are clear. First, aboriginal title is recognized. Second, indigenous property systems are also recognized. From a legal point of view, certain benefits can be drawn from a comparison of Philippine IPs to native Americans.183Lynch, Native Title, supra, at 293. Despite the

similarities between native title and aboriginal title, however, there are at present some misgivings on whether jurisprudence on American Indians may be cited authoritatively in the Philippines. The U.S. recognizes the possessory rights of the Indians over their land; title to the land, however, is deemed to have passed to the U.S. as successor of the discoverer. The aboriginal title of ownership is not specifically recognized as ownership by action authorized by Congress.184Dante Gatmaytan, Ancestral Domain Recognition in the Philippines: Trends in Jurisprudence and Legislation, 5 Phil. Nat. Res. L.J. No. 1, pp. 43, 40 [Aug. 1992]; see also Tee Hit Ton Indians v. U.S., supra, at 320. The protection of aboriginal title merely guards against encroachment _______________ 179 Aboriginal Title to Indian Lands, supra, at Sec. 2[a], p. 433. 180 42 C.J.S. Indians,Sec. 29 [1944 ed.] 181 Ibid. 182 North American Indians have made much progress in establishing a relationship with the national government and developing their own laws. Some have their own governmentrecognized constitutions. Usually the recognition of Indian tribes depends on whether the tribe has a reservation. North American tribes have reached such an advanced stage that the main issues today evolve around complex jurisdictional and litigation matters. Tribes have acquired the status of sovereign nations within another nation, possessing the right to change and grow—Jose Paulo Kastrup, The Internationalization of Indigenous Rights from the Environmental and Human Rights

Perspective, Texas International Law Journal, vol. 32:97, 104[1997]. 183 Lynch, Native Title, supra, at 293. 184 Dante Gatmaytan, Ancestral Domain Recognition in the Philippines: Trends in Jurisprudence and Legislation, 5 Phil. Nat. Res. L.J. No. 1, pp. 43, 40 [Aug. 1992]; see also Tee Hit Ton Indians v. U.S., supra, at 320. 215 VOL. 347, DECEMBER 6, 2000 215 Cruz vs.Secretaryof Environmentand Natural Resources by persons other than the Federal Government.185Ibid. Although there are criticisms against the refusal to recognize the native Americans’ ownership of these lands,186D. Gatmaytan, supra, citing Churchill, The Earth is Our MotherStruggles for American Indian Land and Liberation in the Contemporary United States, The State of Native America: Genocide, Colonization and Resistance 139 (M. Jaimes 1992); and Indian Law Reso... the power of the State to extinguish these titles has remainedfirmly entrenched.187Id., Note 28, stating that some earlier decisions of the U.S. Supreme Court have held that Congress is subject to the strictures of the Constitution in dealing with Indians. When Indian property is taken for non-Indian use, the U.S. government is liable fo... Under the IPRA, the Philippine State is not barred form asserting sovereignty over the ancestral domains and ancestral lands.188See Discussion,infra,Part IV (c) (2). The IPRA, however, is still in its infancy and any similarities between its application in the Philippines vis-à-vis American Jurisprudence

on aboriginal title will depend on the peculiar facts of each case. (c) Why theCariño doctrine is unique In the Philippines, the concept of native title first upheld in Cariño and enshrined in the IPRA grants ownership, albeit in limited form, of the land to the ICCs/IPs. Native title presumes that the land is private and was never public. Cariño is the only case that specifically and categorically recognizes native title. The long line of cases citing Cariño did not touch on native title and the private character of ancestral domains and lands. Cariño was cited by the succeeding cases to support the concept of acquisitive prescription under the Public Land Act which is a different matter _______________ 185 Ibid. 186 D. Gatmaytan, supra, citing Churchill, The Earth is Our Mother-Struggles for American Indian Land and Liberation in the Contemporary United States, The State of Native America: Genocide, Colonization and Resistance 139 (M. Jaimes 1992); and Indian Law Resource Center, United States Denial of Indian Property Rights: A Study in Lawless Power and Racial Discrimination, Rethinking Indian Law 15 (National Lawyers Guild, Committee on Native American Struggles 1982). 187 Id., Note 28, stating that some earlier decisions of the U.S. Supreme Court have held that Congress is subject to the strictures of the Constitution in dealing with Indians. When Indian property is taken for non-Indian use, the U.S. government is liable for payment of compensation, and an uncompensated taking may be enjoined. F. Cohen, Handbook of Federal Indian Law 217 [1982], citing Shoshone Tribe v.

U.S. 299 U.S. 476 [1937]; Choate v. Trapp, 224 U.S. 665 [1912]; and Lane v. Pueblo of Santa Rosa, 249 U.S. 110 [1919]. 188 See Discussion,infra,Part IV (c) (2). 216 216 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources altogether. Under the Public Land Act, land sought to be registered must be public agricultural land. When the conditions specified in Section 48 [b] of the Public Land Act are complied with, the possessor of the land is deemed to have acquired, by operation of law, a right to a grant of the land.189Susi v. Razon, 48 Phil. 424 [1925]; Herico v. Dar, 95 SCRA 437 [1980]. The land ceases to be part of the public domain,190Ibid. ipso jure,191Director of Lands v. Intermediate Appellate Court, 146 SCRA 509 [1986]; Director of Lands v. Buyco, 216 SCRA 78 [1992]; Republic v. Court of Appeals and 235 SCRA 567 [1994]. and is converted to private property by the mere lapseor completionof theprescribed statutoryperiod. It was only in the case of Oh Cho v. Director of Lands19275 Phil. 890 [1946]. that the court declared that the rule that all lands that were not acquired from the government, either by purchase or grant, belong to the public domain has an exception. This exception would be any land that should have been in the possession of an occupant and of his predecessorsin-interest since time immemorial. It is this kind of possession that would justify the presumption that the land had never been part of the public domain or that it had been private property

even before the Spanish conquest.193Id.at 892. Oh Cho, however, was decided under the provisions of the Public Land Act and Cariño was cited to support the applicant’s claim of acquisitive prescription under the said Act. All these years, Cariño had been quoted out of context simply to justify long, continuous, open and adverse possession in the concept of owner of public agricultural land. It is this long, continuous, open and adverse possession in the concept of owner of thirty years both for ordinary citizens194Sec. 48 [b], CA 141. and members of the national cultural minorities195Sec. 48 [c], CA. 141, as amended. This provision was added in 1964 by R.A. 3872. that converts the land from public into private and entitles the registrant to a Torrens certificate of title. _______________ 189 Susi v. Razon, 48 Phil. 424 [1925]; Herico v. Dar, 95 SCRA 437 [1980]. 190 Ibid. 191 Director of Lands v. Intermediate Appellate Court, 146 SCRA 509 [1986]; Director of Lands v. Buyco, 216 SCRA 78 [1992]; Republic v. Court of Appeals and 235 SCRA 567 [1994]. 192 75 Phil. 890 [1946]. 193 Id.at 892. 194 Sec. 48 [b], CA 141. 195 Sec. 48 [c], CA. 141, as amended. This provision was added in 1964 by R.A. 3872. 217 VOL. 347, DECEMBER 6, 2000 217 Cruz vs.Secretaryof Environmentand Natural Resources

(3) The Option of Securing a Torrens Title to the Ancestral Land Indicates that the Land is Private. The private character of ancestral lands and domains as laid down in the IPRA is further strengthened by the option given to individual ICCs/IPs over their individually-owned ancestral lands. For purposes of registration under the Public Land Act and the Land Registration Act, the IPRA expressly converts ancestral land into public agricultural land which may be disposed of by the State. The necessary implication is that ancestral land is private. It, however, has to be first converted to public agricultural land simply for registration purposes. To wit: “Sec. 12. Option to Secure Certificate of Title Under Commonwealth Act 141, as amended, or the Land Registration Act 496.—Individual members of cultural communities, with respect to their individually-owned ancestral lands who, by themselves or through their predecessors-in-interest, have been in continuous possession and occupation of the same in the concept of owner since time immemorial or for a period of not less than thirty (30) years immediately preceding the approval of this Act and uncontested by the members of the same ICCs/IPs shall have the option to secure title to their ancestral lands under the provisions of CommonwealthAct 141, as amended,or theLand Registration Act 496. For this purpose, said individually-owned ancestral lands, which are agricultural in character and actually used for agricultural, residential, pasture, and tree farming purposes, including those with a slope of eighteen percent (18%) or

more, are hereby classified as alienable and disposable agriculturallands. The option granted under this section shall be exercised within twenty (20)years from the approval of this Act.”196Section 12, IPRA. ICCs/IPs are given the option to secure a Torrens certificate of title over their individually-owned ancestral lands. This option is limited to ancestral lands only, not domains, and such lands must be individually,not communally, owned. Ancestral lands that are owned by individual members of ICCs/IPs who, by themselves or through their predecessors-ininterest, have been in continuous possession and occupation of the _______________ 196 Section 12, IPRA. 218 218 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources same in the concept of owner since time immemorial197“Time immemorial” refers “to a period of time when as far back as memory can go, certain ICCs/IPs are known to have occupied, possessed in the concept of owner, and utilized a defined territory devolved to them, by operation of customary ... or for a period of not less than 30 years, which claims are uncontested by the members of the same ICCs/IPs, may be registered under CA. 141, otherwise known as the Public Land Act, or Act 496, the Land Registration Act. For purposes of registration, the individuallyowned ancestral lands are classified as alienable and disposable agricultural lands of the public domain,

provided, they are agricultural in character and are actually used for agricultural, residential, pasture and tree farming purposes. These lands shall be classified as public agricultural lands regardless of whether they have a slopeof 18% or more. The classification of ancestral land as public agricultural land is in compliance with the requirements of the Public Land Act and the Land Registration Act. CA. 141, the Public Land Act, deals specifically with lands of the public domain.198Section 2, CA. 141. Its provisions apply to those lands “declared open to disposition or concession” xxx “which have not been reserved for public or quasi-public purposes, 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 x xx or which having been reserved or appropriated, have ceased to be so.”199Section 8, CA. 141. Act 496, the Land Registration Act, allows registration only of private lands and public agricultural lands. Since ancestral domains and lands are private, if the ICC/IP wants to avail of the benefits of CA. 141 and Act 496, the IPRA itself converts his ancestral land, regardless of whether the land has a slope of eighteen per cent (18%) or over,200The classification of ancestral lands 18% in slope or over as alienable in the IPRA is an exception to Section 15, P.D. 705, the Revised Forestry Code. fromprivate to publicagricultural land forproperdisposition. _______________ 197 “Time immemorial” refers “to a period of time when as far back as memory can go, certain ICCs/IPs are known to have occupied, possessed in the concept of owner, and utilized a defined territory devolved to them, by operation of customary

law or inherited from their ancestors, in accordance with their customs and traditions.” (Sec. 3 [p], IPRA). 198 Section 2, CA. 141. 199 Section 8, CA. 141. 200 The classification of ancestral lands 18% in slope or over as alienable in the IPRA is an exception to Section 15, P.D. 705, the Revised Forestry Code. 219 VOL. 347, DECEMBER 6, 2000 219 Cruz vs.Secretaryof Environmentand Natural Resources The option to register land under the Public Land Act and the Land Registration Act has nonetheless a limited period. This option must be exercised within twenty (20) years from October 29, 1997, the dateof approvalof theIPRA. Thus, ancestral lands and ancestral domains are not part of the lands of the public domain. They are private and belong to the ICCs/IPs. Section 3 of Article XII on National Economy and Patrimony of the 1987 Constitution classifies lands of the public domain into four categories: (a) agricultural, (b) forest or timber, (c) mineral lands, and (d) national parks. Section 5 of the same Article XII mentions ancestral lands and ancestral domains but it does not classify them under any of the said four categories. To classify them as public lands under any one of the four classes will render the entire IPRA law a nullity. The spirit of the IPRA lies in the distinct concept of ancestral domains and ancestral lands. The IPRA addresses the major problem of the ICCs/IPs which is loss of land. Land and space are of vital concern in terms of sheer survival of theICCs/IPs.201Charles MacDonald, Indigenous Peoples of the

Philippines: Between Segregation and Integration, Indigenous Peoples of Asia, supra, at pp. 345, 350. The 1987 Constitution mandates the State to “protect the rights of indigenous cultural communities to their ancestral lands” and that “Congress provide for the applicability of customary laws x x x in determining the ownership and extent of ancestral domain.”202Section 5, ArticleXII, 1987 Constitution. It is the recognition of the ICCs/IPs distinct rights of ownership over their ancestral domains and lands that breathes life into this constitutional mandate. Registration under the Public Land Act and Land Registration Act recognizes the concept of ownership under the civil law. This ownership is based on adverse possession for a specified period, and harkens to Section 44 of the Public Land Act on administrative _______________ 201 Charles MacDonald, Indigenous Peoples of the Philippines: Between Segregation and Integration, Indigenous Peoples of Asia, supra, at pp. 345, 350. 202 Section 5, ArticleXII, 1987 Constitution. 220 220 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources legalization (free patent) of imperfect or incomplete titles and Section 48 (b) and (c) of the same Act on the judicial confirmation of imperfector incomplete titles. Thus: “Sec. 44. Any natural-born citizen of the Philippines who is not the owner of more than twenty-four hectares and who since July fourth, 1926 or prior thereto, has continuously occupied

and cultivated, either by himself or through his predecessorsin-interest, a tract or tracts of agricultural public lands subject to disposition, or who shall have paid the real estate tax thereon while the same has not been occupied by any person shall be entitled, under the provisions of this chapter, to have a free patent issued to him for such tract or tracts of such land not to exceed twenty-four hectares. A member of the national cultural minorities who has continuously occupied and cultivated, either by himself or through his predecessors-in-interest, a tract or tracts of land, whether disposable or not since July 4, 1955, shall be entitled to the right granted in the preceding paragraph of this section: Provided, That at the time he files his free patent application he is not the owner of any real property secured or disposable under the provision of the Public Land Law.203Words in italics were amendments introduced by R.A. 3872 in 1964. x x x. “Sec. 48. The following described citizens of the Philippines, occupying lands of the public domain or claiming to own any such lands or an interest therein, but whose titles have not been perfected or completed, may apply to the Court of First Instance of the province where the land is located for confirmation of their claims and the issuance of a certificate of titletherefor, under theLand Registration Act,to wit: (a) [perfectionofSpanish titles] x x x. (b) Those who by themselves or through their predecessors-ininterest have been in open, continuous, exclusive, and notorious possession and occupation of agricultural lands of the public domain, under a bona fide claim of acquisition or ownership, for at least thirty years immediately preceding the

filing of the application for confirmation of title except when prevented by war or force majeure. These shall be conclusively presumed to have performed all the conditions essential to a Government grant and shall be entitled to a certificate of title under the provisions of this Chapter. _______________ 203 Words in italics were amendments introduced by R.A. 3872 in 1964. 221 VOL. 347, DECEMBER 6, 2000 221 Cruz vs.Secretaryof Environmentand Natural Resources (c) Members of the national cultural minorities who by themselves or through their predecessors-in-interest have been in open, continuous, exclusive and notorious possession and occupation of lands of the public domain suitable to agriculture, whether disposable or not, under a bona fide claim of ownership for at least 30 years shall be entitled to the rights granted in sub-section (b) hereof.”204Words in italics were amendments introduced by R.A. 3872 on June 18, 1964. On January 25, 1977, however, Sec. 48 [b] and 48 [c] were further amended by P.D. 1073 stating that these provisions on cultural minorities apply only to alienable and disposable la... Registration under the foregoing provisions presumes that the land was originally public agricultural land but because of adverse possession since July 4, 1955 (free patent) or at least thirty years (judicial confirmation), the land has become private. Open, adverse, public and continuous possession is sufficient, provided, the possessor makes proper application

therefor. The possession has to be confirmed judicially or administratively after which a Torrens title is issued. A Torrens title recognizes the owner whose name appears in the certificate as entitled to all the rights of ownership under the civil law. The Civil Code of the Philippines defines ownership in Articles 427, 428 and 429. This concept is based on Roman Law which the Spaniards introduced to the Philippines through the Civil Code of 1889. Ownership, under Roman Law, may be exercised over things or rights. It primarily includes the right of the owner to enjoy and dispose of the thing owned. And the right to enjoy and dispose of the thing includes the right to receive from the thing what it produces,205Jus utendi, jus fruendi. the right to consume the thing by its use,206Jus abutendi. the right to alienate, encumber, transform or even destroy the thing owned,207Jus disponendi. and the right to exclude from the possession of the thing owned by any other person to whom the owner has not transmitted such thing.208Jus vindicandi. Please see Tolentino, Civil Code, vol. II, pp. 45-46 [1992]; see also Tolentino, vol. I, pp. 12-14. _______________ 204 Words in italics were amendments introduced by R.A. 3872 on June 18, 1964. On January 25, 1977, however, Sec. 48 [b] and 48 [c] were further amended by P.D. 1073 stating that these provisions on cultural minorities apply only to alienable and disposable lands of the public domain—Please seeRepublic v. CA and Paran, 201 SCRA 1, 10-11 [1991]. 205 Jus utendi, jus fruendi. 206 Jus abutendi. 207 Jus disponendi.

208 Jus vindicandi. Please see Tolentino, Civil Code, vol. II, pp. 45-46 [1992]; see also Tolentino, vol. I, pp. 12-14. 222 222 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources 1. The indigenous Conceptof Ownershipand Customary Law. Ownership of ancestral domains by native title does not entitle the ICC/IP to a torrens title but to a Certificate of Ancestral Domain Title (CADT). The CADT formally recognizes the indigenous concept of ownership of the ICCs/IPs over their ancestral domain. Thus: “Sec. 5. Indigenous concept of ownership:—Indigenous concept of ownership sustains the view that ancestral domains and all resources found therein shall serve as the material bases of their cultural integrity. The indigenous concept of ownership generally holds that ancestral domains are the ICCs/IPs private but community property which belongs to all generations and therefore cannot be sold, disposed or destroyed. It likewise covers sustainable traditional resource rights.” The right of ownership and possession of the ICCs/IPs to their ancestral domains is held under the indigenous concept of ownership. This concept maintains the view that ancestral domains are the ICCs/IPs private but community property. It is private simply because it is not part of the public domain. But its private character ends there. The ancestral domain is owned in common by the ICCs/IPs and not by one particular person. The IPRA itself provides that areas within the ancestral domains, whether delineated or not, are presumed to be communally held.209Sec. 55, IPRA provides: “Sec. 55.

Communal rights.—Subject to Section 56 hereof, areas within the ancestral domains, whether delineated or not, shall be presumed to be communally held: Provided, That communal rights under this Act shall not be ... These communal rights, however, are not exactly the same as co-ownership rights under the Civil Code.210Ibid. Co-ownership gives any co-owner the right to demand partition of the property held in common. The Civil Code expressly provides that “[n]o co-owner shall be obliged to remain in the co-ownership.” Each co-owner may demand at any time the partition of the thing in common, insofar as his share is concerned.211Article 494,Civil Code. To allow such a right over ancestral domains may be _______________ 209 Sec. 55, IPRA provides: “Sec. 55. Communal rights.— Subject to Section 56 hereof, areas within the ancestral domains, whether delineated or not, shall be presumed to be communally held: Provided, That communal rights under this Act shall not be construed as co-ownership as provided in Republic Act No. 386, otherwise knownas the New Civil Code “ 210 Ibid. 211 Article 494,Civil Code. 223 VOL. 347, DECEMBER 6, 2000 223 Cruz vs.Secretaryof Environmentand Natural Resources destructive not only of customary law of the community but of the very community itself.212Antonio M. La Vina, Arguments for Communal Title, Part II, 2Phil. Nat. Res. L. J. 23 [Dec. 1989].

Communal rights over land are not the same as corporate rights over real property, much less corporate condominium rights. A corporation can exist only for a maximum of fifty (50) years subject to an extension of another fifty years in any single instance.213Section 11, Corporation Code. Every stockholder has the right to disassociate himself from the corporation.214Sections 60-72, Corporation Code. Moreover, the corporation itself may be dissolved voluntarily or involuntarily.215Section 117, Corporation Code. Please see also La Vina, Arguments for Communal Title, Part II, supra, at 23. Communal rights to the land are held not only by the present possessors of the land but extends to all generations of the ICCs/IPs, past, present and future, to the domain. This is the reason why the ancestral domain must be kept within the ICCs/IPs themselves. The domain cannot be transferred, sold or conveyed to other persons.It belongs to the ICCs/IPs as a community. Ancestral lands are also held under the indigenous concept of ownership. The lands are communal. These lands, however, may be transferred subject to the following limitations: (a) only to the members of the same ICCs/IPs; (b) in accord with customary laws and traditions; and (c) subject to the right of redemption of the ICCs/IPs for a period of 15 years if the land was transferred to a non-member of the ICCs/IPs. Following the constitutional mandate that “customary law govern property rights or relations in determining the ownership and extent of ancestral domains,”216Section 5, par. 2, Article XII, 1987 Constitution. the IPRA, by legislative fiat, introduces a new concept of ownership. This is a concept that

has long existed under customary law.217Customary law is recognized by the Local Government Code of 1991 in solving disputes among members of the indigenous communities, viz.: _______________ 212 Antonio M. La Vina, Arguments for Communal Title, Part II, 2 Phil. Nat. Res. L. J. 23 [Dec. 1989]. 213 Section 11, Corporation Code. 214 Sections 60-72, Corporation Code. 215 Section 117, Corporation Code. Please see also La Vina, Arguments for Communal Title, Part II, supra, at 23. 216 Section 5, par. 2, Article XII, 1987 Constitution. 217 Customary law is recognized by the Local Government Code of 1991 in solving disputes among members of the indigenous communities, viz.: 224 224 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources Custom, from which customary law is derived, is also recognized under the Civil Code as a source of law.218Law writes custom into contract—Hongkong & Shanghai Bank v. Peters, 16 Phil. 284 [1910].The Civil Code provides:“Art. 11. Customs which are contrary to law, public order or public policy shall not becountenanced.”“Art. 12 A cus... Some articles of the Civil Code expressly provide that custom should be applied in cases where no codal provision is applicable.219Article 78 on marriages between Mohammedans or pagans who live in the non-Christian provinces—this is now Art. 33 of the Family Code; Art. 118, now Art. 74 of the

Family Code on property relations between spouses; Art. 577 on the usufructuary of wood... In other words, in the absence of any applicable provision in the Civil Code, custom, when dulyproven, candefine rights and liabilities.220Castle Bros. v. Gutierrez Hermanos, 11 Phil. 629 [1908]; In Re: Firm Name of Ozaeta Romulo, 92 SCRA 1 [1979]; Yao Kee v. Sy-Gonzales, 167 SCRA 736 [1988]; Please see Aquino, Civil Code, vol. 1, p. 26 for a list of other cases. Customary law is a primary, not secondary, source of rights under the IPRA and uniquely applies to ICCs/IPs. Its recognition does not depend on the absence of a specific provision in the civil law. The indigenous concept of ownership under customary law is specifically acknowledged and recognized, and coexists with the civil law concept and the laws on land titling andland registration.221This situation is analogous to the Muslim Code or the Code of Muslim Personal Laws (P.D. 1083) which took effect on February 4, 1977 despite the effectivity of the Civil Code and the Family Code. P.D. 1083 governs persons, family relations and succession a... _______________ “Sec. 412 (c). Conciliation among members of indigenous cultural communities.—The customs and traditions of indigenous cultural communities shall be applied in settling disputes between members of theculturalcommunities.” 218 Law writes custom into contract—Hongkong & Shanghai Bank v. Peters, 16 Phil. 284 [1910]. The Civil Code provides: “Art. 11. Customs which are contrary to law, public order or public policy shall not becountenanced.”

“Art. 12 A custom must be proved as a fact, according to the rules of evidence.” 219 Article 78 on marriages between Mohammedans or pagans who live in the non-Christian provinces—this is now Art. 33 of the Family Code; Art. 118, now Art. 74 of the Family Code on property relations between spouses; Art. 577 on the usufructuary of woodland; Art. 657 on easement of right of way for passage of livestock; Arts. 678, 1315, 1376, 1522, 1564 and 1577.Please seeAquino, Civil Code, vol. 1, p. 25. 220 Castle Bros. v. Gutierrez Hermanos, 11 Phil. 629 [1908]; In Re: Firm Name of Ozaeta Romulo, 92 SCRA 1 [1979]; Yao Kee v. Sy-Gonzales, 167 SCRA 736 [1988]; Please see Aquino, Civil Code, vol. 1, p. 26 for a list of other cases. 221 This situation is analogous to the Muslim Code or the Code of Muslim Personal Laws (P.D. 1083) which took effect on February 4, 1977 despite the effectivity of the Civil Code and the Family Code. P.D. 1083 governs persons, family relations and succession among Muslims, the adjudication and settlement of disputes, the organization of the Shari’a courts, etc. 225 VOL. 347, DECEMBER 6, 2000 225 Cruz vs.Secretaryof Environmentand Natural Resources To be sure, the indigenous concept of ownership exists even without a paper title. The CADT is merely a “formal recognition” of native title. This is clear from Section11of theIPRA, to wit: “Sec. 11. Recognition of Ancestral Domain Rights.—The rights of ICCs/IPs to their ancestral domains by virtue of

Native Title shall be recognized and respected. Formal recognition, when solicited by ICCs/IPs concerned shall be embodied in a Certificate of Ancestral Domain Title, which shall recognize the title of the concerned ICCs/IPs over the territories identified and delineated.” The moral import of ancestral domain, native land or being native is “belongingness” to the land, being people of the land—by sheer force of having sprung from the land since time beyond recall, and the faithful nurture of the land by the sweat of one’s brow. This is fidelity of usufructuary relation to the land—the possession of stewardship through perduring, intimate tillage, and the mutuality of blessings between man and land; from man, care for land; fromthe land, sustenance for man.222Mariflor P. Pagusara, The Kalinga Ili: CulturalEcological Reflections on Indigenous Theora and Praxis of Man-Nature Relationship, Dakami Ya Nan Dagami, p. 36, Papers and Proceedings of the 1st Cordillera Multi-Sectoral Land Congress, 11-14 March 1983, Cor... 1. The Rights of ICCs/IPs Over Their Ancestral Domains and Lands The IPRA grants the ICCs/IPs several rights over their ancestral domains and ancestral lands. Section 7 provides for the rights over ancestraldomains: “Sec. 7. Rights to Ancestral Domains.—The rights of ownership and possession of ICCs/IPs to their ancestral domains shall be recognized and protected. Such rights include: _______________ 222 Mariflor P. Pagusara, The Kalinga Ili: Cultural-Ecological Reflections on Indigenous Theora and Praxis of Man-Nature

Relationship, Dakami Ya Nan Dagami, p. 36, Papers and Proceedings of the 1st Cordillera Multi-Sectoral Land Congress, 11-14 March 1983, Cordillera Consultative Committee [1984]. 226 226 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environment and Natural Resources a) Right of Ownership.—The right to claim ownership over lands, bodies of water traditionally and actually occupied by ICCs/IPs, sacred places, traditional hunting and fishing grounds, and all improvements made by them at any time within the domains; b) Right to Develop Lands and Natural Resources.—Subject to Section 56 hereof, the right to develop, control and use lands and territories traditionally occupied, owned, or used; to manage and conserve natural resources within the territories and uphold the responsibilities for future generations; to benefit and share the profits from allocation and utilization of the natural resources found therein; the right to negotiate the terms and conditions for the exploration of natural resources in the areas for the purpose of ensuring ecological, environmental protection and the conservation measures, pursuant to national and customary laws; the right to an informed and intelligent participation in the formulation and implementation of any project, government or private, that will affect or impact upon the ancestral domains and to receive just and fair compensation for any damages which they may sustain as a result of the project; and the right to effective measures by the government

to prevent any interference with, alienation and encroachment upon these rights; c) Right to Stay in the Territories.—The right to stay in the territory and not to be removed therefrom. No ICCs/IPs will be relocated without their free and prior informed consent, nor through any means other than eminent domain, x x x; d) Right in Case of Displacement.—In case displacement occurs as a result of natural catastrophes, the State shall endeavor to resettle the displaced ICCs/IPs in suitable areas where they can have temporary life support systems: x x x; e) Right to Regulate the Entry of Migrants.—Right to regulate the entry of migrant settlers and organizations into their domains; f) Right to Safe and Clean Air and Water.—For this purpose, the ICCs/IPs shall have access to integrated systems for the management of their inland waters and air space; g) Right to Claim Parts of Reservations.—The right to claim parts of the ancestral domains which have been reserved for various purposes, except those reserved and intended for common and public welfare and service; h) Right to Resolve Conflict.—Right to resolve land conflicts in accordance with customary laws of the area where the land is located, and only in default thereof shall the complaints be submitted to amicable settlement and to the Courts of Justice whenever necessary.” 227 VOL. 347, DECEMBER 6, 2000 227 Cruz vs. Secretary of Environment and Natural Resources Section 8 provides for the rights over ancestral lands:

“Sec. 8. Rights to Ancestral Lands.—The right of ownership and possession of the ICCs/IPs to their ancestral lands shall he recognized and protected. a) Right to transfer land/property.—Such right shall include the right to transfer land or property rights to/among members of the same ICCs/IPs, subject to customary laws and traditions of the community concerned. b) Right to Redemption.—In cases where it is shown that the transfer of land/property rights by virtue of any agreement or devise, to a non-member of the concerned ICCs/IPs is tainted by the vitiated consent of the ICCs/IPs, or is transferred for an unconscionable consideration or price, the transferor ICC/IP shall have the right to redeem the same within a period not exceeding fifteen (15) years from the date of transfer.” Section 7 (a) defines the ICCs/IPs right of ownership over their ancestral domains which covers (a) lands, (b) bodies of water traditionally and actually occupied by the ICCs/IPs, (c) sacred places, (d) traditional hunting and fishing grounds, and (e) all improvements made by them at any time within the domains. The right of ownership includes the following rights: (a) the right to develop lands and natural resources; (b) the right to stay in the territories; (c) the right to resettlement in case of displacement; (d) the right to regulate the entry of migrants; (e) the right to safe and clean air and water; (f) the right to claim parts of the ancestral domains as reservations; and (g) the right to resolve conflict in accordance with customary laws. Section 8 governs their rights to ancestral lands. Unlike ownership over the ancestral domains, Section 8 gives the ICCs/IPs also the right to transfer the land or property rights to members of the same ICCs/IPs or non-members thereof. This is

in keeping with the option given to ICCs/IPs to secure a Torrens title over the ancestral lands, but notto domains. 2. The Right of ICCs/IPs to Develop Lands and Natural Resources Within the Ancestral Domains Does Not Deprive the State of Ownership Over the Natural Resources and Control and Supervision in their Development and Exploitation. 228 228 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources The Regalian doctrine on the ownership, management and utilization of natural resources is declared in Section 2, Article XII of the 1987 Constitution, viz.: “Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or, it may enter into coproduction, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses other

than the development of water power, beneficial use maybe themeasure and limit of the grant. The State shall protect the nation’s marine wealth in its archipelagic waters, territorial sea, and exclusive economic zone, and reserve its use and enjoymentexclusivelyto Filipino citizens. The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as well as cooperative fish farming, with priority to subsistence fishermen and fishworkers in rivers, lakes, bays, and lagoons. The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions provided by law, based on real contributions to the economic growth and general welfare of the country. In such agreements, the state shall promote the development and useof local scientific and technical resources. The President shall notify the Congress of every contract entered into in accordance with this provision, within thirty days from its execution.”223Section 2, Article XII. _______________ 223 Section 2, Article XII. 229 VOL. 347, DECEMBER 6, 2000 229 Cruz vs.Secretaryof Environmentand Natural Resources All lands of the public domain and all natural resources— 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. The Constitution provides that in the exploration, development and utilization of these natural resources, the State exercises full control and supervision, and may undertake the same in four (4) modes: 1. The State maydirectlyundertake such activities; or 2. The State may enter into co-production, joint venture or production-sharing agreements with Filipinocitizensor qualified corporations; 3. Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens; 4. For the large-scale exploration, development and utilization of minerals, petroleum and other mineral oils, the President may enter into agreements with foreign-owned corporations involving technical or financial assistance. As owner of the natural resources, the State is accorded primary power and responsibility in the exploration, development and utilization of these natural resources. The State may directly undertake the exploitation and development by itself, or, it may allow participation by the private sector through coproduction,224A “co-production agreement” is defined as one wherein the government provides input to the mining operation other than the mineral resource—Section 26 (b), R.A. 7942, the Philippine Mining Act of 1995. joint venture,225A “joint venture agreement” is one where a jointventure company is organized by the government and the contractor with both parties having equity shares, and the government entitled to a share in the gross output—Section26 (c), R.A. 7942... or production-sharing agreements.226A mineral “production-sharing agreement” is one where the

government grants to the contractor the exclusive right to conduct mining operations within a contract area and shares in the gross output. The contractor provides the financing, technol... These agreements may be for a period of 25 years, renewable for another 25 years. The _______________ 224 A “co-production agreement” is defined as one wherein the government provides input to the mining operation other than the mineral resource—Section 26 (b), R.A. 7942, the Philippine Mining Act of 1995. 225 A “joint venture agreement” is one where a joint-venture company is organized by the government and the contractor with both parties having equity shares, and the government entitled to a share in the gross output—Section26 (c), R.A. 7942. 226 A mineral “production-sharing agreement” is one where the government grants to the contractor the exclusive right to conduct mining operations within a contract area and shares in the gross output. The contractor provides the financing, technology, management and personnel necessary for the implementation of the agreementr-Section 26 (a), R.A. 7942. 230 230 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environment and Natural Resources State, through Congress, may allow the small-scale utilization of natural resources by Filipino citizens. For the large-scale exploration of these resources, specifically minerals, petroleum and other mineral oils, the State, through the President, may

enter into technical and financial assistance agreements with foreign-owned corporations. Under the Philippine Mining Act of 1995, (R.A. 7942) and the People’s Small-Scale Mining Act of 1991 (R.A. 7076) the three types of agreements, i.e., coproduction, joint venture or production-sharing, may apply to both large-scale227Section 26, R.A. 7942. and small-scale mining.228Section 3 [d], People’s Small-Scale Mining Act of 1991 (R.A. 7076) provides:“Sec. 3 [d] ‘Small-scale mining contract’ refers to coproduction, joint venture or mineral production sharing agreement between the State and a small-scale ... “Small-scale mining” refers to “mining activities which rely heavily on manual labor using simple implements and methods and do not use explosivesor heavy mining equipment.”229Section 3 [b], R.A. 7076. Examining the IPRA, there is nothing in the law that grants to the ICCs/IPs ownership over the natural resources within their ancestral domains. The right of ICCs/IPs in their ancestral domains includes ownership, but this “ownership” is expressly defined and limited in Section 7 (a)as: “Sec. 7. (a) Right of ownership—The right to claim ownership over lands, bodies of water traditionally and actually occupied by ICCs/IPs, sacred places, traditional hunting and fishing grounds, and all improvements made bythem at anytimewithin the domains”; The ICCs/IPs are given the right to claim ownership over “lands, bodies of water traditionally and actually occupied by ICCs/IPs, sacred places, traditional hunting and fishing grounds, and all improvements made by them at any time within the domains.” It will be noted that this enumeration does

not mention bodies of water not occupied by the ICCs/IPs, minerals, coal, wildlife, flora _______________ 227 Section 26, R.A. 7942. 228 Section 3 [d], People’s Small-Scale Mining Act of 1991 (R.A. 7076) provides: “Sec. 3 [d] ‘Small-scale mining contract’ refers to coproduction, joint venture or mineral production sharing agreement between the State and a small-scale mining contractor for the small-scale utilization of a plot of mineral land.” 229 Section 3 [b], R.A. 7076. 231 VOL. 347, DECEMBER 6, 2000 231 Cruz vs.Secretaryof Environmentand Natural Resources and fauna in the traditional hunting grounds, fish in the traditional fishing grounds, forests or timber in the sacred places, etc. and all other natural resources found within the ancestral domains. Indeed, the right of ownership under Section 7 (a) does not cover “waters, minerals, coal, petroleum and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna and all other natural resources” enumerated in Section 2,Article XII of the 1987 Constitution asbelonging to the State. The non-inclusion of ownership by the ICCs/IPs over the natural resources in Section7(a) complies with theRegaliandoctrine.

(a) Section 1, Part II, Rule III of the Implementing Rules Goes Beyond the Parameters of Sec. 7 (a) of the IPRA And is Unconstitutional. The Rules Implementing the IPRA230NCIP Administrative Order No. 1, Series of 1998. in Section 1, Part II, Rule III reads: “Section 1. Rights of Ownership.—ICCs/IPs have rights of ownership over lands, waters, and natural resources and all improvements made by them at any time within the ancestral domains/lands. These rights shall include, but not limited to, the right over the fruits, the right to possess, the right to use, right to consume, right to exclude and right to recover ownership, and the rights or interests over land and natural resources. The right to recover shall be particularly applied to lands lost through fraud or any form or vitiated consent or transferred for an unconscionable price.” Section 1 of the Implementing Rules gives the ICCs/IPs rights of ownership over “lands, waters and natural resources.” The term “natural resources” is not one of those expressly mentioned in Section 7 (a) of the law. Our Constitution and jurisprudence clearly declare that the right to claim ownership over land does not necessarily include the right to claim ownership over the natural resources found on or under the land.231In Republic v. Court of Appeals, 160 SCRA 228, 239 [1988], Cruz, J., ponente, it was declared that if a person is the owner of a piece of agricultural land on which minerals are discovered, his ownership of such land does not give him the right to extract ... The IPRA itself makes a _______________ 230 NCIP Administrative Order No. 1, Series of 1998.

231 In Republic v. Court of Appeals, 160 SCRA 228, 239 [1988], Cruz, J., ponente, it was declared that if a person is the owner of a piece of agricultural land on which minerals are discovered, his ownership of such land does not give him the right to extract or utilize the said minerals 232 232 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources distinction between land and natural resources. Section 7 (a) speaks of the right of ownership only over the land within the ancestral domain. It is Sections 7 (b) and 57 of the law that speak of natural resources, and these provisions, as shall be discussed later, do not give the ICCs/IPs the rightof ownership over these resources. The constitutionality of Section 1, Part II, Rule III of the Implementing Rules was not specifically and categorically challenged by petitioners. Petitioners actually assail the constitutionality of the Implementing Rules in general.232See Ground I, Grounds to Issue Writ of Prohibition, Petition, p. 14. Nevertheless, to avoid any confusion in the implementation of the law, it is necessary to declare that the inclusion of “natural resources” in Section 1, Part II, Rule III of the Implementing Rules goes beyond the parameters of Section 7 (b) of the law and is contrary to Section 2, Article XII of the 1987 Constitution. (a) The Small-Scale Utilization of Natural Resources In Sec. 7 (b) of the IPRA Is Allowed Under Paragraph 3, Section 2 of Article XII of the Constitution.

Ownership over natural resources remain with the State and the IPRA in Section 7 (b) merely grants the ICCs/IPs the right to manage them, viz.: “Sec. 7 (b) Right to Develop Lands and Natural Resources.— Subject to Section 56 hereof, right to develop, control and use lands and territories traditionally occupied, owned, or used; to manage and conserve natural resources within the territories and uphold the responsibilities for future generations; to benefit and share the profits from allocation and utilization of the natural resources found therein; the right to negotiate the terms and conditions for the exploration of natural resources in the areas for the purpose of ensuring ecological, environmental protection and the conservation measures, pursuant to national and customary laws; the right to an informed and intelligent participation in the formulation and implementation of any project, government or private, that will affect or impact upon the ancestral domains and to receive just and fair compensawithout the permission of the State to which such minerals belong—also cited in H. de Leon, Phil. Constitutional Law, Principles and Cases, vol. 2, pp. 800-801 [1999]. _______________ 232 See Ground I, Grounds to Issue Writ of Prohibition, Petition, p. 14. 233 VOL. 347, DECEMBER 6, 2000 233 Cruz vs.Secretaryof Environmentand Natural Resources tion for any damages which they may sustain as a result of the project; and the right to effective measures by the government

to prevent any interference with, alienation and encroachment upon these rights”; The right to develop lands and natural resources under Section 7 (b) ofthe IPRA enumerates the following rights: a) the right to develop, control and use lands and territories traditionally occupied; b) the right to manage and conserve natural resources within the territoriesand uphold the responsibilities for future generations; c) the right to benefit and share the profits from the allocation and utilization of thenatural resources found therein; d) the right to negotiate the terms and conditions for the exploration of natural resources for the purpose of ensuring ecological, environmental protection and the conservation measures, pursuant to national and customarylaws; e) the right to an informed and intelligent participation in the formulation and implementation of any project, government or private, that will affect or impact upon the ancestral domains and to receive just and fair compensation for any damages which they may sustain as a result of the project; f) the right to effective measures by the government to prevent any interference with, alienation andencroachment upon these rights.233Section 7 (b) is subject to Section 56 of the same law which provides:“Sec. 56. Existing Property Rights Regimes.— Property rights within the ancestral domains already existing and/or vested upon effectivity of this Act, shallbe recognized and r... Ownership over the natural resources in the ancestral domains remains with the State and the ICCs/IPs are merely granted the right to “manage and conserve” them for future generations,

“benefit and share” the profits from their allocation and utilization, and “negotiate the terms and conditions for their exploration” for the purpose of “ensuring ecological and environmental protection and _______________ 233 Section 7 (b) is subject to Section 56 of the same law which provides: “Sec. 56. Existing Property Rights Regimes.—Property rights within the ancestral domains already existing and/or vested upon effectivity of this Act, shallbe recognized and respected.” The law took effect 15 days upon publication in the O.G. or in any 2 newspapers of general circulation (Sec. 84, IPRA). The IPRA was published in the Chronicle and Malaya on Nov. 7, 1997. 234 234 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources conservation measures.” It must be noted that the right to negotiate the terms and conditions over the natural resources covers only their exploration which must be for the purpose of ensuring ecological and environmental protection of, and conservation measures in the ancestral domain. It does not extend to the exploitation and development ofnatural resources. Simply stated, the ICCs/IPs’ rights over the natural resources take the form of management or stewardship. For the ICCs/IPs may use these resources and share in the profits of their utilization or negotiate the terms for their exploration. At the same time, however, the ICCs/IPs must ensure that the natural resources within their ancestral domains are conserved for

future generations and that the “utilization” of these resources must not harm the ecology and environment pursuant tonationaland customary laws.234Section 9 of the IPRA also gives the ICCs/IPs the ff. responsibilities overtheir ancestral domains:“a) Maintain Ecological Balance.—To preserve, restore, and maintain a balanced ecology in the ancestral domain by protecting the flora and fauna,... The limited rights of “management and use” in Section 7 (b) must be taken to contemplate small-scale utilization of natural resources as distinguished from large-scale. Small-scale utilization of natural resources is expressly allowed in the third paragraph of Section 2, Article XII of the Constitution “in recognition of the plight of forest dwellers, gold panners, marginal fishermen and others similarly _______________ 234 Section 9 of the IPRA also gives the ICCs/IPs the ff. responsibilities overtheir ancestral domains: “ a) Maintain Ecological Balance.—To preserve, restore, and maintain a balanced ecology in the ancestral domain by protecting the flora and fauna, watershed areas, and other reserves; b) Restore Denuded Areas.—To actively initiate, undertake and participate in the reforestation of denuded areas and other development programs and projects subject tojust and reasonable remuneration; c) Observe Laws.—To observe and comply with the provisions of this Act and therules and regulations for its effectiveimplementation.”Section 58 of the same law also mandates that ancestral domains or portions thereof, which are

found to be necessary for critical watersheds, mangroves, wildlife sanctuaries, wilderness, protected areas, forest cover, or reforestation as determined by appropriate agencies with the full participation of the ICCs/IPs concerned shall be maintained, managed and developed for such purposes. The ICCs/IPs concerned shall be given the responsibility to maintain, develop, protect and conserve such areas with thefull and effective assistance of government agencies. 235 VOL. 347, DECEMBER 6, 2000 235 Cruz vs.Secretaryof Environmentand Natural Resources situated who exploit our natural resources for their daily sustenance and survival”235Hector S. de Leon, Textbook on the New Philippine Constitution pp. 473-474 [1987] citing the 1986 UP Law Constitution Project, The National Economy and Patrimony, p. 11. Section 7 (b) also expressly mandates the ICCs/IPs to manage and conserve these resources and ensure environmental and ecological protection within the domains, which duties, by their very nature, necessarily reject utilization in a large-scale. (c) The Large-Scale Utilization of Natural Resources In Section 57 of the IPRA Is Allowed Under Paragraphs 1 and 4, Section 2, Article XII of the1987 Constitution. Section 57 of the IPRA provides: “Sec. 57. Natural Resources within Ancestral Domains.—The ICCs/IPs shall have priority rights in the harvesting, extraction, development or exploitation of any natural resources within the ancestral domains. A non-member of the ICCs/IPs concerned may be allowed to take part in the development and utilization

of the natural resources for a period of not exceeding twentyfive (25) years renewable for not more than twenty-five (25) years: Provided, That a formal and written agreement is entered into with the ICCs/IPs concerned or that the community, pursuant to its own decision-making process, has agreed to allow such operation: Provided finally, That the NCIP may exercise visitorial powers and take appropriate action to safeguard the rights of the ICCs/IPs under the same contract.” Section 57 speaks of the “harvesting, extraction, development or exploitation of natural resources within ancestral domains” and “gives the ICCs/IPs ‘priority rights’ therein.” The terms “harvesting, extraction, development or exploitation” of any natural resources within the ancestral domains obviously refer to large-scale utilization. It is utilization not merely for subsistence but for commercial or other extensive use that require technology other than manual labor.236Under the Small-Scale Mining Act of 1991, “small-scale mining” refers to “mining activities which rely heavily on manual labor using The law recognizes the probability of requir_______________ 235 Hector S. de Leon, Textbook on the New Philippine Constitution pp. 473-474 [1987] citing the 1986 UP Law Constitution Project, The National Economy and Patrimony, p. 11. 236 Under the Small-Scale Mining Act of 1991, “small-scale mining” refers to “mining activities which rely heavily on manual labor using 236 236 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources

ing a non-member of the ICCs/IPs to participate in the development and utilization of the natural resources and thereby allows such participation for a period of not more than 25 years, renewable for another 25 years. This may be done on condition that a formal written agreement be entered into by the non-member and members of the ICCs/IPs. Section 57 of the IPRA does not give the ICCs/IPs the right to “manage and conserve” the natural resources. Instead, the law only grants the ICCs/IPs “priority rights” in the development or exploitation thereof. Priority means giving preference. Having priority rights over the natural resources does not necessarily mean ownership rights. The grant of priority rights implies that there is a superior entity that owns these resources and this entity has the power to grant preferential rights over the resources to whosoever itself chooses. Section 57 is not a repudiation of the Regalian doctrine. Rather, it is an affirmation of the said doctrine that all natural resources found within the ancestral domains belong to the State. It incorporates by implication the Regalian doctrine, hence, requires that the provision be read in the light of Section 2, Article XII of the 1987 Constitution. Interpreting Section 2, Article XII of the 1987 Constitution237See infra.,pp. 77-79. in relation to Section 57 of IPRA, the State, as owner of these natural resources, may directly undertake the development and exploitation of the natural resources by itself, or in the alternative, it may recognize the priority rights of the ICCs/IPs as owners of the land on which the natural resources are found by entering into a co-production, joint venture, or productionsharing agreement with them. The State may likewise enter

into any of said agreements with a non-member of the ICCs/IPs, whether natural or juridical, or enter into agreements with foreign-owned corporations involving either technical or financial assistance for the large-scale exploration, development and utilization of minerals, petroleum, and other mineral oils, or allow such non-member to participate in its agreement with the ICCs/IPs. If the State decides to enter into an agreement with a non-ICC/IP member, the National Commis_______________ simple implements and methods and do not use explosives or heavy mining equipment”—Section 3 [b],R.A. 7076. 237 See infra.,pp. 77-79. 237 VOL. 347, DECEMBER 6, 2000 237 Cruz vs. Secretary of Environment and Natural Resources sion on Indigenous Peoples (NCIP) shall ensure that the rights of the ICCs/IPs under the agreement shall be protected. The agreement shall be for a period of 25 years, renewable for another 25 years. To reiterate, in the large-scale utilization of natural resources within the ancestral domains, the State, as owner of these resources, has four (4) options: (1) it may, of and by itself, directly undertake the development and exploitation of the natural resources; or (2) it may recognize the priority rights of the ICCs/IPs by entering into an agreement with them for such development and exploitation; or (3) it may enter into an agreement with a non-member of the ICCs/IPs, whether natural

or juridical, local or foreign; or (4) it may allow such nonmember to participate in the agreement with the ICCs/IPs. The rights granted by the IPRA to the ICCs/IPs over the natural resources in their ancestral domains merely gives the ICCs/IPs, as owners and occupants of the land on which the resources are found, the right to the small-scale utilization of these resources, and at the same time, a priority in their large-scale development and exploitation. Section 57 does not mandate the State to automatically give priority to the ICCs/IPs. The State has several options and it is within its discretion to choose which option to pursue. Moreover, there is nothing in the law that gives the ICCs/IPs the right to solely undertake the largescale development of the natural resources within their domains. The ICCs/IPs must undertake such endeavour always under State supervision or control. This indicates that the State does not lose control and ownership over the resources even in their exploitation. Sections 7 (b) and 57 of the law simply give due respect to the ICCs/IPs who, as actual occupants of the land where the natural resources lie, have traditionally utilized these resources for their subsistence and survival. Neither is the State stripped of ownership and control of the natural resources by the following provision: “Section 59. Certification Precondition.—All departments and other governmental agencies shall henceforth be strictly enjoined from issuing, renewing or granting any concession, license or lease, or entering into any production-sharing agreement, without prior certification from the NCIP that the area affected does not overlap with any ancestral domain. Such certification shall only be issued after a field-based investiga238

238 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environment and Natural Resources tion is conducted by the Ancestral Domains Office of the area concerned: Provided, That no certification shall be issued by the NCIP without the free and prior informed and written consent of the ICCs/IPs concerned: Provided, further, That no department, government agency or government-owned or controlled corporation may issue new concession, license, lease, or production sharing agreement while there is a pending application for a CADT: Provided, finally, That the ICCs/IPs shall have the right to stop or suspend, in accordance with this Act, any project that has not satisfied the requirement of this consultation process.” Concessions, licenses, lease or production-sharing agreements for the exploitation of natural resources shall not be issued, renewed or granted by all departments and government agencies without prior certification from the NCIP that the area subject of the agreement does not overlap with any ancestral domain. The NCIP certification shall be issued only after a field-based investigation shall have been conducted and the free and prior informed written consent of the ICCs/IPs obtained. Non-compliance with the consultation requirement gives the ICCs/IPs the right to stop or suspend any project granted by any department or government agency. As its subtitle suggests, this provision requires as a precondition for the issuance of any concession, license or agreement over natural resources, that a certification be issued by the NCIP that the area subject of the agreement does not lie within any ancestral domain. The provision does not vest the

NCIP with power over the other agencies of the State as to determine whether to grant or deny any concession or license or agreement. It merely gives the NCIP the authority to ensure that the ICCs/IPs have been informed of the agreement and that their consent thereto has been obtained. Note that the certification applies to agreements over natural resources that do not necessarily lie within the ancestral domains. For those that are found within the said domains, Sections 7(b) and 57 of the IPRA apply. V. THE IPRA IS A RECOGNITION OF OUR ACTIVE PARTICIPATION IN THE INDIGENOUS INTERNATIONAL MOVEMENT. The indigenous movement can be seen as the heir to a history of anti-imperialism stretching back to prehistoric times. The move239 VOL. 347, DECEMBER 6, 2000 239 Cruz vs. Secretary of Environment and Natural Resources ment received a massive impetus during the 1960’s from two sources. First, the decolonization of Asia and Africa brought into the limelight the possibility of peoples controlling their own destinies. Second, the right of self-determination was enshrined in the UN Declaration on Human Rights.238Andrew Gray, The Indigenous Movement in Asia, Indigenous Peoples of Asia, ed. By Barnes, Gray and Kingsbury, pub. By Ass’n, for Asian Studies,at 35, 42 [1995]. The rise of the civil rights movement and anti-racism brought to the attention of North American Indians, Aborigines in Australia, and Maori in New

Zealand the possibility of fighting for fundamental rights and freedoms. In 1974 and 1975, international indigenous organizations were founded,239E.g. International Indian TreatyCouncil, World Council of IPs. and during the 1980’s, indigenous affairs were on the international agenda. The people of the Philippine Cordillera were the first Asians to take part in the international indigenous movement. It was the Cordillera People’s Alliance that carried out successful campaigns against the building of the Chico River Dam in 1981-82 and they have since become one of the best-organized indigenousbodies in the world.240Gray, The Indigenous Movement in Asia, supra, at 44, citing the International Work Group for Indigenous Affairs,1988. Presently, there is a growing concern for indigenous rights in the international scene. This came as a result of the increased publicity focused on the continuing disrespect for indigenous human rights and the destruction of the indigenous peoples’ environment, together with the national governments’ inability to deal with the situation.241Jose Paulo Kastrup, The Internationalization of Indigenous Rights from the Environmental and Human Rights Perspective, 32 Texas International Law Journal 97, 102 [1997]. Indigenous rights came as a result of both human rights and environmental protection, and have become a partof today’spriorities for the internationalagenda.242Benedict Kingsbury, “Indigenous Peoples” in International Law: A Constructivist Approach to the Asian Controversy, The American Journal of InternationalLaw, vol. 92:414, 429 [1998]. _______________

238 Andrew Gray, The Indigenous Movement in Asia, Indigenous Peoples of Asia, ed. By Barnes, Gray and Kingsbury, pub. By Ass’n, for Asian Studies,at 35, 42 [1995]. 239 E.g. International Indian TreatyCouncil, World Council of IPs. 240 Gray, The Indigenous Movement in Asia, supra, at 44, citing the International Work Group for Indigenous Affairs,1988. 241 Jose Paulo Kastrup, The Internationalization of Indigenous Rights from the Environmental and Human Rights Perspective, 32 Texas International Law Journal 97, 102 [1997]. 242 Benedict Kingsbury, “Indigenous Peoples” in International Law: A Constructivist Approach to the Asian Controversy, The American Journal of InternationalLaw, vol. 92:414, 429 [1998]. 240 240 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources International institutions and bodies have realized the necessity of applying policies, programs and specific rules concerning IPs in some nations. The World Bank, for example, first adopted a policy on IPs as a result of the dismal experience of projects in Latin America.243The World Bank supported the Chico Dam project. Due to the Kalingas’ opposition, the WB pulled out of the project but the conflict between the Philippine government and the natives endured long after—Marcus Colchester, Indigenous Peoples’... The World Bank now seeks to apply its current policy on IPs to some of its projects in Asia.

This policy has provided an influential model for the projects of theAsianDevelopment Bank.244Kingsbury, supra,at 417. The 1987 Philippine Constitution formally recognizes the existence of ICCs/IPs and declares as a State policy the promotion of their rights within the framework of national unity and development.245Section 22, Article II, 1987 Constitution. The IPRA amalgamates the Philippine category of ICCs with the international category of IPs,246Interpellation of Senator Flavier on S.B. No. 1728, Deliberation on Second Reading, November 20, 1996, p. 20. and is heavily influenced by both the International Labor Organization (ILO) Convention 169 and the United Nations (UN) Draft Declaration on the Rights of IndigenousPeoples.247Guide to R.A. 8371, Coalition for IPs Rights and Ancestral Domains, the International Labor Organization, and the ILO-Bilance-Asia Dep’t, p. 3 [1999]. ILO Convention No. 169 is entitled the “Convention Concerning Indigenous and Tribal Peoples in Independent Countries”248Also referred to as the “Indigenous and Tribal Peoples Convention, 1989.... and was adopted on June 27, 1989. It is based on the Universal Declaration of Human Rights, the International Covenant on Economic, Social and Cultural Rights, the International Covenant on Civil and Political Rights, and many other international instruments on the prevention of discrimination.249SeeIntroduction to ILO Convention No. 169, par. 4. ILO Convention No. 169 revised _______________ 243 The World Bank supported the Chico Dam project. Due to the Kalingas’ opposition, the WB pulled out of the project but the conflict between the Philippine government and the natives endured long after—Marcus Colchester, Indigenous Peoples’

Rights and Sustainable Resource Use in South and Southeast Asia, Indigenous Peoples of Asia, supra, pp. 59, 71-72. 244 Kingsbury, supra,at 417. 245 Section 22, Article II, 1987 Constitution. 246 Interpellation of Senator Flavier on S.B. No. 1728, Deliberation on Second Reading, November 20, 1996, p. 20. 247 Guide to R.A. 8371, Coalition for IPs Rights and Ancestral Domains, the International Labor Organization, and the ILOBilance-Asia Dep’t, p. 3 [1999]. 248 Also referred to as the “Indigenous and Tribal Peoples Convention, 1989.” 249 SeeIntroduction to ILO Convention No. 169, par. 4. 241 VOL. 347, DECEMBER 6, 2000 241 Cruz vs.Secretaryof Environmentand Natural Resources the “Convention Concerning the Protection and Integration of Indigenous and Other Tribal and Semi-Tribal Populations in Independent Countries” (ILO No. 107) passed on June 26, 1957. Developments in international law made it appropriate to adopt new international standards on indigenous peoples “with a view to removing the assimilationist orientation of the earlier standards,” and recognizing the aspirations of these peoples to exercise control over theirown institutions,waysof life and economic development.”250Id., pars. 5 and 6. CONCLUSION The struggle of the Filipinos throughout colonial history had been plagued by ethnic and religious differences. These differences were carried over and magnified by the Philippine

government through the imposition of a national legal order that is mostly foreign in origin or derivation.251Perfecto V. Fernandez, Towards a Definition of National Policy on Recognition of Ethnic Law within the Philippine Legal Order, 55 P.L.J. 383, 385 [1980]. Largely unpopulist, the present legal system has resulted in the alienation of a large sector of society, specifically, the indigenous peoples. The histories and cultures of the indigenes are relevant to the evolution of Philippine culture and are vital to the understanding of contemporary problems.252Samuel K Tan, A History of the Philippines, Manila Studies Association, Inc. andthe Phil. National Historical Society,Inc., p. 6 [1997]. It is through the IPRA that an attempt was made by our legislators to understand Filipino society not in terms of myths and biases but through common experiences in the course of history. The Philippines became a democracy a centennial ago and the decolonization process still continues. If the evolution of the Filipino people into a democratic society is to truly proceed democratically, i.e., if the Filipinos as a whole are to participate fully in the task of continuing democratization,253Fernandez, supra, at 385, 391. it is this Court’s duty to acknowledge the presence of indigenous and customary laws in the country and affirm their co-existence with the land laws in our national legal system. _______________ 250 Id., pars. 5 and 6. 251 Perfecto V. Fernandez, Towards a Definition of National Policy on Recognition of Ethnic Law within the Philippine Legal Order, 55 P.L.J. 383, 385 [1980].

252 Samuel K Tan, A History of the Philippines, Manila Studies Association, Inc. andthe Phil. National Historical Society,Inc., p. 6 [1997]. 253 Fernandez, supra, at 385, 391. 242 242 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources With the foregoing disquisitions, I vote to uphold the constitutionality of theIndigenous Peoples Rights Act of 1997. SEPARATE OPINION VITUG, J.: An issue of grave national interest indeed deserves a proper place in any forum and, when it shows itself in a given judicial controversy, the rules of procedure, like locus standi, the propriety of the specific remedy invoked, or the principle of hierarchy of courts, that may ordinarily be raised by partylitigants, should not be so perceived as good and inevitable justifications for advocating timidity, let alone isolationism,by theCourt. A cardinal requirement, to which I agree, is that one who invokes the Court’s adjudication must have a personal and substantial interest in the dispute;1People vs. Vera, 65 Phil. 56, 89; Macasiano vs. National Housing Authority, 224 SCRA 236, 244 (1993). indeed, the developing trend would require a logical nexus between the status asserted and the claim sought to be adjudicated in order to ensure that one is the proper and appropriate party to invoke judicial power.2Am Jur § 189, p. 591, S. v. D., 410 US 841, 35 L Ed 2d 536, 93 S Ct 1146. The

rule requires a party to aptly show a personal stake in the outcome of the case or an injury to himself that can be redressed by a favorable decision so as to warrant his invocation of the Court’s jurisdiction and to render legally feasible the exercise of the Court’s remedial powers in his behalf. If it were otherwise, the exercise of that power can easily become too unwieldy by its sheer magnitude and scope to a point that may, in no small measure, adversely affect its intended essentiality, stability and consequentially. Nevertheless, where a most compelling reason exists, such as when the matter is of transcendental importance and paramount interest to the nation,3Legaspi vs. Civil Service Commission, 150 SCRA 530, 540 (1987); Tanada vs. Tuvera, 136 SCRA 27, 36, 37 (1985). the Court must take the liberal approach that recognizes the legal standing of nontraditional plaintiffs, such _______________ 1 People vs. Vera, 65 Phil. 56, 89; Macasiano vs. National Housing Authority, 224 SCRA 236, 244 (1993). 2 Am Jur § 189, p. 591, S. v. D., 410 US 841, 35 L Ed 2d 536, 93 S Ct 1146. 3 Legaspi vs. Civil Service Commission, 150 SCRA 530, 540 (1987); Tanada vs. Tuvera, 136 SCRA 27, 36, 37 (1985). 243 VOL. 347, DECEMBER 6, 2000 243 Cruz vs.Secretaryof Environmentand Natural Resources as citizens and taxpayers, to raise constitutional issues that affect them.4Defensor Santiago, Miriam, Constitutional Law, First Edition, 1994, p. 11; see also Rev. Fr. Joaquin Bernas,

S.J., on the 1987 Constitution of the Republic of the Philippines, 1996 Ed.,pp. 336-337. This Court thus did so in a case5Oposa vs. Factoran, Jr., 224 SCRA 792 (1993). that involves the conservation of our forests for ecological needs. Until an exact balance is struck, the Court must accept an eclectic notion that can free itself from the bondage of legal nicety and hold trenchant technicalities subordinate towhatmaybe considered to be ofoverriding concern. The petition seeks a declaration by the Court of unconstitutionally of certain provisions of Republic Act No. 8371, a law that obviously is yet incapable of exact equation in its significance to the nation and its people now and in the generations yet to come. Republic Act No. 8371, otherwise also known as the Indigenous Peoples Rights Act of 1997 CIPRA”), enacted into law in 1997 and made effective on 22 November 1997, is apparently intended to be a legislative response to the 1987 Constitution which recognizes the rights of indigenous cultural communities “within the framework of national unity and development”6Art. 11, Sec. 22. and commands the State, “subject to the provisions of this Constitution and national development policies and programs,” to protect the rights of indigenous cultural communities to their ancestral lands in order to ensure their economic, social, and cultural well-being.7Art. XII, Sec. 5. Among the assailed provisions in IPRA is its Section 3(a) which defines “ancestral domains” to embrace “all areas generally belonging to ICCs/IPs comprising lands, inland waters, coastal areas, and natural resources” including “ancestral lands, forests, pasture, residential, agricultural, and other lands individually owned whether alienable and

disposable or otherwise,” over which indigenous cultural communities/indigenous peoples (“ICCs/IPs”) could exercise virtual ownership and control. IPRA effectively withdraws from the public domain the socalled ancestral domains covering literally millions of hectares. The notion of community property would comprehend not only matters of _______________ 4 Defensor Santiago, Miriam, Constitutional Law, First Edition, 1994, p. 11; see also Rev. Fr. Joaquin Bernas, S.J., on the 1987 Constitution of the Republic of the Philippines, 1996 Ed.,pp. 336-337. 5 Oposa vs. Factoran, Jr., 224 SCRA 792 (1993). 6 Art. 11, Sec. 22. 7 Art. XII, Sec. 5. 244 244 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources proprietary interest but also some forms of self governance over the curved-out territory. This concept is elaborated in Section 7 of the law which states that the “rights of ownership and possession of ICCs/IPs to their ancestral domains shall be recognized and protected,” subsumed under which would encompass the right of ownership (paragraph a); the right to develop, control and use lands and natural resources, including “the right to negotiate the terms and conditions for the exploration of natural resources in the areas for the purpose of ensuring ecological, environmental protection and the

conservation measures, pursuant to national and customary laws”; (par. b); the right to stay in the territories (par. c); the right to return to their abandoned lands in case of displacement (par. d); the right to regulate entry of migrants (par. e); the right to claim parts of ancestral domains previously reserved (par. g); and the right to resolve land conflicts in accordance primarily with customary law (par. h). Concurrently, Section 57 states that ICCs/IPs shall be given “priority rights in the harvesting, extraction, development or exploitation of any natural resources within the ancestral domains.” These provisions of IPRA, in their totality, are, in my view, beyond the context of the fundamental law and virtually amount to an undue delegation, if not an unacceptable abdication, of State authority over a significant area of the country and its patrimony. Article XII of the 1987 Constitution expresses that 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,” and, with the exception of agricultural lands, “shall not be alienated.” It ordains that the “exploration, development, and utilization of natural resources shall be under the full controland supervisionof the State.”8Sec. 2. These provisions had roots in the 1935 Constitution which, along with some other specific mandates in the 1935 Constitution, forming Article XII under the title “Conservation and Utilization of Natural Resources,” were derived largely from the report of the Committee on Nationalization and Preservation of Lands and other

_______________ 8 Sec. 2. 245 VOL. 347, DECEMBER 6, 2000 245 Cruz vs.Secretaryof Environmentand Natural Resources Natural Resources.9II Aruego, The Framing of the Philippine Constitution, p. 594. According to the Committee report, among the principles upon which these provisions were based, was “that the land, minerals, forests and other natural resources constitute the exclusive heritage of the Filipino Nation,” and should thereby “be preserved for those under the sovereign authority of the Nation and for their posterity.”10Ibid., p. 595. The delegates to the 1934 Constitutional Convention were of the unanimous view that the “policy on natural resources, being fundamental to the nation’s survival should not be left to the changing mood of the lawmakingbody.”11Ibid., p. 600. The 1987 Constitution, like the precursor provisions in the 1935 and 1973 Constitutions, thus expresses this regalian doctrine of the old, and the domainial doctrine of the new, that all lands and natural resources belong to the state other than those which it recognizes to be of private ownership. Except for agricultural lands of the public domain which alone may be alienated, forest or timber, and mineral lands, as well as all other natural resources, of the country must remain with the state, the exploration, development and utilization of which shall be subject to its full control and supervision albeit allowing it to enter into coproduction, joint venture or production-sharing agreements, or into agreements with

foreign-owned corporations involving technical or financial assistance for large-scale exploration,development andutilization.12CONST., Art. XII, Sec. 2; Miners Association of the Philippines, Inc. vs. Factoran, J[r., 240 SCRA 100 (1995). The decision of the United States Supreme Court in Cariño vs. Insular Government,1341 Phil. 935. holding that a parcel of land held since time immemorial by individuals under a claim of private ownership is presumed never to have been public land and cited to downgrade the application of the regalian doctrine, cannot override the collective will of the people expressed in the Constitution. It is in them that sovereignty resides and from them that all government authority emanates.14CONST., Art. II, Sec. I. It is not then for a court ruling or any piece _______________ 9 II Aruego, The Framing of the Philippine Constitution, p. 594. 10 Ibid., p. 595. 11 Ibid., p. 600. 12 CONST., Art. XII, Sec. 2; Miners Association of the Philippines, Inc. vs. Factoran, J[r., 240 SCRA 100 (1995). 13 41 Phil. 935. 14 CONST., Art. II, Sec. I. 246 246 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources

of legislation to be conformed to by the fundamental law, but it is for the former to adapt to the latter, and it is the sovereign act that must, between them, stand inviolate. The second paragraph of Section 5 of Article XII of the Constitution allows Congress to provide "for the applicability of customary laws governing property rights or relations in determining the ownership and extent of ancestral domains.” I do not see this statement as saying that Congress may enact a law that would simply express that “customary laws shall govern” and end it there. Had it been so, the Constitution could have itself easily provided it without having to still commission Congress to do it. Mr. Chief Justice Davide has explained this authority of Congress, during the deliberations of the 1986 Constitutional Convention, thus: “Mr. Davide. xxx Insofar as the application of the customary laws governing property rights or relations in determining the ownership and extent of the ancestral domain is concerned, it is respectfully submitted that the particular matter must be submitted to Congress. I understand that the idea of Comm. Bennagen is for the possibility of the codification of these customary laws. So before these are codified, we cannot now mandate that the same must immediately be applicable. We leave it to Congress to determine the extent of the ancestral domain and the ownership thereof in relation to whatever may have been codified earlier. So, in short, let us not put thecart ahead of the horse.”154 Record of the ConstitutionalCommission 32. The constitutional aim, it seems to me, is to get Congress to look closely into the customary laws and, with specificity and by proper recitals, to hew them to, and make them part of, the

stream of laws. The “due process clause,” as I so understand it in Tañada vs. Tuvera16146 SCRA 446 (1986). would require an apt publication of a legislative enactment before it is permitted to take force and effect. So, also, customary laws, when specifically enacted to become part of statutory law, must first undergo that publication to render them correspondingly binding and effective as such. Undoubtedly, IPRA has several good points, and I would respectfully urge Congress to re-examine the law. Indeed, the State is ex_______________ 15 4 Record of the ConstitutionalCommission 32. 16 146 SCRA 446 (1986). 247 VOL. 347, DECEMBER 6, 2000 247 Cruz vs.Secretaryof Environmentand Natural Resources horted to protect the rights of indigenous cultural communities to their ancestral lands, a task that would entail a balancing of interest between their specific needs and the imperatives of national interest. WHEREFORE, I vote to grant thepetition. SEPARATE OPINION KAPUNAN, J.: You ask if we own the land . .. How can you own that which will outlive you? Only the race own the land because only the race lives forever. To claim a piece of land is a birthright of every man. The lowly animals claim their place; how much more man? Man is born to live. Apu Kabunian, lord of us all,

gave us life and placed us in the world to live human lives. And where shall we obtain life? From the land. To work (the land) is an obligation, not merely a right. In tilling the land, you possess it. And so land is a grace that must be nurtured. To enrich it and make it fructify is the eternal exhortation of Apu Kabunian to all his children. Land is sacred. Land is beloved.From its womb springs . .. life. —Macli-ing Dulag, Chieftain of the Kalinga Tribe (quoted in Ponciano L. Bennagen, “Tribal Filipinos” in Indigenous View of Land and the Environment, ed. Shelton H. Davis, the World Bank Discussion Papers, No. 188, pp. 71-72.) It is established doctrine that a statute should be construed whenever possible in harmony with, rather than in violation of, the Constitution.1Teehankee vs. Rovira, 75 Phil. 634 (1945); San Miguel Corporation vs. Avelino, 89 SCRA 69 (1979); Phil. Long Distance Telephone Co. w. Collector of Internal Revenue, 90 Phil 674 (1952). The presumption is that the legislature intended to enact a valid, sensible and just law and one which operates no further than may be necessary to effectuate the specific purpose of the law.2In re Guarina, 24 Phil, 37 (1913). _______________ 1 Teehankee vs. Rovira, 75 Phil. 634 (1945); San Miguel Corporation vs. Avelino, 89 SCRA 69 (1979); Phil. Long Distance Telephone Co. w. Collector of Internal Revenue, 90 Phil 674 (1952). 2 In re Guarina, 24 Phil, 37 (1913).

248 248 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources The challenged provisions of the Indigenous Peoples Rights Act (IPRA) must be construed in view of such presumption of constitutionality. Further, the interpretation of these provisions should take into account the purpose of the law, which is to give life to the constitutional mandate that the rights of the indigenous peoples be recognized and protected. The struggle of our indigenous peoples to reclaim their ancestral lands and domains and therefore, their heritage, is not unique. It is one that they share with the red-skinned “Indians” of the United States, with the aborigines of Australia, the Maori of New Zealand and the Sazmi of Sweden, to name a few. Happily, the nations in which these indigenous peoples live all have enacted measures in an attempt to heal an oppressive past by the promise of a progressive future. Thus has the international community realized the injustices that have been perpetrated upon the indigenous peoples. This sentiment among the family of nations is expressed in a number of documents, the most recent and most comprehensive of which is the Draft United Nations Declaration on the Rights of Indigenous Peoples which was adopted by the UN SubCommission on Prevention of Discrimination and Protection of Minorities by its resolution on August 26, 1994. Among the rights recognized by the UN Draft is the restitution of lands, territories and even the resources which the indigenous peoples have traditionally owned or otherwise occupied or used, and which have been confiscated, occupied, used or damaged

without the free and informed consent of the indigenouspeoples. A Historical Backdrop on the Indigenous Peoples The term “indigenous” traces its origin to the Old Latin word indu, meaning “within.” In the sense the term has come to be used, it is nearer in meaning to the Latin word indigenus, which means “native.”3In Philippine Colonial history, the term indio applied to indigenous throughout the vast Spanish empire. India was a synonym for all of Asia east of the Indus River. Even after it became apparent that the explorer Christopher Columbus was not able to reach... “Indigenous” refers to that which originated or has been _______________ 3 In Philippine Colonial history, the term indio applied to indigenous throughout the vast Spanish empire. India was a synonym for all of Asia east of the Indus River. Even after it became apparent that the explorer Christopher Columbus was not able to reach territories lying off the east 249 VOL. 347, DECEMBER 6, 2000 249 Cruz vs.Secretaryof Environmentand Natural Resources produced naturally in a particular land, and has not been introduced from the outside.4WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY (1976), p. 1151. In international law, the definition of what constitutes “indigenous peoples” attains some degree of controversy. No definition of the term “indigenous peoples” has been adopted by the United Nations (UN), although UN practice has been guided by a

working definition in the 1986 Report of UN Special Rapporteur Martinez Cobo:5Benedict Kingsbury, “Indigenous Peoples” in International Law: A Constructivist Approach to the Asian Controversy, 92 The American Journal of International Law 414, 419 (1998) citing Jose Martinez Cobo, Study of the Problem of Discrimination ag... Indigenous communities, peoples and nations are those which, having a historical continuity with pre-invasion and precolonial societies that developed on their territories, consider themselves distinct from other sections of the societies now prevailing in those territories, or parts of them. They form at present non-dominant sections of society and are determined to preserve, develop and transmit to future generations their ancestral territories, and their ethnic identity, as the basis of their continued existence as peoples, in accordance with their own cultural patterns, social institutionsand legal systems. This historical continuity may consist of the continuation, for an extended period reaching into the present, of one or more of the following factors: (a) Occupation of ancestral lands, or atleast ofpart of them; (b) Common ancestry with the original occupants of these lands; (c) Culture in general, or in specific manifestations (such as religion, living under a tribal system, membership of an indigenous community, dress, means of livelihood, lifestyle,etc.); _______________ coast of Asia, the Spanish persisted in referring to all natives within their empire as los Indios. (Owen J. Lynch. Jr., THE PHILIPPINE COLONIAL DICHOTOMY: Attraction and

Disenfranchisement, 63 PL J 112 [1988] citing R. BERKHOFER, THE WHITE MAN’S INDIAN: IMAGES OF THE AMERICAN INDIAN FROM COLUMBUS TO THE PRESIDENT 5 [1979]. 4 WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY (1976), p. 1151. 5 Benedict Kingsbury, “Indigenous Peoples” in International Law: A Constructivist Approach to the Asian Controversy, 92 The American Journal of International Law 414, 419 (1998) citing Jose Martinez Cobo, Study of the Problem of Discrimination against indigenous population, UN Doc. E/CN.4/Sub. 2/1986/7/ Add. 4, paras. 379-80. 250 250 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources (d) Language (whether used as the only language, as mothertongue, as the habitual means of communication at home or in the family, or as the main, preferred, habitual, general or normal language); (e) Residence in certain parts of the country; or in certain regions of the world; (f) Other relevant facts.6Ibid. This definition is criticized for taking the potentially limited, and controversial view of indigenous peoples by requiring “historical continuity with preinvasion and pre-colonial societies that developed on their territories.... In Philippine constitutional law, the term “indigenous peoples” pertains to those groups of Filipinos who have retained a high

degree of continuity from pre-Conquest culture.74 RECORD OF THE CONSTITUTIONAL COMMISSION 34. Philippine legal history, however, has not been kind to the indigenous peoples, characterized them as “uncivilized,”8Rubi v. Provincial Board of Mindoro, 39 Phil. 660, 680 (1919). “backward people,”9Hearing before the Committee on the Philippines, United States Senate, Sixty-Third Congress, Third Session on HR 18459, pp. 346, 351. Quoted inRubiat 686. with “barbarous practices”10United States President McKinleys’ Instruction to the Philippine Commission, April 7, 1900, quoted In Rubiat 680. and “a low orderofintelligence.”11US v. Tubban, 29 Phil. 434, 436 (1915). Drawing inspiration from both our fundamental law and international law, IPRA now employs the politically-correct conjunctive term “indigenous peoples/indigenous cultural communities” as follows: Sec. 3. Definition of Terms.—For purposes of this Act, the following terms shall mean: xxx (h) Indigenous peoples/Indigenous cultural communities.— refer to a group of people or homogenous societies identified by self-ascription and ascription by others, who have continuously lived as organized community on communally bounded and defined territory, _______________ 6 Ibid. This definition is criticized for taking the potentially limited, and controversial view of indigenous peoples by requiring “historical continuity with pre-invasion and precolonial societies that developed on their territories.”

7 4 RECORD OF THE CONSTITUTIONAL COMMISSION 34. 8 Rubi v. Provincial Board of Mindoro, 39 Phil. 660, 680 (1919). 9 Hearing before the Committee on the Philippines, United States Senate, Sixty-Third Congress, Third Session on HR 18459, pp. 346, 351. Quoted inRubiat 686. 10 United States President McKinleys’ Instruction to the Philippine Commission, April 7, 1900, quoted In Rubiat 680. 11 US v. Tubban, 29 Phil. 434, 436 (1915). 251 VOL. 347, DECEMBER 6, 2000 251 Cruz vs.Secretaryof Environmentand Natural Resources and who have, under claims of ownership since time immemorial, occupied, possessed and utilized such territories, sharing common bonds of language, customs, traditions, and other distinctive cultural traits, or who have, through resistance to political, social and cultural inroads of colonization, nonindigenous religions and cultures, became historically differentiated from the majority of Filipinos. Indigenous peoples shall likewise include peoples who are regarded as indigenous on account of their descent from the populations which inhabited the country at the time of conquest or colonization, or at the time of inroads of non-indigenous religions and cultures, or the establishment of present State boundaries, who retain some or all of their own social, economic, cultural and political institutions, but who may have

been displaced from their traditional domains or who may have resettled outside theirancestral domains x x x. Long before the Spaniards set foot in these islands, the indigenous peoples were already plowing our soil and hunting in our forests. The Filipinos of Aeta and Malay stock, who were the original inhabitants of our archipelago, were, at that time, practicing a native culture. From the time the Spaniards arrived up to the early part of the American regime,12See Owen J. Lynch, Jr., INVISIBLE PEOPLES AND A HIDDEN AGENDA: The Origins of Contemporary Philippine Land Laws (1900-1913), 63 PLJ 249 (1988). these native inhabitants resisted foreign invasion, relentlessly fighting for their lands. Today, from the remote uplands of Northern Luzon, to Palawan, Mindoro and Mindanao, the indigenous peoples continue to live on and cultivate their ancestrallands, the lands of their forefathers. Though Filipinos today are essentially of the same stock as the indigenous peoples, our national culture exhibits only the last vestiges of this native culture. Centuries of colonial rule and neocolonial domination have created a discernible distinction between the cultural majority and the group of cultural minorities.13For an introduction to the chasm that exists between Philippine Law and Indigenous Custom Law, see Owen J. Lynch, Jr., Native Title, Private Right and Tribal Land Law: An Introductory Survey 52 PLJ 268 (1982); and the Philippine Indigenous Law Collection: ... The extant Philippine national culture is the culture of the majority; its in_______________

12 See Owen J. Lynch, Jr., INVISIBLE PEOPLES AND A HIDDEN AGENDA: The Origins of Contemporary Philippine Land Laws (1900-1913), 63 PLJ 249 (1988). 13 For an introduction to the chasm that exists between Philippine Law and Indigenous Custom Law, see Owen J. Lynch, Jr., Native Title, Private Right and Tribal Land Law: An Introductory Survey 52 PLJ 268 (1982); and the Philippine Indigenous Law Collection: An Introduction and PreliminaryBibliography, 58 PLJ 457 (1983), by the same author. 252 252 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources digenous roots were replaced by foreign cultural elements that are decidedly pronounced, if not dominant.14See RENATO CONSTANTINO, THE PHILIPPINES: A PAST REVISITED (1975), pp. 26-41; TEODORO AGONCILLO, A HISTORY OF THE FILIPINO PEOPLE, 8th ed., pp. 5, 74-75. While the culture of the majority reoriented itself to Western influence, the culture of the minorities hasretained its essentially nativecharacter. One of every six Filipinos is a member of an indigenous cultural community. Around twelve million Filipinos are members of the one hundred and ten or so indigenous cultural communities,15Response of Rep. Gregorio A. Andolana to the interpellation of Rep. John Henry R. Osmena on House Bill No. 9125, Journal of August 20 and 21, 1997 of the House of Representatives, p. 20. accounting for more than seventeen per centum of the estimated seventy

million Filipinos16Philippines Yearbook (1998 ed.), p. 366. in our country. Sadly, the indigenous peoples are one of the poorest sectors of Philippine society. The incidence of poverty and malnutrition among themes significantly higher than the national average. The indigenous peoples are also among the most powerless. Perhaps because of their inability to speak the language of law and power, they have been relegated to the fringes of society. They have little, if any, voice in national politics and enjoy the least protection from economic exploitation. The Constitutional Policies on Indigenous Peoples The framers of the 1987 Constitution, looking back to the long destitution of our less fortunate brothers, fittingly saw the historic opportunity to actualize the ideals of people empowerment and social justice, and to reach out particularly to the marginalized sectors of society, including the indigenous peoples. They incorporated in the fundamental law several provisions recognizing and protecting the rights and interests of the indigenous peoples, to wit: _______________ 14 See RENATO CONSTANTINO, THE PHILIPPINES: A PAST REVISITED (1975), pp. 26-41; TEODORO AGONCILLO, A HISTORY OF THE FILIPINO PEOPLE, 8th ed., pp. 5, 74-75. 15 Response of Rep. Gregorio A. Andolana to the interpellation of Rep. John Henry R. Osmena on House Bill No. 9125, Journal of August 20 and 21, 1997 of the House of Representatives, p. 20. 16 Philippines Yearbook (1998 ed.), p. 366.

253 VOL. 347, DECEMBER 6, 2000 253 Cruz vs.Secretaryof Environmentand Natural Resources Sec. 22. The State recognizes and promotes the rights of indigenous peoples within the frameworkof national unityand development.17Article II of the Constitution, entitled State Principles and Policies. Sec. 5. The State, subject to the provisions of this Constitution and national development policies and programs, shall protect the rights of indigenous cultural communities to their ancestral lands to ensure their economic, social, andcultural well-being. The Congress may provide for the applicability of customary laws governing property rights and relations in determining the ownership and extent of ancestral domains.18Article XII of the Constitution, entitled National Economy and Patrimony. Sec. 1. The Congress shall give the highest priority to the enactment of measures that protect and enhance the right of all the people to human dignity, reduce social, economic and political inequalities, and remove cultural inequities by equitably diffusing wealth and political power for the common good. To this end, the State shall regulate the acquisition, ownership, use and disposition of propertyand its increments.19Article XIII of the Constitution, entitled Social Justice and Human Rights. Sec. 6. The State shall apply the principles of agrarian reform or stewardship, whenever applicable in accordance with law, in the disposition and utilization of other natural resources, including lands of the public domain under lease or concession, subject to prior rights, homestead rights of small

settlers, and the rights of indigenous communities to their ancestral lands.20Ibid. Sec. 17. The State shall recognize, respect, and protect the rights of indigenous cultural communities to preserve and develop their cultures, traditions, and institutions. It shall consider these rights in the formulation of national plans and policies.21Article XIV of the Constitution, entitled Education, Science, Technology, Arts, Culture,and Sports. _______________ 17 Article II of the Constitution, entitled State Principles and Policies. 18 Article XII of the Constitution, entitled National Economy and Patrimony. 19 Article XIII of the Constitution, entitled Social Justice and Human Rights. 20 Ibid. 21 Article XIV of the Constitution, entitled Education, Science, Technology, Arts, Culture,and Sports. 254 254 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources Sec. 12. The Congress may create a consultative body to advise the President on policies affecting indigenous cultural communities, the ma-jorityof the members of which shallcome fromsuch communities.22Article XVI of the Constitution, entitled General Provisions. IPRA was enacted precisely to implement the foregoing constitutional provisions. It provides, among others, that the

State shall recognize and promote the rights of indigenous peoples within the framework of national unity and development, protect their rights over the ancestral lands and ancestral domains and recognize the applicability of customary laws governing property rights or relations in determining the ownership and extent of the ancestral domains.23SECTION 2. Declaration of State Policies.—The State shall recognize and promote all the rights of Indigenous Cultural Communities/Indigenous Peoples (ICCs/IPs) hereunder enumerated within the framework of the Constitution:a) The State shall recogniz... Moreover, IPRA enumerates the civil and political rights _______________ 22 Article XVI of the Constitution, entitled General Provisions. 23 SECTION 2. Declaration of State Policies.—The State shall recognize and promote all the rights of Indigenous Cultural Communi-ties/Indigenous Peoples (ICCs/IPs) hereunder enumerated within the framework of the Constitution: a) The State shall recognize and promote the rights of ICCs/IPs within the framework of national unity and development; b) The State shall protect the rights of ICCs/IPs to their ancestral domains to ensure their economic, social and cultural well being and shall recognize the applicability of customary laws governing property rights or relations in determining the ownership and extent of ancestral domain; c) The State shall recognize, respect and protect the rights of ICCs/IPs to preserve and develop their cultures, traditions and institutions. It shall consider these rights in the formulation of national laws and policies;

d) The State shall guarantee that members of the ICCs/IPs regardless of sex, shall equally enjoy the full measure of human rights and freedoms without distinction or discrimination; e) The State shall take measures, with the participation of the ICCs/IPs concerned, to protect their rights and guarantee respect for their cultural integrity, and to ensure that members of the ICCs/IPs benefit on an equal footing from the rights and opportunities which national laws and regulations grant to other members of the population; and f) The State recognizes its obligations to respond to the strong expression of the ICCs/IPs for cultural integrity by assuring 255 VOL. 347, DECEMBER 6, 2000 255 Cruz vs.Secretaryof Environmentand Natural Resources of the indigenous peoples;24See Sections 13-20, R.A. 8371. spells out their social and cultural rights;25See Sections 21-37, R.A. 8371. acknowledges a general concept of indigenous property right and recognizes title thereto;26See Sections 4-12, R.A. 8371. and creates the NCIP as an independent agency under theOffice of the President.27See Sections 38-50, R.A. 8371. Preliminary Issues A.The petition presentsan actual controversy. The time-tested standards for the exercise of judicial review are: (1) the existence of an appropriate case; (2) an interest personal and substantial by the party raising the constitutional question; (3) the plea that the function be exercised at the

earliest opportunity; and (4) the necessity that the constitutional question be passed upon in order todecide the case.28Dumlao v. COMELEC, 95 SCRA 392, 400 (1980), citing People vs. Vera, 65 Phil. 56 (1937). Courts can only decide actual controversies, not hypothetical questions or cases.29Subic Bay Metropolitan Authority v. COMELEC, 262 SCRA 492, 513 (1996). The threshold issue, therefore, is whether an “appropriate case” exists for the exercise of judicial review in the present case. An “actual case or controversy” means an existing case or controversy which is both ripe for resolution and susceptible of judicial determination, and that which is not conjectural or anticipatory,30Board of Optometry v. Colet, 260 SCRA 88, 104 (1996). maximum ICC/IP participation in the direction of education, health, as well as other services of ICCs/Ips, in order to render such services more responsive to the needs and desires of thesecommunities. Towards these ends, the State shall institute and establish the necessary mechanisms to enforce and guarantee the realization of these rights, taking into consideration their customs, traditions, values, beliefs, interests and institutions, and to adopt and implement measures to protect their rights to their ancestral domains. _______________ 24 See Sections 13-20, R.A. 8371. 25 See Sections 21-37, R.A. 8371. 26 See Sections 4-12, R.A. 8371. 27 See Sections 38-50, R.A. 8371. 28 Dumlao v. COMELEC, 95 SCRA 392, 400 (1980), citing People vs. Vera, 65 Phil. 56 (1937).

29 Subic Bay Metropolitan Authority v. COMELEC, 262 SCRA 492, 513 (1996). 30 Board of Optometry v. Colet, 260 SCRA 88, 104 (1996). 256 256 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources or that which seeks to resolve hypothetical or feigned constitutional problems.31Muskrat v. United States, 219 US 346, 362 (1913). A petition raising a constitutional question does not present an “actual controversy,” unless it alleges a legal right or power. Moreover, it must show that a conflict of rights exists, for inherent in the term “controversy” is the presence of opposing views or contentions.32WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY, 1976, p. 497. Otherwise, the Court will be forced to resolve issues which remain unfocused because they lack such concreteness provided when a question emerges precisely framed from a clash of adversary arguments exploring every aspect of a multifaceted situation embracing conflicting and demanding interests.33UnitedStates v. Freuhauf, 365 US 146 (1961). The controversy must also be justiciable; that is, it must be susceptible of judicial determination.34Association of Small Landowners v. Secretary of Agrarian Reform, 175 SCRA 343, 364 (1989); Joya v. PCGG, 225 SCRA 568 (1993). In the case at bar, there exists a live controversy involving a clash of legal rights. A law has been enacted, and the Implementing Rules and Regulations approved. Money has been appropriated and the government agencies concerned

have been directed to implement the statute. It cannot be successfully maintained that we should await the adverse consequences of the law in order to consider the controversy actual and ripe for judicial resolution. It is precisely the contention of the petitioners that the law, on its face, constitutes an unconstitutional abdication of State ownership over lands of the public domain and other natural resources. Moreover, when the State machinery is set into motion to implement an alleged unconstitutional statute, this Court possesses sufficient authority to resolve and prevent imminent injury and violation of the constitutional process. B. Petitioners, as citizensand taxpayers, have the requisite standing to raise the constitutional questions herein. In addition to the existence of an actual case or controversy, a person who assails the validity of a statute must have a personal _______________ 31 Muskrat v. United States, 219 US 346, 362 (1913). 32 WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY, 1976, p. 497. 33 UnitedStates v. Freuhauf, 365 US 146 (1961). 34 Association of Small Landowners v. Secretary of Agrarian Reform, 175 SCRA 343, 364 (1989); Joya v. PCGG, 225 SCRA 568 (1993). 257 VOL. 347, DECEMBER 6, 2000 257 Cruz vs.Secretaryof Environmentand Natural Resources

and substantial interest in the case, such that, he has sustained, or will sustain, a direct injury as a result of its enforcement.35People v.Vera, 65 Phil. 56, 89 (1937). Evidently, the rights asserted by petitioners as citizens and taxpayers are held in common by all the citizens, the violation of which may result only in a “generalized grievance.”36Lozada v. COMELEC, 120 SCRA 337, 342 (1983). Yet, in a sense, all citizen’s and taxpayer’s suits are efforts to air generalized grievances about the conduct of government and the allocation of power.37US v. Richardson, 418 US 166, 194 S Ct 2940, 41 L Ed 2d 678 (1974). In several cases, the Court has adopted a liberal attitude with regard to standing.38Kilosbayan v. Guingona, 232 SCRA 110, 135 (1994), citing, among others, Philconsa v. Gimenez, 15 SCRA 479 (1965); CLU v. Executive Secretary, 194 SCRA 317 (1991); Guingona v. Carague, 196 SCRA 221 (1991); Osmena. v. COMELEC, 199 SCRA 750 (1991); Basco v. P... The proper party requirement is considered as merely procedural,39Araneta v. Dinglasan, 84 Phil. 368, 373 (1949). and the Court has ample discretion with regard thereto.40Assn. of Small Landowners in the Philippines v. Secretary of Agrarian Reform, 175 SCRA 343, 364-365 (1989). As early as 1910, the Court in the case of Severino vs. GovernorGeneral4116 Phil. 365 (1910), citing HIGH, EXTRAORDINARY LEGAL REMEDIES.held: xxx [W]hen the relief is sought merely for the protection of private rights, the relator must show some personal or special interest in the subject matter, since he is regarded as the real party in interest and his right must clearly appear. Upon the

other hand, when the question is one of public right and the object of the mandamus is to procure the enforce_______________ 35 People v.Vera, 65 Phil. 56, 89 (1937). 36 Lozada v. COMELEC, 120 SCRA 337, 342 (1983). 37 US v. Richardson, 418 US 166, 194 S Ct 2940, 41 L Ed 2d 678 (1974). 38 Kilosbayan v. Guingona, 232 SCRA 110, 135 (1994), citing, among others, Philconsa v. Gimenez, 15 SCRA 479 (1965); CLU v. Executive Secretary, 194 SCRA 317 (1991); Guingona v. Carague, 196 SCRA 221 (1991); Osmena. v. COMELEC, 199 SCRA 750 (1991); Basco v. PAGCOR, 197 SCRA 52 (1991); Carpio v. Executive Secretary, 206 SCRA 290 (1992). In Kilosbayan v. Morato (250 SCRA 130 [1995]) the Court discoursed on the rule on standing as follows: taxpayers may sue on the claim of illegal disbursement of funds, or to assail the constitutionality of a tax measure; voters may question the validity of election laws; citizens may raise constitutional questions of transcendental importance which must be settled early; and, legislators may question the validity of official acts which infringe their prerogatives. 39 Araneta v. Dinglasan, 84 Phil. 368, 373 (1949). 40 Assn. of Small Landowners in the Philippines v. Secretary of Agrarian Reform, 175 SCRA 343, 364-365 (1989). 41 16 Phil. 365 (1910), citing HIGH, EXTRAORDINARY LEGAL REMEDIES. 258 258 SUPREME COURT REPORTS ANNOTATED

Cruz vs.Secretaryof Environmentand Natural Resources ment of a public duty, the people are regarded as the real party in interest, and the relator at whose instigation the proceedings are instituted need not show that he has any legal or special interest in the result, it being sufficient to show that he is a citizen and as such interested in the execution of the laws.42Id.,at 371. This Court has recognized that a “public right,” or that which belongs to the people at large, may also be the subject of an actual case or controversy. In Severino, we ruled that a private citizen may enforce a “public right” in behalf of other citizens. We opined therein that: ... [T]he right which [petitioner] seeks to enforce is not greater or different from that of any other qualified elector in the municipality of Silay. It is also true that the injury which he would suffer in case he fails to obtain the relief sought would not be greater or different from that of the other electors; but he is seeking to enforce a public right as distinguished from a private right. The real party in interest is the public, or the qualified electors of the town of Silay. Each elector has the same right and would suffer the same injury. Each elector stands on the same basis with reference to maintaining a petition whether or not the relief sought by the relator should be granted.43Id.,at 374-375 In Tañada v. Tuvera,44136 SCRA 27, 37 (1985). the Court enforced the “public right” to due process and to be informedof matters ofpublic concern.

In Garcia vs. Board of Investments,45177 SCRA 374, 383 (1989). the Court upheld the “public right” to be heard or consulted on matters of national concern. In Oposa v. Factoran,46 the Court recognized the “public right” of citizens to “a balanced and healthful ecology which, for the first time in our nation’s constitutional history, is solemnly incorporated in the fundamental law.”47Id.,at 805. Mr. Justice (now Chief Justice) Hilario G. Davide, Jr., delivering the opinion ofthe Court, stated that: _______________ 42 Id.,at 371. 43 Id.,at 374-375 44 136 SCRA 27, 37 (1985). 45 177 SCRA 374, 383 (1989). 46 224 SCRA 792 (1993). 47 Id.,at 805. 259 VOL. 347, DECEMBER 6, 2000 259 Cruz vs.Secretaryof Environmentand Natural Resources Such a right belongs to a different category of rights altogether for it concerns nothing less than self-preservation and selfperpetuation—aptly and fittingly stressed by petitioners—the advancement of which may even be said to predate all governments and constitutions. As a matter of fact, these basic rights need not even be written in the Constitution for they are assumed to existfrom theinception of humankind.48Ibid. Petitioners, as citizens, possess the “public right” to ensure that the national patrimony is not alienated and diminished in

violation of the Constitution. Since the government, as the guardian of the national patrimony, holds it for the benefit of all Filipinos without distinction as to ethnicity, it follows that a citizen has sufficient interest to maintain a suit to ensure that any grant of concessions covering the national economy and patrimony strictly complies with constitutional requirements. Thus, the preservation of the integrity and inviolability of the national patrimony is a proper subjectof a citizen’s suit. In addition, petitioners, as taxpayers, possess the right to restrain officials from wasting public funds through the enforcement of an unconstitutional statute. It is well-settled that a taxpayer has the right to enjoin public officials from wasting public funds through the implementation of an unconstitutional statute,49Philconsa v. Mathay, 18 SCRA 300, 306 (1966). and by necessity, he may assail the validity of a statute appropriating public funds.50Philconsa v. Gimenez, 15 SCRA 479, 487 (1965), citing 11 AM JUR 761. The taxpayer has paid his taxes and contributed to the public coffers and, thus, may inquire into the manner by which the proceeds of his taxes are spent. The expenditure by an official of the State for the purpose of administering an invalid law constitutes a misapplication of suchfunds.51Sanidad v. COMELEC, 73 SCRA 333, 358-359 (1976); Pascual v. Secretary of Public Works, 110 Phil. 331 (1960); Tan v. Macapagal, 43 SCRA 677, 680 (1972). The IPRA appropriates funds as indicated in its title: “An Act to Recognize, Protect and Promote the Rights of Indigenous Cultural Communities/Indigenous Peoples, Creating the National Commis_______________

48 Ibid. 49 Philconsa v. Mathay, 18 SCRA 300, 306 (1966). 50 Philconsa v. Gimenez, 15 SCRA 479, 487 (1965), citing 11 AM JUR 761. 51 Sanidad v. COMELEC, 73 SCRA 333, 358-359 (1976); Pascual v. Secretary of Public Works, 110 Phil. 331 (1960); Tan v. Macapagal, 43 SCRA 677, 680 (1972). 260 260 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources sion on Indigenous Peoples, Establishing Implementing Mechanisms, Appropriating Funds Therefor, and for Other Purposes.” In the same manner, Section 79 authorizes for the expenditure of public funds by providing that “the amount necessary to finance [its] initial implementation shall be charged against the current year’s appropriation for the Office for Northern Cultural Communities (the “ONCC”) and the Office for Southern Cultural Communities (the “OSCC”),”52Section 79. Appropriations.—The amount necessary to finance the initial implementation of this Act shall be charged against the current year’s appropriation of the ONCC and the OSCC. Thereafter, such sums as may be necessary for its continued i... which were merged as organic offices of the NCIP.53Section 74. Merger of ONCC/OSCC— The Office for Northern Cultural Communities (ONCC) and the Office for Southern Cultural Communities (OSCC), created under Executive Order Nos. 122-B and 122-C respectively, are

hereby merged as organic offices of the ... Thus,the IPRA is a valid subject of a taxpayer’s suit. C. The petition for prohibition and mandamusis not an improper remedy. Prohibition is an extraordinary writ directed against any tribunal, corporation, board, officer or person, whether exercising judicial, quasi-judicial or ministerial functions, ordering said entity or person to desist from further proceedings when said proceedings are without or in excess of said entity’s or person’s jurisdiction, or are accompanied with grave abuse of discretion, and there is no appeal or any other plain, speedy and adequate remedy in the ordinary course of law.54Section 2, Rule 65, 1997 RULES OF CIVIL PROCEDURE. Mandamus, on the other hand, is an extraordinary writ commanding a tribunal, corporation, board, officer or person, immediately or at some other specified time, to do the act required to be done, when said entity or person unlawfully neglects the performance of an act which the law specifically enjoins as a duty resulting from an office, trust or station, or when said entity or person unlawfully excludes another from the use and _______________ 52 Section 79. Appropriations.—The amount necessary to finance the initial implementation of this Act shall be charged against the current year’s appropriation of the ONCC and the OSCC. Thereafter, such sums as may be necessary for its continued implementation shall be included in theannual General Appropriations Act. 53 Section 74. Merger of ONCC/OSCC—The Office for Northern Cultural Communities (ONCC) and the Office for

Southern Cultural Communities (OSCC), created under Executive Order Nos. 122-B and 122-C respectively, are hereby merged as organic offices of the NCIP and shall continue to function under a revitalized and strengthened structure to achieve the objectives of the NCIP x x x. 54 Section 2, Rule 65, 1997 RULES OF CIVIL PROCEDURE. 261 VOL. 347, DECEMBER 6, 2000 261 Cruz vs.Secretaryof Environmentand Natural Resources enjoyment of a right or office to which such other is entitled, and there is no other plain, speedy and adequate remedy in the ordinary course oflaw.55Section 3, Rule 65, 1997 RULES OF CIVIL PROCEDURE. In this case, the petitioners pray that respondents be restrained from implementing the challenged provisions of the IPRA and its Implementing Rules and the assailed DENR Circular No. 2, series of 1998, and that the same officials be enjoined from disbursing public funds for the implementation of the said law and rules. They further ask that the Secretary of the DENR be compelled to perform his duty to control and supervise the activities pertaining to natural resources. Prohibition will lie to restrain the public officials concerned from implementing the questioned provisions of the IPRA and from disbursing funds in connection therewith if the law is found to be unconstitutional. Likewise, mandamus will lie to compel the Secretary of the DENR to perform his duty to control and supervise the exploration, development, utilization and conservation of the country’s natural resources.

Consequently, the petition for prohibition and mandamusis not an improperremedy for the relief sought. D. Notwithstanding the failure of petitioners to observe the hierarchy of courts, the Court assumes jurisdiction over the petition in view of the importanceof the issues raised therein. Between two courts of concurrent original jurisdiction, it is the lower court that should initially pass upon the issues of a case. That way, as a particular case goes through the hierarchy of courts, it is shorn of all but the important legal issues or those of first impression, which are the proper subject of attention of the appellate court. This is a procedural rule borne of experience and adopted to improve the administration of justice. This Court has consistently enjoined litigants to respect the hierarchy of courts. Although this Court has concurrent jurisdiction with the Regional Trial Courts and the Court of Appeals to issue writs of certiorari, prohibition, mandamus, quo warranto, habeas _______________ 55 Section 3, Rule 65, 1997 RULES OF CIVIL PROCEDURE. 262 262 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources corpus and injunction,56Article VIII of the Constitution states:Sec. 5. The Supreme Court shall have the following powers:(1) Exercise original jurisdiction over cases affecting ambassadors, other public ministers and consuls, and over petitions for certiorari, prohibition, manda... such concurrence

does not give a party unrestricted freedom of choice of court forum. The resort to this Court’s primary jurisdiction to issue said writs shall be allowed only where the redress desired cannot be obtained in the appropriate courts or where exceptional and compelling circumstances justify such invocation.57Tano vs. Socrates, 278 SCRA 154, 173-174 (1997). We held in People v. Cuaresma 58172 SCRA 415 (1989). that: A becoming regard for judicial hierarchy most certainly indicates that petitions for the issuance of extraordinary writs against first level (“inferior”) courts should be filed with the Regional Trial Court, and those against the latter, with the Court of Appeals. A direct invocation of the Supreme Court’s original jurisdiction to issue these writs should be allowed only where there are special and important reasons therefor, clearly and specifically set out in the petition. This is established policy. It is a policy necessary to prevent inordinate demands upon the Court’s time and attention which are better devoted to those matters within its exclusive juris_______________ 56 Article VIII of the Constitution states: Sec. 5. The Supreme Court shall have the following powers: (1) Exercise original jurisdiction over cases affecting ambassadors, other public ministers and consuls, and over petitions for certiorari, prohibition, mandamus, quo warranto, and habeas corpus. xxx Batas Pambansa Blg. 129 (B.P. 129), as amended, provides: Sec. 9. Jurisdiction.—The Court of Appeals shallexercise:

(1) Original jurisdiction to issue writs of mandamus, prohibition, certiorari, habeas corpus, and quo warranto, and auxiliary writs or processes, whether or not in aid of its appellate jurisdiction; x x x. Sec. 21. Original jurisdiction in other cases.—Regional Trial Courts shall exercise originaljurisdiction: (1) In the issuance of writs of certiorari, prohibition, mandamus, quo warranto, habeas corpus and injunction which may be enforcedinany part of their respective regions;and (2) In actions affecting ambassadors and other public ministers and consuls. 57 Tano vs. Socrates, 278 SCRA 154, 173-174 (1997). 58 172 SCRA 415 (1989). 263 VOL. 347, DECEMBER 6, 2000 263 Cruz vs.Secretaryof Environmentand Natural Resources diction, and to prevent further over-crowding of the Court’s docket x xx.59Id.,424. (Emphasis supplied.) IPRA aims to rectify the historical injustice inflicted upon indigenous peoples. Its impact upon the lives not only of the indigenous peoples but also upon the lives of all Filipinos cannot be denied. The resolution of this case by the Court at the earliest opportunity is necessary if the aims of the law are to be achieved. This reason is compelling enough to allow petitioners’ invocation of this Court’sjurisdiction in the first instance. Substantive Issues

Primary Issue The issue of prime concern raised by petitioners and the Solicitor General revolves around the constitutionality of certain provisions of IPRA, specifically Sections 3(a), 3(b), 5, 6, 7, 8, 57, 58 and 59. These provisions allegedly violate Section 2, Article XII of the Constitution, which states: Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, beneficial use maybe themeasure and limit of the grant. The State shall protect the nation’s marine wealth in its archipelagic waters, territorial sea, and exclusive economic zone, and reserve its use and enjoymentexclusivelyto Filipino citizens. _______________ 59 Id.,424.

264 264 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources The Congress, may, by law, allow small-scale utilization of natural resources by Filipino citizens, as well as cooperative fish farming, with priority to subsistence fishermen and fishworkers in rivers, lakes, bays and lagoons. The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration, development and utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions provided by law, based on real contributions to the economic growth and general welfare of the country. In such agreements, the State shall promote the development and use of local scientific and technicalresources. The President shall notify the Congress of every contract entered into in accordance with this provision, within thirty days from its execution. Under IPRA, indigenous peoples may obtain the recognition of their right of ownership60Section 7. Rights to Ancestral Domains.—The rights of ownership and possession of ICCs/IPs to their ancestral domains shall be recognized and protected. Such rightsshallinclude:(a) Right of Ownership.— The right to claim ownership over lands, bo... over ancestral lands and ancestral domains by virtue of native title.61Section 3(1) Native Title—refers to pre-conquest rights to lands and domains which, as far back as memory reaches, have been held under a claim of private ownership by ICCs/IPs, have never

been public lands and are thus indisputably presumed to have ... The term “ancestral lands” under the statute refers to lands occupied by individuals, families and clans who are members of indigenous cultural communities, in_______________ 60 Section 7. Rights to Ancestral Domains.—The rights of ownership and possession of ICCs/IPs to their ancestral domains shall be recognized and protected. Such rightsshallinclude: (a) Right of Ownership.—The right to claim ownership over lands, bodies of water traditionally and actually occupied by ICCs/IPs, sacred places, traditional (b) hunting and fishing grounds, and all improvements made bythem at any timewithin thedomains; xxx 61 Section 3(1) Native Title—refers to pre-conquest rights to lands and domains which, as far back as memory reaches, have been held under a claim of private ownership by ICCs/IPs, have never been public lands and are thus indisputably presumed to have been held that way since beforethe Spanish Conquest; x x x Section 3(p) Time Immemorial—refers to a period of time when as far back as memory can go, certain ICCs/IPs are known to have occupied, possessed in the concept of owners, and utilized a defined territory devolved to them, by operation of customary law or inherited from their ancestors, in accordance with their customs and traditions. 265 VOL. 347, DECEMBER 6, 2000 265

Cruz vs. Secretary of Environment and Natural Resources eluding residential lots, rice terraces or paddies, private forests, swidden farms and tree lots. These lands are required to have been “occupied, possessed and utilized” by them or through their ancestors “since time immemorial, continuously to the present.”62Section 3(b) Ancestral Lands-—Subject to Section 56 hereof, refers to land occupied, possessed and utilized by individuals, families and clans who are members of the ICCs/IPs since time immemorial, by themselves or through their predecessors-in-inter... On the other hand, “ancestral domains” is defined as areas generally belonging to indigenous cultural communities, including ancestral lands, forests, pasture, residential and agricultural lands, hunting grounds, worship areas, and lands no longer occupied exclusively by indigenous cultural communities but to which they had traditional access, particularly the home ranges of indigenous cultural communities who are still nomadic or shifting cultivators. Ancestral domains also include inland waters, coastal areas and natural resources therein.63Section 3(a) Ancestral Domains—Subject to Section 56 hereof, refer to all areas generally belonging to ICCs/IPs comprising lands, inland waters, coastal areas and natural resources therein, held under a claim of ownership, occupied or possessed by In... Again, the same are required to have been _______________ 62 Section 3(b) Ancestral Lands-—Subject to Section 56 hereof, refers to land occupied, possessed and utilized by individuals, families and clans who are members of the ICCs/IPs since time immemorial, by themselves or through

their predecessors-in-interest, under claims of individual or traditional group ownership, continuously to the present except when interrupted by war, force majeure or displacement by force, deceit, stealth, or as a consequence of government projects or any other voluntary dealings entered into by the government and private individuals/corporations, including, but not limited to, residential lots, rice terraces or paddies, private forests, swidden farms and tree lots; 63 Section 3(a) Ancestral Domains—Subject to Section 56 hereof, refer to all areas generally belonging to ICCs/IPs comprising lands, inland waters, coastal areas and natural resources therein, held under a claim of ownership, occupied or possessed by Indigenous peoples, by themselves or through their ancestors, communally or individually since time immemorial, continuously to the present except when interrupted by war, force majeure or displacement by force, deceit, stealth or as a consequence of government projects or any other voluntary dealings entered into by the government and private individuals/corporations, and which are necessary to ensure their economic, social and cultural welfare. It shall include ancestral lands, forests, pasture, residential, agricultural, and other lands individually owned whether alienable and disposable or otherwise, hunting grounds, burial grounds, worship areas, bodies of water, mineral and other resources, and lands which may no longer be exclusively be occupied by Indigenous peoples but from which they traditionally had access to for their subsistence and traditional activities, particularly the home ranges of ICCs/IPs who are still nomadic and/or shiftingcultivators.

266 266 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources “held under a claim of ownership, occupied or possessed by ICCs/IPs, by themselves or through their ancestors, communally or individually since time immemorial, continuously to the present.”64Ibid. Under Section 56, property rights within the ancestral domains already existing and/or vested upon effectivity of said law “shall be recognized and respected.” Ownership is the crux of the issue of whether the provisions of IPRA pertaining to ancestral lands, ancestral domains, and natural resources are unconstitutional. The fundamental question is, who, between the State and the indigenous peoples, are the rightful ownersof these properties? It bears stressing that a statute should be construed in harmony with, and not in violation, of the fundamental law.65Hebron v. Reyes, 104 Phil. 175 (1958); San Miguel Corporation v. Avelino, 89 SCRA 69 (1979). The reason is that the legislature, in enacting a statute, is assumed to have acted within its authority and adhered to the constitutional limitations. Accordingly, courts should presume that it was the intention of the legislature to enact a valid, sensible, and just law and one which operates no further than may be necessary to effectuate the specific purpose of thelaw.66In re Guarina, 24 Phil. 37 (1913). A. The provisions of IPRA recognizing the ownership of indigenous peoples over the ancestral lands and ancestral domains are not unconstitutional.

In support of their theory that ancestral lands and ancestral domains are part of the public domain and, thus, owned by the State, pursuant to Section 2, Article XII of the Constitution, petitioners and theSolicitorGeneral advance thefollowing arguments: First, according to petitioners, the King of Spain under international law acquired exclusive dominion over the Philippines by virtue of discovery and conquest. They contend that the Spanish King under the theory of jura regalia, which was introduced into Philippine law upon Spanish conquestin 1521, acquired title toall thelandsin the archipelago. _______________ 64 Ibid. 65 Hebron v. Reyes, 104 Phil. 175 (1958); San Miguel Corporation v. Avelino, 89 SCRA 69 (1979). 66 In re Guarina, 24 Phil. 37 (1913). 267 VOL. 347, DECEMBER 6, 2000 267 Cruz vs.Secretaryof Environmentand Natural Resources Second, petitioners and the Solicitor General submit that ancestral lands and ancestral domains are owned by the State. They invoke the theory of jura regalia which imputes to the State the ownership of all lands and makes the State the original source of all private titles. They argue that the Philippine State, as successor to Spain and the United States, is the source of anyasserted right of ownership in land. Third, petitioners and the Solicitor General concede that the Cariño doctrine exists. However, petitioners maintain that the

doctrine merely states that title to lands of the public domain may be acquired by prescription. The Solicitor General, for his part, argues that the doctrine applies only to alienable lands of the public domain and, thus, cannot be extended to other lands of the public domain such as forest or timber, mineral lands,and national parks. Fourth, the Solicitor General asserts that even assuming that native title over ancestral lands and ancestral domains existed by virtue of the Cariño doctrine, such native title was extinguished upon the ratification of the 1935 Constitution. Fifth, petitioners admit that Congress is mandated under Section 5, Article XII of the Constitution to protect that rights of indigenous peoples to their ancestral lands and ancestral domains. However, they contend that the mandate is subject to Section 2, Article XII and the theory of jura regalia embodied therein. According to petitioners, the recognition and protection under R.A. 8371 of the right of ownership over ancestral lands and ancestral domains is far in excess of the legislative power and constitutional mandate of Congress. Finally, on the premise that ancestral lands and ancestral domains are owned by the State, petitioners posit that R.A. 8371 violates Section 2, Article XII of the Constitution which prohibits the alienation of non-agricultural lands of the public domain and othernatural resources. I am notpersuaded by these contentions. Undue reliance by petitioners and the Solicitor General on the theory of jura regalia is understandable. Not only is the theory well recognized in our legal system; it has been regarded, almost with reverence, as the immutable postulate of Philippine land law. It has been incorporated into our fundamental law

and has been recognized by the Court.67SeeLee Hong Hok vs. David, 48 SCRA 372 (1972). _______________ 67 SeeLee Hong Hok vs. David, 48 SCRA 372 (1972). 268 268 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources Generally, under the concept of jura regalia, private title to land must be traced to some grant, express or implied, from the Spanish Crown or its successors, the American Colonial government, and thereafter, the Philippine Republic. The belief that the Spanish Crown is the origin of all land titles in the Philippines has persisted because title to land must emanate from some source for it cannot issue forth fromnowhere.68PEÑA, REGISTRATION OF LAND TITLES AND DEEDS, 1994 rev.ed., p. 15. In its broad sense, the term “jura regalia” refers to royal rights,691 BOUVIER’S LAW DICTIONARY, 3rd revision, p. 1759. or those rights which the King has by virtue of his prerogatives.70BLACKS LAW DICTIONARY, 6th ed., p. 1282. In Spanish law, it refers to a right which the sovereign has over anything in which a subject has a right of property or propriedad.7176 CORPUS JURIS SECUNDUM, citing Hart v. Burnett, 15 Cal. 530, 566. These were rights enjoyed during feudal times by the king as the sovereign. The theory of the feudal system was that title to all lands was originally held by the King, and while the use of lands was granted out to others who were permitted to hold them under

certain conditions, the King theoretically retained the title.72WASHBURN, p. 44; see also WILLIAMS, PRINCIPLES OF THE LAW ON REAL PROPERTY, 6th ed. (1886),R. 2; BIGELOW, p. 2. By fiction of law, the King was regarded as the original proprietor of all lands, and the true and only source of title, and from him all lands were held.73WARVELLE, ABSTRACTS AND EXAMINATION OF TITLE TO REAL PROPERTY (1907), p. 18. The theory of jura regalia was therefore nothing more than a natural fruitof conquest.741 DICTIONARY OF ENGLISH LAW (Jowitt, ed.), p. 797. The Regalian theory, however, does not negate native title to lands held in private ownership since time immemorial. In the landmark case of Cariño vs. Insular Government7541 Phil. 935, 212 U.S. 449, 53L Ed. 594 (1909). the United _______________ 68 PEÑA, REGISTRATION OF LAND TITLES AND DEEDS, 1994 rev.ed., p. 15. 69 1 BOUVIER’S LAW DICTIONARY, 3rd revision, p. 1759. 70 BLACKS LAW DICTIONARY, 6th ed., p. 1282. 71 76 CORPUS JURIS SECUNDUM, citing Hart v. Burnett, 15 Cal. 530, 566. 72 WASHBURN, p. 44; see also WILLIAMS, PRINCIPLES OF THE LAW ON REAL PROPERTY, 6th ed. (1886),R. 2; BIGELOW, p. 2. 73 WARVELLE, ABSTRACTS AND EXAMINATION OF TITLE TO REAL PROPERTY (1907), p. 18. 74 1 DICTIONARY OF ENGLISH LAW (Jowitt, ed.), p. 797. 75 41 Phil. 935, 212 U.S. 449, 53L Ed. 594 (1909).

269 VOL. 347, DECEMBER 6, 2000 269 Cruz vs.Secretaryof Environmentand Natural Resources States Supreme Court, reversing the decision76Cariño vs. Insular Government, 7 Phil. 132 (1906). The Philippine Supreme Court in this case held that in the Philippines, there is no conclusive presumption of a grant of title to land from the Government founded merelyupon long possession of the sam... of the pre-war Philippine Supreme Court, made the following pronouncement: xxx Every presumption is and ought to be taken against the Government in a case like the present. It might, perhaps, be proper and sufficient to say that when, as far back as testimony or memory goes, the land has been held by individuals under a claim of private ownership, it will be presumed to have been held in the same way from before the Spanish conquest, and never to have been public land, x x x77Cariño vs. Insular Government, supra note 75,at 941. (Emphasis supplied.) The above ruling institutionalized the recognition of the existence of native title to land, or ownership of land by Filipinos by virtue of possession under a claim of ownership since time immemorial and independent of any grant from the Spanish Crown, as an exception to the theory of jura regalia. In Cariño, an Igorot by the name of Mateo Cariño applied for registration in his name of an ancestral land located in Benguet. The applicant established that he and his ancestors had lived on the land, had cultivated it, and had used it as far they could remember. He also proved that they had all been recognized as owners, the land having been passed on by inheritance

according to native custom. However, neither he nor his ancestors had any document of title from the Spanish Crown. The government opposed the application for registration, invoking the theory of jura regalia. On appeal, the United States Supreme Court held that the applicant was entitled to the registration of his native title to their ancestral land. Cariño was decided by the U.S. Supreme Court in 1909, at a time when decisions of the U.S. Court were binding as precedent in our jurisdiction.78Section 10, Philippine Bill of 1902. We applied the Cariño doctrine in the 1946 case of Oh Cho vs. Director of Lands,79(1946). where we stated that “[a]ll lands _______________ 76 Cariño vs. Insular Government, 7 Phil. 132 (1906). The Philippine Supreme Court in this case held that in the Philippines, there is no conclusive presumption of a grant of title to land from the Government founded merelyupon long possession of the same bythe applicant. 77 Cariño vs. Insular Government, supra note 75,at 941. 78 Section 10, Philippine Bill of 1902. 79 75 Phil. 890 (1946). 270 270 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources that were not acquired from the Government either by purchase or by grant, belong to the public domain, but [a]n exception to the rule would be any land that should have been in the possession of an occupant and of his predecessors in interest

since time immemorial, for such possession would justify the presumption that the land had never been part of the public domain or that it had been private property even before the Spanish conquest.”80Id.,at 892. Petitioners however aver that the U.S. Supreme Court’s ruling in Cariño was premised on the fact that the applicant had complied with the requisites of acquisitive prescription, having established that he and his predecessors-in-interest had been in possession of the property since time immemorial. In effect, petitioners suggest that title to the ancestral land applied for by Cariño was transferred from the State, as original owner, to Cariño by virtue of prescription. They conclude that the doctrine cannot be the basis for decreeing “by mere legislative fiat . .. that ownership of vast tracts of land belongs to [indigenous peoples] without judicial confirmation.”81Memorandum of Petitioners, Rollo,p. 861. The Solicitor General, for his part, claims that the Cariño doctrine applies only to alienable lands of the public domain and, as such, cannot be extended to other lands of the public domain such as forestor timber, mineral lands, andnational parks. There is no merit in these contentions. A proper reading of Cariño would show that the doctrine enunciated therein applies only to lands which have always been considered as private, and not to lands of the public domain, whether alienable or otherwise. A distinction must be made between ownership of land under native title and ownership by acquisitive prescription against the State. Ownership by virtue of native title presupposes that the land has been held by its possessor and his predecessors-in-interest

in the concept of an owner since time immemorial. The land is not acquired from the State, that is, Spain or its successors-ininterest, the United States and the Philippine Government. There has been no transfer of title from the State as _______________ 80 Id.,at 892. 81 Memorandum of Petitioners, Rollo,p. 861. 271 VOL. 347, DECEMBER 6, 2000 271 Cruz vs.Secretaryof Environmentand Natural Resources the land has been regarded as private in character as far back as memory goes. In contrast, ownership of land by acquisitive prescription against the State involves a conversion of the character of the property from alienable public land to private land, which presupposes a transfer of title from the State to a private person. Since native title assumes that the property covered by it is private land and is deemed never to have been part of the public domain, the Solicitor General’s thesis that native title under Cariño applies only to lands of the public domain is erroneous. Consequently, the classification of lands of the public domain into agricultural, forest or timber, mineral lands, and national parks under the Constitution82Section 3, Article XII, CONSTITUTION.is irrelevant to the application of the Cariño doctrine because the Regalian doctrine which vests in the State ownership of lands of the public domain does not cover ancestral lands and ancestral domains. Legal history supports the Cariño doctrine.

When Spain acquired sovereignty over the Philippines by virtue of its discovery and occupation thereof in the 16th century and the Treaty of Tordesillas of 1494 which it entered into with Portugal,83Under the Treaty of Tordesillas, the world was divided between Spain and Portugal, with the former having exclusive power to claim all lands and territories west of the Atlantic Ocean demarcation line (Lynch, The Legal Bases of Philippine Colonial Sovereig... the continents of Asia, the Americas and Africa were considered as terra nullius although already populated by other peoples.84See AKEHURST, A MODERN INTRODUCTION TO INTERNATIONAL LAW, 5th ed., 142-143. The discovery and occupation by the European States, who were then considered as the only members of the international community of civilized nations, of lands in the said continents were deemed sufficient to create title under international law.85See CRUZ, INTERNATIONAL LAW, 1996 ed., pp. 106-107. Although Spain was deemed to have acquired sovereignty over the Philippines, this did not mean that it acquired title to all lands in the archipelago. By virtue of the colonial laws of Spain, the _______________ 82 Section 3, Article XII, CONSTITUTION. 83 Under the Treaty of Tordesillas, the world was divided between Spain and Portugal, with the former having exclusive power to claim all lands and territories west of the Atlantic Ocean demarcation line (Lynch, The Legal Bases of Philippine Colonial Sovereignty, 62 Phil L J 279, 283 [1987]). 84 See AKEHURST, A MODERN INTRODUCTION TO INTERNATIONAL LAW, 5th ed., 142-143.

85 See CRUZ, INTERNATIONAL LAW, 1996 ed., pp. 106107. 272 272 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources Spanish Crown was considered to have acquired dominion only over theunoccupied and unclaimed portions ofour islands.86Cariño v. Insular Government, supra note 75, at 939.This point finds significance in light of the distinction between sovereignty and dominion. Sovereignty is the right to exercise the functions of a State to the exclusion of any other State (Case Con... In sending the first expedition to the Philippines, Spain did not intend to deprive the natives of their property. Miguel Lopez de Legazpi was under instruction of the Spanish King to do no harm to the natives and to their property. In this regard, an authority on the early Spanish colonial period in the Philippineswrote: The government of [the King of Spain] Philip II regarded the Philippines as a challenging opportunity to avoid a repetition of the sanguinary conquests of Mexico and Peru. In his written instructions for the Adelantado Legazpi, who commanded the expedition, Philip II envisaged a bloodless pacification of the archipelago. This extraordinary document could have been lifted almost verbatim from the lectures of the Dominican theologian, Francisco de Vitoria, delivered in the University of Salamanca. The King instructed Legazpi to inform the natives that the Spaniards had come to do no harm to their persons or

to their property. The Spaniards intended to live among them in peace and in friendship and ‘‘to explain to them the law of Jesus Christ by which they will be saved.” Although the Spanish expedition could defend themselves if attacked, the royal instruc_______________ 86 Cariño v. Insular Government, supra note 75, at 939. This point finds significance in light of the distinction between sovereignty and dominion. Sovereignty is the right to exercise the functions of a State to the exclusion of any other State (Case Concerning the Island of Las Palmas [1928], UNRIAA II 829, 838). It is often referred to as the power of imperium, which is defined as the government authority possessed by the State (BERNAS, THE CONSTITUTION OF THE REPUBLIC OF THE PHILIPPINES: A COMMENTARY VOL. 2, p. 419). On the other hand, dominion, or dominium, is the capacity of the State to own or acquire property such as lands and natural resources. Dominium was the basis for the early Spanish decrees embracing the theory of jura regalia. The declaration in Section 2, Article XII of the 1987 Constitution that all lands of the public domain are owned by the State is likewise founded on dominium (Ibid.). If dominium, not impeHum, is the basis of the theory of jura regalia, then the lands which Spain acquired in the 16th century were limited to non-private lands, because it could only acquire lands which were not yet privately-owned or occupied by the Filipinos. Hence, Spain acquired title only over lands which were unoccupied and unclaimed, i.e.,public lands.

273 VOL. 347, DECEMBER 6, 2000 273 Cruz vs.Secretaryof Environmentand Natural Resources tions admonished the commander to commit no aggressive act which might arouse native hostility.87PHELAN, THE HISPANIZATION OF THE PHILIPPINES: SPANISH AIMS AND FILIPINOS RESPONSES, 1565-1700 (1959), pp. 8-9. Spanish colonial laws recognized and respected Filipino landholdings including native land occupancy.88Cariño vs. Insular Government, supra note 75,at 943. Thus, the Recopilación de Leyes de las Indias expressly conferred ownership of lands already held by the natives.89Book 4, Title 12, Law 9, decreed by Philip II, 1 June 1594. We order that grants of farms and lands to Spaniards be without injury to the Indians and that those which have been granted to their loss and injury, be returned to the lawful owners.Book 4, Titl... The royal decrees of 1880 and 1894 did not extinguish native title to land in the Philippines. The earlier royal decree, dated June 25, 1880, provided that all those in _______________ 87 PHELAN, THE HISPANIZATION OF THE PHILIPPINES: SPANISH AIMS AND FILIPINOS RESPONSES, 1565-1700 (1959), pp. 8-9. 88 Cariño vs. Insular Government, supra note 75,at 943. 89 Book 4, Title 12, Law 9, decreed by Philip II, 1 June 1594. We order that grants of farms and lands to Spaniards be without injury to the Indians and that those which have been granted to their loss and injury, be returned to the lawful owners.

Book 4, Title 12, Law 14. We having acquired full sovereignty over the Indies, and all lands, territories, and possessions not heretofore ceded away by our royal predecessors, or by us, or in our name, still pertaining the royal crown and patrimony, it is our will that all lands which are held without proper and true deeds of grant be restored to us according as they belong to us, in order that xxx after distributing to the natives what may be necessary for tillage and pasteurage, confirming them in what they now have and giving them more if necessary, all the rest of said lands may remain free and unencumbered for us to dispose of as we wish. [Quoted in Valenton v. Murciano, 3 Phil. 537, 542-543 (1904).] (Emphasis supplied.) Book 6, Title 1, Law 15, decreed by King Philip II, at Madrid, 7 November 1574. We command that in the Philippine Islands the Indians not be removed from one to another settlement by forceandagainst their will. Book 6, Title 1, Law 23, otherwise known as Ordinance 10 of 1609 decreed by Philip III. It is right that time should be allowed the Indians to work their own individual lands and thoseof the community. Book 6, Title 1, Law 32, decreed by Philip II, 16 April 1580. We command the Viceroys, Presidents, and Audiencias that they see to it that the Indians havecomplete libertyin their dispositions. Royal Cedula of October 15, 1754. Where such possessors shall not be able to produce title deeds it shall be sufficient if they shall show that ancient possession, as a valid title by prescription: x x x. [Quoted in Valenton v. Murciano, supra, at 546.] (Emphasis supplied.)

274 274 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources “unlawful possession of royal lands” must legalize their possession by means of adjustment proceedings,90Article 6 of the royal decree of June 25, 1880, quoted in Valenton v. Murciano, supra note 89 at 549. and within the period specified. The later royal decree, dated February 13, 1894, otherwise known as the Maura Law, declared that titles that were capable of adjustment under the royal decree of 1880, but for which adjustment was not sought, were forfeited. Despite the harsh wording of the Maura Law, it was held in the case of Cariño that the royal decree of 1894 should not be construed as confiscation of title, but merely as thewithdrawal of theprivilege of registering such title.91Cariño v. Insular Government, supra note 75, at 944. Neither was native title disturbed by the Spanish cession of the Philippines to the United States, contrary to petitioners’ assertion that the US merely succeeded to the rights of Spain, including the latter’s rights over lands of the public domain.92Memorandum of Petitioners, par. 3.4,Rollo,pp. 845846. Under the Treaty of Paris of December 10, 1898, the cession of the Philippines did not impair any right to property existing at the time.93TheTreaty of Paris reads in part:Article III. Spain cedes to the United States the archipelago known as the Philippine Islands,x x x.The United States will pay to Spain the sum of twenty million dollars, within three months after the exchange of the ratifi... During the _______________

90 Article 6 of the royal decree of June 25, 1880, quoted in Valenton v. Murciano, supra note 89 at 549. 91 Cariño v. Insular Government, supra note 75, at 944. 92 Memorandum of Petitioners, par. 3.4,Rollo,pp. 845-846. 93 TheTreaty of Paris reads in part: Article III. Spain cedes to the United States the archipelago known as the Philippine Islands,x x x. The United States will pay to Spain the sum of twenty million dollars, within three months after the exchange of the ratifications of the presenttreaty. xxx Article VIII. In conformity with the provisions of Articles One, Two, and Three of this treaty, Spain relinquishes in Cuba, and cedes in Porto Rico and other islands of the West Indies, in the Island of Guam, and in the Philippine Archipelago, all the buildings, wharves, barracks, forts, structures, public highways, and other immovable property which, in conformity with law, belong to the public domain and as such belong to the Crown of Spain. And it is hereby declared that the relinquishment or cession, as the case may be, to which the preceding paragraph refers, can not in any respect impair the property or rights which by law belong to the peaceful possession of property of all kinds, of provinces, municipalities, public or private establishments, ecclesiastical or civic bod275 VOL. 347, DECEMBER 6, 2000 275 Cruz vs.Secretaryof Environmentand Natural Resources

American colonial regime, native title to land was respected, even protected. The Philippine Bill of 1902 provided that property and rights acquired by the US through cession from Spain were to be administered for the benefit of the Filipinos.94The statute reads in part:Section 12. That all the property and rights which may have been acquired in the Philippine Islands under the treaty of peace with Spain, signed December tenth, eighteen hundred and ninety-eight, except such land or other property... In obvious adherence to libertarian principles, McKinley’s Instructions, as well as the Philippine Bill of 1902, contained a bill of rights embodying the safeguards of the US Constitution. One of these rights, which served as an inviolable rule upon every division and branch of the American colonial government in the Philippines,95McKinley’s Instructions to the Second Philippine Commission, in MENDOZA, FROM MCKINLEY’S INSTRUCTIONS TO THE NEW CONSTITUTION: DOCUMENTS ON THE PHILIPPINE CONSTITUTIONAL SYSTEM (1978) p. 71. was that “no person shall be deprived of life, liberty, or property without due process of law.”96Id.,at 65-75; Section 5, Philippine Bill of 1902. These vested rights safeguarded by the Philippine Bill of 1902 were in turn expressly protected by the due process clause of the 1935 Constitution. Resultantly, property rights of the indigenous peoples over their ancestral lands and ancestral domains were firmly established in law. Nonetheless, the Solicitor General takes the view that the vested rights of indigenous peoples to their ancestral lands and domains were “abated by the direct act by the sovereign Filipino people of ratifying the 1935 Constitution.”97Solicitor

General’s Memorandum, Rollo,pp. 668-669. He advances the following arguments: _______________ ies, or any other associations having legal capacity to acquire and possess property in the aforesaid territories renounced or ceded, or of private individuals, of whatsoever nationality such individuals may be. 94 The statute reads in part: Section 12. That all the property and rights which may have been acquired in the Philippine Islands under the treaty of peace with Spain, signed December tenth, eighteen hundred and ninety-eight, except such land or other property as shall be designated by the President of the United States for military and other reservations of the Government of the United States, are hereby placed under the control of the Government of said Islands, to be administered for the benefit of theinhabitants thereof,exceptas provided bythis Act. 95 McKinley’s Instructions to the Second Philippine Commission, in MENDOZA, FROM MCKINLEY’S INSTRUCTIONS TO THE NEW CONSTITUTION: DOCUMENTS ON THE PHILIPPINE CONSTITUTIONAL SYSTEM (1978) p. 71. 96 Id.,at 65-75; Section 5, Philippine Bill of 1902. 97 Solicitor General’s Memorandum, Rollo,pp. 668-669. 276 276 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources

The Sovereign, which is the source of all rights including ownership, has the power to restructure the consolidation of rights inherent in ownership in the State. Through the mandate of the Constitutions that have been adopted, the State has wrested control of those portions of the natural resources it deems absolutely necessary for social welfare and existence. It has been held that the State may impair vested rights through a legitimate exercise of police power. Vested rights do not prohibit the Sovereign from performing acts not only essential to but determinative of social welfare and existence. To allow otherwiseis to invite havoc in the established social system, x x x Time-immemorial possession does not create private ownership in cases of natural resources that have been found from generation to generation to be critical to the survival of the Sovereign and its agent, the State.98 Stated simply, the Solicitor General’s argument is that the State, as the source of all titles to land, had the power to re-vest in itself, through the 1935 Constitution, title to all lands, including ancestral lands and ancestral domains. While the Solicitor General admits that such a theory would necessarily impair vested rights, he reasons out that even vested rights of ownership over ancestral lands and ancestral domains are not absolute and may be impaired by the legitimate exercise of police power. I cannot agree. The text of the provision of the 1935 Constitution invoked by the Solicitor General, while embodying the theory of jura regalia, is too clear for any misunderstanding. It simply declares that “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.”99Section 1, Article XII, 1935 Constitution reads: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 belo... Nowhere does it state that cer_______________ 98 Id.at 668. 99 Section 1, Article XII, 1935 Constitution reads: 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 277 VOL. 347, DECEMBER 6, 2000 277 Cruz vs.Secretaryof Environmentand Natural Resources tain lands which are “absolutely necessary for social welfare and existence,” including those which are not part of the public domain, shall thereafter be owned by the State. If there is any room for constitutional construction, the provision should be interpreted in favor of the preservation, rather than impairment or extinguishment, of vested rights. Stated otherwise, Section 1, Article XII of the 1935 Constitution cannot be construed to

mean that vested right which had existed then were extinguished and that the landowners were divested of their lands, all in the guise of “wrest[ing] control of those portions of the natural resources [which the State] deems absolutely necessary for social welfare and existence.” On the contrary, said Section restated the fundamental rule against the diminution of existing rights by expressly providing that the ownership of lands of the public domain and other natural resources by the State is “subject to any existing right, grant, lease, or concessions.” The “existing rights” that were intended to be protected must, perforce, include the right of ownership by indigenous peoples over their ancestral lands and domains. The words of the law should be given their ordinary or usual meaning,100Central Azucarera Don Pedro v. Central Bank, 104 Phil. 598 (1954). and the term “existing rights” cannot be assigned an unduly restrictive definition. Petitioners concede that Congress is mandated under Section 5, Article XII of the 1987 Constitution101Sec. 5, Article XII. The State, subject to the provisions of this Constitution and national development policies and programs, shall protect to protect the rights of in_______________ 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. 100 Central Azucarera Don Pedro v. Central Bank, 104 Phil. 598 (1954). 101 Sec. 5, Article XII. The State, subject to the provisions of this Constitution and national development policies and programs, shall protect 278 278 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources digenous peoples to their ancestral lands and ancestral domains. Nonetheless, they contend that the recognition and protection under IPRA of the right of ownership of indigenous peoples over ancestral lands and ancestral domains are far in excess of the legislative power and constitutional mandate of the Congress,102See Memorandum of Petitioners, Rollo, pp. 863-864. since such recognition and protection amount to the alienation of lands of the public domain, which is proscribed under Section 2, Article XIIn of the Constitution. Section 5, Article XII of the Constitution expresses the sovereign intent to “protect the rights of indigenous peoples to their ancestral lands.” In its general and ordinary sense, the term “right” refers to any legally enforceable claim.103SIBAL, PHILIPPINE LEGAL ENCYCLOPEDIA, p. 893 It is a power, privilege, faculty or demand inherent in one person and incident upon another.104BLACK’S LAW DICTIONARY,

5th ed., p. 1189. When used in relation to property, “right” includes any interest in or title to an object, or any just and legal claim to hold, use and enjoy it.105Ibid. Said provision in the Constitution cannot, by any reasonable construction, be interpreted to exclude the protection of the right of ownership over such ancestral lands. For this reason, Congress cannot be said to have exceeded its constitutional mandate and power in enacting the provisions of IPRA, specifically Sections 7(a) and 8, which recognize the right of ownership of the indigenous peoplesover ancestral lands. The second paragraph of Section 5, Article XII also grants Congress the power to “provide for the applicability of customary laws governing property rights or relations in determining the ownership and extent of ancestral domains.” In light of this provision, does Congress have the power to decide whether ancestral domains shall be private property or part of the public domain? Also, does Congress have the power to determine whether the “extent” of _______________ the rights of indigenous cultural communities to their ancestral lands to ensure their economic, social,and cultural well-being. The Congress may provide for the applicability of customary laws governing property rights and relations in determining the ownership and extent of ancestral domains. 102 See Memorandum of Petitioners, Rollo, pp. 863-864. 103 SIBAL, PHILIPPINE LEGAL ENCYCLOPEDIA, p. 893 104 BLACK’S LAW DICTIONARY, 5th ed., p. 1189. 105 Ibid. 279

VOL. 347, DECEMBER 6, 2000 279 Cruz vs. Secretary of Environment and Natural Resources ancestral domains shall include the natural resources found therein? It is readily apparent from the constitutional records that the framers of the Constitution did not intend Congress to decide whether ancestral domains shall be public or private property. Rather, they acknowledged that ancestral domains shall be treated as private property, and that customary laws shall merely determine whether such private ownership is by the entire indigenous cultural community, or by individuals, families, or clans within the community. The discussion below between Messrs. Regalado and Bennagen and Mr. Chief Justice Davide, then members of the 1986 Constitutional Commission, is instructive: MR. REGALADO. Thank you, Madame President. May I seek some clarifications from either Commissioner Bennagen or Commissioner Davide regarding this phrase “CONGRESS SHALL PROVIDE FOR THE APPLICABILITY OF CUSTOMARY LAWS GOVERNING PROPERTY RIGHTS OR RELATIONS in determining the ownership and extent of the ancestral domain,” because ordinarily it is the law on ownership and the extent thereof which determine the property rights or relations arising therefrom. On the other hand, in this proposed amendment the phraseology is that it is the property rights or relations which shall be used as the basis in determining the ownership and extent of the ancestral domain. I assume there must be a certain difference in the customary laws and our regular civil laws on property.

MR. DAVIDE. That is exactly the reason, Madam President, why we will leave it to Congress to make the necessary exception to the general law on property relations. MR. REGALADO. I was thinking if Commissioner Bennagen could give us an example of such a customary law wherein it is the property rights and relations that determine the ownership and the extent of that ownership, unlike the basic fundamental rule that it is the ownership and the extent of ownership which determine the property rights and relations arising therefrom and consequent thereto. Perhaps, these customary laws may have a different provision or thrust so that we could make the corresponding suggestions also by way of an amendment. MR. DAVIDE. That is exactly my own perception. MR. BENNAGEN. Let me put it this way. There is a range of customary laws governing certain types of ownership. There would be ownership based on individuals, on clan or lineage, 280 280 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources or on community. And the thinking expressed in the consultation is that this should be codified and should be recognized in relation to existing national laws. That is essentiallytheconcept.1064 RECORD OF THE CONSTITUTIONAL COMMISSION 32. (Emphasis supplied.) The intention to treat ancestral domains as private property is also apparent from the following exchange between Messrs. Suarez and Bennagen:

MR. SUAREZ. When we speak of customary laws governing property rights or relations in determining the ownership and extent of the ancestral domain, are we thinking in terms of the tribal ownership or community ownership or of private ownership within the ancestral lands or ancestral domain? MR. BENNAGEN. The concept of customary laws is that it is considered as ownership by privateindividuals,clans and even communities. MR. SUAREZ. So, there will be two aspects to this situation. This means that the State will set aside the ancestral domain and there is a separate law for that. Within the ancestral domain it could accept more specific ownership in terms of individualswithin the ancestrallands. MR. BENNAGEN. Individuals and groups within the ancestral domain.107 (Emphasis supplied.) It cannot be correctly argued that, because the framers of the Constitution never expressly mentioned Cariño in their deliberations, they did not intend to adopt the concept of native title to land, or that they were unaware of native title as an exception to the theory of jura regalia.108Solicitor General’s Memorandum, Rollo, p. 665. The framers of the Constitution, as well as the people adopting it, were presumed to be aware of the prevailing judicial doctrines concerning the subject of constitutional provisions, and courts should take these doctrines into consideration in construing theConstitution.109Torres v. Tan Chim, 69 Phil 518 (1940); CIR v. Guerrero, 21 SCRA 180 (1967). Having thus recognized that ancestral domains under the Constitution are considered as private property of indigenous peoples,

_______________ 106 4 RECORD OF THE CONSTITUTIONAL COMMISSION 32. 107 Id., at 37. 108 Solicitor General’s Memorandum, Rollo, p. 665. 109 Torres v. Tan Chim, 69 Phil 518 (1940); CIR v. Guerrero, 21 SCRA 180 (1967). 281 VOL. 347, DECEMBER 6, 2000 281 Cruz vs. Secretary of Environment and Natural Resources the IPRA, by affirming or acknowledging such ownership through its various provisions, merely abides by the constitutional mandate and does not suffer any vice of unconstitutionality. Petitioners interpret the phrase “subject to the provisions of this Constitution and national development policies and programs” in Section 5, Article XII of the Constitution to mean “as subject to the provision of Section 2, Article XII of the Constitution,” which vests in the State ownership of all lands of the public domain, mineral lands and other natural resources. Following this interpretation, petitioners maintain that ancestral lands and ancestral domains are the property of the State. This proposition is untenable. Indeed, Section 2, Article XII reiterates the declarations made in the 1935 and 1973 Constitutions on the state policy of conservation and nationalization of lands of the public domain and natural resources, and is of paramount importance to our national economy and patrimony. A close perusal of the records of the

1986 Constitutional Commission reveals that the framers of the Constitution inserted the phrase “subject to the provisions of this Constitution” mainly to prevent the impairment of Torrens titles and other prior rights in the determination of what constitutes ancestral lands and ancestral domains, to wit: MR. NATIVIDAD. Just one question. I want to clear this section protecting ancestral lands. How does this affect the Torrens title and other prior rights? MR. BENNAGEN. I think that was also discussed in the committee hearings and we did say that in cases where due process is clearly established in terms of prior rights, these two have to be respected. MR. NATIVIDAD. The other point is: How vast is this ancestral land? Is it true that parts of Baguio City are considered as ancestral lands? MR. BENNAGEN. They could be regarded as such. If the Commissioner still recalls, in one of the publications that I provided the Commissioners, the parts could be considered as ancestral domain in relation to the whole population of Cordillera but not in relation to certain individuals or certain groups. MR. NATIVIDAD. The Commissioner means that the whole Baguio City is considered as ancestral land? 282 282 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources MR. BENNAGEN. Yes, in the sense that it belongs to Cordillera or in the same manner that Filipinos can speak of the

Philippine archipelago as ancestral land, but not in terms of the right of a particular person or particular group to exploit, utilize, or sell it. MR. NATIVIDAD. But is clear that the prior rights will be respected. MR. BENNAGEN. Definitely.1104 RECORD OF THE CONSTITUTIONAL COMMISSION 36. Thus, the phrase “subject to the provisions of this Constitution” was intended by the framers of the Constitution as a reiteration of the constitutional guarantee that no person shall be deprived of property without dueprocessof law. There is another reason why Section 5 of Article XII mandating the protection of rights of the indigenous peoples to their ancestral lands cannot be construed as subject to Section 2 of the same Article ascribing ownership of all public lands to the State. The Constitution must be construed as a whole. It is a rule that when construction is proper, the whole Constitution is examined in order to determine the meaning of any provision. That construction should beusedwhichwould give effect to the entire instrument.111See I COOLEY, CONST., LIMITATIONS, 8TH ED., pp. 127-129. Thus, the provisions of the Constitution on State ownership of public lands, mineral lands and other natural resources should be read together with the other provisions thereof which firmly recognize the rights of the indigenous peoples. These, as set forth herein before,112See pp. 8-9 of this Opinion for the full text of the constitutional provisions mentioned. include: Section 22, Article II, providing that the State recognizes and promotes the rights of indigenous peoples within the framework of national unify and development; Section 5,

Article XII, calling for the protection of the rights of indigenous cultural communities to their ancestral lands to ensure their economic, social, and cultural well-being, and for the applicability of customary laws governing property rights and relations in determining the ownership and extent of ancestral domains; Section 1, Article XIII, directing the removal or reduction of social, economic, _______________ 110 4 RECORD OF THE CONSTITUTIONAL COMMISSION 36. 111 See I COOLEY, CONST., LIMITATIONS, 8TH ED., pp. 127-129. 112 See pp. 8-9 of this Opinion for the full text of the constitutional provisions mentioned. 283 VOL. 347, DECEMBER 6, 2000 283 Cruz vs.Secretaryof Environmentand Natural Resources political and cultural inequities and inequalities by equitably diffusing wealth and political power for the common good; Section 6, Article XIII, directing the application of the principles of agrarian reform or stewardship in the disposition and utilization of other natural resources, subject to prior rights, homestead rights of small settlers, and the rights of indigenous communities to their ancestral lands; Section 17, Article XIV, decreeing that the State shall recognize, respect, and protect the rights of indigenous cultural communities to preserve and develop their cultures, traditions, and institutions; and Section 12, Article XVI, authorizing the Congress to create

a consultative body to advise the President on policies affecting indigenous culturalcommunities. Again, as articulated in the Constitution, the first goal of the national economy is the more equitable distribution of opportunities, income, and wealth.113Section 1, Article XII provides:The goals of the national economy are a more equitable distribution of opportunities, income, and wealth’, a sustained increase in the amount of goods and services produced by the nation for the benefit of the people; ... Equity is given prominence as the first objective of national economic development.114BERNAS, THE INTENT OF THE 1986 CONSTITUTION WRITERS, p. 800, citing the sponsorship speech of Dr. Bernardo Villegas, Chairman of the Committee on NationalEconomy and Patrimony. The framers of the Constitution did not, by the phrase “subject to the provisions of this Constitution and national development policies and programs,” _______________ 113 Section 1, Article XII provides: The goals of the national economy are a more equitable distribution of opportunities, income, and wealth’, a sustained increase in the amount of goods and services produced by the nation for the benefit of the people; and an expanding productivity as the key to raisingthe qualityof life for all, especially theunderprivileged. The State shall promote industrialization and full employment based on sound agricultural development and agrarian reform, through industries that make full and efficient use of human and natural resources, and which are competitive in both domestic and foreign markets. However, the State shall protect

Filipino enterprises against unfair foreigncompetition and tradepractices. In the pursuit of these goals, all sectors of the economy and all regions of the country shall be given optimum opportunity to develop. Private enterprises, including corporations, cooperatives and similar collective organizations, shall be encouraged to broaden the base of their ownership. (Emphasis supplied.) 114 BERNAS, THE INTENT OF THE 1986 CONSTITUTION WRITERS, p. 800, citing the sponsorship speech of Dr. Bernardo Villegas, Chairman of the Committee on NationalEconomy and Patrimony. 284 284 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources intend to establish a hierarchy of constitutional norms. As explained by then Commissioner (now Chief Justice) Hilario G. Davide, Jr., it was not their objective to make certain interests primary or paramount, or to create absolute limitations or outright prohibitions;rather, the idea is towards the balancing of interests: BISHOP BACANI. In Commissioner Davide’s formulation of the first sentence, he says: “The State, SUBJECT TO THE provisions of this Constitution AND NATIONAL DEVELOPMENT POLICIES AND PROGRAMS shall guarantee the rights of cultural or tribal communities to their ancestral lands to insure their economic, social and cultural wellbeing. “ There are at least two concepts here which receive

different weights very often. They are the concepts of national development policies and programs, and the rights of cultural or tribal communities to their ancestral lands, et cetera. I would like to ask: When the Commissioner proposed this amendment, which was the controlling concept? I ask this because sometimes the rights of cultural minorities are precisely transgressed in the interest of national development policies and programs. Hence, I would like to know which is the controlling concept here. Is it the rights of indigenous peoples to their ancestral lands or is it national development policies and programs. MR. DAVIDE. It is not really a question, of which is primary or which is more paramount. The concept introduced here is really the balancing of interests. That is what we seek to attain. We have to balance the interests taking into account the specific needs and the specific interests also of these cultural communities in like manner that we did so in the autonomous regions.1154 RECORD OF THE CONSTITUTIONAL COMMISSION 34. (Emphasis supplied.) B. The provisions of RA. 8371 do not infringe upon the State’s ownership over thenatural resources withinthe ancestral domains. Petitioners posit that IPRA deprives the State of its ownership over mineral lands of the public domain and other natural resources,116Petition, Rollo, pp. 18-19. as well as the State’s full control and supervision over the exploration, development and utilization of natural resources.117Id.,at 20 Specifically, petitioners and the Solicitor General assail Sections 3 _______________

115 4 RECORD OF COMMISSION 34. 116 Petition, Rollo, pp. 18-19. 117 Id.,at 20

THE

CONSTITUTIONAL

285 VOL. 347, DECEMBER 6, 2000 285 Cruz vs.Secretaryof Environmentand Natural Resources (a),118Section 3. Definition of Terms.—For Purposes of this Act, the followingterms shall mean:a) Ancestral Domains.— Subject to Section 56 hereof, refer to all areas generally belonging to ICCs/IPs comprising lands, inland waters, coastal areas, and n... 5,119Section 5. Indigenous Concept of Ownership.—Indigenous concept of ownership sustains the view that ancestral domains and all resources found therein shall serve as the material bases of their cultural integrity. The indigenous concept of ownership ge... and 7120Section 7. Rights to Ancestral Domains.—The rights of ownership and possession of ICCs/IPs to their ancestral domains shall be recognized and protected. Such rightsshallinclude:(a) Right of Ownership.—The right to claim ownership over lands, bo... of IPRA as violative of Section 2, Article XII of the Constitution which states, in part, that “[a] 11 lands of the public _______________ 118 Section 3. Definition of Terms.—For Purposes of this Act, the followingterms shall mean: a) Ancestral Domains.—Subject to Section 56 hereof, refer to all areas generally belonging to ICCs/IPs comprising lands, inland waters, coastal areas, and natural resources therein, held

under a claim of ownership, occupied or possessed by ICCs/IPs, by themselves or through their ancestors, communally or individually since time immemorial, continuously to the present except when interrupted by war, force majeure or displacement by force, deceit, stealth or as a consequence of government projects or any other voluntary dealings entered into by government and private individuals/corporations, and which are necessary to ensure their economic, social and cultural welfare. It shall include ancestral lands, forests, pasture, residential, agricultural, and other lands, individually owned whether alienable and disposable or otherwise, hunting grounds, burial grounds, worship areas, bodies of water, mineral and other natural resources, and lands which may no longer be exclusively occupied by ICCs/IPs but from which they traditionally had access to for their subsistence and traditional activities, particularly the home ranges of ICCs/IPs who are still nomadicand/or shifting cultivators. 119 Section 5. Indigenous Concept of Ownership.—Indigenous concept of ownership sustains the view that ancestral domains and all resources found therein shall serve as the material bases of their cultural integrity. The indigenous concept of ownership generally holds that ancestral domains are the ICCs/IPs private but community property which belongs to all generations and therefore cannot be sold, disposed or destroyed. Itlikewise covers sustainable traditional resourcerights. 120 Section 7. Rights to Ancestral Domains.—The rights of ownership and possession of ICCs/IPs to their ancestral domains shall be recognized and protected. Such rightsshallinclude:

(a) Right of Ownership.—The right to claim ownership over lands, bodies of water traditionally and actually occupied by ICCs/IPs, sacred places, traditional hunting and fishing grounds, and all improvements made by them at any time within the domains; (b) Right to Develop Lands and Natural Resources.—Subject to Section 56 hereof, right to develop, control and use lands and territories traditionally occupied, owned, or used; to manage and con286 286 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources 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.”121Section 2, Article XII, CONSTITUTION. They would have the Court declare as unconstitutional Section 3(a) of IPRA because the inclusion of natural resources in the definition of ancestral domains purportedly results in the abdication ofState ownership over theseresources. I am not convinced. Section 3(a) merely defines the coverage of ancestral domains, and describes the extent, limit and composition of ancestral domains by setting forth the standards and guidelines in determining whether a particular area is to be considered as part of and within the ancestral domains. In other words, Section 3(a) serves only as a yardstick which points out what properties are within the ancestral domains. It does not confer

or recognize any right of ownership over the natural resources to the indigenous peoples. Its purpose is definitional and not declarative ofa right or title. The specification of what areas belong to the ancestral domains is, to our mind, important to ensure that no unnecessary encroachment on private properties outside the ancestral domains will result during the delineation process. The mere fact that Section 3(a) defines ancestral domains to include the natural resources _______________ serve natural resources within the territories and uphold the responsibilities for future generations; to benefit and share the profits from allocation and utilization of the natural resources found therein; the right to negotiate the terms and conditions for the exploration of natural resources in the areas for the purpose of ensuring ecological, environmental protection and the conservation measures, pursuant to national and customary laws; the right to an informed and intelligent participation in the formulation and implementation of any project, government or private, that will affect or impact upon the ancestral domains and to receive just and fair compensation for any damages which they may sustain as a result of the project; and the right to effective measures by the government to prevent any interference with, alienation and encroachment upon these rights; x x x (Emphasis supplied.) 121 Section 2, Article XII, CONSTITUTION. 287 VOL. 347, DECEMBER 6, 2000 287 Cruz vs.Secretaryof Environmentand Natural Resources

found therein does not ipso facto convert the character of such natural resources as private property of the indigenous peoples. Similarly, Section 5 in relation to Section 3(a) cannot be construed as a source of ownership rights of indigenous people over the natural resources simply because it recognizes ancestral domains as their “private but community property.” The phrase “private but community property” is merely descriptive of the indigenous peoples’ concept of ownership as distinguished from that provided in the Civil Code. In Civil Law, “ownership” is the “independent and general power of a person over a thing for purposes recognized by law and within the limits established thereby.”122TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THE PHILIPPINES, Vol. II, p. 42 (1983); see also Articles 427 and 428, Civil Code. The civil law concept of ownership has the following attributes: jus utendi or the right to receive from the thing that which it produces, jus abutendi or the right to consume the thing by its use, jus disponendi or the power to alienate, encumber, transform and even destroy that which is owned and jus vindicandi or the right to exclude other persons from the possession the thing owned.123Id.,at 43. In contrast, the indigenous peoples’ concept of ownership emphasizes the importance of communal or group ownership. By virtue of the communal character of ownership, the property held in common “cannot be sold, disposed or destroyed”124Section 5, R.A. 8371. because it was meant to benefit the whole indigenous community and not merely the individualmember.125Ibid.

That IPRA is not intended to bestow ownership over natural resources to the indigenous peoples is also clear from the deliberations of the bicameral conference committee on Section 7 which recites the rights of indigenous peoples over their ancestral domains, to wit: _______________ 122 TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THE PHILIPPINES, Vol. II, p. 42 (1983); see also Articles 427 and 428, Civil Code. 123 Id.,at 43. 124 Section 5, R.A. 8371. 125 Ibid. 288 288 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources CHAIRMAN FLAVIER. Accepted. Section 8126Should be Section 7. The Transcript of Session Proceedings of the deliberations of the Bicameral Conference Committee on National Cultural Communities regarding House Bill No. 9125 refers to Section 8 but the Committee was actually discussing Section 7 on ... rights to ancestral domain, this iswhere we transferredthe other provision but here itself— HON. DOMINGUEZ. Mr. Chairman, if I may be allowed to make a very short Statement. Earlier, Mr. Chairman, we have decided to remove the provisions on natural resources because we all agree that that belongs to the State. Now, the plight or the rights of those indigenous communities living in forest and

areas where it could be exploited by mining, by dams, so can we not also provide a provision to give little protection or either rights for them to be consulted before any mining areas should be done in their areas, any logging done in their areas or any dam construction because this has been disturbing our people especially in the Cordilleras. So, if there could be, if our lawyers or the secretariat could just propose a provision for incorporation here so that maybe the right to consultation and the right to be compensated when there are damages within their ancestral lands. CHAIRMAN FLAVIER. Yes, very well taken but to the best of my recollection both are already considered in subsequent sections which we are now lookingfor. HON. DOMINGUEZ. Thank you. CHAIRMAN FLAVIER. First of all there is a line that gives priority use for the indigenous people where they are. Number two, in terms of the mines there is a need for prior consultation of source which is here already. So, anyway it is on the record that you want to make sure that the secretariat takes note of those two issues and my assurance is that it is alreadythereand I will make sure that theycross check. HON. ADAMAT. I second that, Mr. Chairman. CHAIRMAN FLAVIER. Okay, thank you. So we now move to Section 8, there is a Senate version you do not have and if you agree we will adopt that.127Transcript of Session Proceedings, Bicameral Conference Committee on National Cultural Communities, October 9, 1997, XTV-2.(Emphasis supplied.) Further, Section 7 makes no mention of any right of ownership of the indigenous peoples over the natural resources. In fact, Sec-

_______________ 126 Should be Section 7. The Transcript of Session Proceedings of the deliberations of the Bicameral Conference Committee on National Cultural Communities regarding House Bill No. 9125 refers to Section 8 but the Committee was actually discussing Section 7 on Rights to Ancestral Domains. 127 Transcript of Session Proceedings, Bicameral Conference Committee on National Cultural Communities, October 9, 1997, XTV-2. 289 VOL. 347, DECEMBER 6, 2000 289 Cruz vs.Secretaryof Environmentand Natural Resources tion 7(a) merely recognizes the “right to claim ownership over lands, bodies of water traditionally and actually occupied by indigenous peoples, sacred places, traditional hunting and fishing grounds, and all improvements made by them at any time within the domains.” Neither does Section 7(b), which enumerates certain rights of the indigenous peoples over the natural resources found within their ancestral domains, contain any recognition of ownership vis-a-vis the natural resources. What is evident is that the IPRA protects the indigenous peoples’ rights and welfare in relation to the natural resources found within their ancestral domains,128Sections 7 (b) and Section 57,R.A. 8371. including the preservation of the ecological balance therein and the need to ensure that the indigenous peoples will not be unduly displaced when Stateapproved activities involving the natural resources located therein are undertaken.

Finally, the concept of native title to natural resources, unlike native title to land, has not been recognized in the Philippines. NCIP and Flavier, et al. invoke the case of Reavies v. Fianza12940 Phil. 1017 (1909), 215 US 16, 54 L Ed 72. in support of their thesis that native title to natural resources has been upheld in this jurisdiction.130Ibid. The facts of the case were discussed in Fianza vs. Reavies, (7 Phil. 610 [1909]) thus: Jose Fianza, et al., members of the Igorot tribe, claimed that he and his predecessors had, for more than fifty years prior to 1901, possessed a certain parcel of ... They insist that “it is possible for _______________ 128 Sections 7 (b) and Section 57,R.A. 8371. 129 40 Phil. 1017 (1909), 215 US 16, 54 L Ed 72. 130 Ibid. The facts of the case were discussed in Fianza vs. Reavies, (7 Phil. 610 [1909]) thus: Jose Fianza, et al., members of the Igorot tribe, claimed that he and his predecessors had, for more than fifty years prior to 1901, possessed a certain parcel of mineral land on which were found two gold mines. The same parcel of land was also claimed by an American, J.F. Reavies, who entered the land in 1901 and proceeded to locate mining claims according to the mining laws of the United States. The Philippine Supreme Court held that Fianza, et al. were the rightful owners of the mineral lands pursuant to Section 45 of the Philippine Bill of 1902 which in sum states that where a person has held or worked on his mining claims for a period equivalent to ten years, evidence of such possession and working of the claims for such period shall be sufficient to establish a right to a patent thereto. On appeal, the United States Supreme Court affirmed the decision of the

Philippine Supreme Court and held that the indigenous peoples were the rightful owners of the contested parcel of land, stating that the possession and working by Fianza, et al. of the 290 290 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources rights over natural resources to vest on a private (as opposed to a public) holder if these were held prior to the 1935 Constitution.”131Memorandum of Intervenors Flavier, et al., Rollo,p. 918. However, a judicious examination of Reavies reveals that, contrary to the position of NCIP and Flavier, et al., the Court did not recognize native title to natural resources. Rather, it merely upheld the right of the indigenous peoples to claim ownership of minerals under the Philippine Bill of1902. While as previously discussed, native title to land or private ownership by Filipinos of land by virtue of time immemorial possession in the concept of an owner was acknowledged and recognized as far back during the Spanish colonization of the Philippines, there was no similar favorable treatment as regards natural resources. The unique value of natural resources has been acknowledged by the State and is the underlying reason for its consistent assertion of ownership and control over said natural resources from the Spanish regime up to the present.132Article I of the Decree of Superior Civil Government of January 29, 1864 provided that The supreme ownership of mines throughout the kingdom belong to the crown and the king. They shall not be exploited except by persons who obtained special grant from thi... Natural re-

_______________ mining claim in the Philippine Islands for the time required under the Section 45 of the Philippine Bill of 1902 to establish the right to a patent, need not have been under a claim of title. 131 Memorandum of Intervenors Flavier, et al., Rollo,p. 918. 132 Article I of the Decree of Superior Civil Government of January 29, 1864 provided that The supreme ownership of mines throughout the kingdom belong to the crown and the king. They shall not be exploited except by persons who obtained special grant from this superior government and by those who may secure it thereafter, subject to this regulation.” (FRANCISCO, PHILIPPINE LAWS ON NATURAL RESOURCES, 2nd ed. [1956], p. 14, citing the unpublished case of Lawrence v. Garduno G.R. No. 19042.) Article 2 of the Royal Decree of May 14, 1867 (the Spanish Mining Law), the law in force at the time of the cession of the Philippines to the United States contained a similar declaration, thus: The ownership of the substances enumerated in the preceding article (among them those of inflammable nature) belongs to the state, and they cannot be disposed of without an authorization issued by the Superior Civil Governor. The Spanish Civil Code contained the following analogous provisions affirming the State’s ownership overminerals: Art. 339. Property of public dominium is— xxx 291 VOL. 347, DECEMBER 6, 2000 291 Cruz vs.Secretaryof Environmentand Natural Resources

sources, especially minerals, were considered by Spain as an abundant source of revenue to finance its battles in wars against other _______________ 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. Art. 350. The proprietor of land is the owner of the surface and of everything under it and may build, plant or excavate thereon, as he may see fit, subject to any existing easements and to the provisions of the Laws on Mines and Watersand to police regulations. After the Philippines was ceded to Spain, the Americans continued to adhere to the concept of State-ownership of natural resources. However, the open and free exploration, occupation and purchase of mineral deposits and the land where they may be found were allowed under the Philippine Bill of 1902. Section 21 thereof stated: Sec. 21. That 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 citizens of the United States, or of said Islands: Provided, That when on any lands in said Islands entered and occupied as agricultural lands under the provisions of this Act, but not patented, mineral deposits have been found, the working of such mineral deposits is hereby forbidden until

the person, association, or corporation who or which has entered and is occupying such lands shall have paid to the Government of said Islands such additional sum or sums as will make the total amount paid for the mineral claim or claims in which said deposits are located equal to the amount charged by the Government for the same as mineral claims. Other natural resources such as water and forests were similarly regarded as belonging to the State during both the Spanish and American rule in the Philippines,viz: Article 33 of the Law of Waters of August 3, 1866 defined waters of public ownership as (1) the waters springing continuously or intermittently from lands of the public domain; (2) the waters of rivers; and (3) the continuous or intermittent waters of springs and creeks running through their natural channels. Article 1 of the same law states: The following arealso part of the national domain open to public use: 1. The coasts or maritime frontiers of the Philippine territory with their coves, inlets, creeks, roadsteads, bays and ports 2. The coast of the sea, that is, the maritime zone encircling the coasts, to the full width recognized by international law. The state provides for and regulates the police supervision and the uses of this zone as well as 292 292 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources

nations. Hence, Spain, by asserting its ownership over minerals wherever these may be found, whether in public or private lands, recognized the separability of title over lands and that over minerals which may befound therein.133NOBLEJAS, PHILIPPINE LAW ON NATURAL RESOURCES 1961 Revised Ed., p. 6. _______________ the right of refuge and immunity therein, in accordance with law and international treaties. With respect to forests, there are references made regarding State-ownership of forest lands in Supreme Court decisions (See Director of Forestry vs. Munoz, 23 SCRA 1183, 11981199 [1968]; Director of Lands vs. Abanzado, 65 SCRA 5, 11 [1975]; Mapa vs. Insular Government, 10 Phil. 175, 184 [1908]; Montano vs. Insular Government, 12 Phil. 572, 584 [1909]). The State’s ownership over natural resources was embodied in the 1935, 1973 and 1987 Constitutions. Section 1, Article XII of the 1935 Constitution declared: 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, or utilization of any of the natural resources shall be granted for a period exceeding twenty-five years, renewable for another twenty-five years, except as to water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, in which cases beneficial use may be the measure and the limit of the grant. Section 8, ArticleXIV of the 1973 Constitution provided: 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 usemay be the measure and limit of the grant. 133 NOBLEJAS, PHILIPPINE LAW ON NATURAL RESOURCES 1961 Revised Ed., p. 6. 293 VOL. 347, DECEMBER 6, 2000 293 Cruz vs.Secretaryof Environmentand Natural Resources

On the other hand, the United States viewed natural resources as a source of wealth for its nationals. As the owner of natural resources over the Philippines after the latter’s cession from Spain, the United States saw it fit to allow both Filipino and American citizens to explore and exploit minerals in public lands, and to grant patents to private mineral lands. A person who acquired ownership over a parcel of private mineral land pursuant to the laws then prevailing could exclude other persons, even the State, from exploiting minerals within his property.134See LAUREL (ED.), PROCEEDINGS OF THE PHILIPPINE CONSTITUTIONAL CONVENTION, VOL. VI, pp. 494-495. Although the United States made a distinction between minerals found in public lands and those found in private lands, title in these minerals was in all cases sourced from the State. The framers of the 1935 Constitution found it necessary to maintain the State’s ownership over natural resources to insure their conservation for future generations of Filipinos, to prevent foreign control of the country through economic domination; and to avoid situations whereby “the Philippines would become a source of international conflicts, thereby posingdangerto its internal security and independence.135Explanatory Note of the Committee on Nationalization of Lands and Natural Resources, September 14, 1934, reproduced in LAUREL (ED.), PROCEEDINGS OF THE PHILIPPINE CONSTITUTIONAL CONVENTION, VOL. VII, pp. 464-468; see also DE LEON AND DE LEON, JR., PHILIPPI... The declaration of State ownership and control over minerals and other natural resources in the 1935 Constitution was reiterated in both the 1973136Section 8, Article XIV, see note

139 for the full text of the provision. and 1987 Constitutions.137Paragraph 1, Section 2, Article XII of the 1987 Constitution provides:All lands of the public domain, waters, minerals, coal, petroleum, and other minerals oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and o... _______________ 134 See LAUREL (ED.), PROCEEDINGS OF THE PHILIPPINE CONSTITUTIONAL CONVENTION, VOL. VI, pp. 494-495. 135 Explanatory Note of the Committee on Nationalization of Lands and Natural Resources, September 14, 1934, reproduced in LAUREL (ED.), PROCEEDINGS OF THE PHILIPPINE CONSTITUTIONAL CONVENTION, VOL. VII, pp. 464468; see also DE LEON AND DE LEON, JR., PHILIPPINE CONSTITUTIONAL LAW: PRINCIPLES AND CASES, VOL. 2, pp. 801-802. 136 Section 8, Article XIV, see note 139 for the full text of the provision. 137 Paragraph 1, Section 2, Article XII of the 1987 Constitution provides: All lands of the public domain, waters, minerals, coal, petroleum, and other minerals 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 explo294 294 SUPREME COURT REPORTS ANNOTATED

Cruz vs.Secretaryof Environmentand Natural Resources Having ruled that the natural resources which may be found within the ancestral domains belong to the State, the Court deems it necessary to clarify that the jurisdiction of the NCIP with respect to ancestral domains under Section 52 [i] of IPRA extends only to thelands and not to thenatural resourcestherein. Section 52[i] provides: Turnover of Areas Within Ancestral Domains Managed by Other Government Agencies.—The Chairperson of the NCIP shall certify that the area covered is an ancestral domain. The secretaries of the Department of Agrarian Reform, Department of Environment and Natural Resources, Department of Interior and Local Government, and Department of Justice, the Commissioner of the National Development Corporation, and any other government agency claiming jurisdiction over the area shall be notified thereof. Such notification shall terminate any legal basis for the jurisdiction previously claimed. Undoubtedly, certain areas that are claimed as ancestral domains may still be under the administration of other agencies of the Government, such as the Department of Agrarian Reform, with respect to agricultural lands, and the Department of Environment and Natural Resources with respect to timber, forest and mineral lands. Upon the certification of these areas as ancestral domain following the procedure outlined in Sections 51 to 53 of the IPRA, jurisdiction of the government agency or agencies concerned over lands forming part thereof ceases. Nevertheless, the jurisdiction of government agencies over the natural resources within the ancestral domains does

not terminate by such certification because said agencies are mandated under existing laws to administer the natu_______________ ration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into coproduction, joint venture, or production-sharing agreements with Filipino citizens, or corporations and associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twentyfive years, renewable for not more than twenty-five years, and under such rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, beneficial use may be the measure and limit of the grant. 295 VOL. 347, DECEMBER 6, 2000 295 Cruz vs.Secretaryof Environmentand Natural Resources ral resources for the State, which is the owner thereof. To construe Section 52[i] as divesting the State, through the government agencies concerned, of jurisdiction over the natural resources within the ancestral domains would be inconsistent with the established doctrine that all natural resourcesareownedby the State. C. The provisions of IPRA pertaining to the utilization of natural resourcesare notunconstitutional. The IPRA provides that indigenous peoples shall have the right to manage and conserve the natural resources found on the ancestral domains, to benefit from and share in the profits from

the allocation and utilization of these resources, and to negotiate the terms and conditions for the exploration of such natural resources.138Section 7. Rights to Ancestral Domains.—The rights of ownership and possession of ICCs/IPs to their ancestral domains shall be recognized and protected. Such rightsshallinclude:x x xb) Right to Develop Lands and Natural Resources.—Subject to Se... The statute also grants them priority rights in the harvesting, extraction, development or exploitation of any natural resources within the ancestral domains.139Section 57. Natural Resources within Ancestral Domains.—The ICCs/IPs shall have priority rights in the harvesting, extraction, develop- Before the NCIP can _______________ 138 Section 7. Rights to Ancestral Domains.—The rights of ownership and possession of ICCs/IPs to their ancestral domains shall be recognized and protected. Such rightsshallinclude: xxx b) Right to Develop Lands and Natural Resources.—Subject to Section 56 hereof, right to develop, control and use lands and territories traditionally occupied, owned, or used; to manage and conserve natural resources within the territories and uphold the responsibilities for future generations; to benefit and share the profits from allocation and utilization of the natural resources found therein; the right to negotiate the terms and conditions for the exploration of natural resources in the areas for the purpose of ensuring ecological, environmental protection and the conservation measures, pursuant to national and customary laws; the right to an informed and intelligent participation in the formulation and implementation of any

project, government or private, that will affect or impact upon the ancestral domains and to receive just and fair compensation for any damages which they may sustain as a result of the project; and the right to effective measures by the government to prevent any interference with, alienation and encroachment upon these rights; 139 Section 57. Natural Resources within Ancestral Domains.—The ICCs/IPs shall have priority rights in the harvesting, extraction, develop296 296 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources issue a certification for the renewal, or grant of any concession, license or lease, or for the perfection of any production-sharing agreement the prior informed written consent of the indigenous peoples concerned must be obtained.140Section 59. Certification Precondition.—All departments and other governmental agencies shall henceforth be strictly enjoined from issuing, renewing, or granting any concession, license or lease, or entering into any production-sharing agreement, wit... In return, the indigenous peoples are given the responsibility to maintain, develop, protect and conserve the ancestral domains or portions thereof which are found to be necessary for critical watersheds, mangroves, wildlife sanctuaries, wilderness, protected areas, forest cover, or reforestation.141Section 58. Environmental Considerations.—Ancestral domains or portions thereof, which are found to be necessary for critical watersheds, mangroves, wildlife sanctuaries, wilderness,

protected areas, forest cover, or reforestation as determined by ap... _______________ ment or exploitation of any natural resources within the ancestral domains. A non-member of the ICCs/IPs concerned may be allowed to take part in the development and utilization of the natural resources for a period of not exceeding twentyfive (25) years renewable for not more than twenty-five (25) years: Provided, That a formal and written agreement is entered into with the ICCs/IPs concerned or that the community, pursuant to its own decision making process, has agreed to allow such operation: Provided, finally, That the NCIP may exercise visitorial powers and take appropriate action to safeguard the rights of the ICCs/IPs under the same contract. 140 Section 59. Certification Precondition.—All departments and other governmental agencies shall henceforth be strictly enjoined from issuing, renewing, or granting any concession, license or lease, or entering into any production-sharing agreement, without prior certification from the NCIP that the area affected does not overlap with any ancestral domain. Such certification shall only be issued after a field-based investigation is conducted by the Ancestral Domains Office of the area concerned: Provided, That no certification shall be issued by the NCIP without the free and prior informed and written consent of Indigenous peoples concerned: Provided, further, That no department, government agency or government-owned or controlled corporation may issue new concession, license, lease, or production sharing agreement while there, is a pending application for a CADT: Provided, finally, That the ICCs/IPs shall have the right to stop or

suspend, in accordance with this Act, any project that has not satisfied the requirement of thisconsultation process. 141 Section 58. Environmental Considerations.—Ancestral domains or portions thereof, which are found to be necessary for critical watersheds, mangroves, wildlife sanctuaries, wilderness, protected areas, forest cover, or reforestation as determined by appropriate agencies with the full participation of the Indigenous peoples concerned shall be maintained, managed and developed for such purposes: The indigenous peoples con297 VOL. 347, DECEMBER 6, 2000 297 Cruz vs.Secretaryof Environmentand Natural Resources The Solicitor General argues that these provisions deny the State an active and dominant role in the utilization of our country’s natural resources. Petitioners, on the other hand, allege that under the Constitution the exploration, development and utilization of natural resources may only be undertaken by the State, either directly or indirectly through co-production, joint venture, or production-sharing agreements.142Citing Section 2, Article XII of the Constitution. To petitioners, no other method is allowed by the Constitution. They likewise submit that by vesting ownership of ancestral lands and ancestral domains in the indigenous peoples, IPRA necessarily gives them control over the use and enjoyment of such natural resources, to the prejudice of the State.143Memorandum of Petitioners, Id.,at 840-841.

Section 2, Article XII of the Constitution provides in paragraph 1 thereof that the exploration, development and utilization of natural resources must be under the full control and supervision of the State, which may directly undertake such activities or enter into co-production, joint venture, or production-sharing agreements. This provision, however, should not be read in isolation to avoid a mistaken interpretation that any and all forms of utilization of natural resources other than the foregoing are prohibited. The Constitution must be regarded as consistent with itself throughout.144State v. Lathrop, 93 Ohio St 79, 112 NE 209, cited in 16 AM JUR 2d, ConstitutionalLaw, § 100. No constitutional provision is to be separated from all the others, or to be considered alone, all provisions bearing upon a _______________ cerned shall be given the responsibility to maintain, develop, protect and conserve such areas with the full and effective assistance of government agencies. Should the Indigenous peoples decide to transfer the responsibility over the areas, said decision must be made in writing. The consent of the Indigenous peoples should be arrived at in accordance with its customary laws without prejudice to the basic requirements of existing laws on free and prior Informed consent: Provided, That the transfer shall be temporary and will ultimately revert to the Indigenous peoples in accordance with the program for technology transfer; Provided, further, That no Indigenous peoples shall be displaced or relocated for the purpose enumerated under this section without the written consent of the specific persons authorized to give consent. 142 Citing Section 2, Article XII of the Constitution.

143 Memorandum of Petitioners, Id.,at 840-841. 144 State v. Lathrop, 93 Ohio St 79, 112 NE 209, cited in 16 AM JUR 2d, ConstitutionalLaw, § 100. 298 298 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources particular subject are to be brought into view and to be so interpreted as to effectuate the great purposes of the fundamental law.145Old Wayne Mutual Life Assn. v. McDonough, 204 US 6, 51 L Ed 345, cited in 16 AM JUR 2d Constitutional Law,§ 100. In addition to the means of exploration, development and utilization of the country’s natural resources stated in paragraph 1, Section 2 of Article XII, the Constitution itself states in the third paragraph of the same section that Congress may, by law, allow small-scale utilization of natural resources by its citizens.146Third paragraph, Section 2, Article XII, Constitution—The Congress may, by law, allow small scaleutilization of natural resources by Filipino citizens, as well as cooperative fish farming, with priority to subsistence fishermen and fishworkers in ri... Further, Section 6, Article XIII, directs the State, in the disposition and utilization of natural resources, to apply the principles of agrarian reform or stewardship.147Section 6, Article XIII, Constitution—The State shall apply the principles of agrarian reform or stewardship, whenever applicable in accordance with law, in the disposition and utilization of other natural resources, including lands of the public dom... Similarly, Section 7,

Article XIII mandates the State to protect the rights of subsistence fishermen to the preferential use of marine and fishing resources.148Section 7, Article XIII, Constitution... Clearly, _______________ 145 Old Wayne Mutual Life Assn. v. McDonough, 204 US 6, 51 L Ed 345, cited in 16 AM JUR 2d Constitutional Law,§ 100. 146 Third paragraph, Section 2, Article XII, Constitution— The Congress may, by law, allow small scale-utilization of natural resources by Filipino citizens, as well as cooperative fish farming, with priority to subsistence fishermen and fishworkers in rivers,lakes, bays, and lagoons. 147 Section 6, Article XIII, Constitution— The State shall apply the principles of agrarian reform or stewardship, whenever applicable in accordance with law, in the disposition and utilization of other natural resources, including lands of the public domain under lease or concession suitable to agriculture, subject to prior rights, homestead rights of small settlers, and the rights of the indigenous communities to their ancestral lands. The State may resettle landless farmers and farmworkers in its own agricultural estates which shall be distributed to them in the manner provided by law. 148 Section 7, Article XIII, Constitution— The State shall protect the rights of subsistence fishermen, especially of local communities, to the preferential use of the communal marine and fishing resources, both inland and offshore. It shall provide support to such fishermen through appropriate technology and research, adequate financial,

production, and marketing assistance, and other services. The State shall also protect, develop, and conserve such resources. The protection shall extend to offshore 299 VOL. 347, DECEMBER 6, 2000 299 Cruz vs.Secretaryof Environmentand Natural Resources Section 2, Article XII, when interpreted in view of the proFilipino, pro-poor philosophy of our fundamental law, and in harmony with the other provisions of the Constitution rather as a sequestered pronouncement,149Bower v. Big Horn Canal Assn. (Wyo) 307 P2d 593, cited in 16 AM JUR 2d Constitutional Law, § 100. cannot be construed as a prohibition against any and all forms of utilization of natural resources without the State’s direct participation. Through the imposition of certain requirements and conditions for the exploration, development and utilization of the natural resources under existing laws,150Republic Act No. 7076 (the Small-Scale Mining Act of 1991), Republic Act No. 7942 (the Philippine Mining Act of 1995). the State retains full control over such activities, whetherdoneon small-scale basis151Section 3(b) of R.A. 7076 defines “small-scale mining” as referring to mining activities which rely heavily on manual labor using simple implements and methods and do not use explosives or heavy mining equipment. or otherwise. The rights given to the indigenous peoples regarding the exploitation of natural resources under Sections 7(b) and 57 of IPRA amplify what has been granted to them under existing laws, such as the Small-Scale Mining Act of 1991 (R.A. 7076)

and the Philippine Mining Act of 1995 (R.A. 7942). R.A. 7076 expressly provides that should an ancestral land be declared as a people’s small-scale mining area, the members of the indigenous peoples living within said area shall be given priority in the awarding of small-scale mining contracts.152Section 7, R.A. 7076 provides:Ancestral lands.— No ancestral land may be declared as a people’s smallscale mining area without the prior consent of the cultural communities concerned: Provided, That, if ancestral lands are declared as people... R.A. 7942 declares that no ancestral land shall be opened for mining operations without the prior consent of the _______________ fishing grounds of subsistence fishermen against foreign intrusion. Fishworkers shall receive a just share from their labor in the utilization of marine and fishing resources. 149 Bower v. Big Horn Canal Assn. (Wyo) 307 P2d 593, cited in 16 AM JUR 2d Constitutional Law, § 100. 150 Republic Act No. 7076 (the Small-Scale Mining Act of 1991), Republic Act No. 7942 (the Philippine Mining Act of 1995). 151 Section 3(b) of R.A. 7076 defines “small-scale mining” as referring to mining activities which rely heavily on manual labor using simple implements and methods and do not use explosives or heavy mining equipment. 152 Section 7, R.A. 7076 provides: Ancestral lands.—No ancestral land may be declared as a people’s smallscale mining area without the prior consent of the cultural communities concerned: Provided, That, if ancestral lands are declared as people’s small-scale mining

areas, the members of the cultural communities therein shall be given priority for the awarding of a people’s small-scale mining contract. 300 300 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources indigenous cultural community concerned153Section 16, R.A. 7942. and in the event that the members of such indigenous cultural community give their consent to mining operations within their ancestral land, royalties shall be paid to them by theparties to themining contract.154Section 17, R.A. 794?. In any case, a careful reading of Section 7(b) would reveal that the rights given to the indigenous peoples are duly circumscribed. These rights are limited only to the following: to manage and conserve natural resources within territories and uphold it for future generations; to benefit and share the profits from allocation and utilization of the natural resources found therein; to negotiate the terms and conditions for the exploration of natural resources in the areas for the purpose of ensuring ecological, environmental protection and the conservation measures, pursuant to national and customary laws; to an informed and intelligent participation in the formulation and implementation of any project, government or private, that will affect or impact upon the ancestral domains and to receive just and fair compensation for any damages which they may sustain as a result of the project, and the right to effective measures by the government to prevent any interference with, alienation andencroachment of theserights.

It must be noted that the right to negotiate terms and conditions granted under Section 7(b) pertains only to the exploration of natural resources. The term “exploration” refers only to the search or prospecting of mineral resources, or any other means for the purpose of determining the existence and the feasibility of mining them for profit.155Sec. 3(q), Chapter 1, Republic Act No. 7942 (the Philippine Mining Act of 1995). The exploration, which is merely a preliminary activity, cannot be equated with the entire process of “exploration, development and utilization” of natural resources which under the Constitutionbelong to theState. Section 57, on the other hand, grants the indigenous peoples “priority rights” in the utilization of natural resources and not absolute ownership thereof. Priority rights does not mean exclusive rights. What is granted is merely the right of preference or first _______________ 153 Section 16, R.A. 7942. 154 Section 17, R.A. 794?. 155 Sec. 3(q), Chapter 1, Republic Act No. 7942 (the Philippine Mining Act of 1995). 301 VOL. 347, DECEMBER 6, 2000 301 Cruz vs. Secretary of Environment and Natural Resources consideration in the award of privileges provided by existing laws and regulations, with due regard to the needs and welfare of indigenous peoples living in the area.

There is nothing in the assailed law which implies an automatic or mechanical character in the grant of concessions. Nor does the law negate the exercise of sound discretion by government entities. Several factors still have to be considered. For example, the extent and nature of utilization and the consequent impact on the environment and on the indigenous peoples’ way of life are important considerations. Moreover, the indigenous peoples must show that they live in the area and that they are in the best position to undertake the required utilization. It must be emphasized that the grant of said priority rights to indigenous peoples is not a blanket authority to disregard pertinent laws and regulations. The utilization of said natural resources is always subject to compliance by the indigenous peoples with existing laws, such as R.A. 7076 and R.A. 7942 since it is not they but the State, which owns these resources. It also bears stressing that the grant of priority rights does not preclude the State from undertaking activities, or entering into coproduction, joint venture or production-sharing agreements with private entities, to utilize the natural resources which may be located within the ancestral domains. There is no intention, as between the State and the indigenous peoples, to create a hierarchy of values; rather, the object is to balance the interests of the State for national development and those of the indigenous peoples. Neither does the grant of priority rights to the indigenous peoples exclude non-indigenous peoples from undertaking the same activities within the ancestral domains upon authority granted by the proper governmental agency. To do so would

unduly limit the ownership rights of the State over the natural resources. To be sure, the act of the State of giving preferential right to a particular sector in the utilization of natural resources is nothing new. As previously mentioned, Section 7, Article XIII of the Constitution mandates the protection by the State of “the rights of subsistence fishermen, especially of local communities, to the preferential 302 302 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources use of communal marine and fishing resources, both inland and offshore.” Section 57 further recognizes the possibility that the exploration and exploitation of natural resources within the ancestral domains may disrupt the natural environment as well as the traditional activities of the indigenous peoples therein. Hence, the need for the prior informed consent of the indigenous peoples before any search for or utilization of the natural resources within their ancestral domains is undertaken. In a situation where the State intends to directly or indirectly undertake such activities, IPRA requires that the prior informed consent of the indigenous peoples be obtained. The State must, as a matter of policy and law, consult the indigenous peoples in accordance with the intent of the framers of the Constitution that national development policies and programs should involve a systematic consultation to balance local needs as well as national plans. As may be gathered from the discussion of

the framers of the Constitution on this point, the national plan presumably takes into account the requirements of the region after thorough consultation.1564 RECORD OF THE CONSTITUTIONAL COMMISSION 37. To this end, IPRA grants to the indigenous peoples the right to an informed and intelligent participation in the formulation and implementation of any project, government or private, and the right not to be removed therefrom without their free and prior informed consent.157Sections 7(a)and (b), R.A. 8371. As to nonmembers, the prior informed consent takes the form of a formal and written agreement between the indigenous peoples and non-members under the proviso in Section 57 in case the State enters into a co-production, joint venture, or productionsharing agreement with Filipino citizens, or corporations. This requirement is not peculiar to IPRA. Existing laws and regulations, such as the Philippine Environmental Policy,158Presidential Decree No. 1151 (1971). the Environmental Impact System,159Presidential Decree No. 1586 (1978) and DENR Administrative Order No. 37 (1996). the Local Government Code160Republic Act No. 7160 (1991). _______________ 156 4 RECORD OF THE CONSTITUTIONAL COMMISSION 37. 157 Sections 7(a)and (b), R.A. 8371. 158 Presidential Decree No. 1151 (1971). 159 Presidential Decree No. 1586 (1978) and DENR Administrative Order No. 37 (1996). 160 Republic Act No. 7160 (1991). 303

VOL. 347, DECEMBER 6, 2000 303 Cruz vs.Secretaryof Environmentand Natural Resources and the Philippine Mining Act of 1995161Republic Act No. 7942. already require increased consultation and participation of stakeholders, such as indigenous peoples, in the planning of activities with significant environment impact. The requirement in Section 59 that prior written informed consent of the indigenous peoples must be procured before the NCIP can issue a certification for the “issuance, renewal, or grant of any concession, license or lease, or to the perfection of any production-sharing agreement,” must be interpreted, not as a grant of the power to control the exploration, development and utilization of natural resources, but merely the imposition of an additional requirement for such concession or agreement. The clear intent of the law is to protect the rights and interests of the indigenous peoples which may be adversely affected by the operation of such entities or licensees. Corollary Issues A. IPRA does not violate the Due Process clause. The first corollary issue raised by petitioners is whether IPRA violates Section 1, Article III of the Constitution, which provides that “no person shall be deprived of life, liberty, or property without due process of law, nor shall any person be deprived the equal protection of the laws.” Petitioners maintain that the broad definition of ancestral lands and ancestral domains under Section 3(a) and 3(b) of IPRA includes private lands. They argue that the inclusion of private lands in the ancestral lands and ancestral domains violates the

due process clause.162Petition, Rollo, pp. 23-25. Petitioners’ contention is erroneous. Sections 3(a) and 3(b) expressly provide that the definition of ancestral lands and ancestral domains are “subject to Section 56,” which reads: _______________ 161 Republic Act No. 7942. 162 Petition, Rollo, pp. 23-25. 304 304 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources Sec. 56. Existing Property Rights Regimes.—Property rights within the ancestral domains already existing and/or vested upon effectivity of this Act, shall be recognizedandprotected. Petitioners, however, contend that Section 56 aims to protect only the vested rights of indigenous peoples, but not those who are not members of such communities. Following their interpretation, IPRA, under Section 56, recognizes the rights of indigenous peoples to their ancestral lands and ancestral domains, subject to the vested rights of the same communities to such ancestral lands and ancestral domains.Such interpretation is obviously incorrect. The “property rights” referred to in Section 56 belong to those acquired by individuals, whether indigenous or non-indigenous peoples. Said provision makes no distinction as to the ethnic origins of the ownership of these “property rights.” The IPRA thus recognizes and respects “vested rights” regardless of whether they pertain to indigenous or non-indigenous peoples.

Where the law does not distinguish, the courts should not distinguish.163Ramirez v. CA 248 SCRA 590, 596 (1995). What IPRA only requires is that these “property rights” already exist and/or vestedupon its effectivity. Further, by the enactment of IPRA, Congress did not purport to annul any and all Torrens titles within areas claimed as ancestral lands or ancestral domains. The statute imposes strict procedural requirements for the proper delineation of ancestral lands and ancestral domains as safeguards against the fraudulent deprivation of any landowner of his land, whether or not he is member of an indigenous cultural community. In all proceedings for delineation of ancestral lands and ancestral domains, the Director of Lands shall appear to represent the interest of the Republic of the Philippines.164Section 53 (f), R.A. 8371. With regard to ancestral domains, the following procedure is mandatory: first, petition by an indigenous cultural community, or motu proprio by the NCIP; second, investigation and census by the Ancestral domains Office (“ADO”) of the NCIP; third, preliminary report by the ADO; fourth, posting and publication; and lastly, evaluation by the NCIP upon submission of the final _______________ 163 Ramirez v. CA 248 SCRA 590, 596 (1995). 164 Section 53 (f), R.A. 8371. 305 VOL. 347, DECEMBER 6, 2000 305 Cruz vs.Secretaryof Environmentand Natural Resources

report of the ADO.165Section 52, R.A. 8371. With regard to ancestral lands, unless such lands are within an ancestral domain, the statute imposes the following procedural requirements: first, application; second, posting and publication; third, investigation and inspection by the ADO; fourth, delineation; lastly, evaluation by the NCIP upon submission of a report by the ADO.166Section 53, R.A. 8371. Hence, we cannot sustain the arguments of the petitioners that the law affords no protection to those who arenot indigenous peoples. Neither do the questioned sections of IPRA on the composition and powers and jurisdiction of the NCIP167Sections 40, 51, 52, 53, 54, 62and 66, R.A. No. 8371. and the application of customary law,168Sections 63 and 65, R.A. No. 8371. violate thedue process clauseof the Constitution. Petitioners point out that IPRA provides that the NCIP shall be composed exclusively of members of indigenous peoples,169Section 40. Composition.—The NCIP shall be an independent agency under the Office of the President and shall be composed of seven (7) Commissioners belonging to the ICCs/IPs, one (1) of whom shall be the Chairperson. The Commissioners shall be appoin... and that the NCIP shall have jurisdiction over all claims and disputes involving indigenous peoples,170Section 66. Jurisdiction of the NCIP.—The NCIP, through its regional offices, shall have jurisdiction over all claims and disputes involving rights of ICCs/IPs. Provided, however, That no such dispute shall be brought to the NCIP unless the parties h... including even disputes between a _______________ 165 Section 52, R.A. 8371.

166 Section 53, R.A. 8371. 167 Sections 40, 51, 52, 53, 54, 62and 66, R.A. No. 8371. 168 Sections 63 and 65, R.A. No. 8371. 169 Section 40. Composition.—The NCIP shall be an independent agency under the Office of the President and shall be composed of seven (7) Commissioners belonging to the ICCs/IPs, one (1) of whom shall be the Chairperson. The Commissioners shall be appointed by the President of the Philippines from a list of recommendees submitted by authentic ICCs/IPs: Provided, That the seven (7) Commissioners shall be appointed specifically from each of the following ethnographic areas, Region I and the Cordilleras; Region II, the rest of Luzon; Island Groups including Mindoro, Palawan, Romblon, Panay and the rest of the Visayas; Northern and Western Mindanao; Southern and Eastern Mindanao; and Central Mindanao: Provided, That at least two (2) of the seven (7) Commissioners shall be women. 170 Section 66. Jurisdiction of the NCIP.—The NCIP, through its regional offices, shall have jurisdiction over all claims and disputes involving rights of ICCs/IPs. Provided, however, That no such dispute shall be brought to the NCIP unless the parties have exhausted all remedies provided under their customary laws. For this purpose, a certification shall be issued by the Council of Elders/Leaders who participated in the attempt to settle the dispute that the same has not been resolved, which 306 306 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources

member of such communities and one who is not a member, as well as over disputes in the delineation of ancestral domains.171Section 62. Resolution of Conflicts.—In cases of conflicting interest, where there are adverse claims within the ancestral domains as delineated in the survey plan, and which can not be resolved, the NCIP shall hear and decide, after notice to the pr... Petitioners clarify that they do not claim that the members of the NCIP are incapable of being fair and impartial judges. They merely contend that the NCIP will not appear to be impartial, because a party who is not a member of an indigenous cultural community “who must defend his case against [one who is] before judges who are all members of [indigenous peoples] cannot but harbor a suspicion that they do not have thecoldneutrality of an impartial judge.”172Memorandum of Petitioners, Rollo,pp. 873-874. In addition, petitioners claim that IPRA prescribes that customary laws shall be applied first in disputes involving property, succession and land,173Section 3 (f). Customary Laws.—refer to a body of written and/or unwritten rules, usages, customs and practices traditionally and continuallyrecognized,accepted and observed by respective ICCs/IPs;x x xSec. 63. Applicable Laws.—Customary laws, ... and that such laws shall likewise be used in _______________ certification shall be a condition precedent to the filing of a petition with the NCIP. 171 Section 62. Resolution of Conflicts.—In cases of conflicting interest, where there are adverse claims within the ancestral domains as delineated in the survey plan, and which can not be resolved, the NCIP shall hear and decide, after

notice to the proper parties, the disputes arising from the delineation of such ancestral domains: Provided, That if the dispute is between and/or among ICCs/IPs regarding the traditional boundaries of their respective ancestral domains, customary process shall be followed. The NCIP shall promulgate the necessary rules and regulations to carry out its adjudicatory functions: Provided, further, That any decision, order, award or ruling of the NCIP on any ancestral domain dispute or on any matter pertaining to the application, implementation, enforcement and interpretation of this Act may be brought by Petition for Review to the Court of Appeals within fifteen (15) days from receipt of a copy thereof. 172 Memorandum of Petitioners, Rollo,pp. 873-874. 173 Section 3 (f). Customary Laws.—refer to a body of written and/or unwritten rules, usages, customs and practices traditionally and continuallyrecognized,accepted and observed by respective ICCs/IPs; xxx Sec. 63. Applicable Laws.—Customary laws, traditions and practices of the ICCs/IPs of the land where the conflict arises shall be applied first with respect to property rights, claims and ownerships, hereditary succession and settlement of land disputes. Any doubt or ambiguity in the application and interpretation of laws shall be resolved in favor of the ICCs/IPs. 307 VOL. 347, DECEMBER 6, 2000 307 Cruz vs.Secretaryof Environmentand Natural Resources

disputes involving indigenous peoples.174Sec. 65. Primacy of Customary Laws and Practices.—When disputes involve ICCs/IPs, customary laws and practices shall bemused to resolve thedispute. They assert that “[w]hen the dispute involves a member of an [indigenous cultural community and another who is not], a resolution of such a dispute based on customary laws. . . would clearly be a denial of due process . . . [because those who are not indigenous peoples] do not know what these customary laws are.”175Memorandum of Petitioners, Rollo, pp. 875-876. Petitioners’ concerns are unfounded. The fact that the NCIP is composed of members of the indigenous peoples does not mean that it (the NCIP) is incapable, or will appear to be so incapable, of delivering justice to the non-indigenous peoples. A person’s possession of the trait of impartiality desirable of a judge has nothing to do with his or her ethnic roots. In this wise, the indigenous peoples are as capable of rendering justice as the non-indigenous peoples for, certainly, the latter have no monopoly of the conceptofjustice. In any case, there are sufficient checks in the law against any abuse by the NCIP of its quasi-judicial powers. Section 67 states that the decision of the NCIP shall be appealable to the Court of Appeals by petition for review. The regular remedies under our rules of procedure are likewise available to any party aggrieved by the decision of the NCIP. Anent the use of customary laws in determining the ownership and extent of ancestral domains, suffice it to say that such is allowed under paragraph 2, Section 5 of Article XII of the Constitution. Said provision states, “The Congress may provide for the applicability of customary laws governing property

rights and relations in determining the ownership and extent of the ancestral domains.” Notably, the use of customary laws under IPRA is not absolute, for the law speaks merely of primacy of use.176R.A. 8371 states:Sec. 65. Primacy of Customary Laws and Practices.—When disputes involve ICCs/IPs, customary laws and practices shall be used to resolve the dispute. The IPRA prescribes the application of such customary laws where these _______________ 174 Sec. 65. Primacy of Customary Laws and Practices.— When disputes involve ICCs/IPs, customary laws and practices shall bemused to resolve thedispute. 175 Memorandum of Petitioners, Rollo, pp. 875-876. 176 R.A. 8371 states: Sec. 65. Primacy of Customary Laws and Practices.—When disputes involve ICCs/IPs, customary laws and practices shall be used to resolve the dispute. 308 308 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources present a workable solution acceptable to the parties, who are members of the same indigenous group. This interpretation is supported by Section 1, Rule IX of the Implementing Rules which states: RULE IX. JURISDICTION AND PROCEDURES FOR ENFORCEMENT OF RIGHTS Section 1. Primacy of Customary Law.—All conflicts related to ancestral domains and lands, involving ICCs/IPs, such as but

not limited to conflicting claims and boundary disputes, shall be resolved by the concerned parties through the application of customary laws in the area where the disputed ancestral domain or land is located. All conflicts related to the ancestral domains or lands where one of the parties is a non-ICC/IP or where the dispute could not be resolved through customary law shall be heard and adjudicated in accordance with the Rules on Pleadings, Practice and Procedures before the NCIP to be adopted hereafter. (Emphasis supplied.) The application of customary law is limited to disputes concerning property rights or relations in determining the ownership and extent of the ancestral domains,177See Secs. 62and 63, R.A. 8371. where all the parties involved are members of indigenous peoples,178Sec. 65, R.A.8371. specifically, of the same indigenous group. It therefore follows that when one of the parties to a dispute is a non-member of an indigenous group, or when the indigenous peoples involved belong to different groups, the applicationof customary law isnot required. Like any other law, the objective of IPRA in prescribing the primacy of customary law in disputes concerning ancestral lands and domains where all parties involved are indigenous peoples is justice. The utilization of customary laws is in line with the constitutional policy of recognizing the application thereof through legislation passed by Congress. Furthermore, the recognition and use of customary law is not a novel idea in this jurisdiction. Under the Civil Code, use of customary law is sanctioned, as long as it is proved as a fact according to

_______________ 177 See Secs. 62and 63, R.A. 8371. 178 Sec. 65, R.A.8371. 309 VOL. 347, DECEMBER 6, 2000 309 Cruz vs.Secretaryof Environmentand Natural Resources the rules of evidence,179The Civil Code provides:Article 12. A custom must be proved as a fact, according to the rules of evidence. and it is not contrary to law, public order or public policy.180The Civil Code provides:Article 11. Customs which are contrary to law, public order or public policyshall not be countenanced. Moreover, the Local Government Code of 1991 calls for the recognition and application of customary laws to the resolution of issues involving members of indigenous peoples. This law admits the operation of customary laws in the settling of disputes if such are ordinarily used in barangays where majority of the inhabitants are membersof indigenouspeoples.181R.A. No. 7160 reads:Sec. 399. Lupong Tagapamayapa.—x x x(f) In barangays where majority of the inhabitants are members of indigenous peoples, local systems of settling disputes of indigenous peoples, local systems of settling disputes through their c... B. Section 1, Part II, Rule VII of the Implementing Rules of IPRA does not infringe upon the President’s power of control over the Executive Department The second corollary issue is whether the Implementing Rules of IPRA violate Section 17, Article VII of the Constitution, which provides that:

The President shall have control of all the executive departments, bureaus, and offices. He shallensure that the laws be faithfully executed. The assailedprovision of the ImplementingRules provides: Rule VII. The National Commission on Indigenous Peoples (NCIP) xxx Part II: NCIP as an Independent Agency Under the Office of the President _______________ 179 The Civil Code provides: Article 12. A custom must be proved as a fact, according to the rules of evidence. 180 The Civil Code provides: Article 11. Customs which are contrary to law, public order or public policyshall not be countenanced. 181 R.A. No. 7160 reads: Sec. 399. Lupong Tagapamayapa.— xxx (f) In barangays where majority of the inhabitants are members of indigenous peoples, local systems of settling disputes of indigenous peoples, local systems of settling disputes through their councils of datus or elders shall be recognized without prejudice to theapplicable provisions of this Code. 310 310 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources

Section 1. The NCIP is the primary agency of government for the formulation and implementation of policies, plans and programs to recognize, promote and protect the rights and wellbeing of indigenous peoples. It shall be an independent agency under the Office of the President. As such, the administrative relationship of the NCIP to the Office of the President is characterized as a lateral but autonomous relationship for purposes of policy and program coordination. This relationship shall be carried out through a system of periodic reporting. Matters of day-to-day administration or all those pertaining to internal operations shall be left to the discretion of the Chairperson of the Commission, as the Chief Executive Officer. Petitioners asseverate that the aforecited rule infringes upon the power of control of the President over the NCIP by characterizing the relationship of the NCIP to the Office of the President as “lateral but autonomous . . . for purposes of policy and program coordination.” Although both Section 40 of the IPRA and Section 1, Part II, Rule VII of the Implementing Rules characterize the NCIP as an independent agency under the Office of the President, such characterization does not remove said body from the President’s control and supervision. The NCIP has been designated under IPRA as the primary government agency responsible for the formulation and implementation of policies, plans and programs to promote and protect the rights and well being of the indigenous peoples and the recognition of their ancestral domain as well as their rights thereto.182Sec. 38, R.A.8371. It has been granted administrative,183Sec. 44 (a), (b), (c), (d), (f), (g), (h), (i), (j),

(k), (1), (m), (n), (p), (q), R.A. 8371. quasi-legislative184Sec. 44 (o), R.A. 8371. and quasi-judicial powers185Secs. 44 (e),51-54, 62, R.A.8371. to carry out its mandate. The diverse nature of the NCIP’s functions renders it impossible to place said agency entirely under the control of only one branch of government and this, apparently, is the reason for its characterization by Congress as an independent agency. An “independent agency” is defined as _______________ 182 Sec. 38, R.A.8371. 183 Sec. 44 (a), (b), (c), (d), (f), (g), (h), (i), (j), (k), (1), (m), (n), (p), (q), R.A. 8371. 184 Sec. 44 (o), R.A. 8371. 185 Secs. 44 (e),51-54, 62, R.A.8371. 311 VOL. 347, DECEMBER 6, 2000 311 Cruz vs.Secretaryof Environmentand Natural Resources an administrative body independent of the executive branch or one not subject to a superior head of department, as distinguished from a “subordinate agency” or an administrative body whose action is subjectto administrative review or revision.1861 AM JUR 2D, Administrative Law, § 55. That Congress did not intend to place the NCIP under the control of the President in all instances is evident in the IPRA itself, which provides that the decisions of the NCIP in the exercise of its quasi-judicial functions shall be appealable to the Court of Appeals,187Sec. 62, R.A.8371. like those of the National Labor Relations Commission (NLRC) and the

Securities and Exchange Commission (SEC). Nevertheless, the NCIP, although independent to a certain degree, was placed by Congress “under the office of the President” and, as such, is still subject to the President’s power of control and supervision granted under Section 17, Article VII of the Constitution188Sec. 17. The President shall have control of all the executive departments, bureaus, and offices. He shall ensure that the laws be faithfully executed. with respect to its performance of administrative functions, such as the following: (1) the NCIP must secure the President’s approval in obtaining loans to finance its projects;189Sec. 44 (f), R.A. 8371. (2) it must obtain the President’s approval for any negotiation for funds and for the acceptance of gifts and/or properties in whatever form and from whatever source;190Sec. 44 (g), R.A. 8371. (3) the NCIP shall submit annual reports of its operations and achievements to the President, and advise the latter on all matters relating to the indigenous peoples;191Sec. 44 (j), RA. 8371. and (4) it shall exercise such other powers as may be directed by the President.192Sec. 44 (p), R.A. 8371. The President is also given the power to appoint the Commissioners of the NCIP193Sec. 40, R.A.8371. as well as to remove them from office for cause motu proprio or upon the recommendation of any indigenous community.194Sec. 42, R.A.8371. _______________ 186 1 AM JUR 2D, Administrative Law, § 55. 187 Sec. 62, R.A.8371. 188 Sec. 17. The President shall have control of all the executive departments, bureaus, and offices. He shall ensure that the laws be faithfully executed.

189 Sec. 44 (f), R.A. 8371. 190 Sec. 44 (g), R.A. 8371. 191 Sec. 44 (j), RA. 8371. 192 Sec. 44 (p), R.A. 8371. 193 Sec. 40, R.A.8371. 194 Sec. 42, R.A.8371. 312 312 SUPREME COURT REPORTS ANNOTATED Cruz vs.Secretaryof Environmentand Natural Resources To recapitulate: (1) The provisions of the IPRA (specifically Sections 3, paragraphs [a] and [b], 5, 6, 7, and 8) affirming the ownership by the indigenous peoples of their ancestral lands and domains by virtue of native title do not diminish the State’s ownership of lands of the public domain, because said ancestral lands and domains are considered as private land, and never to have been part of the public domain, following the doctrine laid down in Cariño vs. Insular Government;195Supranote 75. (2) The constitutional provision vesting ownership over minerals, mineral lands and other natural resources in the State is not violated by Sections 3, 5, 7, 56, 57, 58 and 59 of the IPRA which grant certain rights to the indigenous peoples over the natural resources found within the ancestral domains, e.g., to benefit from and share in the profits from the allocation and utilization of the same, as well as priority rights in the harvesting, extraction, development or exploitation thereof. The State retains full control over the exploration, development and utilization of natural resources even with the grant of said

rights to the indigenous peoples, through the imposition of requirements and conditions for the utilization of natural resources under existing laws, such as the Small-Scale Mining Act of 1991196R.A. 7076. and the Philippine Mining Act of 1995.197R.A. 7942. Moreover, the rights granted to indigenous peoples for the utilization of natural resources within their ancestral domains merely amplify what has been earlier granted to them under the aforesaid laws; (3) While the IPRA recognizes the rights of indigenous peoples with regard to their ancestral lands and domains, it also protects the vested rights of persons, whether indigenous or non-indigenous peoples, who may have acquired rights of ownership lands or rights to explore and exploit natural resources within the ancestral lands and domains;198Section 56, R.A. 8371. _______________ 195 Supranote 75. 196 R.A. 7076. 197 R.A. 7942. 198 Section 56, R.A. 8371. 313 VOL. 347, DECEMBER 6, 2000 313 Cruz vs. Secretary of Environmentand Natural Resources (4) The Due Process Clause of the Constitution is not violated by the provisions (Sections 40, 51-54, 62, 63, 65 and 66) of the IPRA which, among others, establish the composition of the NCIP, and prescribe the application of customary law in certain disputes involving indigenous peoples. The fact the NCIP is

composed wholly of indigenous peoples does not mean that it is incapable of being impartial. Moreover, the use of customary laws is sanctioned by paragraph 2, Section 5 ofArticle XII ofthe Constitution;and (5) The provision of the Implementing Rules characterizing the NCIP as an independent agency under the Office of the President does not infringe upon the President’s power of control under Section 17, Article VII of the Constitution, since said provision as well as Section 40 of the IPRA expressly places the NCIP under the Office of the President, and therefore under the President’s control and supervision with respect to its administrative functions. However, insofar as the decisions of the NCIP in the exercise of its quasi-judicial powers are concerned, the same are reviewable by the CourtofAppeals, like those of the NLRC and the SEC. In viewof theforegoing, I vote to DISMISS thepetition. SEPARATE OPINION MENDOZA, J.: This suit was instituted to determine the constitutionality of certain provisions of R.A. No. 8371, otherwise known as the Indigenous Peoples Rights Act. Petitioners do not complain of any injury as a result of the application of the statute to them. They assert a right to seek an adjudication of constitutional questions as citizens and taxpayers, upon the plea that the questions raised are of “transcendental importance.” The judicial power vested in this Court by Art. VIII, §1 extends only to cases and controversies for the determination of such proceedings as are established by law for the protection or enforcement of rights, or the prevention, redress or punishment

of wrongs.1Lopez v. Roxas, 17 SCRA 756, 761 (1966). In this case, the purpose of the suit is not to enforce a _______________ 1 Lopez v. Roxas, 17 SCRA 756, 761 (1966). 314 314 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environmentand Natural Resources property right of petitioners against the government and other respondents or to demand compensation for injuries suffered by them as a result of the enforcement of the law, but only to settle what they believe to be the doubtful character of the law in question. Any judgment that we render in this case will thus not conclude or bind real parties in the future, when actual litigation will bring to the Court the question of the constitutionality of such legislation. Such judgment cannot be executed as it amounts to no more than an expression of opinion upon the validity of the provisions of the law in question.2Muskrat v. United States, 279 U.S. 346, 55 L.Ed. 246 (1911). I do not conceive it to be the function of this Court under Art. VIII, §1 of the Constitution to determine in the abstract whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the legislative and executive departments in enacting the IPRA. Our jurisdiction is confined to cases or controversies. No one reading Art. VIII, §5 can fail to note that, in enumerating the matters placed in the keeping of this Court, it uniformly beginswith the phrase “all cases . . .”

The statement that the judicial power includes the duty to determine whether there has been a grave abuse of discretion was inserted in Art. VIII, §1 not really to give the judiciary a roving commission to right any wrong it perceives but to preclude courts from invoking the political question doctrine in order to evade the decision of certain cases even where violations of civil liberties are alleged. The statement is based on the ruling of the Court in Lansang v. Garcia,342 SCRA 448, 481 (1971) (emphasis on the original). in which this Court, adopting the submission of the Solicitor General, formulated the following test of its jurisdiction in such cases: [J]udicial inquiry into the basis of the questioned proclamation can go no further than to satisfy the Court not that the President’s decision is correct and that public safety was endangered by the rebellion and justified the suspension of the writ, but that in suspending the writ, the President did not act arbitrarily. _______________ 2 Muskrat v. United States, 279 U.S. 346, 55 L.Ed. 246 (1911). 3 42 SCRA 448, 481 (1971) (emphasis on the original). 315 VOL. 347, DECEMBER 6, 2000 315 Cruz vs. Secretary of Environment and Natural Resources That is why Art. VII, §18 now confers on any citizen standing to question the proclamation of martial law or the suspension of the privilege of the writ of habeas corpus. It is noteworthy that Chief Justice Roberto Concepcion, who chaired the

Committee on the Judiciary of the Constitutional Commission, was the author of the opinions of the Court in Lopez v. Roxas and Lansang v. Garcia. Indeed, the judicial power cannot be extended to matters which do not involve actual cases or controversies without upsetting the balance of power among the three branches of the government and erecting, as it were, the judiciary, particularly the Supreme Court, as a third branch of Congress, with power not only to invalidate statutes but even to rewrite them. Yet that is exactly what we would be permitting in this case were we to assume jurisdiction and decide wholesale the constitutional validity of the IPRA contrary to the established rule that a party can question the validity of a statute only if, as applied to him, it is unconstitutional. Here the IPRA is sought to be declared void on its face. The only instance where a facial challenge to a statute is allowed is when it operates in the area of freedom of expression. In such instance, the overbreadth doctrine permits a party to challenge the validity of a statute even though as applied to him it is not unconstitutional but it might be if applied to others not before the Court whose activities are constitutionally protected. Invalidation of the statute “on its face” rather than “as applied” is permitted in the interest of preventing a “chilling” effect on freedom of expression. But in other cases, even if it is found that a provision of a statute is unconstitutional, courts will decree only partial invalidity unless the invalid portion is so far inseparable from the rest of the statute that a declaration of partial invalidity is not possible. For the Court to exercise its power of review when there is no case or controversy is not only to act without jurisdiction but

also to run the risk that, in adjudicating abstract or hypothetical questions, its decision will be based on speculation rather than experience. Deprived of the opportunity to observe the impact of the law, the Court is likely to equate questions of constitutionality with questions of wisdom and is thus likely to intrude into the domain of legislation. Constitutional adjudication, it cannot be too often repeated, cannot take place in a vacuum. 316 316 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environmentand Natural Resources Some of the brethren contend that not deciding the constitutional issues raised by petitioners will be a “galling cop out”4Panganiban, J., Separate Opinion, p. 2. or an “advocacy of timidity, let alone isolationism.”5Vitug, J., Separate Opinion, p. 1. To decline the exercise of jurisdiction in this case is no more a “cop out” or a sign of “timidity” than it was for Chief Justice Marshall in Marbury v. Madison61 Cranch 137, 2 L.Ed. 60 (1803). to hold that petitioner had the right to the issuance of his commission as justice of the peace of the District of Columbia only to declare in the end that after all mandamus did not lie, because §13 of the Judiciary Act of 1789, which conferred original jurisdiction on the United States Supreme Court to issue the writ of mandamus, was unconstitutional as the court’s jurisdiction is mainly appellate. Today Marbury v. Madison is remembered for the institution of the power of judicial review, and so that there can be no doubt of this power of our Court, we in this country have enshrined

its principle in Art. VIII, §1. Now, the exercise of judicial review can result either in the invalidation of an act of Congress or in upholding it. Hence, the checking and legitimating functions of judicial review so well mentioned in thedecisions7Occena v. Commission on Elections; Gonzales v. The National Treasurer, 104 SCRA 1 (1981); Mitra v. Commission on Elections, 104 SCRA 59 (1981). of this Court. To decline, therefore, the exercise of jurisdiction where there is no genuine controversy is not to show timidity but respect for the judgment of a coequal department of government whose acts, unless shown to be clearly repugnant to the fundamental law, are presumed to be valid. The polestar of constitutional adjudication was set forth by Justice Laurel in the Angara case when he said that “this power of judicial review is limited to actual cases and controversies to be exercised after full opportunity of argument by the parties, and limited further to the constitutional question raised or the very lis mota, presented.”8Angara v. Electoral Commission, 63 Phil. 139, 158 (1936). For the exercise of this power is legitimate only in the last resort, and as a necessity in the _______________ 4 Panganiban, J., Separate Opinion, p. 2. 5 Vitug, J., Separate Opinion, p. 1. 6 1 Cranch 137, 2 L.Ed. 60 (1803). 7 Occena v. Commission on Elections; Gonzales v. The National Treasurer, 104 SCRA 1 (1981); Mitra v. Commission on Elections, 104 SCRA 59 (1981). 8 Angara v. Electoral Commission, 63 Phil. 139, 158 (1936). 317

VOL. 347, DECEMBER 6, 2000 317 Cruz vs. Secretary of Environmentand Natural Resources determination of real, earnest, and vital controversy between individuals.9Philippine Association of Colleges and Universities v. Secretary of Education, 97 Phil. 806 (1955). Until, therefore, an actual case is brought to test the constitutionality of the IPRA, the presumption of constitutionality, which inheres in every statute, must be accorded to it. Justice Kapunan, on the other hand, cites the statement in Severino v. Governor General,1016 Phil. 366 (1913). reiterated in Tañada v. Tuvera,11136 SCRA 27 (1985). that “when the question is one of public right and the object of mandamus to procure the enforcement of a public duty, the people are regarded as the real party in interest, and the relator at whose instigation the proceedings are instituted need not show that he has any legal or special interest in the result, it being sufficient that he is a citizen and as such is interested in the execution of the laws.” On the basis of this statement, he argues that petitioners have standing tobring theseproceedings.12Kapunan, J., Separate Opinion, pp. 21-23. In Severino v. Governor General,13Supranote 10. the question was whether mandamus lay to compel the Governor General to call a special election on the ground that it was his duty to do so. The ruling was that he did not have such a duty. On the other hand, although mandamus was issued in Tañada v. Tuvera, it was clear that petitioners had standing to bring the suit, because the public has a right to know and the failure of respondents to publish all decrees and other presidential

issuances in the Official Gazette placed petitioners in danger of violating those decrees and issuances. But, in this case, what public right is there for petitioners to enforce when the IPRA does not apply to them except in general and in common withother citizens? For the foregoing reasons I vote to dismiss the petition in this case. _______________ 9 Philippine Association of Colleges and Universities v. Secretary of Education, 97 Phil. 806 (1955). 10 16 Phil. 366 (1913). 11 136 SCRA 27 (1985). 12 Kapunan, J., Separate Opinion, pp. 21-23. 13 Supranote 10. 318 318 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environmentand Natural Resources SEPARATE OPINION (CONCURRING AND DISSENTING) PANGANIBAN, J.: I concur with the draft ponencia of Mr. Justice Santiago M. Kapunan in its well-crafted handling of the procedural or preliminary issues. In particular, I agree that petitioners have shown an actual case or controversy involving at least two constitutional questions of transcendental importance,1Kilosbayan v. Morato, 250 SCRA 130, 140, November 16, 1995; Association of Small Landowners v. Secretary of Agrarian Reform, 175 SCRA 343, 365, July 14,

1989; Antonio v. Dinglasan, 84 Phil. 368 (1949). which deserve judicious disposition on the merits directly by the highest court of the land.2Tañada v. Angara, 272 SCRA 18, 46, May 2, 1997; Santiago v. Comelec, 270 SCRA 106, 123-124, March 19, 1997; Basco v. PAGCOR, 197 SCRA 52, 60, May 14, 1991. Further, I am satisfied that the various aspects of this controversy have been fully presented and impressively argued by the parties. Moreover, prohibition and mandamus are proper legal remedies3Tañada v. Angara, ibid. to address the problems raised by petitioners. In any event, this Court has given due course to the Petition, heard oral arguments and required the submission of memoranda. Indeed, it would then be a galling copout for us to dismiss it on mere technical or procedural grounds. Protectionof Indigenous Peoples’ Rights Must Be Within the Constitutional Framework With due respect, however, I dissent from the ponencia’s resolution of the two main substantive issues, which constitute the core of this case. Specifically, I submit that Republic Act (RA) No. 8371, otherwise known as the Indigenous Peoples’ Rights Act (IPRA) of 1997, violates and contravenes the Constitution of the Philippines insofar as— _______________ 1 Kilosbayan v. Morato, 250 SCRA 130, 140, November 16, 1995; Association of Small Landowners v. Secretary of Agrarian Reform, 175 SCRA 343, 365, July 14, 1989; Antonio v. Dinglasan, 84 Phil. 368 (1949). 2 Tañada v. Angara, 272 SCRA 18, 46, May 2, 1997; Santiago v. Comelec, 270 SCRA 106, 123-124, March 19, 1997; Basco v. PAGCOR, 197 SCRA 52, 60, May 14, 1991.

3 Tañada v. Angara, ibid. 319 VOL. 347, DECEMBER 6, 2000 319 Cruz vs. Secretary of Environmentand Natural Resources 1. It recognizes or, worse, grants rights of ownership over lands of the public domain, waters, xxx and other natural resources” which, under Section 2, Article XII of the Constitution, “are owned by the State” and “shall not be alienated.” I respectfully reject the contention that “ancestral lands and ancestral domains are not public lands and have never been owned by the State.” Such sweeping statement places substantial portions of Philippine territory outside the scope of the Philippine Constitution and beyond the collective reach of the Filipino people. As will be discussed later, these real properties constitute a third of the entire Philippine territory; and the resources, 80 percent of the nation’s natural wealth. 2. It defeats, dilutes or lessens the authority of the State to oversee the “exploration, development, and utilization of natural resources,” which the Constitution expressly requires to “be under the full control and supervisionof the State.” True, our fundamental law mandates the protection of the indigenous cultural communities’ right to their ancestral lands, but such mandate is “subject to the provisions of this Constitution.”4 I concede that indigenous cultural communities and indigenous peoples (ICCs/IPs) may be accorded preferential rights to the beneficial use of public domains, as well as priority in the exploration, development and utilization

of natural resources. Such privileges, however, must be subject to the fundamental law. Consistent with the social justice principle of giving more in law to those who have less in life, Congress in its wisdom may grant preferences and prerogatives to our marginalized brothers and sisters, subject to the irreducible caveat that the Constitution must be respected. I personally believe in according every benefit to the poor, the oppressed and the disadvantaged, in order to empower them to equally enjoy the blessings of nationhood. I cannot, however, agree to legitimize perpetual inequality of access to the nation’s wealth or to stamp the Court’s imprimatur on a law that offends and degrades the repository of the very authority of this Court—the Constitution of the Philippines. _______________ 4 §5, Art. XII, 1987 Constitution. 320 320 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environmentand Natural Resources The Constitution Is a Compact My basic premise is that the Constitution is the fundamental law of the land, to which all other laws must conform.516 CJS ... It is the people’s quintessential act of sovereignty, embodying the principles upon which the State and the government are founded.616 Am Jur 2d ... Having the status of a supreme and all-encompassing law, it speaks for all the people all the time, not just for the majority or for the minority at intermittent times. Every constitution is a compact made by

and among the citizens of a State to govern themselves in a certain manner.7Ibid. Truly, the Philippine Constitution is a solemn covenant made by all the Filipinos to govern themselves. No group, however blessed, and no sector, however distressed, is exempt from its compass. RA 8371, which defines the rights of indigenous cultural communities and indigenous peoples, admittedly professes a laudable intent. It was primarily enacted pursuant to the state policy enshrined in our Constitution to “recognize and promote the rights of indigenous cultural communities within the framework of national unity and development.”8§22, Art. II of the Constitution. Though laudable and well-meaning, this statute, however, has provisions that run directly afoul of our fundamental law from which it claims origin and authority. More specifically, Sections 3(a) and (b), 5, 6, 7(a) and (b), 8 and other related provisions contravene the Regalian Doctrine—the basic foundationof the State’s property regime. Public Domains and NaturalResources Are Ownedbythe State and Cannot Be Alienatedor Ceded Jura regalia was introduced into our political system upon the “discovery” and the “conquest” of our country in the sixteenth century. Under this concept, the entire earthly territory known as the _______________ 5 16 CJS §3. 6 16 Am Jur 2d §2. 7 Ibid. 8 §22, Art. II of the Constitution. 321

VOL. 347, DECEMBER 6, 2000 321 Cruz vs. Secretary of Environmentand Natural Resources Philippine Islands was acquired and held by the Crown of Spain. The King, as then head of State, had the supreme power or exclusive dominion over all our lands, waters, minerals and other natural resources. By royal decrees, though, private ownership of real property was recognized upon the showing of (1) a title deed; or (2) ancient possession in the concept of owner, according to which a title could be obtained by prescription.9Abaoag v. Director of Lands, 45 Phil. 518 (1923), cited in petitioners’ Memorandum. Refusal to abide by the system and its implementing laws meant the abandonment or waiver of ownership claims. By virtue of the 1898 Treaty of Paris, the Philippine archipelago was ceded to the United States. The latter assumed administration of the Philippines and succeeded to the property rights of the Spanish Crown. But under the Philippine Bill of 1902, the US Government allowed and granted patents to Filipino and US citizens for the “free and open xxx exploration, occupation and purchase [of mines] and the land in which they are found.”10Soledad M. Cagampang-de Castro, The Economic Policies on Natural Resources Under the 1987 Constitution Revisited,” Journal of the Integrated Bar of the Philippines,Vol. XXV, Nos. 3 & 4 (1999), p. 51. To a certain extent, private individuals were entitled to own, exploit and dispose of mineral resources and other rights arising from mining patents. This US policy was, however, rejected by the Philippine Commonwealth in 1935 when it crafted and ratified our first

Constitution. Instead, the said Constitution embodied the Regalian Doctrine, which more definitively declared as belonging to the State all lands of the public domain, waters, minerals and other natural resources.11In a republican system of government, the concept of jura regalia is stripped of royal overtones; ownership is vested in the State, instead. (Joaquin G. Bernas, SJ, The Constitution of the Republic of the Philippines: A Commentary, 1996 ed.,pp. 1009-1010.) Although respecting mining patentees under the Philippine Bill of 1902, it restricted the further exploration, development and utilization of natural resources, both as to who might be entitled to undertake such activities and for how long. The pertinent provision reads: _______________ 9 Abaoag v. Director of Lands, 45 Phil. 518 (1923), cited in petitioners’ Memorandum. 10 Soledad M. Cagampang-de Castro, The Economic Policies on Natural Resources Under the 1987 Constitution Revisited,” Journal of the Integrated Bar of the Philippines,Vol. XXV, Nos. 3 & 4 (1999), p. 51. 11 In a republican system of government, the concept of jura regalia is stripped of royal overtones; ownership is vested in the State, instead. (Joaquin G. Bernas, SJ, The Constitution of the Republic of the Philippines: A Commentary, 1996 ed.,pp. 1009-1010.) 322 322 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environment and Natural Resources

“SECTION 1. [Art. XIII]. 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 license, concession, or lease for the exploitation, development, or utilization of any of the natural resources shall be granted for a period exceeding twenty-five years, renewable for another twenty-five years, except as to water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, in which cases beneficial use may be the measure and the limit of the grant.” The concept was carried over in the 1973 and the 1987 Constitutions. Hence, Sections 8 and 9, Article XIV of the 1973 Constitution, state: “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, 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. SEC. 9. The disposition, exploration, development, exploitation, or utilization of any of the natural resources of the Philippines 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. The National Assembly, in the national interest, may allow such citizens, corporations, or associations to enter into service contracts for financial, technical, management, or other forms of assistance with any foreign person or entity for the exploration, development, exploitation, or utilization of any of the natural resources. Existing valid and binding service 323 VOL. 347, DECEMBER 6, 2000 323 Cruz vs. Secretary of Environment and Natural Resources contracts for financial, technical, management, or other forms of assistance are hereby recognized as such.” Similarly, Section 2, Article XII of the 1987 Constitution, provides: “SEC. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the

exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizen, or corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, beneficial use may be the measure and limit of the grant. “The State shall protect the nation’s marine wealth in its archipelagic waters, territorial sea, and exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens. “The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as well as cooperative fish farming, with priority to subsistence fishermen and fish workers in rivers, lakes, bays and lagoons. “The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions provided by law, based on real contributions to the economic growth and general welfare of the country. In such agreements, the State shall promote the development and use of local scientific and technical resources.

‘The President shall notify the Congress of every contract entered into in accordance with this provision, within thirty days from its execution.” The adoption of the Regalian Doctrine by the Philippine Commonwealth was initially impelled by the desire to preserve the 324 324 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environmentand Natural Resources nation’s wealth in the hands of the Filipinos themselves. Nationalism was fervent at the time, and our constitutional framers decided to embody the doctrine in our fundamental law. Charging the State with the conservation of the national patrimony was deemed necessary for Filipino posterity. The arguments in support of the provision are encapsulated by Aruego as follows: “[T]he natural resources, particularly the mineral resources which constituted a great source of wealth, belonged not only to the generation then but also to the succeeding generation and consequently should be conserved for them.”12II Aruego, The Framing of the Philippine Constitution 603, quoted in Bernas,supra,p. 1010. Thus, after expressly declaring that all lands of the public domain, waters, minerals, all forces of energy and other natural resources belonged to the Philippine State, the Commonwealth absolutely prohibited the alienation of these natural resources. Their disposition, exploitation, development and utilization were further restricted only to Filipino citizens and entities that were 60 percent Filipino-owned. The present Constitution even

goes further by declaring that such activities “shall be under the full control and supervision of the State.” Additionally, it enumerates land classifications and expressly states that only agricultural lands of the public domain shall be alienable. We quote below the relevant provision:13§3, Art. XII, 1987 Constitution. “SEC. 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 to 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. x x x.” Mr. Justice Kapunan upholds private respondents and intervenors in their claim that all ancestral domains and lands are outside _______________ 12 II Aruego, The Framing of the Philippine Constitution 603, quoted in Bernas,supra,p. 1010. 13 §3, Art. XII, 1987 Constitution. 325 VOL. 347, DECEMBER 6, 2000 325 Cruz vs. Secretary of Environmentand Natural Resources the coverage of public domain; and that these properties— including forests, bodies of water, minerals and parks found

therein—are private and have never been part of the public domain, because they have belonged to the indigenous people’s ancestors since time immemorial. I submit, however, that all Filipinos, whether indigenous or not, are subject to the Constitution. Indeed, no one is exempt from its all-encompassing provisions. Unlike the 1935 Charter, which was subject to “any existing right, grant, lease or concession,” the 1973 and the 1987 Constitutions spoke in absolute terms. Because of the State’s implementation of policies considered to be for the common good, all those concerned have to give up, under certain conditions, evenvested rights of ownership. In Republic v. Court of Appeals,14160 SCRA 228, 239, April 15, 1988. this Court said that once minerals are found even in private land, the State may intervene to enable it to extract the minerals in the exercise of its sovereign prerogative. The land is converted into mineral land and may not be used by any private person, including the registered owner, for any other purpose that would impede the mining operations. Such owner would be entitled to just compensation for the loss sustained. In Atok Big-Wedge Mining Company v. IAC,15261 SCRA 528, September 9,1996. the Court clarified that while mining claim holders and patentees have the exclusive right to the possession and enjoyment of the located claim, their rights are not absolute or strictly one of ownership. Thus, failure to comply with the requirements of pertinent mining laws was deemed an abandonment or awaiverof the claim. Verily, as petitioners undauntedly point out, four hundred years of Philippine political history cannot be set aside or ignored by IPRA, however well-intentioned it may be. The perceived lack

of understanding of the cultural minorities cannot be remedied by conceding the nation’s resources to their exclusive advantage. They cannot be more privileged simply because they have chosen to ignore state laws. For having chosen not to be enfolded by statutes _______________ 14 160 SCRA 228, 239, April 15, 1988. 15 261 SCRA 528, September 9,1996. 326 326 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environmentand Natural Resources on perfecting land titles, ICCs/IPs cannot now maintain their ownership of lands and domains by insisting on their concept of “native title” thereto. It would be plain injustice to the majority of Filipinos who have abided by the law and, consequently, deserve equal opportunity to enjoy the country’s resources. Respondent NCIP claims that IPRA does not violate the Constitution, because it does not grant ownership of public domains and natural resources to ICCs/IPs. “Rather, it recognizes and mandates respect for the rights of indigenous peoples over their ancestral lands and domains that had never been lands of the public domain.”16NCIP’s Memorandum, p. 24. I say, however, that such claim finds no legal support. Nowhere in the Constitution is there a provision that exempts such lands and domains from its coverage. Quite the contrary, it declares that all lands of the public domain and natural resources “are owned by the State”; and “with the exception of

agricultural lands, all other natural resources shallnotbe alienated.” As early as Oh Cho v. Director of Lands,1775 Phil. 890, 892, August 31, 1946. the Court declared as belonging to the public domain all lands not acquired from the government, either by purchase or by grant under laws, orders or decrees promulgated by the Spanish government; or by possessory information under Act 496 (MortgageLaw). On the other hand, Intervenors Flavier, et al.18Intervenors’Memorandum, pp; 33 et seq. differentiate the concept of ownership of ICCs/IPs from that which is defined in Articles 427 and 428 of the Civil Code. They maintain that “[t]here are variations among ethnolinguistic groups in the Cordillera, but a fair synthesis of these refers to 'xxx the tribal right to use the land or to territorial control xxx, a collective right to freely use the particular territory x x x [in]the concept oftrusteeship.’” In other words, the “owner” is not an individual. Rather, it is a tribal community that preserves the property for the common but nonetheless exclusive and perpetual benefit of its members, without the attributes of alienation or disposition. This concept, however, still perpetually withdraws such property from the control of _______________ 16 NCIP’s Memorandum, p. 24. 17 75 Phil. 890, 892, August 31, 1946. 18 Intervenors’Memorandum, pp; 33 et seq. 327 VOL. 347, DECEMBER 6, 2000 327

Cruz vs. Secretary of Environmentand Natural Resources the State and from its enjoyment by other citizens of the Republic. The perpetual and exclusive character of private respondents’ claims simplymakes them repugnant to basic fairness andequality. Private respondents and intervenors trace their “ownership” of ancestral domains and lands to the pre-Spanish conquest. I should say that, at the time, their claims to such lands and domains was limited to the surfaces thereof since their ancestors were agriculture-based. This must be the continuing scope of the indigenous groups’ ownership claims: limited to land, excluding the natural resources found within. In any event, if all that the ICCs/IPs demand is preferential use—not ownership—of ancestral domains, then I have no disagreement. Indeed, consistent with the Constitution is IPRA’s Section 5719“SEC. 57. Natural Resources within Ancestral Domains.—The ICCs/IPs shall have priority rights in the harvesting, extraction, development or exploitation of any natural resources within the ancestral domains, x x x.—without the too-broad definitions under Section 3 (a) and (b)—insofar as it grants them priority rights in harvesting, extracting, developing or exploiting natural resources within ancestral domains. The concerted effort to malign the Regalian Doctrine as a vestige of the colonial past must fail. Our Constitution vests the ownership of natural resources, not in colonial masters, but in all the Filipino people. As the protector of the Constitution, this Court has the sworn duty to uphold the tenets of that

Constitution—not to dilute, circumventorcreate exceptions to them. Cariño v. InsularGovernment Was Modified by the Constitution In this connection, I submit that Cariño v. Insular Government2041 Phil. 935, February 23, 1909. has been modified or superseded by our 1935, 1973 and 1987 Constitutions. Its ratio should be understood as referring only to a means by which public agricultural land may be acquired by citizens. I must also stress that the claim of Petitioner Cariño refers to _______________ 19 “SEC. 57. Natural Resources within Ancestral Domains.— The ICCs/IPs shall have priority rights in the harvesting, extraction, development or exploitation of any natural resources within the ancestral domains, x x x. 20 41 Phil. 935, February 23, 1909. 328 328 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environmentand Natural Resources land ownership only, not to the natural resources underneath or to the aerial and cosmic space above. Significantly, in Director of Land Management v. Court of Appeals,21172 SCRA 455, 463, April 18, 1989, per Gutierrez, Jr., J. a Decision handed down after our three Constitutions had taken effect, the Court rejected a cultural minority member’s registration of land under CA 141, Section 48 (c).22(c) Members of the national cultural minorities who by themselves

or through their predecessors-in-interest have been in open, continuous, exclusive and notorious possession and occupation of lands of the public domain suitable to agriculture, whether disp... The reason was that the property fell within the Central Cordillera Forest Reserve. This Court quoted with favor the solicitor general’s following statements: “3. The construction given by respondent Court of Appeals to the particular provision of law involved, as to include even forest reserves as susceptible to private appropriation, is to unconstitutionally apply such provision. For, both the 1973 and present Constitutions do not include timber or forest lands as alienable. Thus, Section 8, Article XIV of 1973 Constitution states that Svith the exception of agricultural, industrial or commercial, residential and resettlement lands of the public domain, natural resources shall not be alienated.’ The new Constitution, in its Article XII, Section 2, also expressly states that “with the exception of agricultural lands, all other natural resources shall not be alienated.’” Just recently, in Gordula v. Court of Appeals,23284 SCRA 617, 633, January22, 1998, per Puno,J. the Court also stated that “forest land is incapable of registration, and its inclusion in a title nullifies that title. To be sure, the defense of indefeasibility of a certificate of title issued pursuant to a free patent does not lie against the state in an action for reversion of the land covered thereby when such land is a part of a public forest or of a forest reservation, the patent covering forest land being void ab initio.” _______________ 21 172 SCRA 455, 463, April 18, 1989, per Gutierrez, Jr., J.

22 (c) Members of the national cultural minorities who by themselves or through their predecessors-in-interest have been in open, continuous, exclusive and notorious possession and occupation of lands of the public domain suitable to agriculture, whether disposable or not, under a bona fide claim of ownership for at least 30 years shall be entitled to the rights granted in subsection (b) hereof. (As amended by R.A. No. 3872, section 1, approved June 18, 1964).” 23 284 SCRA 617, 633, January22, 1998, per Puno,J. 329 VOL. 347, DECEMBER 6, 2000 329 Cruz vs. Secretary of Environmentand Natural Resources RA 8371 Violates the Inalienability ofNatural Resources and of Public Domains The ponencia theorizes that RA 8371 does not grant to ICCs/IPs ownership of the natural resources found within ancestral domains. However, a simple reading of the very wordings of the law belies this statement. Section 3 (a)24“a) Ancestral Domains—Subject to Section 56 hereof, refers to all areas generally belonging to ICCs/IPs comprising lands, inland waters, coastal areas, and natural resources therein, held under a claim of ownership, occupied or possessed by ICC... defines and delineates ancestral domains as “all areas generally belonging to ICCs/IPs comprising lands, inland waters, coastal areas, and natural resources therein, held under a claim of ownership, occupied or possessed by ICCs/IPs, by themselves or through their ancestors, communally or individually since time immemorial,

continuously to the present except when interrupted by war, force majeure or displacement x xx. It shall include ancestral lands, forests, pasture, residential, agricultural, and other lands individually owned whether alienable and disposable or otherwise, hunting grounds x x x bodies of water, mineral and other natural resources x x x.” (Emphasis ours.) Clearly, under the above-quoted provision of IPRA, ancestral domains of ICCs/IPs encompass the natural resources found _______________ 24 “a) Ancestral Domains—Subject to Section 56 hereof, refers to all areas generally belonging to ICCs/IPs comprising lands, inland waters, coastal areas, and natural resources therein, held under a claim of ownership, occupied or possessed by ICCs/IPs, by themselves or through their ancestors, communally or individually since time immemorial, continuously to the present except when interrupted by war, force majeure or displacement by force, deceit, stealth or as a consequence of government projects or any other voluntary dealings entered into by government and private individuals/corporations, and which are necessary to ensure their economic, social and cultural welfare. It shall include ancestral lands individually owned whether alienable and disposable or otherwise, hunting grounds, burial grounds, worship areas, bodies of water, mineral and other natural resources, and lands which may no longer be exclusively occupied by ICCs/IPs but from which they traditionally had access to for their subsistence and traditional activities, particularly the home ranges of ICCs/IPs who are still nomadic and/or shiftingcultivators.”

330 330 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environmentand Natural Resources therein. And Section 7 guarantees recognition and protection of their rightsofownership andpossessionover such domains. The indigenous concept of ownership, as defined under Section 5 of the law, “holds that ancestral domains are the ICC’s/IP’s private but community property which belongs to all generations and therefore cannot be sold, disposed or destroyed.” Simply put, the law declares that ancestral domains, including the natural resources found therein, are owned by ICCs/IPs and cannot be sold, disposed or destroyed. Not only does it vest ownership, as understood under the Civil Code; it adds perpetual exclusivity. This means that while ICCs/IPs could own vast ancestral domains, the majority of Filipinos who are not indigenous can never own any part thereof. On the other hand, Section 3 (b)25“b) Ancestral Lands— Subject to Section 56 hereof, refers to lands occupied, possessed and utilized by individuals, families and clans who are members of the ICCs/IPs since time immemorial, by themselves or through their predecessors-in-interest... of IPRA defines ancestral lands as referring to ‘lands occupied, possessed and utilized by individuals, families and clans of the ICCs/IPs since time immemorial x x x, under claims of individual or traditional group ownership, x x x including, but not limited to, residential lots, rice terraces or paddies, private forests, swidden farms and tree lots.” Section 8 recognizes and protects “the right of ownership and possession of ICCs/IPs to

their ancestral lands.” Such ownership need not be by virtue of a certificate of title, but simply by possession since time immemorial. I believe these statutory provisions directly contravene Section 2, Article XII of the Constitution, more specifically the declaration that the State owns all lands of the public domain, minerals and natural resources—none of which, except agricultural lands, can be _______________ 25 “b) Ancestral Lands—Subject to Section 56 hereof, refers to lands occupied, possessed and utilized by individuals, families and clans who are members of the ICCs/IPs since time immemorial, by themselves or through their predecessors-ininterest, under claims of individual or traditional group ownership, continuously, to the present except when interrupted by war, force majeure or displacement by force, deceit, stealth, or as a consequence of government projects and other voluntary dealings entered into by government and private individuals/corporations, including, but not limited to, residential lots, rice terraces or paddies, private forests, swiddenfarms and tree lots.” 331 VOL. 347, DECEMBER 6, 2000 331 Cruz vs. Secretary of Environment and Natural Resources alienated. In several cases, this Court has consistently held that non-agricultural land must first be reclassified and converted into alienable or disposable land for agricultural purposes by a positive act of the government.26Director of Lands and

Director of Forest Development v. Intermediate Appellate Court, March 2, 1993, 219 SCRA 339; Director of Lands v. Aquino, 192 SCRA 296, December 17, 1990; Sunbeam Convenience Foods, Inc.v. Court of Appeals, January29, 1990, 181 SCRA 4... Mere possession or utilization thereof, however long, does not automatically convert them into private properties.27Ibid.; Margolles v. Court of Appeals, February 14, 1994, 230 SCRA 97; Gordula v. Court of Appeals, supra. The presumption is that “all lands not appearing to be clearly within private ownership are presumed to belong to the State. Hence, x xx all applicants in land registration proceedings have the burden of overcoming the presumption that the land thus sought to be registered forms part of the public domain. Unless the applicant succeeds in showing by clear and convincing evidence that the property involved was acquired by him or his ancestors either by composition title from the Spanish Government or by possessory information title, or any other means for the proper acquisition of public lands, the property must be held to be part of the public domain. The applicant must present competent and persuasive proof to substantiate his claim; he may not rely on general statements, or mere conclusions of law other than factual evidenceof possession and title.”28Republic v. Sayo, October 31, 1990, 191 SCRA 71, per Narvasa, J. (laterCJ). See also Republic v. Court of Appeals, supra. Respondents insist, and the ponencia agrees, that paragraphs (a) and (b) of Section 3 are merely definitions and should not be construed independently of the other provisions of the law. But, precisely, a definition is “a statement of the meaning of a word or word group.”29Webster’s Third New International

Dictionary; Petitioners’ Memorandum, p. 41. It determines or settles the nature of the thing or person defined.30Ibid. Thus, after defining a term as encompassing several items, one cannot thereafter say that the same term should be interpreted as excluding one or more of the enumerated items in its _______________ 26 Director of Lands and Director of Forest Development v. Intermediate Appellate Court, March 2, 1993, 219 SCRA 339; Director of Lands v. Aquino, 192 SCRA 296, December 17, 1990; Sunbeam Convenience Foods, Inc.v. Court of Appeals, January29, 1990, 181 SCRA 443. 27 Ibid.; Margolles v. Court of Appeals, February 14, 1994, 230 SCRA 97; Gordula v. Court of Appeals, supra. 28 Republic v. Sayo, October 31, 1990, 191 SCRA 71, per Narvasa, J. (laterCJ). See also Republic v. Court of Appeals, supra. 29 Webster’s Third New International Dictionary; Petitioners’ Memorandum, p. 41. 30 Ibid. 332 332 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environment and Natural Resources bound by the law. In other words, since RA 8371 defines ancestral domains as including the natural resources found therein and further states that ICCs/IPs own these ancestral domains, then it means that ICCs/IPs canownnatural resources. In fact, Intervenors Flavier, et al. submit that everything above and below these ancestral domains, with no specific limits,

likewise belongs to ICCs/IPs. I say that this theory directly contravenes the Constitution. Such outlandish contention further disregards international law which, by constitutional fiat, has been adopted as part of the law of the land.31§2, Art. II of the Constitution. No Land Area Limits Are Specified by RA 8371 Under Section 3, Article XII of the Constitution, Filipino citizens may acquire no more than 12 hectares of alienable public land, whether by purchase, homestead or grant. More than that, but not exceeding 500 hectares, they may hold by lease only. RA 8371, however, speaks of no area or term limits to ancestral lands and domains. In fact, by their mere definitions, they could cover vast tracts of the nation’s territory. The properties under the assailed law cover everything held, occupied or possessed “by themselves or through their ancestors, communally or individually since time immemorial.” It also includes all “lands which may no longer be exclusively occupied by [them] but from which they traditionally had access to for their subsistence and traditional activities, particularly the home ranges of ICCs/IPs who are still nomadic and/or shifting cultivators.” Nomadic groups have no fixed area within which they hunt or forage for food. As soon as they have used up the resources of a certain area, they move to another place or go back to one they used to occupy. From year to year, a growing tribe could occupy and use enormous areas, to which they could claim to have had “traditional access.” If nomadic ICCs/IPs succeed in acquiring title to their enlarging ancestral domain or land, several thousands of

_______________ 31 §2, Art. II of the Constitution. 333 VOL. 347, DECEMBER 6, 2000 333 Cruz vs. Secretary of Environment and Natural Resources hectares of land may yet be additionally delineated as their private property. Similarly, the Bangsa Moro people’s claim to their ancestral land is not based on compounded or consolidated title, but “on a collective stake to the right to claim what their forefathers secured for them when they first set foot on our country.”32Cecilio R. Laurente, ‘The King’s Hand: The Regalian Doctrine as a Contributing Factor in the Mindanao Conflict,” Human Rights Agenda, Vol. 5, Issue No. 7, July & August 2000, pp. 6-7. They trace their right to occupy what they deem to be their ancestral land way back to their ancient sultans and datus, who had settled in many islands that have become part of Mindanao. This long history of occupation is the basisof their claim to their ancestral lands.33Ibid. Already, as of June 1998, over 2.5 million hectares have been claimed by various ICCs/IPs as ancestral domains; and over 10 thousand hectares, as ancestral lands.34Solicitor General’s Memorandum, p. 3; rollo, p. 651. Based on ethnographic surveys, the solicitor general estimates that ancestral domains cover 80 percent of our mineral resources and between 8 and 10 million of the 30 million hectares of land in the country.35Ibid., pp. 4-5. This means that four fifths of its natural resources and one third of the country’s land will be

concentrated among 12 million Filipinos constituting 110 ICCs,36Ibid. See also Datu Vic Saway, indigenous Peoples and the Uplands: A Situatfoner,” Proceedings of the 6th Upland NGO Consultative Conference, 23-27 August 1998, p. 30. while over 60 million other Filipinos constituting the overwhelming majority will have to share the remaining. These figures indicate a violation of the constitutional principle of a “more equitable distribution of opportunities, income, and wealth” among Filipinos. _______________ 32 Cecilio R. Laurente, ‘The King’s Hand: The Regalian Doctrine as a Contributing Factor in the Mindanao Conflict,” Human Rights Agenda, Vol. 5, Issue No. 7, July & August 2000, pp. 6-7. 33 Ibid. 34 Solicitor General’s Memorandum, p. 3; rollo, p. 651. 35 Ibid., pp. 4-5. 36 Ibid. See also Datu Vic Saway, indigenous Peoples and the Uplands: A Situatfoner,” Proceedings of the 6th Upland NGO Consultative Conference, 23-27 August 1998, p. 30. 334 334 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environment and Natural Resources RA 8371 Abdicates the StateDuty to Take Full Control and Supervision ofNatural Resources Section 2, Article XII of the Constitution, further provides that “[t]he exploration, development, and utilization of natural resources shall be under the full control and supervision of the

State.” The State may (1) directly undertake such activities; or (2) enter into co-production, joint yenture or productionsharing agreements with Filipino citizens or entities, 60 percent of whose capital is owned by Filipinos.37Or (3) in case of large-scale exploration, development and utilization of minerals, enter—through the President—into “agreements with foreign-owned corporations involving either technical or financial assistance.” (Miners Associatio... Such agreements, however, shall not exceed 25 years, renewable for the same period and under terms and conditionsas may be providedby law. But again, RA 8371 relinquishes this constitutional power of full control in favor of ICCs/IPs, insofar as natural resources found within their territories are concerned. Pursuant to their rights of ownership and possession, they may develop and manage the natural resources, benefit from and share in the profits from the allocation and the utilization thereof.38§7(b), RA 7381. And they may exercise such right without any time limit, unlike non-ICCs/IPs who may do so only for a period not exceeding 25 years, renewable for a like period.39§57, ibid. Consistent with the Constitution, the rights of ICCs/IPs to exploit, develop and utilize natural resources must also be limited to such period. In addition, ICCs/IPs are given the right to negotiate directly the terms and conditions for the exploration of natural resources,40§7(b), ibid. a right vested by the Constitution only in the State. Congress, through IPRA, has in effect abdicated in favor of a minority group the State’s power of ownership and full control over a substantial _______________

37 Or (3) in case of large-scale exploration, development and utilization of minerals, enter—through the President—into “agreements with foreign-owned corporations involving either technical or financial assistance.” (Miners Association of the Philippines v. Factoran, Jr., 240 SCRA 100, January 16, 1995.) 38 §7(b), RA 7381. 39 §57, ibid. 40 §7(b), ibid. 335 VOL. 347, DECEMBER 6, 2000 335 Cruz vs. Secretary of Environment and Natural Resources part of the national patrimony, in contravention of our most fundamental law. I make clear, however, that to the extent that ICCs/IPs may undertake small-scale utilization of natural resources and cooperative fish farming, I absolutely have no objection. These undertakings are certainly allowed under the third paragraph of Section 2, Article XII of the Constitution. Having already disposed of the two major constitutional dilemmas wrought by RA 8371—(1) ownership of ancestral lands and domains and the natural resources therein; and (2) the ICCs/IPs’ control of the exploration, development and utilization of such resources—I believe I should no longer tackle the following collateral issues petitioners have brought up: 1. Whether the inclusion of private lands within the coverage of ancestral domains amounts to undue deprivation of private property

2. Whether ICCs/IPs may regulate the entry/exit of migrants 3. Whether ancestral domains are exempt from real property taxes, special levies and other forms of exaction 4. Whether customary laws and traditions of ICCs/IPs should first be applied in the settlements of disputes over their rights and claims 5. Whether the composition and the jurisdiction of the National Commission of Indigenous Peoples (NCIP) violate the due process and equal protection clauses 6. Whether members of the ICCs/IPs may be recruited into the armed forces against their will I believe that the first three of the above collateral issues have been rendered academic or, at least, no longer of “transcendental importance,” in view of my contention that the two major IPRA propositions are based on unconstitutional premises. On the other hand, I think that in the case of the last three, it is best to await specific cases filed by those whose rights may have been injured by specific provisions of RA 8371. 336 336 SUPREME COURT REPORTS ANNOTATED Cruz vs. Secretary of Environment and Natural Resources Epilogue Section 5,Article XII ofthe Constitution, provides: “SEC. 5. The State, subject to the provisions of this Constitution and national development policies and programs, shall protect the rights of indigenous cultural communities to

their ancestral lands to ensure their economic, social, andcultural well being. “The Congress may provide for the applicability of customary laws governing properly rights and relations in determining the ownership and extent of ancestral domain.” Clearly, there are two parameters that must be observed in the protection of the rights of ICCs/IPs: (1) the provisions of the 1987 Constitution and(2)national development policies andprograms. Indigenous peoples may have long been marginalized in Philippine politics and society. This does not, however, give Congress any license to accord them rights that the Constitution withholds from the rest of the Filipino people. I would concede giving them priority in the use, the enjoyment and the preservation of their ancestral lands and domains.41As stated earlier, Sec. 57 of IPRA, insofar as it grants them such priority, is constitutional. But to grant perpetual ownership and control of the nation’s substantial wealth to them, to the exclusion of other Filipino citizens who have chosen to live and abide by our previous and present Constitutions, would be not only unjust but also subversive of therule of law. In giving ICCs/IPs rights in derogation of our fundamental law, Congress is effectively mandating “reverse discrimination.” In seeking to improve their lot, it would be doing so at the expense of the majority of the Filipino people. Such shortsighted and misplaced generosity will spread the roots of discontent and, in the long term, fan the fires of turmoil to a conflagration of national proportions. Peace cannot be attained by brazenly and permanently depriving the many in order to coddle the few, however

disadvantaged they may have been. Neither can a just society be approximated by maiming the healthy to place them at par with the injured. Nor can _______________ 41As stated earlier, Sec. 57 of IPRA, insofar as it grants them such priority, is constitutional. 337 VOL. 347, DECEMBER 6, 2000 337 Cruz vs. Secretary of Environment and Natural Resources the nation survive by enclaving its wealth for the exclusive benefit of favored minorities. Rather, the law must help the powerless by enabling them to take advantage of opportunities and privileges that are open to all and by preventing the powerful from exploiting and oppressing them. This is the essence of social justice— empowering and enabling the poor to be able to compete with the rich and, thus, equally enjoy the blessings of prosperity, freedom and dignity. WHEREFORE, I vote to partially GRANT the Petition and to DECLARE as UNCONSTITUTIONAL Sections 3(a) and (b), 5, 6, 7(a) and (b), 8 and related provisions of RA 8371. Petition dismissed. Notes.—Unlike the 1935 Constitution, the 1973 Constitution did not expressly qualify the application of the regalian doctrine as being subject to any right granted before the effectivity of the 1935 Constitution or the 1973 Constitution for that matter but the conditional application of the regalian

doctrine could be found in Presidential Decree No. 463 (1974). (Atok Big-Wedge Mining Company vs. Intermediate Appellate Court, 261 SCRA 528 [1996]) Before the Treaty of Paris on April 11, 1899, our lands, whether agricultural, mineral or forest were under the exclusive patrimony and dominion of the Spanish Crown—private ownership of land could only be acquired through royal concessions. (Palomo vs. Court of Appeals, 266 SCRA 392 [1997]) A province may not invoke the Regalian doctrine to extend the coverage of its ordinance to quarry resources extracted from private lands, for taxes, being burdens, are not to be presumed beyond what the applicable statute expressly and clearly declares, tax statutes being construed strictissimi juris against the government. (Province of Bulacan vs. Court of Appeals, 299 SCRA 442 [1998]) ——o0o—— 338 [Cruz vs. Secretaryof Environmentand Natural Resources, 347 SCRA 128(2000)]

G.R. No. 162243. December 3, 2009.* HON. HEHERSON ALVAREZ substituted by HON. ELISEA G. GOZUN, in her capacity as Secretary of the Department of Environment and Natural Resources, petitioner, vs. PICOP RESOURCES, INC., respondent. G.R. No. 164516. December 3, 2009.* PICOP RESOURCES, INC., petitioner, vs. HON. HEHERSON ALVAREZ substituted by HON. ELISEA G. GOZUN, in her capacity as Secretary of the Department of Environment and Natural Resources, respondent. G.R. No. 171875. December 3, 2009.* THE HON. ANGELO T. REYES (formerly Hon. Elisea G. Gozun), in his capacity as Secretary of the Department of Environment and Natural Resources (DENR), petitioner, vs. PAPER INDUSTRIES CORP. OF THE PHILIPPINES (PICOP), respondent. Natural Resources; Forest Lands; Timber License Agreements (TLAs); Integrated Forest Management Agreements (IFMAs); Mandamus; Administrative Law; Words and Phrases; “Enjoin,” and “Allow,” Explained; An administrative regulation provision allowing automatic conversion after proper evaluation can hardly qualify as a law, much less a law specifically enjoining the execution of a contract; As an extraordinary writ, the remedy of mandamus lies only to compel an officer to perform a ministerial duty, not a discretionary one; The execution of agreements, in itself, involves the exercise of discretion.—This administrative regulation provision allowing automatic conversion after proper evaluation can hardly qualify as a law, much less a law specifically enjoining the execution of a contract. To enjoin is

“to order or direct with urgency; to instruct with authority; to com_______________ * EN BANC. 445 VOL. 606, DECEMBER 3, 2009445 Alvarez vs. PICOP Resources, Inc. mand.” “ ‘Enjoin’ is a mandatory word, in legal parlance, always; in common parlance, usually.” The word “allow,” on the other hand, is not equivalent to the word “must,” and is in no sense a command. As an extraordinary writ, the remedy of mandamus lies only to compel an officer to perform a ministerial duty, not a discretionary one; mandamus will not issue to control the exercise of discretion of a public officer where the law imposes upon him the duty to exercise his judgment in reference to any manner in which he is required to act, because it is his judgment that is to be exercised and not that of the court. The execution of agreements, in itself, involves the exercise of discretion. Agreements are products of negotiations and mutual concessions, necessitating evaluation of their provisions on the part of both parties. In the case of the IFMA, the evaluation on the part of the government is specifically mandated in the afore-quoted Section 3 of DAO No. 99-53. This evaluation necessarily involves the exercise of discretion and judgment on the part of the DENR Secretary, who is tasked not only to negotiate the sharing of the profit arising from the IFMA, but also to evaluate the compliance with the requirements on the part of the applicant.

Same; Same; Same; Same; Same; Contracts; A contract, being the law between the parties, can indeed, with respect to the State when it is a party to such contract, qualify as a law specifically enjoining the performance of an act.—A contract, being the law between the parties, can indeed, with respect to the State when it is a party to such contract, qualify as a law specifically enjoining the performance of an act. Hence, it is possible that a writ of mandamus may be issued to PICOP, but only if it proves both of the following: 1) That the 1969 Document is a contract recognized under the non-impairment clause; and 2) That the 1969 Document specifically enjoins the government to issue the IFMA. Same; Same; Same; Same; Forest lands cannot be alienated in favor of private entities—granting to private entities, via a contract, a permanent, irrevocable, and exclusive possession of and right over forest lands is tantamount to granting ownership thereof.—PICOP’s interpretation of the 1969 Document cannot be 446 446SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. sustained. PICOP’s claim that the term of the warranty is not limited to fifty years, but that it extends to other fifty years, perpetually, violates Section 2, Article XII of the Constitution which provides: Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural

resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law. In cases of water rights for irrigation, water supply fisheries, or industrial uses other than the development of water power, beneficial use may be the measure and limit of the grant. Mr. Justice Dante O. Tinga’s interpretation of the 1969 Document is much more in accord with the laws and the Constitution. What one cannot do directly, he cannot do indirectly. Forest lands cannot be alienated in favor of private entities. Granting to private entities, via a contract, a permanent, irrevocable, and exclusive possession of and right over forest lands is tantamount to granting ownership thereof. PICOP, it should be noted, claims nothing less than having exclusive, continuous and uninterrupted possession of its concession areas, where all other entrants are illegal, and where so-called “illegal settlers and squatters” are apprehended. Same; Same; Same; Same; Integrated Forest Management Agreements (IFMAs) are production-sharing agreements concerning the development and utilization of natural resources, and as such these agreements “may be for a period not exceeding twenty-five years, renewable for not more than

twenty-five years, and under such terms and conditions as may be provided by law.”— 447 VOL. 606, DECEMBER 3, 2009447 Alvarez vs. PICOP Resources, Inc. IFMAs are production-sharing agreements concerning the development and utilization of natural resources. As such, these agreements “may be for a period not exceeding twentyfive years, renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law.” Any superior “contract” requiring the State to issue TLAs and IFMAs whenever they expire clearly circumvents Section 2, Article XII of the Constitution, which provides for the only permissible schemes wherein the full control and supervision of the State are not derogated: co-production, joint venture, or production-sharing agreements within the time limit of twentyfive years, renewable for another twenty-five years. Same; Same; Same; Same; Administrative Law; Official duties are, however, disputably considered to be regularly performed, and good faith is always presumed; Department of Environment and Natural Resources Administrative Order (DAO) No. 99-53 was issued to change the means by which the government enters into an agreement with private entities for the utilization of forest products—DAO No. 99-53 is a late response to the change in the constitutional provisions on natural resources from the 1973 Constitution, which allowed the granting of licenses to private entities, to the present Constitution, which provides for co-production, joint venture, or production-sharing agreements as the permissible schemes

wherein private entities may participate in the utilization of forest products.—PICOP is, in effect, arguing that the DENR issued DAO No. 99-53 in order to provide a way to circumvent the provisions of the Constitution limiting agreements for the utilization of natural resources to a maximum period of fifty years. Official duties are, however, disputably considered to be regularly performed, and good faith is always presumed. DAO No. 99-53 was issued to change the means by which the government enters into an agreement with private entities for the utilization of forest products. DAO No. 99-53 is a late response to the change in the constitutional provisions on natural resources from the 1973 Constitution, which allowed the granting of licenses to private entities, to the present Constitution, which provides for co-production, joint venture, or production-sharing agreements as the permissible schemes wherein 448 448SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. private entities may participate in the utilization of forest products. Since the granting of timber licenses ceased to be a permissible scheme for the participation of private entities under the present Constitution, their operations should have ceased upon the issuance of DAO No. 99-53, the rule regulating the schemes under the present Constitution. This would be iniquitous to those with existing TLAs that would not have expired yet as of the issuance of DAO No. 99-53, especially those with new TLAs that were originally set to expire after 10 or even 20 or more years. The DENR thus

inserted a provision in DAO No. 99-53 allowing these TLA holders to finish the period of their TLAs, but this time as IFMAs, without the rigors of going through a new application, which they have probably just gone through a few years ago. Same; Same; Same; Same; Statutory Construction; When a provision is susceptible of two interpretations, “the one that will render them operative and effective and harmonious with other provisions of law” should be adopted.—When a provision is susceptible of two interpretations, “the one that will render them operative and effective and harmonious with other provisions of law” should be adopted. As the interpretations in the assailed Decision and in Mr. Justice Tinga’s ponencia are the ones that would not make the subject Presidential Warranty unconstitutional, these are what we shall adopt. Same; Same; Same; Same; Contracts; Warranties; A warranty is a collateral undertaking and is merely part of a contract—as a collateral undertaking, it follows the principal wherever it goes.—In Koa v. Court of Appeals, 219 SCRA 541 (1993) we ruled that a warranty is a collateral undertaking and is merely part of a contract. As a collateral undertaking, it follows the principal wherever it goes. When this was pointed out by the Solicitor General, PICOP changed its designation of the 1969 Document from “Presidential Warranty” or “government warranty” in all its pleadings prior to our Decision, to “contract with warranty” in its Motion for Reconsideration. This, however, is belied by the statements in the 29 July 1969 Document, which refers to itself as “this warranty.” 449 VOL. 606, DECEMBER 3, 2009449

Alvarez vs. PICOP Resources, Inc. Same; Same; Same; Same; Same; Police Power; Contract Clause; Paper Industries Corp. of the Philippines’ (PICOP’s) argument that its investments can be considered as contract consideration derogates the rule that “a license or a permit is not a contract between the sovereignty and the licensee or permittee, and is not a property in the constitutional sense, as to which the constitutional proscription against the impairment of contracts may extend”; The power to issue licenses springs from the State’s police power, known as “the most essential, insistent and least limitable of powers, extending as it does to all the great public needs”; Businesses affecting the public interest, such as the operation of public utilities and those involving the exploitation of natural resources, are mandated by law to acquire licenses, and while these licenses come in the form of “agreements,” e.g., “Timber License Agreements,” they cannot be considered contracts under the non-impairment clause.—PICOP’s argument that its investments can be considered as contract consideration derogates the rule that “a license or a permit is not a contract between the sovereignty and the licensee or permittee, and is not a property in the constitutional sense, as to which the constitutional proscription against the impairment of contracts may extend.” All licensees obviously put up investments, whether they are as small as a tricycle unit or as big as those put up by multi-billion-peso corporations. To construe these investments as contract considerations would be to abandon the foregoing rule, which would mean that the State would be bound to all licensees, and lose its power to revoke or amend these licenses when public

interest so dictates. The power to issue licenses springs from the State’s police power, known as “the most essential, insistent and least limitable of powers, extending as it does to all the great public needs.” Businesses affecting the public interest, such as the operation of public utilities and those involving the exploitation of natural resources, are mandated by law to acquire licenses. This is so in order that the State can regulate their operations and thereby protect the public interest. Thus, while these licenses come in the form of “agreements,” e.g., “Timber License Agreements,” they cannot be considered contracts under the non-impairment clause. 450 450SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. Same; Same; Same; Same; Reforestation; Ecology; Reforestation and preservation of the concession areas are not required of logging companies so that they would have something to cut again, but so that the forest would remain intact after their operations.—The requirement for logging companies to preserve and maintain forest areas, including the reforestation thereof, is one of the prices a logging company must pay for the exploitation thereof. Forest lands are meant to be enjoyed by countless future generations of Filipinos, and not just by one logging company. The requirements of reforestation and preservation of the concession areas are meant to protect them, the future generations, and not PICOP. Reforestation and preservation of the concession areas are not required of logging companies so that they would have something to cut again, but so that the forest would remain

intact after their operations. That PICOP would not accept the responsibility to preserve its concession area if it is not assured of tenure thereto does not speak well of its corporate policies. Judgments; Obiter Dicta; When a court bases its decision on two or more grounds, each is as authoritative as the other and neither is obiter dictum.—When a court bases its decision on two or more grounds, each is as authoritative as the other and neither is obiter dictum. Thus, both grounds on which we based our ruling in the assailed Decision would become judicial dictum, and would affect the rights and interests of the parties to this case unless corrected in this Resolution on PICOP’s Motion for Reconsideration. Therefore, although PICOP would not be entitled to a Writ of Mandamus even if the second issue is resolved in its favor, we should nonetheless resolve the same and determine whether PICOP has indeed complied with all administrative and statutory requirements for the issuance of an IFMA. Administrative Law; When parties file a Petition for Certiorari against judgments of administrative agencies tasked with overseeing the implementation of laws, the findings of such administrative agencies are entitled to great weight.—When parties file a Petition for Certiorari against judgments of administrative agencies tasked with overseeing the implementation of laws, the 451 VOL. 606, DECEMBER 3, 2009451 Alvarez vs. PICOP Resources, Inc. findings of such administrative agencies are entitled to great weight. In the case at bar, PICOP could not have filed a

Petition for Certiorari, as the DENR Secretary had not yet even determined whether PICOP should be issued an IFMA. As previously mentioned, when PICOP’s application was brought to a standstill upon the evaluation that PICOP had yet to comply with the requirements for the issuance of an IFMA, PICOP refused to attend further meetings with the DENR and instead filed a Petition for Mandamus against the latter. By jumping the gun, PICOP did not diminish the weight of the DENR Secretary’s initial determination. Same; Since the agency tasked to determine compliance with Integrated Forest Management Agreement (IFMA) administrative requirements chose to remain silent in the face of allegations of compliance, the Court is constrained to withdraw its pronouncement in the assailed Decision that Paper Industries Corp. of the Philippines (PICOP) had not submitted a Five-Year Forest Protection Plan and a Seven-Year Reforestation Plan for its TLA No. 43.—Upon examination of the portions of the SFMP submitted to us, we cannot help but notice that PICOP’s concept of forest protection is the security of the area against “illegal” entrants and settlers. There is no mention of the protection of the wildlife therein, as the focus of the discussion of the silvicultural treatments and the SFMP itself is on the protection and generation of future timber harvests. We are particularly disturbed by the portions stating that trees of undesirable quality shall be removed. However, when we required the DENR Secretary to comment on PICOP’s Motion for Reconsideration, the DENR Secretary did not dispute the existence of this SFMP, or question PICOP’s assertion that a Ten-Year Forest Protection Plan and a TenYear Reforestation Plan are already incorporated therein.

Hence, since the agency tasked to determine compliance with IFMA administrative requirements chose to remain silent in the face of allegations of compliance, we are constrained to withdraw our pronouncement in the assailed Decision that PICOP had not submitted a Five-Year Forest Protection Plan and a Seven-Year Reforestation Plan for its TLA No. 43. As previously mentioned, 452 452SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. the licensing, regulation and management of forest resources are the primary responsibilities of the DENR. Evidence; Hearsay Evidence Rule; Entries in Official Records; Requisites.—In Africa v. Caltex, 16 SCRA 448 (1966), we enumerated the following requisites for the admission of entries in official records as an exception to the hearsay rule: (1) the entries were made by a public officer or a private person in the performance of a duty; (2) the performance of the duty is especially enjoined by law; (3) the public officer or the private person had sufficient knowledge of the facts stated by him, which must have been acquired by him personally or through official information. The presentation of the records themselves would, therefore, have been admissible as an exception to the hearsay rule even if the public officer/s who prepared them was/were not presented in court, provided the above requisites could be adequately proven. In the case at bar, however, neither the records nor the persons who prepared them were presented in court. Thus, the above requisites cannot be sufficiently proven. Also, since SFMS Evangelista merely

testified based on what those records contained, his testimony was hearsay evidence twice removed, which was one step too many to be covered by the official-records exception to the hearsay rule. Indigenous Peoples’ Rights Act (IPRA [R.A. No. 8371]); Indigenous Cultural Communities/Indigenous Peoples (ICCs/IPs); Ancestral Domains; Ancestral domains remain as such even when possession or occupation of these areas has been interrupted by causes provided under the law, such as voluntary dealings entered into by the government and private individuals/corpora-tions—the issuance of TLA No. 43 in 1952 did not cause the Indigenous Cultural Communities/Indigenous Peoples (ICCs/IPs) to lose their possession or occupation over the area covered by TLA No. 43.—PICOP had tried to put a cloud of ambiguity over Section 59 of Republic Act No. 8371 by invoking the definition of Ancestral Domains in Section 3(a) thereof, wherein the possesssion by Indigenous Cultural Communities/Indi-genous Peoples (ICCs/IPs) must have been continuous to the present. However, we noted the exception found in the very same sentence invoked 453 VOL. 606, DECEMBER 3, 2009453 Alvarez vs. PICOP Resources, Inc. by PICOP: a) Ancestral domains—Subject to Section 56 hereof, refers to all areas generally belonging to ICCs/IPs comprising lands, inland waters, coastal areas, and natural resources therein, held under a claim of ownership, occupied or possessed by ICCs/IPs, by themselves or through their ancestors, communally or individually since time immemorial,

continuously to the present except when interrupted by war, force majeure or displacement by force, deceit, stealth or as a consequence of government projects or any other voluntary dealings entered into by government and private individuals/corporations, and which are necessary to ensure their economic, social and cultural welfare. It shall include ancestral lands, forests, pasture, residential, agricultural, and other lands individually owned whether alienable and disposable or otherwise, hunting grounds, burial grounds, worship areas, bodies of water, mineral and other natural resources, and lands which may no longer be exclusively occupied by ICCs/IPs but from which they traditionally had access to for their subsistence and traditional activities, particularly the home ranges of ICCs/IPs who are still nomadic and/or shifting cultivators; Ancestral domains, therefore, remain as such even when possession or occupation of these areas has been interrupted by causes provided under the law, such as voluntary dealings entered into by the government and private individuals/corpo-rations. Consequently, the issuance of TLA No. 43 in 1952 did not cause the ICCs/IPs to lose their possession or occupation over the area covered by TLA No. 43. Same; Same; Same; Legal Ethics; Words and Phrases; “Claim” and “Claim of Ownership,” Explained; The Court is not sure whether Paper Industries Corp. of the Philippines’s (PICOP) counsels are delibe-rately trying to mislead it, or are just plainly ignorant of basic precepts of law; The term “claim” in the phrase “claim of ownership” is not a document of any sort—it is an attitude towards something—and the phrase “claim of ownership” means “the possession of a piece of property with the intention of claiming it in hostility to the true

owner.”—We are not sure whether PICOP’s counsels are deliberately trying to mislead us, or are just plainly ignorant of basic precepts of law. The term “claim” in the phrase “claim of ownership” is not a document of 454 454SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. any sort. It is an attitude towards something. The phrase “claim of ownership” means “the possession of a piece of property with the intention of claiming it in hostility to the true owner.” It is also defined as “a party’s manifest intention to take over land, regardless of title or right.” Other than in Republic Act No. 8371, the phrase “claim of ownership” is thoroughly discussed in issues relating to acquisitive prescription in Civil Law. Before PICOP’s counsels could attribute to us an assertion that a mere attitude or intention would stop the renewal or issuance of any concession, license or lease or any production-sharing agreement, we should stress beforehand that this attitude or intention must be clearly shown by overt acts and, as required by Section 3(a), should have been in existence “since time immemorial, continuously to the present except when interrupted by war, force majeure or displacement by force, deceit, stealth or as a consequence of government projects or any other voluntary dealings entered into by government and private individuals/corporations.” Natural Resources; Local Government Units; While the State may enter into co-production, joint venture, or productionsharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned

by these citizens, such as Paper Industries Corp. of the Philippines (PICOP), the projects nevertheless remain as State projects and can never be purely private endeavors; The Department of Environment and Natural Resources (DENR) is the national agency prohibited by Section 27 of the Local Government Code from issuing an Integrated Forest Management Agreement (IFMA) without the prior approval of the Sanggunian concerned.—All projects relating to the exploration, development and utilization of natural resources are projects of the State. While the State may enter into coproduction, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by these citizens, such as PICOP, the projects nevertheless remain as State projects and can never be purely private endeavors. Also, despite entering into co-production, joint venture, or production-sharing agreements, the State remains in full control and supervision over such projects. PICOP, thus, cannot 455 VOL. 606, DECEMBER 3, 2009455 Alvarez vs. PICOP Resources, Inc. limit government participation in the project to being merely its bouncer, whose primary participation is only to “warrant and ensure that the PICOP project shall have peaceful tenure in the permanent forest allocated to provide raw materials for the project.” PICOP is indeed neither a national agency nor a government-owned or controlled corporation. The DENR, however, is a national agency and is the national agency

prohibited by Section 27 from issuing an IFMA without the prior approval of the Sanggunian concerned. As previously discussed, PICOP’s Petition for Mandamus can only be granted if the DENR Secretary is required by law to issue an IFMA. We, however, see here the exact opposite: the DENR Secretary was actually prohibited by law from issuing an IFMA, as there had been no prior approval by all the other Sanggunians concerned. Same; Same; The approval of the Sanggunian concerned is required by law, not because the local government has control over such project, but because the local government has the duty to protect its constituents and their stake in the implementation of the project.—The devolution of the project to local government units is not required before Sections 26 and 27 would be applicable. Neither Section 26 nor 27 mentions such a requirement. Moreover, it is not only the letter, but more importantly the spirit of Sections 26 and 27, that shows that the devolution of the project is not required. The approval of the Sanggunian concerned is required by law, not because the local government has control over such project, but because the local government has the duty to protect its constituents and their stake in the implementation of the project. Again, Section 26 states that it applies to projects that “may cause pollution, climatic change, depletion of nonrenewable resources, loss of crop land, rangeland, or forest cover, and extinction of animal or plant species.” The local government should thus represent the communities in such area, the very people who will be affected by flooding, landslides or even climatic change if the project is not properly regulated, and who likewise have a stake in the resources in the

area, and deserve to be adequately compensated when these resources are exploited. Indeed, it would be absurd to claim that the project must first be devolved to the local government before the re456 456SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. quirement of the national government seeking approval from the local government can be applied. If a project has been devolved to the local government, the local government itself would be implementing the project. That the local government would need its own approval before implementing its own project is patently silly. MOTION FOR RECONSIDERATION of a decision of the Supreme Court. The facts are stated in the resolution of the Court. Quasha, Ancheta, Peña and Nolasco and Agabin, Verzola, Hermoso and Layaoen Law Offices for Paper Industries Corporation of the Philippines (PICOP) Resources, Inc. RESOLUTION CHICO-NAZARIO, J.: The cause of action of PICOP Resources, Inc. (PICOP) in its Petition for Mandamus with the trial court is clear: the government is bound by contract, a 1969 Document signed by then President Ferdinand Marcos, to enter into an Integrated Forest Management Agreement (IFMA) with PICOP. Since the remedy of mandamus lies only to compel an officer to perform a ministerial duty, and since the 1969 Document itself has a proviso requiring compliance with the laws and the

Constitution, the issues in this Motion for Reconsideration are the following: (1) firstly, is the 1969 Document a contract enforceable under the Non-Impair-ment Clause of the Constitution, so as to make the signing of the IFMA a ministerial duty? (2) secondly, did PICOP comply with all the legal and constitutional requirements for the issuance of an IFMA? 457 VOL. 606, DECEMBER 3, 2009457 Alvarez vs. PICOP Resources, Inc. To recall, PICOP filed with the Department of Environment and Natural Resources (DENR) an application to have its Timber License Agreement (TLA) No. 43 converted into an IFMA. In the middle of the processing of PICOP’s application, however, PICOP refused to attend further meetings with the DENR. Instead, on 2 September 2002, PICOP filed before the Regional Trial Court (RTC) of Quezon City a Petition for Mandamus1 against then DENR Secretary Heherson T. Alvarez. PICOP seeks the issuance of a privileged writ of mandamus to compel the DENR Secretary to sign, execute and deliver an IFMA to PICOP, as well as to— “[I]ssue the corresponding IFMA assignment number on the area covered by the IFMA, formerly TLA No. 43, as amended; b) to issue the necessary permit allowing petitioner to act and harvest timber from the said area of TLA No. 43, sufficient to meet the raw material requirements of petitioner’s pulp and paper mills in accordance with the warranty and agreement of July 29, 1969 between the government and PICOP’s predecessor-in-interest; and c) to honor and respect the

Government Warranties and contractual obligations to PICOP strictly in accordance with the warranty and agreement dated July 29, [1969] between the government and PICOP’s predecessor-in-interest. x x x.”2 On 11 October 2002, the RTC rendered a Decision granting PICOP’s Petition for Mandamus, thus: “WHEREFORE, premises considered, the Petition for Mandamus is hereby GRANTED. The Respondent DENR Secretary Hon. Heherson Alvarez is hereby ordered: 1. to sign, execute and deliver the IFMA contract and/or documents to PICOP and issue the corresponding IFMA _______________ 1 Records, pp. 1-38. 2 Id., at p. 36. 458 458SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. assignment number on the area covered by the IFMA, formerly TLA No. 43, as amended; 2. to issue the necessary permit allowing petitioner to act and harvest timber from the said area of TLA No. 43, sufficient to meet the raw material requirements of petitioner’s pulp and paper mills in accordance with the warranty and agreement of July 29, 1969 between the government and PICOP’s predecessor-in-interest; and 3. to honor and respect the Government Warranties and contractual obligations to PICOP strictly in accordance with the warranty and agreement dated July 29, 1999 (sic) between

the government and PICOP’s predecessor-in-interest (Exhibits “H,” “H-1” to “H-5,” particularly the following: a) the area coverage of TLA No. 43, which forms part and parcel of the government warranties; b) PICOP tenure over the said area of TLA No. 43 and exclusive right to cut, collect and remove sawtimber and pulpwood for the period ending on April 26, 1977; and said period to be renewable for [an]other 25 years subject to compliance with constitutional and statutory requirements as well as with existing policy on timber concessions; and c) The peaceful and adequate enjoyment by PICOP of the area as described and specified in the aforesaid amended Timber License Agreement No. 43. The Respondent Secretary Alvarez is likewise ordered to pay petitioner the sum of P10 million a month beginning May 2002 until the conversion of TLA No. 43, as amended, to IFMA is formally effected and the harvesting from the said area is granted.”3 _______________ 3 Rollo (G.R. No. 162243), pp. 221-222. 459 VOL. 606, DECEMBER 3, 2009459 Alvarez vs. PICOP Resources, Inc. On 25 October 2002, the DENR Secretary filed a Motion for Reconsideration.4 In a 10 February 2003 Order, the RTC denied the DENR Secretary’s Motion for Reconsideration and granted PICOP’s Motion for the Issuance of Writ of Mandamus and/or Writ of Mandatory Injunction.5 The fallo of the 11 October 2002 Decision was practically copied in the 10

February 2003 Order, although there was no mention of the damages imposed against then DENR Secretary Alvarez.6 The DENR Secretary filed a Notice of _______________ 4 Records, Vol. 2, pp. 393-456. 5 Records, Vol. 4, pp. 1349-1575. 6 The dispositive portion of the 10 February 2003 Order reads: WHEREFORE, premises considered, the Motion for Reconsideration dated October 25, 2002 is hereby DENIED for utter lack of merit while the Motion for the Issuance of Writ of Mandamus and/or Writ of Mandatory Injunction is GRANTED. Accordingly, respondent DENR Secretary Heherson Alvarez, now substituted by Secretary Elisea Gozun, is hereby ordered: 1. to sign, execute and deliver the IFMA contract and/or documents to PICOP and issue the corresponding IFMA assignment number on the area covered by IFMA, formerly TLA No. 43, as amended; 2. to issue the necessary permit allowing petitioner to act and harvest timber from the said area of TLA No. 43, sufficient to meet the raw material requirements of petitioner’s pulp and paper mills in accordance with the warranty and agreement of July 29, 1969 between the government and PICOP’s predecessor-in-interest; and 3. to honor and respect the Government Warranties and contractual obligations to PICOP strictly in accordance with the warranty and agreement dated July 29, 1999 (sic) between the government and PICOP’s predecessor-in-interest (Exhibits “H,” “H-1” to “H-5,” particularly the following:

a) The area coverage of TLA No. 43, which forms part and parcel of the government warranties; 460 460SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. Appeal7 from the 11 October 2002 Decision and the 10 February 2003 Order. On 19 February 2004, the Seventh Division of the Court of Appeals affirmed8 the Decision of the RTC, to wit: “WHEREFORE, the appealed Decision is hereby AFFIRMED with modification that the order directing then DENR Secretary Alvarez “to pay petitioner-appellee the sum of P10 million a month beginning May, 2002 until the conversion to IFMA of TLA No. 43, as amended, is formally effected and the harvesting from the said area is granted” is hereby deleted.”9 Challenging the deletion of the damages awarded to it, PICOP filed a Motion for Partial Reconsideration10 of this Decision, which was denied by the Court of Appeals in a 20 July 2004 Resolution.11 The DENR Secretary and PICOP filed with this Court separate Petitions for Review of the 19 February 2004 _______________ b) PICOP tenure over the said area of TLA No. 43 and exclusive right to cut, collect and remove sawtimber and pulpwood for the period ending on April 26, 1977; and said period to be renewable for another 25 years subject to compliance with constitutional and statutory requirements as well as with existing policy on timber concessions, and

c) The peaceful and adequate enjoyment by PICOP of the area as described and specified in the aforesaid amended Timber License Agreement No. 43. (Records, Vol. 4, pp. 13741375) 7 Records, Vol. 2, p. 611. 8 Rollo (G.R. No. 162243), pp. 229-258. Penned by Associate Justice Ruben T. Reyes, with Associate Justices Edgardo P. Cruz and Noel G. Tijam concurring; Rollo (G.R. No. 162243), pp. 229-258. 9 Rollo (G.R. No. 162243), p. 257. 10 Rollo (G.R. No. 164516), pp. 107-119. 11 Id., at pp. 121-122. 461 VOL. 606, DECEMBER 3, 2009461 Alvarez vs. PICOP Resources, Inc. Court of Appeals Decision. These Petitions were docketed as G.R. No. 162243 and No. 164516, respectively. These cases were consolidated with G.R. No. 171875, which relates to the lifting of a Writ of Preliminary Injunction enjoining the execution pending appeal of the foregoing Decision. On 29 November 2006, this Court rendered the assailed Decision on the Consolidated Petitions: “WHEREFORE, the Petition in G.R. No. 162243 is GRANTED. The Decision of the Court of Appeals insofar as it affirmed the RTC Decision granting the Petition for Mandamus filed by Paper Industries Corp. of the Philippines (PICOP) is hereby REVERSED and SET ASIDE. The Petition in G.R. No. 164516 seeking the reversal of the same Decision insofar as it nullified the award of damages in favor of PICOP is DENIED

for lack of merit. The Petition in G.R. No. 171875, assailing the lifting of the Preliminary Mandatory Injunction in favor of the Secretary of Environment and Natural Resources is DISMISSED on the ground of mootness.”12 On 18 January 2006, PICOP filed the instant Motion for Reconsideration, based on the following grounds: I. THE HONORABLE COURT ERRED IN HOLDING THAT THE CONTRACT WITH PRESIDENTIAL WARRANTY SIGNED BY THE PRESIDENT OF THE REPUBLIC ON 29 JUNE 1969 ISSUED TO PICOP IS A MERE PERMIT OR LICENSE AND IS NOT A CONTRACT, PROPERTY OR PROPERTY RIGHT PROTECTED BY THE DUE PROCESS CLAUSE OF THE CONSTITUTION _______________ 12 Id., at p. 814. 462 462SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. II. THE EVALUATION OF PICOP’S MANAGEMENT OF THE TLA 43 NATURAL FOREST CLEARLY SHOWED SATISFACTORY PERFORMANCE FOR KEEPING THE NATURAL FOREST GENERALLY INTACT AFTER 50 YEARS OF FOREST OPERATIONS. THIS COMPLETES THE REQUIREMENT FOR AUTOMATIC CONVERSION UNDER SECTION 9 OF DAO 99-53. III.

WITH DUE RESPECT, THE HONORABLE COURT, IN REVERSING THE FINDINGS OF FACTS OF THE TRIAL COURT AND THE COURT OF APPEALS, MISAPPRECIATED THE EVIDENCE, TESTIMONIAL AND DOCUMENTARY, WHEN IT RULED THAT: i. PICOP FAILED TO SUBMIT A FIVE-YEAR FOREST PROTECTION PLAN AND A SEVEN-YEAR REFORESTATION PLAN FOR THE YEARS UNDER REVIEW. ii. PICOP FAILED TO COMPLY WITH THE PAYMENT OF FOREST CHARGES. iii. PICOP DID NOT COMPLY WITH THE REQUIREMENT FOR A CERTIFICATION FROM THE NCIP THAT THE AREA OF TLA 43 DOES NOT OVERLAP WITH ANY ANCESTRAL DOMAIN. iv. PICOP FAILED TO HAVE PRIOR CONSULTATION WITH AND APPROVAL FROM THE SANGUNIAN CONCERNED, AS REQUIRED BY SECTION 27 OF THE REPUBLIC ACT NO. 7160, OTHERWISE KNOWN AS THE LOCAL GOVERNMENT CODE OF 1991. 463 VOL. 606, DECEMBER 3, 2009463 Alvarez vs. PICOP Resources, Inc. v.

PCIOP FAILED TO SECURE SOCIAL ACCEPTABILITY UNDER PRESIDENTIAL DECREE NO. 1586. IV THE MOTIVATION OF ALVAREZ IN RECALLING THE CLEARANCE FOR AUTOMATIC CONVERSION HE ISSUED ON 25 OCTOBER 2001 WAS NOT DUE TO ANY SHORTCOMING FROM PICOP BUT DUE TO HIS DETERMINATION TO EXCLUDE 28,125 HECTARES FROM THE CONVERSION AND OTHER THINGS. On 15 December 2008, on Motion by PICOP, the Third Division of this Court resolved to refer the consolidated cases at bar to the Court en banc. On 16 December 2008, this Court sitting en banc resolved to accept the said cases and set them for oral arguments. Oral arguments were conducted on 10 February 2009. PICOP’s Cause of Action: Matters PICOP Should Have Proven to Be Entitled to a Writ of Mandamus In seeking a writ of mandamus to compel the issuance of an IFMA in its favor, PICOP relied on a 29 July 1969 Document, the so-called Presidential Warranty approved by then President Ferdinand E. Marcos in favor of PICOP’s predecessor-ininterest, Bislig Bay Lumber Company, Inc. (BBLCI). PICOP’s cause of action is summarized in paragraphs 1.6 and 4.19 of its Petition for Mandamus: 1.6 Respondent Secretary impaired the obligation of contract under the said Warranty and Agreement of 29 July 1969 by refusing to respect the tenure; and its renewal for another twenty five (25) years, of PICOP over the area covered by the said Agreement which consists of permanent forest lands with

an aggregate area of 121,587 hectares and alienable and disposable 464 464SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. lands with an aggregate area of approximately 21,580 hectares, and petitioner’s exclusive right to cut, collect and remove sawtimber and pulpwood therein and the peaceful and adequate enjoyment of the said area as described and specified in petitioner’s Timber License Agreement (TLA) No. 43 guaranteed by the Government, under the Warranty and Agreement of 29 July 1969.13 4.19 Respondent is in violation of the Constitution and has impaired the obligation of contract by his refusal to respect: a) the tenurial rights of PICOP over the forest area covered by TLA No. 43, as amended and its renewal for another twenty five (25) years; b) the exclusive right of PICOP to cut, collect and remove sawtimber and pulpwood therein; and c) PICOP’s peaceful and adequate enjoyment of the said area which the government guaranteed under the Warranty and Agreement of 29 July 1969.”14 The grounds submitted by PICOP in its Petition for Mandamus are as follows: I Respondent secretary has unlawfully refused and/or neglected to sign and execute the IFMA contract of PICOP even as the latter has complied with all the legal requirements for the automatic conversion of TLA No. 43, as amended, into an IFMA.

II Respondent Secretary acted with grave abuse of discretion and/or in excess of jurisdiction in refusing to sign and execute PICOP’s IFMA contract, notwithstanding that PICOP had complied with all the requirements for Automatic Conversion under DAO 99-53, as in fact Automatic Conversion was already cleared in October, 2001, and was a completed process. _______________ 13 PICOP’s Petition for Mandamus; Records, p. 5. 14 Id.; Records, p. 20. 465 VOL. 606, DECEMBER 3, 2009465 Alvarez vs. PICOP Resources, Inc. III Respondent Secretary has impaired the obligation of contract under a valid and binding warranty and agreement of 29 July 1969 between the government and PICOP’s predecessor-ininterest, by refusing to respect: a) the tenure of PICOP, and its renewal for another twenty five (25) years, over the TLA No.43 area covered by said agreement; b) the exclusive right to cut, collect and remove sawtimber and pulpwood timber; and c) the peaceful and adequate enjoyment of the said area. IV As a result of respondent Secretary’s unlawful refusal and/or neglect to sign and deliver the IFMA contract, and violation of the constitutional rights of PICOP against non-impairment of the obligation of contract (Sec. 10, Art. III, 1997 [sic] Constitution), PICOP suffered grave and irreparable damages.15

Petitions for Mandamus are governed by Rule 65 of the Rules of Court, Section 3 of which provides: “SEC. 3. Petition for mandamus.—When any tribunal, corporation, board, officer or person unlawfully neglects the performance of an act which the law specifically enjoins as a duty resulting from an office, trust, or station, or unlawfully excludes another from the use and enjoyment of a right or office to which such other is entitled, and there is no other plain, speedy and adequate remedy in the ordinary course of law, the person aggrieved thereby may file a verified petition in the proper court, alleging the facts with certainty and praying that judgment be rendered commanding the respondent, immediately or at some other time to be specified by the court, to do the act required to be done to protect the rights of the petitioner, and to pay the damages sustained by the petitioner by reason of the wrongful acts of the respondent.” (Emphasis supplied.) _______________ 15 Id., at pp. 20-21. 466 466SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. PICOP is thus asking this Court to conclude that the DENR Secretary is specifically enjoined by law to issue an IFMA in its favor. An IFMA, as defined by DENR Administrative Order (DAO) No. 99-53,16 is— “[A] production-sharing contract entered into by and between the DENR and a qualified applicant wherein the DENR grants to the latter the exclusive right to develop, manage, protect and

utilize a specified area of forestland and forest resource therein for a period of 25 years and may be renewed for another 25year period, consistent with the principle of sustainable development and in accordance with an approved CDMP, and under which both parties share in its produce.”17 PICOP stresses the word “automatic” in Section 9 of this DAO No. 99-53: “Sec. 9. Qualifications of Applicants.—The applicants for IFMA shall be: (a) A Filipino citizen of legal age; or, (b) Partnership, cooperative or corporation whether public or private, duly registered under Philippine laws. However, in the case of application for conversion of TLA into IFMA, an automatic conversion after proper evaluation shall be allowed, provided the TLA holder shall have signified such intention prior to the expiry of the TLA, PROVIDED further, that the TLA holder has showed satisfactory performance and have complied in the terms of condition of the TLA and pertinent rules and regulations.” (Emphasis supplied.)18 This administrative regulation provision allowing automatic conversion after proper evaluation can hardly qual_______________ 16 Regulations Governing the Integrated Forest Management Program (IFMP); Records, pp. 41-55. 17 Records, p. 43. 18 Id., at pp. 46. 467 VOL. 606, DECEMBER 3, 2009467 Alvarez vs. PICOP Resources, Inc.

ify as a law, much less a law specifically enjoining the execution of a contract. To enjoin is “to order or direct with urgency; to instruct with authority; to command.”19 “‘Enjoin’ is a mandatory word, in legal parlance, always; in common parlance, usually.”20 The word “allow,” on the other hand, is not equivalent to the word “must,” and is in no sense a command.21 As an extraordinary writ, the remedy of mandamus lies only to compel an officer to perform a ministerial duty, not a discretionary one; mandamus will not issue to control the exercise of discretion of a public officer where the law imposes upon him the duty to exercise his judgment in reference to any manner in which he is required to act, because it is his judgment that is to be exercised and not that of the court.22 The execution of agreements, in itself, involves the exercise of discretion. Agreements are products of negotiations and mutual concessions, necessitating evaluation of their provisions on the part of both parties. In the case of the IFMA, the evaluation on the part of the government is specifically mandated in the aforequoted Section 3 of DAO No. 99-53. This evaluation necessarily involves the exercise of discretion and judgment on the part of the DENR Secretary, who is tasked not only to negotiate the sharing of the profit arising from the IFMA, but also to evaluate the compliance with the requirements on the part of the applicant. _______________ 19 14A Words and Phrases, West Publishing Co., p. 290 (1952), citing Lawrence v. Cooke, N.Y., 32 Hun 126, 134. 20 Id., citing Clifford v. Stewart, 49 A. 52, 55, 95 Me. 38.

21 3 Words and Phrases, West Publishing Co., p. 344 (1953), citing Giffin v. Petree, 46 S.W. 2d 609, 618, 226 Mo. App. 718. 22 Akbayan-Youth v. Commission on Elections, 407 Phil. 618, 646; 356 SCRA 318. 342 (2001). 468 468SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. Furthermore, as shall be discussed later, the period of an IFMA that was merely automatically converted from a TLA in accordance with Section 9, paragraph 2 of DAO No. 99-53 would only be for the remaining period of the TLA. Since the TLA of PICOP expired on 26 April 2002, the IFMA that could have been granted to PICOP via the automatic conversion provision in DAO No. 99-53 would have expired on the same date, 26 April 2002, and the PICOP’s Petition for Mandamus would have become moot. This is where the 1969 Document, the purported Presidential Warranty, comes into play. When PICOP’s application was brought to a standstill upon the evaluation that PICOP had yet to comply with the requirements for such conversion, PICOP refused to attend further meetings with the DENR and instead filed a Petition for Mandamus, insisting that the DENR Secretary had impaired the obligation of contract by his refusal to respect: a) the tenurial rights of PICOP over the forest area covered by TLA No. 43, as amended, and its renewal for another twenty-five (25) years; b) the exclusive right of PICOP to cut, collect and remove sawtimber and pulpwood therein; and c) PICOP’s peaceful and adequate enjoyment of the said

area which the government guaranteed under the Warranty and Agreement of 29 July 1969. 23 PICOP is, thus, insisting that the government is obligated by contract to issue an IFMA in its favor because of the 1969 Document. A contract, being the law between the parties, can indeed, with respect to the State when it is a party to such contract, qualify as a law specifically enjoining the performance of an act. Hence, it is possible that a writ of _______________ 23 PICOP’s Petition for Mandamus; Records, p. 20. 469 VOL. 606, DECEMBER 3, 2009469 Alvarez vs. PICOP Resources, Inc. mandamus may be issued to PICOP, but only if it proves both of the following: 1) That the 1969 Document is a contract recognized under the non-impairment clause; and 2) That the 1969 Document specifically enjoins the government to issue the IFMA. If PICOP fails to prove any of these two matters, the grant of a privileged writ of mandamus is not warranted. This was why we pronounced in the assailed Decision that the overriding controversy involved in the Petition was one of law.24 If PICOP fails to prove any of these two matters, more significantly its assertion that the 1969 Document is a contract, PICOP fails to prove its cause of action.25 Not _______________ 24 Decision, p. 26.

25 The nature of PICOP’s Petition for Mandamus reads in full: NATURE OF THE PETITION/COMPLAINT 1. This is a Special Civil Action for Mandamus, with prayer for issuance of Writ of Preliminary Prohibitory and Mandatory Injunction with Damages under Rule 65 of the 1997 Rules of Civil Procedure, as amended. 1.1 Petitioner invokes the jurisdiction of this Honorable Court conferred by Batas Pambansa Blg. 129, The Judiciary Reorganization Act of 1980, under Sections 21 thereof: “Sec. 21. Original Jurisdiction in other cases. Regional Trial Court shall exercise original jurisdiction: (1) In the issuance of writs of certiorari, prohibition mandamus, quo warranto, habeas corpus and injunction which may be enforced in any part of their respective regions; xxx (underscoring supplied). 1.2 Petitioner brings the instant petition for the grant of the privileged writ of mandamus, with prayer for the issuance of provisional remedies of preliminary prohibitory and mandatory injunction pendente lite against respondent Secretary for illegal acts which impinge on and violate the constitutional rights of petitioner, and respondent Secretary has acted without jurisdiction or in excess of jurisdiction or so capri470 470SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. even the satisfactory compliance with all legal and administrative requirements for an IFMA would save PICOP’s Petition for Mandamus. _______________

ciously as to constitute an abuse of discretion amounting to excess of jurisdiction. 1.3 Appropriateness of Recourse to Mandamus. The 1997 Rules of Civil Procedure, as amended, under Rule 65, Sec. 3 thereof provides relief against official acts by public officers which are illegal and traduces fundamental rights of a party aggrieved, or acts done without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction. Thus: “Sec. 3. Petition for Mandamus.—When any tribunal, corporation, board, officer or person unlawfully neglects the performance of an act which the law specifically enjoins as a duty resulting from an office, trust or station, or unlawfully excludes another person from the use and enjoyment of a right or office to which such other is entitled, and there is no other plain, speedy and adequate remedy in the ordinary course of law, the person aggrieved thereby may file a verified petition in the proper court, alleging the facts with certainty and praying that judgment be rendered commanding the respondent, immediately or at some other time to be specified by the court, to do the act required to be done to protect the rights of the petitioner, and to pay damages sustained by the petitioner by reason of the wrongful acts of the respondent.” (Emphasis supplied) 1.4 The jurisdiction of this Honorable Court to adjudicate the matters raised in this petition and to issue the privileged writ of mandamus is a settled matter. In Tañada v. Angara, 272 SCRA 18 [1997], the Supreme Court held:

The jurisdiction of this Court to adjudicate the matters raised in the petition is clearly set out in the 1987 Constitution, as follows: Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the government. 471 VOL. 606, DECEMBER 3, 2009471 Alvarez vs. PICOP Resources, Inc. The reverse, however, is not true. The 1969 Document expressly states that the warranty as to the tenure of PICOP is “subject to compliance with constitutional and _______________ The foregoing text emphasizes the judicial department’s duty and power to strike down grave abuse of discretion on the part of any branch or instrumentality of government including Congress. It is innovation in our political law. As explained by former Chief Justice Roberto Concepcion, the judiciary is the final arbiter on the question of whether or not a branch of government or any of its officials has acted without jurisdiction or in excess of jurisdiction or so capriciously as to constitute an abuse of discretion amounting to excess of jurisdiction. This is not a judicial power but a duty to pass judgment on matters of this nature. As this Court has repeatedly and firmly emphasized in many cases, it will not shirk, digress from or abandon its sacred duty

and authority to uphold the Constitution in matters that involve grave abuse of discretion brought before it in appropriate cases, committed by any officer, agency, instrumentality or department of the government. As the petition alleges grave abuse of discretion and as there is no other plain, speedy or adequate remedy in the ordinary course of law, we have no hesitation at all in holding that this petition should be given due course and the vital questions raised therein ruled upon under Rule 65 of the Rules of Court. Indeed, certiorari, prohibition and mandamus are appropriate remedies to raise constitutional issues and to review and/or prohibit/nullify, when proper, acts of legislative and executive officials. On this, we have no equivocation. 1.5 By this privileged writ of mandamus, petitioner seeks to: 1.5.1 Compel respondent Department of Environment and Natural Resources (DENR) Secretary Heherson T. Alvarez to execute and deliver the Integrated Forestry Management Agreement (IFMA for short), and issue the corresponding IFMA number assignment to petitioner and to which it has a clear legal right and respondent has the legal duty to perform. Respondent DENR Secretary has unlawfully refused and neglected and continue to unlawfully refuse and neglect, to issue the IFMA and corresponding IFMA number assignment to PICOP, the performance of which the law specifically enjoins as a duty resulting from his office. Respondent Secretary Alvarez in refusing to sign, execute and deliver the IFMA and corresponding IFMA assignment number to PICOP has acted without jurisdiction or in excess of jurisdiction or so capriciously as 472

472SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. statutory requirements as well as with existingC policy on timber concessions.” Thus, if PICOP proves the two _______________ to constitute an abuse of discretion amounting to excess or lack of jurisdiction. 1.5.2 Compel respondent DENR Secretary to abide by and respect the obligation of contract embodied under a letter warranty and agreement entered into by and between the Government and PICOP’s predecessor-in-interest dated 29 July 1969, with the following covenants: “This has reference to the request of the Board of Investment through its Chairman in a letter dated July 16, 1969 for a warranty on the boundaries of your concession area under Timber License Agreement No. 43, as amended. We are made to understand that your company is committed to support the first large scale integrated wood processing complex (hereinafter called “The Project”) and that such support will be provided not only in the form of the supply of pulpwood and other wood materials from your concession but also by making available funds generated out of your own operations, to supplement PICOP’s operational sources of funds and other financial arrangements made by him. In order that your company may provide such support effectively, it is understood that you will call upon your stockholders to take such steps as may be necessary to effect in unification of managerial, technical, economical and manpower resources between your company and PICOP.

It is in the public interest to promote industries that will enhance the proper conservation of our forest resources as well as insure the maximum utilization thereof to the benefit of the national economy. The Administration feels that the PICOP project is one such industry which should enjoy priority over the usual logging operations hitherto practiced by ordinary timber licenses for this reason, we are pleased to consider favorably the request. We confirm that your Timber License Agreement No. 43, as amended, (copy of which is attached as Annex “A”) hereof attached to form part and parcel of this warranty) definitely establishes the boundary lines of your concession area which consists of permanent forest lands with an aggregate area of 121,587 hectares and alienable or disposable lands with an aggregate area of approximately 21,580 hectares. We further confirm that your tenure over the area and exclusive right to cut, collect and remove sawtimber and pulpwood 473 VOL. 606, DECEMBER 3, 2009473 Alvarez vs. PICOP Resources, Inc. above-mentioned matters, it still has toD prove compliance with statutory and administrative requirements for the conversion of its TLA into an IFMA. _______________ shall be for the period ending on April 26, 1997; said period to be renewable for other 25 years subject to compliance with constitutional and statutory requirements as well as with existing policy on timber concessions.

The peaceful and adequate enjoyment by you of your area as described and specified in your aforesaid amended Timber License Agreement No. 43 is hereby warranted provided that pertinent laws, regulations and the terms and conditions of your license agreement are observed.” Copy of which is attached as Annex “A.” 1.6 Respondent Secretary impaired the obligation of contract under the said Warranty and Agreement of 29 July 1969 by refusing to respect the tenure; and its renewal for other twenty five (25) years, of PICOP over the area covered by said Agreement which consists of permanent forest lands with an aggregate area of 121,587 hectares and alienable or disposable lands with an aggregate area of approximately 21,580 hectares, and petitioner’s exclusive right to cut, collect and remove sawtimber and pulpwood therein and the peaceful and adequate enjoyment of the said area as described and specified in petitioner’s Timber License Agreement (TLA) No. 43 guaranteed by the Government, under the Warranty and Agreement of 29 July 1969. 1.7 The Bill of Rights of the 1987 Constitution guarantees the non-impairment of the obligation of contract, providing in Sec. 10, Art. III thereof that: “Sec. 10. No law impairing the obligation of contracts shall be passed.” 1.8 The obligation of a contract is the law or duty which binds the parties to perform their agreement according to its terms or intent (Sturgess v. Crownshields, 4 Wheat 122). The treaties on the Constitution state the scope of terms “law” and “contract,” to mean:

(1) The law, the enactment of which is prohibited, includes executive and administrative orders issued by heads of departments, and ordinances enacted by local governments. (citing Lim v. Secretary of Agriculture, 34 SCRA 751 [1970]). (2) The contract, the obligation of which is secured against impairment by the Constitution, includes contracts entered into by the Government (citing Maddumba v. GSIS, 182 SCRA 281 474 474SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. Exhaustion of Administrative Remedies PICOP uses the same argument—that the government is bound by contract to issue the IFMA—in its refusal to exhaust all administrative remedies by not appealing the _______________ [1990]). An example of impairment by law is when a tax exemption based on a contract entered into by the government is revoked by a letter taxing statute (citing Casanova v. Hord, 8 Phil. 125 [1907]). (3) The State when contracting does so upon the same terms as a private individual or corporation and may not plead its sovereignty as justification in impairing a contractual obligation which it has assumed (citing Willoughby, op. cit. p. 1224). (4) In a Contract, a party acquires a right and the other assumed an obligation arising from the same (Art. 1305, New Civil Code). A contract is the law between the contracting parties, their assigns, and their heirs (Arts. 1159, 1311 par. 1,

Civil Code) (De Leon, Philippine Constitutional Law, Principles and Cases, 1999 Ed., pp. 682, 283). As used in the Constitution, the word “Contracts” includes other arrangement not normally considered to be contracts such as a legislative grant of a public land to particular individuals, such that a subsequent attempt by the State to annul the title of purchasers in good faith from the grantee would be unconstitutional (citing Fletcher v. Peck, 10 US 87). (Ibid., p. 6). 1.9 There is no appeal or any other plain, speedy and adequate remedy in the ordinary course of law except the privileged writ of mandamus prayed for in this petition. 1.10 This petition falls as an exception to the exhaustion of administrative remedies. The acts of respondent DENR Secretary complained of in this petition are patently illegal; in derogation of the constitutional rights of petitioner against nonimpairment of the obligation of contracts; without jurisdiction, or in excess of jurisdiction or so capriciously as to constitute an abuse of discretion amounting to excess or lack of jurisdiction; and moreover, the failure or refusal of a high government official such as a Department head from whom relief is brought to act on the matter was considered equivalent to exhaustion of administrative remedies (Sanoy v. Tantuico, 50 SCRA 455 [1973]), and there are compelling and urgent reasons for judicial intervention (Bagatsing v. Ramirez, 74 SCRA 306 [1976]). (PICOP’s Petition for Mandamus, Records pp. 1-6.) 475 VOL. 606, DECEMBER 3, 2009475 Alvarez vs. PICOP Resources, Inc.

alleged illegal non-issuance of the IFMA to the Office of the President. PICOP claimed in its Petition for Mandamus with the trial court that: 1.10 This petition falls as an exception to the exhaustion of administrative remedies. The acts of respondent DENR Secretary complained of in this petition are patently illegal; in derogation of the constitutional rights of petitioner against nonimpairment of the obligation of contracts; without jurisdiction, or in excess of jurisdiction or so capriciously as to constitute an abuse of discretion amounting to excess or lack of jurisdiction; and moreover, the failure or refusal of a high government official such as a Department head from whom relief is brought to act on the matter was considered equivalent to exhaustion of administrative remedies (Sanoy v. Tantuico, 50 SCRA 455 [1973]), and there are compelling and urgent reasons for judicial intervention (Bagatsing v. Ramirez, 74 SCRA 306 [1976]).” Thus, if there has been no impairment of the obligation of contracts in the DENR Secretary’s non-issuance of the IFMA, the proper remedy of PICOP in claiming that it has complied with all statutory and administrative requirements for the issuance of the IFMA should have been with the Office of the President. This makes the issue of the enforceability of the 1969 Document as a contract even more significant. The Nature and Effects of the Purported 29 July 1969 Presidential Warranty Base Metals Case

PICOP challenges our ruling that the 1969 Document is not a contract. Before we review this finding, however, it must be pointed out that one week after the assailed Deci476 476SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. sion, another division of this Court promulgated a Decision concerning the very same 1969 Document. Thus, in PICOP Resources, Inc. v. Base Metals Mineral Resources Corporation,26 five other Justices who were still unaware of this Division’s Decision,27 came up with the same conclusion as regards the same issue of whether former President Marcos’s Presidential Warranty is a contract: “Finally, we do not subscribe to PICOP’s argument that the Presidential Warranty dated September 25, 1968 is a contract protected by the non-impairment clause of the 1987 Constitution. An examination of the Presidential Warranty at once reveals that it simply reassures PICOP of the government’s commitment to uphold the terms and conditions of its timber license and guarantees PICOP’s peaceful and adequate possession and enjoyment of the areas which are the basic sources of raw materials for its wood processing _______________ 26 G.R. No. 163509, 6 December 2006, 510 SCRA 400, penned by Associate Justice Dante O. Tinga with Associate Justices Leo A. Quisumbing, Antonio T. Carpio, Conchita Carpio-Morales, and Presbitero J. Velasco, Jr., concurring.

27 That the erstwhile Third Division of this Court was still unaware of this Division’s Decision is shown by the following excerpts in its Decision: PICOP brings to the Court’s attention the case of PICOP Resources, Inc. v. Hon. Heherson T. Alvarez, wherein the Court of Appeals ruled that the Presidential Warranty issued to PICOP for its TLA No. 43 dated July 29, 1969, a TLA distinct from PTLA No. 47 involved in this case, is a valid contract involving mutual prestations on the part of the Government and PICOP. xxxx The case of PICOP Resources, Inc. v. Hon. Heherson T. Alvarez, supra, cited by PICOP cannot be relied upon to buttress the latter’s claim that a presidential warranty is a valid and subsisting contract between PICOP and the Government because the decision of the appellate court in that case is still pending review before the Court’s Second Division. (Id., at pp. 411-415.) 477 VOL. 606, DECEMBER 3, 2009477 Alvarez vs. PICOP Resources, Inc. complex. The warranty covers only the right to cut, collect, and remove timber in its concession area, and does not extend to the utilization of other resources, such as mineral resources, occurring within the concession. The Presidential Warranty cannot be considered a contract distinct from PTLA No. 47 and FMA No. 35. We agree with the OSG’s position that it is merely a collateral undertaking which cannot amplify PICOP’s rights under its timber license.

Our definitive ruling in Oposa v. Factoran that a timber license is not a contract within the purview of the non-impairment clause is edifying. We declared: Needless to say, all licenses may thus be revoked or rescinded by executive action. It is not a contract, property or a property right protected by the due process clause of the Constitution. In Tan vs. Director of Forestry, this Court held: “x x x A timber license is an instrument by which the State regulates the utilization and disposition of forest resources to the end that public welfare is promoted. A timber license is not a contract within the purview of the due process clause; it is only a license or a privilege, which can be validly withdrawn whenever dictated by public interest or public welfare as in this case. ‘A license is merely a permit or privilege to do what otherwise would be unlawful, and is not a contract between the authority, federal, state, or municipal, granting it and the person to whom it is granted; neither is it a property or a property right, nor does it create a vested right; nor is it taxation’ (C.J. 168). Thus, this Court held that the granting of license does not create irrevocable rights, neither is it property or property rights (People vs. Ong Tin, 54 O.G. 7576). x x x” We reiterated this pronouncement in Felipe Ysmael, Jr. & Co., Inc. vs. Deputy Executive Secretary: “x x x Timber licenses, permits and license agreements are the principal instruments by which the State regulates the utilization and disposition of forest re478 478SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc.

sources to the end that public welfare is promoted. And it can hardly be gainsaid that they merely evidence a privilege granted by the State to qualified entities, and do not vest in the latter a permanent or irrevocable right to the particular concession area and the forest products therein. They may be validly amended, modified, replaced or rescinded by the Chief Executive when national interests so require. Thus, they are not deemed contracts within the purview of the due process of law clause [See Sections 3(ee) and 20 of Pres. Decree No. 705, as amended. Also, Tan v. Director of Forestry, G.R. No. L-24548, October 27, 1983, 125 SCRA 302].” Since timber licenses are not contracts, the non-impairment clause, which reads: “SEC. 10. No law impairing the obligation of contracts shall be passed.” cannot be invoked. The Presidential Warranty cannot, in any manner, be construed as a contractual undertaking assuring PICOP of exclusive possession and enjoyment of its concession areas. Such an interpretation would result in the complete abdication by the State in favor of PICOP of the sovereign power to control and supervise the exploration, development and utilization of the natural resources in the area.”28 The Motion for Reconsideration was denied with finality on 14 February 2007. A Second Motion for Reconsideration filed by PICOP was denied on 23 May 2007. PICOP insists that the pronouncement in Base Metals is a mere obiter dictum, which would not bind this Court in resolving this Motion for Reconsideration. In the oral arguments,

however, upon questioning from the ponente himself of Base Metals, it was agreed that the issue of _______________ 28 Id., at pp. 426-428. 479 VOL. 606, DECEMBER 3, 2009479 Alvarez vs. PICOP Resources, Inc. whether the 1969 Document is a contract was necessary in the resolution of Base Metals: JUSTICE TINGA: And do you confirm that one of the very issues raised by PICOP in that case [PICOP Resources Inc. v. Base Metal Mineral Resources Corporation] revolves around its claim that a Presidential Warranty is protected by the non-impairment c[l]ause of the Constitution. ATTY. AGABIN: Yes, I believe that statement was made by the Court, your Honor. JUSTICE TINGA: Yes. And that claim on the part of PICOP necessarily implies that the Presidential Warranty according to PICOP is a contract protected by the non-impairment clause. ATTY. AGABIN: Yes, Your Honor. JUSTICE TINGA: Essentially, the PICOP raised the issue of whether the Presidential Warranty is a contract or not. ATTY. AGABIN: Yes, Your Honor.

JUSTICE TINGA: And therefore any ruling on the part of the Court on that issue could not be an obiter dictum. ATTY. AGABIN: Your Honor, actually we believe that the basic issue in that case was whether or not Base Metals could conduct mining activities underneath the forest reserve allotted to PICOP and the Honorable Court ruled that the Mining Act of 1995 as well as the Department Order of DENR does not disallow mining activity under a forest reserve. JUSTICE TINGA: But it was PICOP itself which raised the claim that a Presidential Warranty is a contract. And therefore be, should be protected on the under the non-impairment clause of the Constitution. 480 480SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. ATTY. AGABIN: Yes, Your Honor. Except that… JUSTICE TINGA: So, how can you say now that the Court merely uttered, declared, laid down an obiter dictum in saying that the Presidential Warranty is not a contract, and it is not being a contract, it is not prohibited by the non-impairment clause. ATTY. AGABIN: This Honorable Court could have just ruled, held that the mining law allows mining activities under a forest reserve

without deciding on that issue that was raised by PICOP, your Honor, and therefore we believe…. JUSTICE TINGA: It could have been better if PICOP has not raised that issue and had not claimed that the Presidential Warranty is not a contract. ATTY. AGABIN: Well, that is correct, your Honor except that the Court could have just avoided that question. Because… JUSTICE TINGA: Why[?] ATTY. AGABIN: It already settled the issue, the basic issue. JUSTICE TINGA: Yes, because the Court in saying that merely reiterated a number of rulings to the effect that the Presidential Warranty, a Timber License for that matter is not a contract protected by the non-impairment laws. ATTY. AGABIN: Well, it is our submission, your Honor, that it is obiter because, that issue even a phrase by PICOP was not really fully argued by the parties for the Honorable Court and it seems from my reading at least it was just an aside given by the Honorable Court to decide on that issue raised by PICOP but it was not necessary to the decision of the court. JUSTICE TINGA: It was not necessary[?] 481 VOL. 606, DECEMBER 3, 2009481 Alvarez vs. PICOP Resources, Inc.

ATTY. AGABIN: To the decision of the Court. JUSTICE TINGA: It was. ATTY. AGABIN: It was not necessary. JUSTICE TINGA: It was. ATTY. AGABIN: Yes. JUSTICE TINGA: And PICOP devoted quite a number of pages in [its] memorandum to that issue and so did the Court [in its Decision]. ATTY. AGABIN: Anyway, your Honor, we beg the Court to revisit, not to…29 Interpretation of the 1969 Document That Would Be in Harmony with the Constitution To remove any doubts as to the contents of the 1969 Document, the purported Presidential Warranty, below is a complete text thereof: Republic of the Philippines Department of Agriculture and Natural Resources OFFICE OF THE SECRETARY Diliman, Quezon City D-53, Licenses (T.L.A. No. 43) Bislig Bay Lumber Co., Inc.

(Bislig, Surigao) July 29, 1969 Bislig Bay Lumber Co., Inc. [unreadable word] Bldg. _______________ 29 TSN, Oral Arguments, pp. 174-181. 482 482SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. Makati, Rizal S i r s: This has reference to the request of the Board of Investments through its Chairman in a letter dated July 16, 1969 for a warranty on the boundaries of your concession area under Timber License Agreement No. 43, as amended. We are made to understand that your company is committed to support the first large scale integrated wood processing complex hereinafter called: “The Project”) and that such support will be provided not only in the form of the supply of pulpwood and other wood materials from your concession but also by making available funds generated out of your own operations, to supplement PICOP’s operational sources of funds and other financial arrangements made by him. In order that your company may provide such support effectively, it is understood that you will call upon your stockholders to take such steps as may be necessary to effect a unification of managerial, technical, economic and manpower resources between your company and PICOP.

It is in the public interest to promote industries that will enhance the proper conservation of our forest resources as well as insure the maximum utilization thereof to the benefit of the national economy. The administration feels that the PICOP project is one such industry which should enjoy priority over the usual logging operations hitherto practiced by ordinary timber licensees: For this reason, we are pleased to consider favorably the request. We confirm that your Timber License Agreement No. 43, as amended (copy of which is attached as Annex “A” hereof which shall form part and parcel of this warranty) definitely establishes the boundary lines of your concession area which consists of permanent forest lands with an aggregate area of 121,587 hectares and alienable or disposable lands with an aggregate area of approximately 21,580 hectares. 483 VOL. 606, DECEMBER 3, 2009483 Alvarez vs. PICOP Resources, Inc. We further confirm that your tenure over the area and exclusive right to cut, collect and remove sawtimber and pulpwood shall be for the period ending on April 26, 1977; said period to be renewable for other 25 years subject to compliance with constitutional and statutory requirements as well as with existing policy on timber concessions. The peaceful and adequate enjoyment by you of your area as described and specified in your aforesaid amended Timber License Agreement No. 43 is hereby warranted provided that pertinent laws, regulations and the terms and conditions of your license agreement are observed.

Very truly yours, (Sgd.) FERNANDO LOPEZ Secretary of Agriculture and Natural Resources Encl.: RECOMMENDED BY: (Sgd.) JOSE VIADO Acting Director of Forestry APPROVED: (Sgd.) FERDINAND E. MARCOS President of the Philippines ACCEPTED: BISLIG BAY LBR. CO., INC. By: (Sgd.) JOSE E. SORIANO President PICOP interprets this document in the following manner: 484 484SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. 6.1 It is clear that the thrust of the government warranty is to establish a particular area defined by boundary lines of TLA No. 43 for the PICOP Project. In consideration for PICOP’s commitment to pursue and establish the project requiring huge investment/funding from stockholders and lending institutions, the government provided a warranty that ensures the continued and exclusive right of PICOP to source its raw materials needs from the forest and renewable trees within the areas established.

6.2 As a long-term support, the warranty covers the initial twenty five (25) year period and is renewable for periods of twenty five (25) years provided the project continues to exist and operate. Very notably, the wording of the Presidential Warranty connotes that for as long as the holder complies with all the legal requirements, the term of the warranty is not limited to fifty (50) years but other twenty five (25) years. 6.3 Note must be made that the government warranted that PICOP’s tenure over the area and exclusive right to cut, collect and remove saw timber and pulpwood shall be for the period ending on 26 April 1977 and said period to be renewable for other 25 years subject to “compliance with constitutional and statutory requirements as well as existing policy on timber requirements.” It is clear that the renewal for other 25 years, not necessarily for another 25 years is guaranteed. This explains why on 07 October 1977, TLA No. 43, as amended, was automatically renewed for another period of twenty five (25) years to expire on 26 April 2002.30 PICOP’s interpretation of the 1969 Document cannot be sustained. PICOP’s claim that the term of the warranty is not limited to fifty years, but that it extends to other fifty years, perpetually, violates Section 2, Article XII of the Constitution which provides: _______________ 30 PICOP’s Petition for Mandamus; Records, pp. 26-27. 485 VOL. 606, DECEMBER 3, 2009485 Alvarez vs. PICOP Resources, Inc.

“Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law. In cases of water rights for irrigation, water supply fisheries, or industrial uses other than the development of water power, beneficial use may be the measure and limit of the grant.” Mr. Justice Dante O. Tinga’s interpretation of the 1969 Document is much more in accord with the laws and the Constitution. What one cannot do directly, he cannot do indirectly. Forest lands cannot be alienated in favor of private entities. Granting to private entities, via a contract, a permanent, irrevocable, and exclusive possession of and right over forest lands is tantamount to granting ownership thereof. PICOP, it should be noted, claims nothing less than having exclusive, continuous and uninterrupted possession of its concession areas,31 where all other entrants are illegal,32 and where so-called “illegal settlers and squatters” are apprehended.33

_______________ 31 PICOP’s Memorandum, p. 101; Rollo, p. 1262. 32 PICOP’s Motion for Reconsideration, p. 50; Rollo, p. 1391a; TSN, 19 September 2002, pp. 27-35; 41-45. 33 Id., at p. 51; Rollo, p. 1391b. 486 486SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. IFMAs are production-sharing agreements concerning the development and utilization of natural resources. As such, these agreements “may be for a period not exceeding twentyfive years, renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law.” Any superior “contract” requiring the State to issue TLAs and IFMAs whenever they expire clearly circumvents Section 2, Article XII of the Constitution, which provides for the only permissible schemes wherein the full control and supervision of the State are not derogated: co-production, joint venture, or production-sharing agreements within the time limit of twentyfive years, renewable for another twenty-five years. On its face, the 1969 Document was meant to expire on 26 April 2002, upon the expiration of the expected extension of the original TLA period ending on 26 April 1977: “We further confirm that your tenure over the area and exclusive right to cut, collect and remove sawtimber and pulpwood shall be for the period ending on April 26, 1977; said period to be renewable for other 25 years subject to compliance with constitutional and statutory requirements as well as with existing policy on timber concessions.”

Any interpretation extending the application of the 1969 Document beyond 26 April 2002 and any concession that may be granted to PICOP beyond the said date would violate the Constitution, and no amount of legal hermeneutics can change that. Attempts of PICOP to explain its way out of this Constitutional provision only led to absurdities, as exemplified in the following excerpt from the oral arguments: JUSTICE CARPIO: The maximum trend of agreement to develop and utilize natural resources like forest products is 25 years plus another 25 years or a total of 50 years correct? 487 VOL. 606, DECEMBER 3, 2009487 Alvarez vs. PICOP Resources, Inc. ATTY. AGABIN Yes, Your Honor. JUSTICE CARPIO: That is true for the 1987, 1973, 1935 Constitution, correct? ATTY. AGABIN: Yes, Your Honor. JUSTICE CARPIO: The TLA here, TLA 43, expired, the first 25 years expired in 1977, correct? ATTY. AGABIN: Yes, Your Honor. JUSTICE CARPIO: And it was renewed for another 25 years until 2002, the 50th year?

ATTY. AGABIN: Yes, Your Honor. JUSTICE CARPIO: Now, could PICOP before the end of the 50th year let’s say in 2001, one year before the expiration, could it have asked for an extension of another 25 years of its TLA agreement[?] ATTY. AGABIN: I believe so, Your Honor. JUSTICE CARPIO: But the Constitution says, maximum of fifty years. How could you ask for another 25 years of its TLA. ATTY. AGABIN: Well, your Honor, we believe on a question like this, this Honorable Court should balance the interest. JUSTICE CARPIO: The Constitution is very clear, you have only a maximum of 50 years, 25 plus another 25. PICOP could never have applied for an extension, for a third 25-year term whether under the 1935 Constitution, the 1973 Constitution and the 1987 Constitution, correct? 488 488SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. ATTY. AGABIN: Your Honor, except that we are invoking the warranty, the terms of the warranty…. JUSTICE CARPIO: Can the warranty prevail over the Constitution? ATTY. AGABIN:

Well, it is a vested right, your Honor. JUSTICE CARPIO: Yes, but whatever it is, can it prevail over the Constitution? ATTY. AGABIN: The Constitution itself provides that vested rights should be …. JUSTICE CARPIO: If it is not in violation of specific provision of the Constitution. The Constitution says, 25 years plus another 25 years, that’s the end of it. You mean to say that a President of the Philippines can give somebody 1,000 years license? ATTY. AGABIN: Well, that is not our position, Your Honor. Because our position is that …. JUSTICE CARPIO: My question is, what is the maximum term, you said 50 years. So, my next question is, can PICOP apply for an extension of another 25 years after 2002, the 50th year? ATTY. AGABIN: Yes, based on the contract of warranty, Your Honor, because the contract of warranty…. JUSTICE CARPIO: But in the PICOP license it is very clear, it says here, provision 28, it says the license agreement is for a total of 50 years. I mean it is very simple, the President or even Congress cannot pass a law extending the license, whatever kind of license to utilize natural resources for more than fifty year[s]. I mean even the law cannot do that. It cannot prevail over the Constitution. Is that correct, Counsel?

489 VOL. 606, DECEMBER 3, 2009489 Alvarez vs. PICOP Resources, Inc. ATTY. AGABIN: It is correct, Your Honor, except that in this case, what is actually our application is that the law provides for the conversion of existing TLA into IFMA. JUSTICE CARPIO: So, they file the petition for conversion before the end of the 50th year for IFMA. ATTY. AGABIN: Yes, Your Honor. JUSTICE CARPIO: But IFMA is the same, it is based on Section 2, Article 12 of the Constitution, develop and utilize natural resources because as you said when the new constitution took effect we did away with the old licensing regime, we have now coproduction, a production sharing, joint venture, direct undertaking but still the same developing and utilizing the natural resources, still comes from section 2, Art. 12 of the Constitution. It is still a license but different format now. ATTY. AGABIN: It is correct, Your Honor, except that the regimes of joint venture, co-production and production sharing are what is referred to in the constitution, Your Honor, and still covered… JUSTICE CARPIO: Yes, but it is covered by same 25 year[s], you mean to say people now can circumvent the 50 year maximum term by

calling their TLA as IFMA and after fifty years calling it ISMA, after another 50 years call it MAMA. ATTY. AGABIN: Yes, Your Honor. Because… JUSTICE CARPIO: It can be done. ATTY. AGABIN: That is provided for by the department itself.34 _______________ 34 Oral Arguments, 10 February 2009; TSN, pp. 158-167. 490 490SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. PICOP is, in effect, arguing that the DENR issued DAO No. 99-53 in order to provide a way to circumvent the provisions of the Constitution limiting agreements for the utilization of natural resources to a maximum period of fifty years. Official duties are, however, disputably considered to be regularly performed,35 and good faith is always presumed. DAO No. 99-53 was issued to change the means by which the government enters into an agreement with private entities for the utilization of forest products. DAO No. 99-53 is a late response to the change in the constitutional provisions on natural resources from the 1973 Constitution, which allowed the granting of licenses to private entities,36 to the present Constitution, which provides for co-production, joint venture, or production-sharing agreements as the permissible schemes wherein private entities may participate in the utilization of forest products. Since the granting of timber licenses ceased to

be a permissible scheme for the participation of private entities under the present Constitution, their operations should have ceased upon the issuance of DAO No. 99-53, the rule regulating _______________ 35 Rules Of Court, Section 3(m), Rule 131. 36 Article XIV, Section 8, 1973 Constitution provides: Section 8. All lands of 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, or resettlement lands of the public domain, natural resources shall not be alienated, and no license, concession, or lease for the exploration, or utilization of any of the natural resources shall be granted for a period exceeding twenty-five years, except as to water rights for irrigation, water supply, fisheries, or industrial uses other than development of water power, in which cases, beneficial use may by the measure and the limit of the grant. 491 VOL. 606, DECEMBER 3, 2009491 Alvarez vs. PICOP Resources, Inc. the schemes under the present Constitution. This would be iniquitous to those with existing TLAs that would not have expired yet as of the issuance of DAO No. 99-53, especially those with new TLAs that were originally set to expire after 10 or even 20 or more years. The DENR thus inserted a provision in DAO No. 99-53 allowing these TLA holders to finish the

period of their TLAs, but this time as IFMAs, without the rigors of going through a new application, which they have probably just gone through a few years ago. Such an interpretation would not only make DAO No. 99-53 consistent with the provisions of the Constitution, but would also prevent possible discrimination against new IFMA applicants: ASSOCIATE JUSTICE DE CASTRO: I ask this question because of your interpretation that the period of the IFMA, if your TLA is converted into IFMA, would cover a new a fresh period of twenty-five years renewable by another period of twenty-five years. DEAN AGABIN: Yes, Your Honor. ASSOCIATE JUSTICE DE CASTRO: Don’t you think that will, in effect, be invidious discrimination with respect to other applicants if you are granted a fresh period of twenty-five years extendible to another twenty-five years? DEAN AGABIN: I don’t think it would be, Your Honor, considering that the IFMA is different regime from the TLA. And not only that, there are considerations of public health and ecology which should come into play in this case, and which we had explained in our opening statement and, therefore the provision of the Constitution on the twenty-five limits for renewal of coproduction, joint venture and production sharing agreements, should be balanced with other values stated in the Constitution, like the value of balanced ecology, which should be in harmony with the

492 492SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. rhythm of nature, or the policy of forest preservation in Article XII, Section 14 of the Constitution. These are all important policy considerations which should be balanced against the term limits in Article II of the Constitution. ASSOCIATE JUSTICE DE CASTRO: The provision of this Administrative Order regarding automatic conversion may be reasonable, if, I want to know if you agree with me, if we limit this automatic conversion to the remaining period of the TLA, because in that case there will be a valid ground to make a distinction between those with existing TLA and those who are applying for the first time for IFMA? DEAN AGABIN: Well, Your Honor, we beg to disagree, because as I said TLA’s are completely different from IFMA. The TLA has no production sharing or co-production agreement or condition. All that the licensee has to do is, to pay forest charges, taxes and other impositions from the local and national government. On the other hand, the IFMAs contained terms and conditions which are completely different, and that they either impose coproduction, production sharing or joint venture terms. So it’s a completely different regime, Your Honor. ASSOCIATE JUSTICE DE CASTRO: Precisely, that is the reason why there should be an evaluation of what you mentioned earlier of the development plan.

DEAN AGABIN: Yes, Your Honor. ASSOCIATE JUSTICE DE CASTRO: So it will be reasonable to convert a TLA into an IFMA without considering the development plan submitted by other applicants or the development plan itself of one seeking conversion into IFMA if it will only be limited to the period, the original period of the TLA. But once you go beyond the period of the TLA, then you will be, the DENR is I think should evaluate the different proposals of the applicants if we are thinking of a fresh period of twenty-five years, and which is renewable under the 493 VOL. 606, DECEMBER 3, 2009493 Alvarez vs. PICOP Resources, Inc. Constitution by another twenty-five years. So the development plan will be important in this case, the submission of the development plan of the different applicants must be considered. So I don’t understand why you mentioned earlier that the development plan will later on be a subject matter of negotiation between the IFMA grantee and the government. So it seems that it will be too late in the day to discuss that if you have already converted the TLA into IFMA or if the government has already granted the IFMA, and then it will later on study the development plan, whether it is viable or not, or it is sustainable or not, and whether the development plan of the different applicants are, are, which of the development plan of the different applicants is better or more advantageous to the government.37

PICOP insists that the alleged Presidential Warranty, having been signed on 29 July 1969, could not have possibly considered the limitations yet to be imposed by future issuances, such as the 1987 Constitution. However, Section 3, Article XVIII of said Constitution, provides: “Section 3. All existing laws, decrees, executive orders, proclamations, letters of instructions, and other executive issuances not inconsistent with this Constitution shall remain operative until amended, repealed, or revoked. In the recent case Sabio v. Gordon,38 we ruled that “(t)he clear import of this provision is that all existing laws, executive orders, proclamations, letters of instructions and other executive issuances inconsistent or repugnant to the Constitution are repealed.” When a provision is susceptible of two interpretations, “the one that will render them operative and effective and _______________ 37 Oral Arguments, 10 February 2009, TSN, pp. 230-236. 38 G.R. No. 174340, 17 October 2006, 504 SCRA 704, 730. 494 494SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. harmonious with other provisions of law”39 should be adopted. As the interpretations in the assailed Decision and in Mr. Justice Tinga’s ponencia are the ones that would not make the subject Presidential Warranty unconstitutional, these are what we shall adopt. Purpose of the 1969 Document: Assurance That the Boundaries of Its Concession Area Would Not Be Altered Despite the

Provision in the TLA that the DENR Secretary Can Amend Said Boundaries In the assailed Decision, we ruled that the 1969 Document cannot be considered a contract that would bind the government regardless of changes in policy and the demands of public interest and social welfare. PICOP claims this conclusion “did not take into consideration that PICOP already had a valid and current TLA before the contract with warranty was signed in 1969.”40 PICOP goes on: “The TLA is a license that equips any TLA holder in the country for harvesting of timber. A TLA is signed by the Secretary of the DANR now DENR. The Court ignored the significance of the need for another contract with the Secretary of the DANR but this time with the approval of the President of the Republic.”41 PICOP then asks us: “If PICOP/BBLCI was only an ordinary TLA holder, why will it go through the extra step of securing another contract just to harvest timber when the same can be served by the TLA signed only by the Secretary and not requiring the approval of the President of the Republic(?)”42 _______________ 39 Javellana v. Tayo, 116 Phil. 1342, 1351, 6 SCRA 1050 (1962). 40 PICOP’s Motion for Reconsideration, p. 16; Rollo, p. 1385. 41 Id. 42 Id. 495 VOL. 606, DECEMBER 3, 2009495 Alvarez vs. PICOP Resources, Inc.

The answer to this query is found in TLA No. 43 itself wherein, immediately after the boundary lines of TLA No. 43 were established, the following conditions were given: “This license is granted to the said party of the second part upon the following express conditions: I. That authority is granted hereunder to the party of the second part43 to cut, collect or remove firewood or other minor forest products from the area embraced in this license agreement except as hereinafter provided. II. That the party of the first part44 may amend or alter the description of the boundaries of the area covered by this license agreement to conform with official surveys and that the decision of the party of the first part as to the exact location of the said boundaries shall be final. III. That if the party of the first part deems it necessary to establish on the ground the boundary lines of the area granted under this license agreement, the party of the second part shall furnish to the party of the first part or its representatives as many laborers as it needs and all the expenses to be incurred on the work including the wages of such laborers shall be paid by the party of the second part.45 Thus, BBLCI needed an assurance that the boundaries of its concession area, as established in TLA No. 43, as amended, would not be altered despite this provision. Hence, BBLCI endeavored to obtain the 1969 Document, which provides: “We confirm that your Timber License Agreement No. 43, as amended (copy of which is attached as Annex “A” hereof which shall form part and parcel of this warranty) definitely estab_______________

43 PICOP (CA Rollo, p. 176). 44 Secretary of Agriculture and Natural Resources (Id.). 45 Timber License Agreement No. 43; CA Rollo, p. 177. 496 496SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. lishes the boundary lines of your concession area which consists of permanent forest lands with an aggregate area of 121,587 hectares and alienable or disposable lands with an aggregate area of approximately 21,580 hectares. We further confirm that your tenure over the area and exclusive right to cut, collect and remove sawtimber and pulpwood shall be for the period ending on April 26, 1977; said period to be renewable for other 25 years subject to compliance with constitutional and statutory requirements as well as with existing policy on timber concessions. The peaceful and adequate enjoyment by you of your area as described and specified in your aforesaid amended Timber License Agreement No. 43 is hereby warranted provided that pertinent laws, regulations and the terms and conditions of your license agreement are observed.”46 In Koa v. Court of Appeals,47 we ruled that a warranty is a collateral undertaking and is merely part of a contract. As a collateral undertaking, it follows the principal wherever it goes. When this was pointed out by the Solicitor General, PICOP changed its designation of the 1969 Document from “Presidential Warranty” or “government warranty” in all its pleadings prior to our Decision, to “contract with warranty” in its Motion for Reconsideration. This, however, is belied by the

statements in the 29 July 1969 Document, which refers to itself as “this warranty.” Re: Allegation That There Were Mutual Contract Considerations Had the 29 July 1969 Document been intended as a contract, it could have easily said so. More importantly, it could have clearly defined the mutual considerations of the _______________ 46 CA Rollo, pp. 323-324. 47 G.R. No. 84847, 5 March 1993, 219 SCRA 541. 497 VOL. 606, DECEMBER 3, 2009497 Alvarez vs. PICOP Resources, Inc. parties thereto. It could have also easily provided for the sanctions for the breach of the mutual considerations specified therein. PICOP had vigorously argued that the 1969 Document was a contract because of these mutual considerations, apparently referring to the following paragraph of the 1969 Document: “We are made to understand that your company is committed to support the first large scale integrated wood processing complex hereinafter called: “The Project”) and that such support will be provided not only in the form of the supply of pulpwood and other wood materials from your concession but also by making available funds generated out of your own operations, to supplement PICOP’s operational surces (sic) of funds and other financial arrangements made by him. In order that your company may provide such support effectively, it is understood that you will call upon your stockholders to take

such steps as may be necessary to effect a unification of managerial, technical, economic and manpower resources between your company and PICOP.” This provision hardly evinces a contract consideration (which, in PICOP’s interpretation, is in exchange for the exclusive and perpetual tenure over 121,587 hectares of forest land and 21,580 hectares of alienable and disposable lands). As elucidated by PICOP itself in bringing up the Investment Incentives Act which we shall discuss later, and as shown by the tenor of the 1969 Document, the latter document was more of a conferment of an incentive for BBLCI’s investment rather than a contract creating mutual obligations on the part of the government, on one hand, and BBLCI, on the other. There was no stipulation providing for sanctions for breach if BBLCI’s being “committed to support the first large scale integrated wood processing complex” remains a commitment. Neither did the 1969 Document give BBLCI a period within which to pursue this commitment. 498 498SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. According to Article 1350 of the Civil Code, “(i)n onerous contracts the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the other.”48 Private investments for one’s businesses, while indeed eventually beneficial to the country and deserving to be given incentives, are still principally and predominantly for the benefit of the investors. Thus, the “mutual” contract considerations by both parties to this alleged contract would be

both for the benefit of one of the parties thereto, BBLCI, which is not obligated by the 1969 Document to surrender a share in its proceeds any more than it is already required by its TLA and by the tax laws. PICOP’s argument that its investments can be considered as contract consideration derogates the rule that “a license or a permit is not a contract between the sovereignty and the licensee or permittee, and is not a property in the constitutional sense, as to which the constitutional proscription against the impairment of contracts may extend.” All licensees obviously put up investments, whether they are as small as a tricycle unit or as big as those put up by multi-billion-peso corporations. To construe these investments as contract considerations would be to abandon the foregoing rule, which would mean that the State would be bound to all licensees, and lose its power to revoke or amend these licenses when public interest so dictates. The power to issue licenses springs from the State’s police power, known as “the most essential, insistent and least limitable of powers, extending as it does to all the great public needs.”49 Businesses affecting the public inte_______________ 48 Quirino v. Palarca, 139 Phil. 488, 492, 29 SCRA 1, 4 (1969). 49 Ermita-Malate Hotel and Motel Operators Association, Inc. v. City Mayor of Manila, 127 Phil. 306, 318, 20 SCRA 849, 857-858 (1967). 499 VOL. 606, DECEMBER 3, 2009499 Alvarez vs. PICOP Resources, Inc.

rest, such as the operation of public utilities and those involving the exploitation of natural resources, are mandated by law to acquire licenses. This is so in order that the State can regulate their operations and thereby protect the public interest. Thus, while these licenses come in the form of “agreements,” e.g., “Timber License Agreements,” they cannot be considered contracts under the non-impairment clause.50 PICOP found this argument “lame,” arguing, thus: 43. It is respectfully submitted that the aforesaid pronouncement in the Decision is an egregious and monumental error. 44. The Decision could not dismiss as “preposterous” the mutual covenants in the Presidential Warranty which calls for a huge investment of Php500 million at that time in 1969 out of which Php268,440,000 raised from domestic foreign lending institution to establish the first large scale integrated wood processing complex in the Philippines. 45. The Decision puts up a lame explanation that “all licensees put up investments in pursuing their business” 46. Now there are about a hundred timber licenses issued by the Government thru the DENR, but these are ordinary timber licenses which involve the mere cutting of timber in the concession area, and nothing else. Records in the DENR shows that no timber licensee has put up an integrated large wood processing complex in the Philippines except PICOP.51 _______________ 50 The definition in DAO No. 99-53 that an IFMA is a “production sharing contract” has not been assailed as unconstitutional, thus prohibiting us from determining its

constitutionality. Nonetheless, a mere designation in an administrative rule cannot alter the legal nature thereof. 51 PICOP’s Motion for Reconsideration, p. 21; Rollo, p. 1386. 500 500SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. PICOP thus argues on the basis of quantity, and wants us to distinguish between the investment of the tricycle driver and that of the multi-billion corporation. However, not even billions of pesos in investment can change the fact that natural resources and, therefore, public interest are involved in PICOP’s venture, consequently necessitating the full control and supervision by the State as mandated by the Constitution. Not even billions of pesos in investment can buy forest lands, which is practically what PICOP is asking for by interpreting the 1969 Document as a contract giving it perpetual and exclusive possession over such lands. Among all TLA holders in the Philippines, PICOP has, by far, the largest concession area at 143,167 hectares, a land area more than the size of two Metro Manilas.52 How can it not expect to also have the largest investment? Investment Incentives Act PICOP then claims that the contractual nature of the 1969 Document was brought about by its issuance in accordance with and pursuant to the Investment Incentives Act. According to PICOP: “The conclusion in the Decision that to construe PICOP’s investments as a consideration in a contract would be to stealthily render ineffective the principle that a license is not a

contract between the sovereignty and the licensee is so flawed since the contract with the warranty dated 29 July 1969 was issued by the _______________ 52 The land area of Metro Manila is 63,600 hectares, or 636 square kilometers. Metro Manila includes within its boundaries the following cities and municipalities: Quezon City, Manila, Caloocan, Makati, Pasig, Marikina, Mandaluyong, Pasay City, Muntinlupa, Parañaque, Las Piñas, Valenzuela, Taguig, Malabon, Navotas, San Juan and Pateros. 501 VOL. 606, DECEMBER 3, 2009501 Alvarez vs. PICOP Resources, Inc. Government in accordance with and pursuant to Republic Act No. 5186, otherwise known as “The Investment Incentives Act.”53 PICOP then proceeds to cite Sections 2 and 4(d) and (e) of said act: “Section 2. Declaration of Policy.—To accelerate the sound development of the national economy in consonance with the principles and objectives of economic nationalism, and in pursuance of a planned, economically feasible and practicable dispersal of industries, under conditions which will encourage competition and discharge monopolies, it is hereby declared to be the policy of the state to encourage Filipino and foreign investments, as hereinafter set out, in projects to develop agricultural, mining and manufacturing industries which increase national income most at the least cost, increase exports, bring about greater economic stability, provide more

opportunities for employment, raise the standards of living of the people, and provide for an equitable distribution of wealth. It is further declared to be the policy of the state to welcome and encourage foreign capital to establish pioneer enterprises that are capital intensive and would utilize a substantial amount of domestic raw materials, in joint venture with substantial Filipino capital, whenever available. Section 4. Basic Rights and Guarantees.—All investors and enterprises are entitled to the basic rights and guarantees provided in the constitution. Among other rights recognized by the Government of the Philippines are the following: xxxx d) Freedom from Expropriation.—There shall be no expropriation by the government of the property represented by investments or of the property of enterprises except for public use or in the interest of national welfare and defense and upon payment of just compensation. x x x. _______________ 53 PICOP’s Motion for Reconsideration, pp. 22-23; Rollo, pp. 1386a-1386b. 502 502SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. e) Requisition of Investment.—There shall be no requisition of the property represented by the investment or of the property of enterprises, except in the event of war or national emergency and only for the duration thereof. Just compensation shall be determined and paid either at the time of requisition or immediately after cessation of the state of war or national

emergency. Payments received as compensation for the requisitioned property may be remitted in the currency in which the investment was originally made and at the exchange rate prevailing at the time of remittance, subject to the provisions of Section seventy-four of republic Act Numbered Two hundred sixty-five.” Section 2 speaks of the policy of the State to encourage Filipino and foreign investments. It does not speak of how this policy can be implemented. Implementation of this policy is tackled in Sections 5 to 12 of the same law,54

investment of the proceeds thereof have been registered with the Board and the Bureau of Internal Revenue; and (2) that the shares of stock representing the investment are not disposed of, transferred, assigned, or conveyed for a period of five years from the date the investment was made. If such shares of stock are disposed of within the said period of five (5) years, all taxes due on the gains 503 VOL. 606, DECEMBER 3, 2009503 Alvarez vs. PICOP Resources, Inc.

_______________ 54 SECTION 5. Incentives to Investors in a Registered Enterprise.—An investor, with respect to his investment in a registered enterprise, shall be granted the following incentive benefits: (a) Protection of Patents and Other Proprietary Rights.—The right to be protected from infringement of patents, trademarks, copyright, trade names, and other proprietary rights, where such patents, trade marks, copyright, trade names, and other proprietary rights have been registered with the Board and the appropriate agencies of the Government of the Philippines. (b) Capital Gains Tax Exemption.—Exemption from income tax on that portion of the gains realized from the sale, disposition, or transfer of capital assets, as defined in Section thirty-four of the National Internal Revenue Code, that corresponds to the portion of the proceeds of the sale that is invested in new issues of capital stock of a registered enterprise within six months from the date the gains were realized: Provided, (1) that the said sale, disposition or transfer and the

which PICOP failed to mention, and for a good reason. None of the 24 incentives enumerated therein relates to, or _______________ realized from the original transfer, sale or disposition of the capital assets shall immediately become due and payable. SECTION 6. Incentives to Philippine Nationals Investing in Pioneer Enterprises.—In addition to the incentives provided in the preceding sections, Philippine Nationals investing in a pioneer enterprise shall be granted the following incentives benefits: (a) Tax Allowance for Investments.—An investment allowance to the extent of his actual investment, paid in cash or property shall be allowed as a deduction from his taxable income but not to exceed ten per cent thereof: Provided, (1) That the investment is made in a subscription of shares in the original and/or increased capital stock of a pioneer enterprise within seven years from the date of registration; (2) that the shares are held for a period of not less than three years and; (3) that the investment is registered with the Board. If the shares

are disposed of within the said three year period, the tax payer shall lose the benefit of this deduction, his income tax liability shall be recomputed, and he shall pay whatever additional sum be due plus interest thereon, within thirty days from the date of disposition. (b) Capital Gains Tax Exemption.—Exemption from income tax on the portion of the gains realized from the sale, disposition, or transfer of capital assets, as defined in Section thirty-four of the National Internal Revenue Code, that corresponds to the portion of the proceeds of the sale that is invested in new issues of capital stock of, or in the purchase of stock owned by foreigners in, pioneer enterprises, within six months from the date the gains were realized: Provided, (1) That such sale, disposition or transfer and the investment of the proceeds thereof are registered with the Board and the Bureau of Internal Revenue; and (2) that the shares of stock representing the investment are not disposed of, transferred, assigned or conveyed for a period of three (3) years from the date the investment was made. If said shares of stock are disposed of within the said period of three (3) years, all taxes due on the gains realized from the original transfer, sale or disposition of the capital assets shall immediately become due and payable. 504 504SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. even remotely suggests that, PICOP’s proposition that the 1969 Document is a contract. _______________

(c) Tax Exemption on Sale of Stock Dividends.—Exemption from income tax on all gains realized from the sale, disposition, or transfer of stock dividends received from a pioneer enterprise: Provided, That the sale, disposition or transfer occurs within seven years from the date of registration of the enterprise. SECTION 7. Incentives to a Registered Enterprise.—A registered enterprise, to the extent engaged in a preferred area of investment, shall be granted the following incentive benefits: (a) Deduction of Organizational and Pre-Operating Expenses.—All capitalized organizational and pre-operating expenses attributable to the establishment of a registered enterprise may be deducted from its taxable income over a period of not more than ten years beginning with the month the enterprise begins operations, provided the taxpayer indicates the desired amortization period at the time of the filing of the income tax returns for the first taxable year. For the purpose of this provision, organizational and pre-operating expenses shall include expenses for pre-investment studies, start up costs, costs of initial recruitment and training, and similar expenses. (b) Accelerated Depreciation.—At the option of the taxpayer and in accordance with the procedure established by the Bureau of Internal Revenue, fixed assets may be (1) depreciated to the extent of not more than twice as fast as normal rate of depreciation or depreciated at normal rate of depreciation if expected life is ten years or less; or (2) depreciated over any number of years between five years and expected life if the latter is more than ten (10) years; and the depreciation thereon allowed as a deduction from taxable

income: Provided, That the taxpayer notifies the Bureau of Internal Revenue at the beginning of the depreciation period which depreciation rate allowed by this section will be used by it. (c) Net Operating Loss Carry-over.—A net operating loss incurred in any of the first ten years of operations may be carried over as a deduction from taxable income for the six years immediately following the year of such loss. The entire amount of the loss shall be carried over to the first of the six taxable years following the loss, and any portion of such loss which exceeds the taxable income of 505 VOL. 606, DECEMBER 3, 2009505 Alvarez vs. PICOP Resources, Inc. PICOP could indeed argue that the enumeration is not exclusive. Certainly, granting incentives to investors, _______________ such first year shall be deducted in like manner from the taxable income of the next remaining five years. The net operating loss shall be computed in accordance with the provisions of the National Internal Revenue Code, any provision of this Act to the contrary notwithstanding, except that income not taxable either in whole or in part under this or other laws shall be included in gross income. (d) Tax Exemption on Imported Capital Equipment.— Within seven years from the date of registration of the enterprise, importation of machinery and equipment, and spare parts shipped with such machinery and equipment, shall not be subject to tariff duties and compensating tax: Provided, That

said machinery, equipment and spare parts: (1) are not manufactured domestically in reasonable quantity and quality at reasonable prices; (2) are directly and actually needed and will be used exclusively by the registered enterprise in the manufacture of its products; (3) are covered by shipping documents in the name of the registered enterprise to whom the shipment will be delivered direct by customs authorities; (4) the prior approval of the Board was obtained by the registered enterprise before the importation of such machinery, equipment and spare parts; and (5) the registered enterprise chooses not to avail of the privileges granted by Republic Act Numbered Thirty-one hundred twenty-seven, as amended. If the registered enterprise sells, transfers, or disposes of these machinery, equipment and spare parts without the prior approval of the Board within five (5) years from the date of acquisition, the registered enterprise shall pay twice the amount of the tax exemption given it. However, the Board shall allow and approve the sale, transfer, or disposition of the said items within the said period of five (5) years if made: (1) to another registered enterprise; (2) for reasons of proven technical obsolescence; or (3) for purposes of replacement to improve and/or expand the operations of the enterprise. (e) Tax Credit on Domestic Capital Equipment.—A tax credit equivalent to one hundred per cent (100%) of the value of the compensating tax and customs duties that would have been paid on the machinery, equipment and spare parts had these items been imported shall be given to the registered enterprise who purchases 506 506SUPREME COURT REPORTS ANNOTATED

Alvarez vs. PICOP Resources, Inc. whether included in the enumeration or not, would be an implementation of this policy. However, it is presumed _______________ machinery, equipment and spare parts from a domestic manufacturer, and another tax credit equivalent to fifty per cent (50%) thereof shall be given to the said manufacturer: Provided, (1) That the said machinery, equipment and spare parts are directly and actually needed and will be used exclusively by the registered enterprise in the manufacture of its products; (2) that the prior approval of the Board was obtained by the local manufacturer concerned; and (3) that the sale is made within seven years from the date of registration of the registered enterprise. If the registered enterprise sells, transfers or disposes of these machinery, equipment and spare parts without the prior approval of the Board within five years from the date of acquisition, then it shall pay twice the amount of the tax credit given it. However, the Board shall allow and approve the sale, transfer, or disposition of the said items within the said period of five years if made (1) to another registered enterprise; (2) for reasons of proven technical obsolescence; or (3) for purposes of replacement to improve and/or expand the operations of the enterprise (f) Tax Credit for Withholding Tax on Interest.—A tax credit for taxes withheld on interest payments on foreign loans shall be given a registered enterprise when (1) no such credit is enjoyed by the lender-remittee in his country and (2) the registered enterprise has assumed the liability for payment of the tax due from the lender-remittee.

(g) Employment of Foreign Nationals.—Subject to the provisions of Section twenty-nine of Commonwealth Act Numbered Six hundred thirteen, as amended, an enterprise may, within five years from registration, employ foreign nationals in supervisory, technical or advisory positions not in excess of five per centum of its total personnel in each such category: Provided, That in no case shall each employment exceed five years. The employment of foreign nationals after five years from registration, or within such five years but in excess of the proportion herein provided, shall be governed by Section twenty of Commonwealth Act Numbered Six hundred thirteen, as amended. Foreign nationals under employment contract within the purview of this Act, their spouse and unmarried children under twenty-one years of age, who are not excluded by Section twenty-nine of 507 VOL. 606, DECEMBER 3, 2009507 Alvarez vs. PICOP Resources, Inc. that whatever incentives may be given to investors should be within the bounds of the laws and the Constitution. The _______________ Commonwealth Act Numbered Six hundred thirteen, shall be permitted to enter and reside in the Philippines during the period of employment of such foreign nationals. A registered enterprise shall train Filipinos in administrative, supervisory, and technical skills and shall submit annual reports on such training to the Board of Investments.

(h) Deduction for Expansion Reinvestment.—When a registered enterprise reinvests its undistributed profit or surplus by actual transfer thereof to the capital stock of the corporation for procurement of machinery, equipment and spare parts previously approved by the Board under Subsections “d” and “e” hereof or for the expansion of machinery and equipment used in production or for the construction of the buildings, improvements or other facilities for the installation of the said machinery and equipment, the amount so reinvested shall be allowed as a deduction from its taxable income in the year in which such reinvestment was made: Provided, (1) That prior approval by the Board of such reinvestment was obtained by the registered enterprise planning such reinvestment, and (2) that the registered enterprise does not reduce its capital stock represented by the reinvestment within seven years from the date such reinvestment was made. In the event the registered enterprise does not order the machinery and equipment within two (2) years from the date the reinvestment was made or reduces its capital stock represented by the reinvestment within a period of seven years from the date of reinvestment, a recomputation of the income tax liability therefor shall be made for the period when the deduction was made, and the proper taxes shall be assessed and paid with interest. (i) Anti-Dumping Protection.—Upon recommendation of the Board, made after notice and hearing, the President shall issue a directive banning for a limited period the importation of goods or commodities which, as provided in Section three hundred one (a) of the Tariff and Customs Code of the Philippines, unfairly or unnecessarily complete with those produced by registered enterprises: Provided, (1) That the

Board certifies to the satisfactory quality of the goods or commodities produced or manufactured by the registered enterprises; and (2) that the enterprises agree not to increase the 508 508SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. declaration of policy in Section 2 cannot, by any stretch of _______________ price of these goods or commodities during this period, unless for good cause, the Board allows such an increase. (j) Protection from Government Competition.—No agency or instrumentality of the government shall import, or allow the importation tax and duty free of products or items that are being produced or manufactured by registered enterprises, except when the President determines that the national interest so requires or when international commitments require international competitive bidding. SECTION 8. Incentives to a Pioneer Enterprise.—In addition to the incentives provided in the preceding section, pioneer enterprises shall be granted the following incentives benefits: (a) Tax Exemptions.—Exemptions from all taxes under the National Internal Revenue Code, except income tax, to the following extent: (1) One hundred per cent up to December 31, 1972; (2) Seventy-five per cent up to December 31, 1975; (3) Fifty per cent up to December 31, 1977; (4) Twenty per cent up to December 31, 1979; (5) Ten per cent up to December 31, 1981;

(b) Employment of Foreign Nationals.—Subject to the provisions of Section twenty nine of Commonwealth Act Numbered Six hundred thirteen, as amended, to employ and bring into the Philippines foreign nationals under the following conditions: (1) That all such foreign nationals shall register with the Board; (2) That the employment of all foreign nationals shall cease and they shall be repatriated five years after the registered enterprise has begun operating: Provided, That when the majority of the capital stock of the pioneer enterprise is owned by foreign investors, the positions of president, treasurer and general manager, or their equivalents, may be retained by foreign nationals. In exceptional cases, the Board may allow employment of foreign nationals in other positions that cannot be filled by the Philippine nationals, but in such cases the limitations of Section seven paragraph (g) of this Act shall apply. 509 VOL. 606, DECEMBER 3, 2009509 Alvarez vs. PICOP Resources, Inc. the imagination, be read to provide an exception to either the laws or, heaven forbid, the Constitution. Exceptions _______________ Foreign nationals under employment contract within the purview of this Act, their spouse and unmarried children under twenty-one years of age, who are not excluded by Section twenty-nine of Commonwealth Act Numbered Six hundred thirteen, shall be permitted to enter and reside in the

Philippines during the period of employment of such foreign nationals. (c) Post-Operative Tariff Protection.—Upon recommendation of the Board, the President, with or without the recommendation of the Tariff Commission or the National Economic Council, shall issue a certification that a pioneer industry shall be entitled to post-operative tariff protection to an extent not exceeding fifty per cent of the dutiable value of imported items similar to those being manufactured or produced by a pioneer enterprise, unless a higher rate or amount is provided for in the Tariff Code or pertinent laws. Said tariff shall take effect automatically upon certification by the Board that the pioneer enterprise is operating on a commercial scale: Provided, That said tariff, once operative, may be modified in accordance with Section four hundred one of the Tariff and Customs Code. SECTION 9. Special Export Incentives for Registered Enterprises.—Registered enterprises shall be entitled to the following special incentives for exports of their completely finished products and commodities: (a) Double Deduction of Promotional Expenses.—To deduct from taxable income twice the amount of the ordinary and necessary expenses incurred for the purpose of promoting the sale of their products abroad; (b) Double Deduction of Shipping Costs.—To deduct from taxable income twice the amount of shipping freight incurred in connection with the export of their products, if the shipments are made in vessels of Philippine registry to their regular ports of call; and to deduct one hundred fifty per cent (150%) of the freight when shipments are made in vessels of foreign registry

to a port which is not a regular port of call of Philippine vessels; (c) Special Tax Credit on Raw Materials.—A tax credit equivalent to seven per cent (7%) of the total cost of the raw materi510 510SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. are never presumed and should be convincingly proven. Section 2 of the Investment Incentives Act cannot be read _______________ als and supplies purchased by registered enterprises or an amount equivalent to the taxes actually paid by registered enterprises on said raw materials, whichever is higher, to the extent used in manufacturing exported products and commodities. Before registered enterprises may avail themselves of the foregoing exports incentives benefits, they shall apply first with the Board, which shall approve the application upon proof: (1) that the enterprise proposes to engage in good faith in creating a market for its products abroad; (2) that the product to be exported is one included in the government priorities plan as suitable for export, or if not so included that its export will not adversely affect the needs of the domestic market for the finished product to be exported or for the domestic raw materials used in its manufacture; (3) that the enterprise has or will set up an adequate accounting system to segregate revenues, purchases and expenses of its export market operations from those of its domestic market operations; and

(4) that the exported products and commodities meet the standards of quality established by the Bureau of Standards or, in default thereof, by the Board. SECTION 10. Preference in Grant of Government Loans.— Government financial institutions such as the Development Bank of the Philippines, Philippine National Bank, Government Service Insurance System, Social Security System, Land Bank, and such other government institutions as are now engaged or may hereafter engage in financing or investment operations shall, in accordance with and to the extent allowed by the enabling provisions of their respective charters or applicable laws, accord high priority to applications for financial assistance submitted by pioneer and other registered enterprises, whether such financial assistance be in the form of equity participation in preferred, common, or preferred convertible shares of stock, or in loans and guarantees, and shall facilitate the processing thereof and the release of the funds therefor. However, no financial assistance shall be extended under this section to any investor or enterprise that is not a Philippine National. The abovementioned financial institutions, to the extent allowed by their respective charters or applicable laws, shall contribute to the capital of a registered enterprise whenever the said con511 VOL. 606, DECEMBER 3, 2009511 Alvarez vs. PICOP Resources, Inc.

as exempting investors from the Constitutional provisions (1) prohibiting private ownership of forest lands; (2) providing for the complete control and supervision by the _______________ tribution would enable the formation of pioneer or other registered enterprise with at least sixty per cent control by Philippine Nationals: Provided, That the capital contribution of the said financial institutions shall be limited to the amount that cannot be contributed by private Filipino investors, and shall in no case exceed thirty per cent of the total capitalization of the pioneer or other registered enterprises. The shares representing the contribution of the said financial institutions shall be offered for public sale to Philippine Nationals through all the members of a registered Philippine stock exchange. To facilitate the implementation of the provisions of this Section, all the said financial institutions shall coordinate their financial assistance programs with each other, exchange relevant information about applicants and applications, and submit a monthly report to the Board showing the amount of funds available for financial assistance to pioneer or other registered enterprises. The Board shall recommend to the Board of Directors of each such financial institution what order of priority shall be given the applications of pioneer and other registered enterprises, or of applicants that propose to seek registration as such. SECTION 11. Private Financial Assistance.—Any provision of existing laws to the contrary notwithstanding, the Insurance Commissioner is hereby authorized to allow insurance companies, under such rules and regulations as he may issue, to invest in new issues of stock of registered enterprises,

notwithstanding that said enterprises may not have paid regular dividends, to the extent set out in section two hundred, paragraphs (c) and (f) of the Insurance Act, as amended: Provided, that said investments are diversified. SECTION 12. Loans for Investment.—The Government Service Insurance System and the Social Security System shall extend to their respective members five-year loans at a rate of interest not to exceed six per cent per annum for the purchase of shares of stock in any registered enterprise: Provided, That (1) the shares so purchased shall be deposited in escrow with the lending institution for the full five-year term of the loan; partial releases of the shares 512 512SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. State of exploitation activities; or (3) limiting exploitation agreements to twenty-five years, renewable for another twentyfive years. Section 4(d) and (e), on the other hand, is a recognition of rights already guaranteed under the Constitution. Freedom from expropriation is granted under Section 9 of Article III55 of the Constitution, while the provision on requisition is a negative restatement of Section 6, Article XII.56 Refusal to grant perpetual and exclusive possession to PICOP of its concession area would not result in the expropriation or requisition of PICOP’s property, as these forest lands belong to the State, and not to PICOP. This is not changed by PICOP’s allegation that: _______________

shall, however, be allowed to the extent of the payment of amortization made therefor; (2) such loans shall be amortized in sixty equal monthly installments which shall be withheld by the employer from the monthly salary of the employee concerned and remitted to the lending institution by the employer; but any and all dividends earned by shares of stock while they are held in escrow shall be delivered to the employee; and (3) the maximum loan available to each employee in any one calendar year shall not exceed fifty per centum of the employee’s annual gross income: Provided, further, That the total investment of the government financial institution concerned, consisting of its direct investment in the registered enterprise and the loans it has extended to its respective members which have been invested by the members in a registered enterprise, shall not be more than forty-nine per cent (49%) of the total capitalization of the registered enterprise in which the investments have been made. 55 Section 9. Private property shall not be taken for public use without just compensation. 56 Section 18. The State may, in the interest of national welfare or defense, establish and operate vital industries and, upon payment of just compensation, transfer to public ownership utilities and other private enterprises to be operated by the Government. 513 VOL. 606, DECEMBER 3, 2009513 Alvarez vs. PICOP Resources, Inc. “Since it takes 35 years before the company can go back and harvest their residuals in a logged-over area, it must be assured

of tenure in order to provide an inducement for the company to manage and preserve the residuals during their growth period. This is a commitment of resources over a span of 35 years for each plot for each cycle. No company will undertake the responsibility and cost involved in policing, preserving and managing residual forest areas until it were sure that it had firm title to the timber.”57 The requirement for logging companies to preserve and maintain forest areas, including the reforestation thereof, is one of the prices a logging company must pay for the exploitation thereof. Forest lands are meant to be enjoyed by countless future generations of Filipinos, and not just by one logging company. The requirements of reforestation and preservation of the concession areas are meant to protect them, the future generations, and not PICOP. Reforestation and preservation of the concession areas are not required of logging companies so that they would have something to cut again, but so that the forest would remain intact after their operations. That PICOP would not accept the responsibility to preserve its concession area if it is not assured of tenure thereto does not speak well of its corporate policies. Conclusion In sum, PICOP was not able to prove either of the two things it needed to prove to be entitled to a Writ of Mandamus against the DENR Secretary. The 1969 Document is not a contract recognized under the non-impairment clause and, even if we assume for the sake of argument that it is, it did not enjoin the government to issue an _______________

57 PICOP’s Motion for Reconsideration, pp. 17-18. Rollo, pp. 1386a-1386b. 514 514SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. IFMA in 2002 either. These are the essential elements in PICOP’s cause of action, and the failure to prove the same warrants a dismissal of PICOP’s Petition for Mandamus, as not even PICOP’s compliance with all the administrative and statutory requirements can save its Petition now. Whether PICOP Has Complied with the Statutory and Administrative Requirements for the Conversion of the TLA to an IFMA In the assailed Decision, our ruling was based on two distinct grounds, each one being sufficient in itself for us to rule that PICOP was not entitled to a Writ of Mandamus: (1) the 1969 Document, on which PICOP hinges its right to compel the issuance of an IFMA, is not a contract; and (2) PICOP has not complied with all administrative and statutory requirements for the issuance of an IFMA. When a court bases its decision on two or more grounds, each is as authoritative as the other and neither is obiter dictum.58 Thus, both grounds on which we based our ruling in the assailed Decision would become judicial dictum, and would affect the rights and interests of the parties to this case unless corrected in this Resolution on PICOP’s Motion for Reconsideration. Therefore, although PICOP would not be entitled to a Writ of Mandamus even if the second issue is

resolved in its favor, we should nonetheless resolve the same and determine whether PICOP has indeed complied with all administrative and statutory requirements for the issuance of an IFMA. While the first issue (on the nature of the 1969 Document) is entirely legal, this second issue (on PICOP’s com_______________ 58 Riss & Co. v. Wallace, 195 S.W. 2d 881, 885, 239 Mo.App. 979, cited in Words and Phrases, Permanent Edition, Vol. 29, p. 13. 515 VOL. 606, DECEMBER 3, 2009515 Alvarez vs. PICOP Resources, Inc. pliance with administrative and statutory requirements for the issuance of an IFMA) has both legal and factual sub-issues. Legal sub-issues include whether PICOP is legally required to (1) consult with and acquire an approval from the Sanggunian concerned under Sections 26 and 27 of the Local Government Code; and (2) acquire a Certification from the National Commission on Indigenous Peoples (NCIP) that the concession area does not overlap with any ancestral domain. Factual subissues include whether, at the time it filed its Petition for Mandamus, PICOP had submitted the required Five-Year Forest Protection Plan and Seven-Year Reforestation Plan and whether PICOP had paid all forest charges. For the factual sub-issues, PICOP invokes the doctrine that factual findings of the trial court, especially when upheld by the Court of Appeals, deserve great weight. However, deserving of even greater weight are the factual findings of

administrative agencies that have the expertise in the area of concern. The contentious facts in this case relate to the licensing, regulation and management of forest resources, the determination of which belongs exclusively to the DENR: “SECTION 4. Mandate.—The Department shall be the primary government agency responsible for the conservation, management, development and proper use of the country’s environment and natural resources, specifically forest and grazing lands, mineral resources, including those in reservation and watershed areas, and lands of the public domain, as well as the licensing and regulation of all natural resources as may be provided for by law in order to ensure equitable sharing of the benefits derived therefrom for the welfare of the present and future generations of Filipinos.”59 _______________ 59 E.O. No. 192, otherwise known as the “Reorganization Act of the Department of Environment and Natural Resources,” Section 4. 516 516SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. When parties file a Petition for Certiorari against judgments of administrative agencies tasked with overseeing the implementation of laws, the findings of such administrative agencies are entitled to great weight. In the case at bar, PICOP could not have filed a Petition for Certiorari, as the DENR Secretary had not yet even determined whether PICOP should be issued an IFMA. As previously mentioned, when PICOP’s application was brought to a standstill upon the evaluation that

PICOP had yet to comply with the requirements for the issuance of an IFMA, PICOP refused to attend further meetings with the DENR and instead filed a Petition for Mandamus against the latter. By jumping the gun, PICOP did not diminish the weight of the DENR Secretary’s initial determination. Forest Protection and Reforestation Plans The Performance Evaluation Team tasked to appraise PICOP’s performance on its TLA No. 43 found that PICOP had not submitted its Five-Year Forest Protection Plan and its SevenYear Reforestation Plan.60 In its Motion for Reconsideration, PICOP asserts that, in its Letter of Intent dated 28 August 2000 and marked as Exhibit L in the trial court, there was a reference to a Ten-Year Sustainable Forest Management Plan (SFMP), in which a FiveYear Forest Protection Plan and a Seven-Year Reforestation Plan were allegedly incorporated. PICOP submitted a machine copy of a certified photocopy of pages 50-67 and 104-110 of this SFMP in its Motion for Reconsideration. PICOP claims that the existence of this SFMP was repeatedly asserted during the IFMA application process.61 _______________ 60 Exhibit “7-g-2,” Folder of Exhibits, Vol. 3, pp. 480-482. 61 Motion for Reconsideration, p. 30. 517 VOL. 606, DECEMBER 3, 2009517 Alvarez vs. PICOP Resources, Inc. Upon examination of the portions of the SFMP submitted to us, we cannot help but notice that PICOP’s concept of forest protection is the security of the area against “illegal” entrants

and settlers. There is no mention of the protection of the wildlife therein, as the focus of the discussion of the silvicultural treatments and the SFMP itself is on the protection and generation of future timber harvests. We are particularly disturbed by the portions stating that trees of undesirable quality shall be removed. However, when we required the DENR Secretary to comment on PICOP’s Motion for Reconsideration, the DENR Secretary did not dispute the existence of this SFMP, or question PICOP’s assertion that a Ten-Year Forest Protection Plan and a Ten-Year Reforestation Plan are already incorporated therein. Hence, since the agency tasked to determine compliance with IFMA administrative requirements chose to remain silent in the face of allegations of compliance, we are constrained to withdraw our pronouncement in the assailed Decision that PICOP had not submitted a Five-Year Forest Protection Plan and a Seven-Year Reforestation Plan for its TLA No. 43. As previously mentioned, the licensing, regulation and management of forest resources are the primary responsibilities of the DENR.62 The compliance discussed above is, of course, only for the purpose of determining PICOP’s satisfactory performance as a TLA holder, and covers a period within the subsistence of PICOP’s TLA No. 43. This determination, therefore, cannot prohibit the DENR from requiring PICOP, in the future, to submit proper forest protection and reforestation plans covering the period of the proposed IFMA. _______________

62 E.O. No. 192, otherwise known as the “Reorganization Act of the Department of Environment and Natural Resources,” Section 4. 518 518SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. Forest Charges In determining that PICOP did not have unpaid forest charges, the Court of Appeals relied on the assumption that if it were true that PICOP had unpaid forest charges, it should not have been issued an approved Integrated Annual Operation Plan (IAOP) for the year 2001-2002 by Secretary Alvarez himself.63 In the assailed Decision, we held that the Court of Appeals had been selective in its evaluation of the IAOP, as it disregarded the part thereof that shows that the IAOP was approved subject to several conditions, not the least of which was the submission of proof of the updated payment of forest charges from April 2001 to June 2001.64 We also held that even if we considered for the sake of argument that the IAOP should not have been issued if PICOP had existing forestry accounts, the issuance of the IAOP could not be considered proof that PICOP had paid the same. Firstly, the best evidence of payment is the receipt thereof. PICOP has not presented any evidence that such receipts were lost or destroyed or could not be produced in court.65 Secondly, the government cannot be estopped by the acts of its officers. If PICOP has been issued an IAOP in violation of the law, allegedly because it may not be issued if PICOP had existing forestry accounts, the government cannot

be estopped from collecting such amounts and providing the necessary sanctions therefor, including the withholding of the IFMA until such amounts are paid. We therefore found that, as opposed to the Court of Appeals’ findings, which were based merely on estoppel of government officers, the positive and categorical evidence _______________ 63 Rollo (G.R. No. 162243), p. 252. 64 Folder of Exhibits, Vol. 2, pp. 398-399. 65 See Rules of Court, Rule 130, Section 3(a). 519 VOL. 606, DECEMBER 3, 2009519 Alvarez vs. PICOP Resources, Inc. presented by the DENR Secretary was more convincing with respect to the issue of payment of forestry charges: 1. Forest Management Bureau (FMB) Senior Forest Management Specialist (SFMS) Ignacio M. Evangelista testified that PICOP had failed to pay its regular forest charges covering the period from 22 September 2001 to 26 April 2002 in the total amount of P15,056,054.0566 PICOP also allegedly paid late most of its forest charges from 1996 onwards, by reason of which, PICOP is liable for a surcharge of 25% per annum on the tax due and interest of 20% per annum which now amounts to P150,169,485.02.67 Likewise, PICOP allegedly had overdue and unpaid silvicultural fees in the amount of P2,366,901.00 as of 30 August 2002.68 Summing up the testimony, therefore, it was alleged that PICOP had unpaid and overdue forest charges in the sum of P167,592,440.90 as of 10 August 2002.69

2. Collection letters were sent to PICOP, but no official receipts are extant in the DENR record in Bislig City evidencing payment of the overdue amount stated in the said collection letters.70 There were no official receipts for the period covering 22 September 2001 to 26 April 2002. We also considered these pieces of evidence more convincing than the other ones presented by PICOP: 1. PICOP presented the certification of Community Environment and Natural Resources Office _______________ 66 Folder of Exhibits, Vol. 3, pp. 433-434. 67 Exhibit “6,” p. 440; Folder of Exhibits, Vol. 3. 68 Id. 69 Id. 70 TSN, 1 October 2002, pp. 13-14. 520 520SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. (CENRO) Officer Philip A. Calunsag, which refers only to PICOP’s alleged payment of regular forest charges covering the period from 14 September 2001 to 15 May 2002.71 We noted that it does not mention similar payment of the penalties, surcharges and interests that PICOP incurred in paying late several forest charges, which fact was not rebutted by PICOP. 2. The 27 May 2002 Certification by CENRO Calunsag specified only the period covering 14 September 2001 to 15 May 2002 and the amount of P53,603,719.85 paid by PICOP without indicating the corresponding volume and date of production of the logs. This is in contrast to the findings of

SFMS Evangelista, which cover the period from CY 1996 to 30 August 2002 and includes penalties, interests, and surcharges for late payment pursuant to DAO 80, series of 1987. 3. The 21 August 2002 PICOP-requested certification issued by Bill Collector Amelia D. Arayan, and attested to by CENRO Calunsag himself, shows that PICOP paid only regular forest charges for its log production covering 1 July 2001 to 21 September 2001. However, there were log productions after 21 September 2001, the regular forest charges for which have not been paid, amounting to P15,056,054.05.72 The same certification shows delayed payment of forest charges, thereby corroborating the testimony of SFMS Evangelista and substantiating the imposition of penalties and surcharges. In its Motion for Reconsideration, PICOP claims that SFMS Evangelista is assigned to an office that has nothing _______________ 71 Exhibit “NN,” p. 349; Folder of Exhibits, Vol. 2. 72 Records, Vol. 2, pp. 457-458. 521 VOL. 606, DECEMBER 3, 2009521 Alvarez vs. PICOP Resources, Inc. to do with the collection of forest charges, and that he based his testimony on the Memoranda of Forest Management Specialist II (FMS II) Teofila Orlanes and DENR, Bislig City Bill Collector Amelia D. Arayan, neither of whom was presented to testify on his or her Memorandum. PICOP also submitted an Addendum to Motion for Reconsideration, wherein it appended certified true copies of CENRO Summaries with attached

Official Receipts tending to show that PICOP had paid a total of P81,184,747.70 in forest charges for 10 January 2001 to 20 December 2002, including the period during which SFMS Evangelista claims PICOP did not pay forest charges (22 September 2001 to 26 April 2002). Before proceeding any further, it is necessary for us to point out that, as with our ruling on the forest protection and reforestation plans, this determination of compliance with the payment of forest charges is exclusively for the purpose of determining PICOP’s satisfactory performance on its TLA No. 43. This cannot bind either party in a possible collection case that may ensue. An evaluation of the DENR Secretary’s position on this matter shows a heavy reliance on the testimony of SFMS Evangelista, making it imperative for us to strictly scrutinize the same with respect to its contents and admissibility. PICOP claims that SFMS Evangelista’s office has nothing to do with the collection of forest charges. According to PICOP, the entity having administrative jurisdiction over it is CENRO, Bislig City by virtue of DENR Administrative Order No. 9636, dated 20 November 1996, which states: 1. In order for the DENR to be able to exercise closer and more effective supervision, management and control over the forest resources within the areas covered by TLA No. 43, PTLA No. 47 and IFMA No. 35 of the PICOP Resources, Inc., (PRI) and, at the 522 522SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc.

same time, provide greater facility in the delivery of DENR services to various publics, the aforesaid forest holdings of PRI are hereby placed under the exclusive jurisdiction of DENR Region No. XIII with the CENR Office at Bislig, Surigao del Sur, as directly responsible thereto. x x x. We disagree. Evangelista is an SFMS assigned at the Natural Forest Management Division of the FMB, DENR. In Evangelista’s aforementioned affidavit submitted as part of his direct examination, Evangelista enumerated his duties and functions as SFMS: 1. As SFMS, I have the following duties and functions: a) To evaluate and act on cases pertaining to forest management referred to in the Natural forest Management Division; b) To monitor, verify and validate forest management and related activities by timber licences as to their compliance to approved plans and programs; c) To conduct investigation and verification of compliance by timber licenses/permittees to existing DENR rules and regulations; d) To gather field data and information to be used in the formulation of forest policies and regulations; and e) To perform other duties and responsibilities as may be directed by superiors.73 PICOP also alleges that the testimony of SFMS Evangelista was based on the aforementioned Memoranda of Orlanes and Arayan and that, since neither Orlanes nor Arayan was presented as a witness, SFMS Evangelista’s testimony should be deemed hearsay. SFMS Evangelista’s _______________

73 Folder of Exhibits, Volume 3, p. 423. 523 VOL. 606, DECEMBER 3, 2009523 Alvarez vs. PICOP Resources, Inc. 1 October 2002 Affidavit,74 which was offered as part of his testimony, provides: 2. Sometime in September, 2001 the DENR Secretary was furnished a copy of forest Management Specialist II (FMS II) Teofila L. Orlanes’ Memorandum dated September 24, 2001 concerning unpaid forest charges of PICOP. Attached to the said Memorandum was a Memorandum dated September 19, 2001 of Amelia D. Arayan, Bill collector of the DENR R13-14, Bislig City. Copies of the said Memoranda are attached as Annexes 1 and 2, respectively. 3. The said Memoranda were referred to the FMB Director for appropriate action. 4. Thus, on August 5, 2002, I was directed by the FMB Director to proceed to Region 13 to gather forestry-related data and validate the report contained in the Memoranda of Ms. Orlanes and Arayan. 5. On August 6, 2002, I proceeded to DENR Region 13 in Bislig City. A copy of my Travel Order is attached as Annex 3. 6. Upon my arrival at CENRO, Bislig, Surigao del Sur, I coordinated with CENRO Officer Philip A. Calunsag and requested him to make available to me the records regarding the forest products assessments of PICOP. 7. After I was provided with the requested records, I evaluated and collected the data.

8. After the evaluation, I found that the unpaid forest charges adverted to in the Memoranda of Mr. Orlanes and Arayan covering the period from May 8, 2001 to July 7, 2001 had already been paid but late. I further found out that PICOP had not paid its forest charges covering the period from September 22, 2001 to April 26, 2002 in the total amount of P15,056,054.05. 9. I also discovered that from 1996 up to august 30, 2002, PICOP paid late some of its forest charges in 1996 and consis_______________ 74 Folder of Exhibits, Volume 3, pp. 423-425. 524 524SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. tently failed to pay late its forest charges from 1997 up to the present time. 10. Under Section 7.4 of DAO No. 80 Series of 197\87 and Paragraph (4a), Section 10 of BIR revenue Regulations No. 281 dated November 18, 1980, PICOP is mandated to pay a surcharge of 25% per annum of the tax due and interest of 20% per annum for late payment of forest charges. 11. The overdue unpaid forest charges of PICOP as shown in the attached tabulation marked as Annex 4 hereof is P150,169,485.02. Likewise, PICOP has overdue and unpaid silvicultural fees in the amount of P2,366,901.00 from 1996 to the present. 12. In all, PICOP has an outstanding and overdue total obligation of P167,592,440.90 as of August 30, 2002 based on the attached tabulation which is marked as Annex 5 hereof.75

Clearly, SFMS Evangelista had not relied on the Memoranda of Orlanes and Arayan. On the contrary, he traveled to Surigao del Sur in order to verify the contents of these Memoranda. SFMS Evangelista, in fact, revised the findings therein, as he discovered that certain forest charges adverted to as unpaid had already been paid. This does not mean, however, that SFMS Evangelista’s testimony was not hearsay. A witness may testify only on facts of which he has personal knowledge; that is, those derived from his perception, except in certain circumstances allowed by the Rules.76 Otherwise, such testimony is considered hearsay and, hence, inadmissible in evidence.77 _______________ 75 Id. 76 Section 36, Rule 130 of the Rules of Court. 77 People v. Parungao, 332 Phil. 917, 924, 265 SCRA 140, 147 (1996). 525 VOL. 606, DECEMBER 3, 2009525 Alvarez vs. PICOP Resources, Inc. SFMS Evangelista, while not relying on the Memoranda of Orlanes and Arayan, nevertheless relied on records, the preparation of which he did not participate in.78 These records and the persons who prepared them were not presented in court, either. As such, SFMS Evangelista’s testimony, insofar as he relied on these records, was on matters not derived from his own perception, and was, therefore, hearsay. Section 44, Rule 130 of the Rules of Court, which speaks of entries in official records as an exception to the hearsay rule,

cannot excuse the testimony of SFMS Evangelista. Section 44 provides: “SEC. 44. Entries in official records.—Entries in official records made in the performance of his duty by a public officer of the Philippines, or by a person in the performance of a duty specially enjoined by law, are prima facie evidence of the facts therein stated.” In Africa v. Caltex,79 we enumerated the following requisites for the admission of entries in official records as an exception to the hearsay rule: (1) the entries were made by a public officer or a private person in the performance of a duty; (2) the performance of the duty is especially enjoined by law; (3) the public officer or the private person had sufficient knowledge of the facts stated by him, which must have been acquired by him personally or through official information. The presentation of the records themselves would, therefore, have been admissible as an exception to the hearsay rule even if the public officer/s who prepared them was/were not presented in court, provided the above requisites _______________ 78 TSN, Volume 2, 1 October 2002, p. 32. 79 123 Phil. 272, 277; 16 SCRA 448, 452 (1966). 526 526SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. could be adequately proven. In the case at bar, however, neither the records nor the persons who prepared them were presented in court. Thus, the above requisites cannot be sufficiently proven. Also, since SFMS Evangelista merely

testified based on what those records contained, his testimony was hearsay evidence twice removed, which was one step too many to be covered by the official-records exception to the hearsay rule. SFMS Evangelista’s testimony of nonpayment of forest charges was, furthermore, based on his failure to find official receipts corresponding to billings sent to PICOP. As stated above, PICOP attached official receipts in its Addendum to Motion for Reconsideration to this Court. While this course of action is normally irregular in judicial proceedings, we merely stated in the assailed Decision that “the DENR Secretary has adequately proven that PICOP has, at this time, failed to comply with administrative and statutory requirements for the conversion of TLA No. 43 into an IFMA,”80 and that “this disposition confers another chance to comply with the foregoing requirements.”81 In view of the foregoing, we withdraw our pronouncement that PICOP has unpaid forestry charges, at least for the purpose of determining compliance with the IFMA requirements. NCIP Certification The Court of Appeals held that PICOP need not comply with Section 59 of Republic Act No. 8371, which requires prior certification from the NCIP that the areas affected do not overlap with any ancestral domain before any IFMA _______________ 80 Alvarez v. PICOP Resources, Inc., G.R. No. 162243, 29 November 2006, 508 SCRA 498, 553. 81 Id. 527 VOL. 606, DECEMBER 3, 2009527

Alvarez vs. PICOP Resources, Inc. can be entered into by the government. According to the Court of Appeals, Section 59 should be interpreted to refer to ancestral domains that have been duly established as such by the continuous possession and occupation of the area concerned by indigenous peoples since time immemorial up to the present. The Court of Appeals held that PICOP had acquired property rights over TLA No. 43 areas, being in exclusive, continuous and uninterrupted possession and occupation of these areas since 1952 up to the present. In the assailed Decision, we reversed the findings of the Court of Appeals. Firstly, the Court of Appeals ruling defies the settled jurisprudence we have mentioned earlier, that a TLA is neither a property nor a property right, and that it does not create a vested right.82 Secondly, the Court of Appeals’ resort to statutory construction is misplaced, as Section 59 of Republic Act No. 8379 is clear and unambiguous: “SEC. 59. Certification Precondition.—All departments and other governmental agencies shall henceforth be strictly enjoined from issuing, renewing or granting any concession, license or lease, or entering into any production-sharing agreement, without prior certification from the NCIP that the area affected does not overlap with any ancestral domain. Such certification shall only be issued after a field-based investigation is conducted by the Ancestral Domains Office of the area concerned: Provided, That no certification shall be issued by the NCIP without the free and prior informed and written consent of the ICCs/IPs concerned: Provided, further,

That no department, government agency or government-owned or controlled corporation may issue new concession, li_______________ 82 Oposa v. Factoran, Jr., G.R. No. 101083, 30 July 1993, 224 SCRA 792, 812; Tan v. Director of Forestry, 210 Phil. 244; 125 SCRA 302 (1983). 528 528SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. cense, lease, or production sharing agreement while there is a pending application for a CADT: Provided, finally, That the ICCs/IPs shall have the right to stop or suspend, in accordance with this Act, any project that has not satisfied the requirement of this consultation process.” PICOP had tried to put a cloud of ambiguity over Section 59 of Republic Act No. 8371 by invoking the definition of Ancestral Domains in Section 3(a) thereof, wherein the possesssion by Indigenous Cultural Communities/Indi-genous Peoples (ICCs/IPs) must have been continuous to the present. However, we noted the exception found in the very same sentence invoked by PICOP: a) Ancestral domains—Subject to Section 56 hereof, refers to all areas generally belonging to ICCs/IPs comprising lands, inland waters, coastal areas, and natural resources therein, held under a claim of ownership, occupied or possessed by ICCs/IPs, by themselves or through their ancestors, communally or individually since time immemorial, continuously to the present except when interrupted by war, force majeure or displacement by force, deceit, stealth or as a

consequence of government projects or any other voluntary dealings entered into by government and private individuals/corporations, and which are necessary to ensure their economic, social and cultural welfare. It shall include ancestral lands, forests, pasture, residential, agricultural, and other lands individually owned whether alienable and disposable or otherwise, hunting grounds, burial grounds, worship areas, bodies of water, mineral and other natural resources, and lands which may no longer be exclusively occupied by ICCs/IPs but from which they traditionally had access to for their subsistence and traditional activities, particularly the home ranges of ICCs/IPs who are still nomadic and/or shifting cultivators;” Ancestral domains, therefore, remain as such even when possession or occupation of these areas has been interrupted by causes provided under the law, such as volun529 VOL. 606, DECEMBER 3, 2009529 Alvarez vs. PICOP Resources, Inc. tary dealings entered into by the government and private individuals/cor-porations. Consequently, the issuance of TLA No. 43 in 1952 did not cause the ICCs/IPs to lose their possession or occupation over the area covered by TLA No. 43. Thirdly, we held that it was manifestly absurd to claim that the subject lands must first be proven to be part of ancestral domains before a certification that the lands are not part of ancestral domains can be required, and invoked the separate opinion of now Chief Justice Reynato Puno in Cruz v. Secretary of DENR:83

“As its subtitle suggests, [Section 59 of R.A. No. 8371] requires as a precondition for the issuance of any concession, license or agreement over natural resources, that a certification be issued by the NCIP that the area subject of the agreement does not lie within any ancestral domain. The provision does not vest the NCIP with power over the other agencies of the State as to determine whether to grant or deny any concession or license or agreement. It merely gives the NCIP the authority to ensure that the ICCs/IPs have been informed of the agreement and that their consent thereto has been obtained. Note that the certification applies to agreements over natural resources that do not necessarily lie within the ancestral domains. For those that are found within the said domains, Sections 7(b) and 57 of the IPRA apply. PICOP rejects the entire disposition of this Court on the matter, relying on the following theory: “84. It is quite clear that Section 59 of R.A. 8371 does not apply to the automatic conversion of TLA 43 to IFMA. First, the automatic conversion of TLA 43 to an IFMA is not a new project. It is a mere continuation of the harvesting process _______________ 83 400 Phil. 904, 1012-1013; 347 SCRA 128, 238 (2000), Separate Opinion of Justice Reynato Puno. 530 530SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. in an area that PICOP had been managing, conserving and reforesting for the last 50 years since 1952. Hence any pending application for a CADT within the area, cannot affect much

less hold back the automatic conversion. That the government now wishes to change the tenurial system to an IFMA could not change the PICOP project, in existence and operating for the last 30 (sic) years, into a new one.”84 PICOP’s position is anything but clear. What is clearly provided for in Section 59 is that it covers “issuing, renewing or granting (of) any concession, license or lease, or entering into any production sharing agreement.” PICOP is implying that, when the government changed the tenurial system to an IFMA, PICOP’s existing TLA would just be upgraded or modified, but would be the very same agreement, hence, dodging the inclusion in the word “renewing.” However, PICOP is conveniently leaving out the fact that its TLA expired in 2002. If PICOP really intends to pursue the argument that the conversion of the TLA into an IFMA would not create a new agreement, but would only be a modification of the old one, then it should be willing to concede that the IFMA expired as well in 2002. An automatic modification would not alter the terms and conditions of the TLA except when they are inconsistent with the terms and conditions of an IFMA. Consequently, PICOP’s concession period under the renewed TLA No. 43, which is from the year 1977 to 2002, would remain the same. PICOP cannot rely on a theory of the case whenever such theory is beneficial to it, but refute the same whenever the theory is damaging to it. In the same way, PICOP cannot claim that the alleged Presidential Warranty is “renewable for other 25 years” and later on claim that _______________

84 PICOP’s Motion for Reconsideration, p. 41; Rollo, pp. 1390a-1390b. 531 VOL. 606, DECEMBER 3, 2009531 Alvarez vs. PICOP Resources, Inc. what it is asking for is not a renewal. Extensions of agreements must necessarily be included in the term renewal. Otherwise, the inclusion of “renewing” in Section 59 would be rendered inoperative. PICOP further claims: “85. Verily, in interpreting the term “held under claim of ownership,” the Supreme Court could not have meant to include claims that had just been filed and not yet recognized under the provisions of DENR Administrative Order No. 2 Series of 1993, nor to any other community/ancestral domain program prior to R.A. 8371. xxxx 87. One can not imagine the terrible damage and chaos to the country, its economy, its people and its future if a mere claim filed for the issuance of a CADC or CADT will already provide those who filed the application, the authority or right to stop the renewal or issuance of any concession, license or lease or any production-sharing agreement. The same interpretation will give such applicants through a mere application the right to stop or suspend any project that they can cite for not satisfying the requirements of the consultation process of R.A. 8371. If such interpretation gets enshrined in the statures of the land, the unscrupulous and the extortionists can put any ongoing or future project or activity to a stop in any part of the

country citing their right from having filed an application for issuance of a CADC or CADT claim and the legal doctrine established by the Supreme Court in this PICOP case.”85 We are not sure whether PICOP’s counsels are deliberately trying to mislead us, or are just plainly ignorant of basic precepts of law. The term “claim” in the phrase “claim of owner_______________ 85 PICOP’s Motion for Reconsideration, pp. 43-44; Rollo, pp. 1390a-1390b. 532 532SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. ship” is not a document of any sort. It is an attitude towards something. The phrase “claim of ownership” means “the possession of a piece of property with the intention of claiming it in hostility to the true owner.”86 It is also defined as “a party’s manifest intention to take over land, regardless of title or right.”87 Other than in Republic Act No. 8371, the phrase “claim of ownership” is thoroughly discussed in issues relating to acquisitive prescription in Civil Law. Before PICOP’s counsels could attribute to us an assertion that a mere attitude or intention would stop the renewal or issuance of any concession, license or lease or any production-sharing agreement, we should stress beforehand that this attitude or intention must be clearly shown by overt acts and, as required by Section 3(a), should have been in existence “since time immemorial, continuously to the present except when interrupted by war, force majeure or displacement by force,

deceit, stealth or as a consequence of government projects or any other voluntary dealings entered into by government and private individuals/corporations.” Another argument of PICOP involves the claim itself that there was no overlapping: “Second, there could be no overlapping with any Ancestral Domain as proven by the evidence presented and testimonies rendered during the hearings in the Regional Trial Court. x x x. x x x x. 88. The DENR issued a total of 73 CADCs as of December 11, 1996. The DENR Undersecretary for Field Operations had recommended another 11 applications for issuance of CADCs. None of the CADCs overlap the TLA 43 area. _______________ 86 Black’s Law Dictionary (Eighth Edition), p. 265. 87 Id. 533 VOL. 606, DECEMBER 3, 2009533 Alvarez vs. PICOP Resources, Inc. 89. However former DENR Secretary Alvarez, in a memorandum dated 13 September, 2002 addressed to PGMA, insisted that PICOP had to comply with the requirement to secure a Free and Prior Informed Concent because CADC 095 was issued covering 17,112 hectares of TLA 43. 90. This CADC 095 is a fake CADC and was not validly released by the DENR. While the Legal Department of the DENR was still in the process of receiving the filings for applicants and the oppositors to the CADC application, PICOP came across filed copies of a CADC 095 with the PENRO of

Davao Oriental as part of their application for a Community Based Forest Management Agreement (CBFMA). Further research came across the same group filing copies of the alleged CADC 095 with the Mines and Geosciences Bureau in Davao City for a mining agreement application. The two applications had two different versions of the CADCs second page. One had Mr. Romeo T. Acosta signing as the Social reform Agenda Technical Action Officer, while the other had him signing as the Head, Community-Based Forest Management Office. One had the word “Eight” crossed out and “Seven” written to make it appear that the CADC was issued on September 25, 1997, the other made it appear that there were no alterations and the date was supposed to be originally 25 September 1997.” What is required in Section 59 of Republic Act No. 8379 is a Certification from the NCIP that there was no overlapping with any Ancestral Domain. PICOP cannot claim that the DENR gravely abused its discretion for requiring this Certification, on the ground that there was no overlapping. We reiterate that it is manifestly absurd to claim that the subject lands must first be proven to be part of ancestral domains before a certification that they are not can be required. As discussed in the assailed Decision, PICOP did not even seek any certification from the NCIP that the area covered by TLA No. 43, 534 534SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. subject of its IFMA conversion, did not overlap with any ancestral domain.88

Sanggunian Consultation and Approval While PICOP did not seek any certification from the NCIP that the former’s concession area did not overlap with any ancestral domain, PICOP initially sought to comply with the requirement under Sections 26 and 27 of the Local Government Code to procure prior approval of the Sanggunians concerned. However, only one of the many provinces affected approved the issuance of an IFMA to PICOP. Undaunted, PICOP nevertheless submitted to the DENR the purported resolution89 of the Province of Surigao del Sur indorsing the approval of PICOP’s application for IFMA conversion, apparently hoping either that the disapproval of the other provinces would go unnoticed, or that the Surigao del Sur approval would be treated as sufficient compliance. Surprisingly, the disapproval by the other provinces did go unnoticed before the RTC and the Court of Appeals, despite the repeated assertions thereof by the Solicitor General. When we pointed out in the assailed Decision that the approval must be by all the Sanggunians concerned and not by only one of them, PICOP changed its theory of the case in its Motion for Reconsideration, this time claiming that they are not required at all to procure Sanggunian approval. Sections 2(c), 26 and 27 of the Local Government Code provide: “SEC. 2. x x x. _______________ 88 Rollo (G.R. No. 162243), pp. 470-472. 89 Folder of Exhibits, Vol. 2, Exhibit “OO,” p. 351. 538 538SUPREME COURT REPORTS ANNOTATED

Alvarez vs. PICOP Resources, Inc. xxxx (c) It is likewise the policy of the State to require all national agencies and offices to conduct periodic consultations with appropriate local government units, nongovernmental and people’s organizations, and other concerned sectors of the community before any project or program is implemented in their respective jurisdictions. SEC. 26. Duty of National Government Agencies in the Maintenance of Ecological Balance.—It shall be the duty of every national agency or government-owned or controlled corporation authorizing or involved in the planning and implementation of any project or program that may cause pollution, climatic change, depletion of non-renewable resources, loss of crop land, rangeland, or forest cover, and extinction of animal or plant species, to consult with the local government units, nongovernmental organizations, and other sectors concerned and explain the goals and objectives of the project or program, its impact upon the people and the community in terms of environmental or ecological balance, and the measures that will be undertaken to prevent or minimize the adverse effects thereof. SEC. 27. Prior Consultations Required.—No project or program shall be implemented by government authorities unless the consultations mentioned in Sections 2(c) and 26 hereof are complied with, and prior approval of the sanggunian concerned is obtained: Provided, That occupants in areas where such projects are to be implemented shall not be evicted unless

appropriate relocation sites have been provided, in accordance with the provisions of the Constitution. As stated in the assailed Decision, the common evidence of the DENR Secretary and PICOP, namely, the 31 July 2001 Memorandum of Regional Executive Director (RED) Elias D. Seraspi, Jr., enumerated the local government units and other groups which had expressed their opposition to PICOP’s application for IFMA conversion: 536 536SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. 7. During the conduct of the performance evaluation of TLA No. 43 issues complaints against PRI were submitted thru Resolutions and letters. It is important that these are included in this report for assessment of what are their worth, viz: xxxx 7.2 Joint Resolution (unnumbered), dated March 19, 2001 of the Barangay Council and Barangay Tribal Council of Simulao, Boston, Davao Oriental (ANNEX “F”) opposing the conversion of TLA No. 43 into IFMA over the 17,112 hectares allegedly covered with CADC No. 095. 7.3 Resolution Nos. 10, s-2001 and 05, s-2001 (ANNEXES “G” & “H”) of the Bunawan Tribal Council of Elders (BBMTCE) strongly demanding none renewal of PICOP TLA. They claim to be the rightful owner of the area it being their alleged ancestral land. 7.4 Resolution No. 4, S-2001 of Sitio Linao, San Jose, Bislig City (ANNEX “I”) requesting not to renew TLA 43 over the 900 hectares occupied by them.

7.5 Resolution No. 22, S-2001 (ANNEX “J”) of the Sanguniang Bayan, Lingig, Surigao del Sur not to grant the conversion of TLA 43 citing the plight of former employees of PRI who were forced to enter and farm portion of TLA No. 43, after they were laid off. 7.6 SP Resolution No. 2001-113 and CDC Resolution Nos. 09-2001 of the Sanguniang Panglungsod of Bislig City (ANNEXES “K” & “L”) requesting to exclude the area of TLA No. 43 for watershed purposes. 7.7 Resolution No. 2001-164, dated June 01, 2001 (ANNEX “M”) Sanguniang Panglungsod of Bislig City opposing the conversion of TLA 43 to IFMA for the reason that IFMA do not give revenue benefits to the City.90 _______________ 90 Folder of Exhibits, Vol. 2, Exhibit “O-1,” p. 176; Folder of Exhibits, Vol. 3, Exhibit “7-g,” p. 475. 537 VOL. 606, DECEMBER 3, 2009537 Alvarez vs. PICOP Resources, Inc. PICOP had claimed that it complied with the Local Government Code requirement of obtaining prior approval of the Sanggunian concerned by submitting a purported resolution91 of the Province of Surigao del Sur indorsing the approval of PICOP’s application for IFMA conversion. We ruled that this cannot be deemed sufficient compliance with the foregoing provision. Surigao del Sur is not the only province affected by the area covered by the proposed IFMA. As even the Court of Appeals found, PICOP’s TLA No. 43 traverses the

length and breadth not only of Surigao del Sur but also of Agusan del Sur, Compostela Valley and Davao Oriental.92 On Motion for Reconsideration, PICOP now argues that the requirement under Sections 26 and 27 does not apply to it: 97. PICOP is not a national agency. Neither is PICOP government owned or controlled. Thus Section 26 does not apply to PICOP. 98. It is very clear that Section 27 refers to projects or programs to be implemented by government authorities or government-owned and controlled corporations. PICOP’s project or the automatic conversion is a purely private endevour. First the PICOP project has been implemented since 1969. Second, the project was being implemented by private investors and financial institutions. 99. The primary government participation is to warrant and ensure that the PICOP project shall have peaceful tenure in the permanent forest allocated to provide raw materials for the project. To rule now that a project whose foundations were commenced as early as 1969 shall now be subjected to a 1991 law is to apply the law retrospectively in violation of Article 4 of the Civil Code that laws shall not be applied retroactively. _______________ 91 Folder of Exhibits, Vol. 2, Exhibit “OO,” p. 351. 92 Rollo (G.R. No. 162243), p. 230. 538 538SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. 100. In addition, under DAO 30, Series of 1992, TLA and IFMA operations were not among those devolved function

from the National Government/DENR to the local government unit. Under its Section 03, the devolved function cover only: a) Community Based forestry projects. b) Communal forests of less than 5000 hectares c) Small watershed areas which are sources of local water supply.93 We have to remind PICOP again of the contents of Section 2, Article XII of the Constitution: “Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, beneficial use may be the measure and limit of the grant.” All projects relating to the exploration, development and utilization of natural resources are projects of the State. While the State may enter into co-production, joint ven_______________

93 PICOP’s Motion for Reconsideration, pp. 48-49, Rollo, pp. 1391a-1391b. 539 VOL. 606, DECEMBER 3, 2009539 Alvarez vs. PICOP Resources, Inc. ture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by these citizens, such as PICOP, the projects nevertheless remain as State projects and can never be purely private endeavors. Also, despite entering into co-production, joint venture, or production-sharing agreements, the State remains in full control and supervision over such projects. PICOP, thus, cannot limit government participation in the project to being merely its bouncer, whose primary participation is only to “warrant and ensure that the PICOP project shall have peaceful tenure in the permanent forest allocated to provide raw materials for the project.” PICOP is indeed neither a national agency nor a governmentowned or controlled corporation. The DENR, however, is a national agency and is the national agency prohibited by Section 27 from issuing an IFMA without the prior approval of the Sanggunian concerned. As previously discussed, PICOP’s Petition for Mandamus can only be granted if the DENR Secretary is required by law to issue an IFMA. We, however, see here the exact opposite: the DENR Secretary was actually prohibited by law from issuing an IFMA, as there had been no prior approval by all the other Sanggunians concerned.

As regards PICOP’s assertion that the application to them of a 1991 law is in violation of the prohibition against the nonretroactivity provision in Article 4 of the Civil Code, we have to remind PICOP that it is applying for an IFMA with a term of 2002 to 2027. Section 2, Article XII of the Constitution allows exploitation agreements to last only “for a period not exceeding twenty-five years, renewable for not more than twenty-five years.” PICOP, thus, cannot legally claim that the project’s term started in 1952 and extends all the way to the present. 540 540SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. Finally, the devolution of the project to local government units is not required before Sections 26 and 27 would be applicable. Neither Section 26 nor 27 mentions such a requirement. Moreover, it is not only the letter, but more importantly the spirit of Sections 26 and 27, that shows that the devolution of the project is not required. The approval of the Sanggunian concerned is required by law, not because the local government has control over such project, but because the local government has the duty to protect its constituents and their stake in the implementation of the project. Again, Section 26 states that it applies to projects that “may cause pollution, climatic change, depletion of non-renewable resources, loss of crop land, rangeland, or forest cover, and extinction of animal or plant species.” The local government should thus represent the communities in such area, the very people who will be affected by flooding, landslides or even climatic change if the project is not properly regulated, and who likewise have a stake in the

resources in the area, and deserve to be adequately compensated when these resources are exploited. Indeed, it would be absurd to claim that the project must first be devolved to the local government before the requirement of the national government seeking approval from the local government can be applied. If a project has been devolved to the local government, the local government itself would be implementing the project. That the local government would need its own approval before implementing its own project is patently silly. EPILOGUE AND DISPOSITION PICOP’c cause of action consists in the allegation that the DENR Secretary, in not issuing an IFMA, violated its constitutional right against non-impairment of contracts. We have ruled, however, that the 1969 Document is not a 541 VOL. 606, DECEMBER 3, 2009541 Alvarez vs. PICOP Resources, Inc. contract recognized under the non-impairment clause, much less a contract specifically enjoining the DENR Secretary to issue the IFMA. The conclusion that the 1969 Document is not a contract recognized under the non-impairment clause has even been disposed of in another case decided by another division of this Court, PICOP Resources, Inc. v. Base Metals Mineral Resources Corporation,94 the Decision in which case has become final and executory. PICOP’s Petition for Mandamus should, therefore, fail. Furthermore, even if we assume for the sake of argument that the 1969 Document is a contract recognized under the non-

impairment clause, and even if we assume for the sake of argument that the same is a contract specifically enjoining the DENR Secretary to issue an IFMA, PICOP’s Petition for Mandamus must still fail. The 1969 Document expressly states that the warranty as to the tenure of PICOP is “subject to compliance with constitutional and statutory requirements as well as with existing policy on timber concessions.” Thus, if PICOP proves the two above-mentioned matters, it still has to prove compliance with statutory and administrative requirements for the conversion of its TLA into an IFMA. While we have withdrawn our pronouncements in the assailed Decision that (1) PICOP had not submitted the required forest protection and reforestation plans, and that (2) PICOP had unpaid forestry charges, thus effectively ruling in favor of PICOP on all factual issues in this case, PICOP still insists that the requirements of an NCIP certification and Sanggunian consultation and approval do not apply to it. To affirm PICOP’s position on these matters would entail nothing less than rewriting the Indigenous _______________ 94 Supra note 26. 542 542SUPREME COURT REPORTS ANNOTATED Alvarez vs. PICOP Resources, Inc. Peoples’ Rights Act and the Local Government Code, an act simply beyond our jurisdiction. WHEREFORE, the Motion for Reconsideration of PICOP Resources, Inc. is DENIED. SO ORDERED.

Puno (C.J), Carpio, Corona, Carpio-Morales, Velasco, Jr., Leonardo-De Castro, Brion, Peralta, Bersamin, Del Castillo, Abad and Villarama, Jr., JJ., concur. Nachura, J., No part. Motion for Reconsideration denied. Notes.—The Supreme Court, in accordance with the presumption of regularity in the performance of official functions, will presume that, even in the absence of a copy of the document, there is such an alleged order suspending a Timber License Agreement (TLA) where such order is cited both in the order of the DENR and the decision of the Office of the President as it is improbable that so responsible officials as the Secretary of the DENR and the Executive Secretary would cite an order that did not exist. (C & M Timber Corporation (CMTC) vs. Alcala, 273 SCRA 402 [1997]) Possession of a public land while still inalienable forest land, or before it was declared alienable and disposable land of the public domain, could not ripen into private ownership, and should be excluded from the computation of the 30-year open and continuous possession in the concept of owner. Land classified as forest land may form part of the disposable agricultural lands of the public domain only by a release in an official proclamation to that effect. (Republic vs. de Guzman, 326 SCRA 574 [2000]) ——o0o—— [Alvarez vs. PICOP Resources, Inc., 606 SCRA 444(2009)]

G.R. No. 183719. February 2, 2011.* MARGARITA F. CASTRO, petitioner, vs. NAPOLEON A. MONSOD, respondent. Civil Law; Property; The owner of a parcel of land is the owner of its surface and of everything under it, and he can construct thereon any works, or make any plantations and excavations which he may deem proper.—Article 437 of the Civil Code provides that the owner of a parcel of land is the owner of its surface and of everything under it, and he can construct thereon any works, or make any plantations and excavations which he may deem proper. However, such right of the owner is not absolute and is subject to the following limitations: (1) servitudes or easements, (2) special laws, (3) ordinances, (4) reasonable requirements of aerial navigation, and (5) rights of third persons. Same; Same; Easements; An easement is established either by law or by will of the owners.—An easement or servitude is an encumbrance imposed upon an immovable for the benefit of another immovable belonging to a different owner. There are two kinds of easements according to source. An easement is established either by law or by will of the owners. The courts cannot impose or constitute any servitude where none existed. They can only declare its existence if in reality it exists by law or by the will of the owners. There are therefore no judicial easements. Same; Same; Same; An owner, by virtue of his surface right, may make excavations on his land, but his right is subject to the limitation that he shall not deprive any adjacent land or building of sufficient lateral or subjacent support.—An owner, by virtue of his surface right, may make excavations on his

land, but his right is subject to the limitation that he shall not deprive any adjacent land or building of sufficient lateral or subjacent support. Between two adjacent landowners, each has an absolute property right to have his land laterally supported by the soil of his neighbor, and if either, in excavating on his own premises, he so disturbs the lateral support of his neighbor’s land as to cause it, or, in its natural state, by the _______________ * SECOND DIVISION. 487 VOL. 641, FEBRUARY 2, 2011487 Castro vs. Monsod pressure of its own weight, to fall away or slide from its position, the one so excavating is liable. PETITION for review on certiorari of the decision and resolution of the Court of Appeals. The facts are stated in the opinion of the Court. Nelson A. Loyola for petitioner. Napoleon A. Monsod for respondent. Manuel J. Laserna, Jr. co-counsel for respondent. NACHURA, J.: Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the Decision1 dated May 25, 2007 and the Resolution2 dated July 14, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 83973. The antecedents of the case are as follows: Petitioner is the registered owner of a parcel of land located on Garnet Street, Manuela Homes, Pamplona, Las Piñas City, and covered by Transfer Certificate of Title (TCT) No. T-36071,

with an area of one hundred thirty (130) square meters (sq.m.). Respondent, on the other hand, is the owner of the property adjoining the lot of petitioner, located on Lyra Street, Moonwalk Village, Phase 2, Las Piñas City. There is a concrete fence, more or less two (2) meters high, dividing Manuela Homes from Moonwalk Village.3 On February 29, 2000, respondent caused the annotation of an adverse claim against sixty-five (65) sq.m. of the property of petitioner covered by TCT No. T-36071. The adverse claim _______________ 1 Penned by Associate Justice Rosmari D. Carandang, with Associate Justices Jose C. Reyes, Jr. and Mariflor P. Punzalan Castillo, concurring; Rollo, pp. 68-79. 2 Id., at pp. 81-83. 3 Id., at p. 69. 488 488SUPREME COURT REPORTS ANNOTATED Castro vs. Monsod was filed without any claim of ownership over the property. Respondent was merely asserting the existing legal easement of lateral and subjacent support at the rear portion of his estate to prevent the property from collapsing, since his property is located at an elevated plateau of fifteen (15) feet, more or less, above the level of petitioner’s property.4 Respondent also filed a complaint for malicious mischief and malicious destruction before the office of the barangay chairman.5 In defiance, petitioner filed a complaint for damages with temporary restraining order/writ of preliminary injunction before the Regional Trial Court (RTC) of Las Piñas City.

Petitioner also prayed that the Register of Deeds of Las Piñas City be ordered to cancel the annotation of the adverse claim on TCT No. T-36071.6 Prior to the filing of the case before the RTC, there were deposits of soil and rocks about two (2) meters away from the front door of the house of petitioner. As such, petitioner was not able to park her vehicle at the dead-end portion of Garnet Street. When petitioner noticed a leak that caused the front portion of her house to be slippery, she hired construction workers to see where the leak was coming from. The workers had already started digging when police officers sent by respondent came and stopped the workers from finishing their job.7 Petitioner averred that when she bought the property from Manuela Homes in 1994, there was no annotation or existence of any easement over the property. Respondent neither asked permission nor talked to her with regard to the use of 65 sq.m. of her property as easement. Upon learning of the adverse claim, she felt disturbed and experienced sleepless nights for fear that she would not be able to sell her property. _______________ 4 Id., at p. 125. 5 Id. 6 Id. 7 Id., at pp. 127-128. 489 VOL. 641, FEBRUARY 2, 2011489 Castro vs. Monsod

Petitioner admitted that TCT No. 36071 does not cover the open space at the dead-end portion of Garnet Street.8 For his part, respondent claimed that he and his family had been residing in Moonwalk Village since June 1984. Adjacent to his property is the land of petitioner in Manuela Homes. When he bought the property in 1983, the land elevation of Moonwalk Village was almost on the same level as Manuela Homes. However, sometime in 1985 and 1986, Pilar Development Corporation, the developer of Manuela Homes, bulldozed, excavated, and transferred portions of the elevated land to the lower portions of Manuela Homes. Thus, Manuela Homes became lower than Moonwalk Village.9 Before the said excavation, respondent personally complained to Pilar Development Corporation and was assured that, as provided by the National Building Code, an embankment will be retained at the boundary of Manuela Homes and Moonwalk Village, which is more or less fifteen (15) feet higher than Manuela Homes.10 Manuela Homes retained the embankment consisting of soil and rocks. Respondent had the open space riprapped with stones as reinforcement against any potential soil erosion, earthquake, and possible digging by any person. Respondent asserted that the affidavit of adverse claim was for the annotation of the lateral and subjacent easement of his property over the property of petitioner, in view of the latter’s manifest determination to remove the embankment left by the developer of Manuela Homes. On October 11, 2004, the RTC rendered a decision,11 the dispositive portion of which reads: _______________

8 Id., at pp. 127, 134. 9 Id., at pp. 127-128. 10 Id., at p. 128. 11 Penned by Judge Erlinda Nicolas-Alvaro, Regional Trial Court, Branch 198, Las Piñas City; id., at pp. 125- 134. 490 490SUPREME COURT REPORTS ANNOTATED Castro vs. Monsod “WHEREFORE, premises considered, this court hereby renders judgment: (1) ordering the cancellation of [respondent’s] adverse claim at the back of Transfer Certificate of Title No. T-36071 at the expense of [respondent] Napoleon Monsod; (2) ordering the said [respondent] to pay the herein [petitioner] the amount of Php50,000.00 as moral damages; and (3) dismissing [petitioner’s] claim for actual damages, attorney’s fees, litigation costs and costs of suit and [respondent’s] compulsory counterclaim for lack of merit. SO ORDERED.”12 The trial court ratiocinated that the adverse claim of respondent was non-registrable considering that the basis of his claim was an easement and not an interest adverse to the registered owner, and neither did he contest the title of petitioner. Furthermore, the adverse claim of respondent failed to comply with the requisites provided under Section 70 of Presidential Decree No. 1529.13 On appeal, the CA reversed the decision of the trial court in a Decision14 dated May 25, 2007, the fallo of which reads: “WHEREFORE, premises considered, the instant appeal is GRANTED. The Decision of the Regional Trial Court, Branch

198, Las Piñas City dated October 11, 2004 is REVERSED and SET ASIDE. The Court hereby orders the retention of the annotation at the back of Transfer Certificate of Title No. T36071, not as an adverse claim, but a recognition of the existence of a legal easement of subjacent and lateral support constituted on the lengthwise or horizontal land support/embankment area of sixty-five (65) square meters, more or less, of the property of [petitioner] Margarita Castro. The writ of preliminary injunction issued by this Court on April 18, 2006 is hereby made permanent. [Petitioner’s] claim for damages is likewise DISMISSED. SO ORDERED.”15 _______________ 12 Id., at p. 134. 13 Id., at p. 131. 14 Supra note 1. 15 Id., at pp. 78-79. 491 VOL. 641, FEBRUARY 2, 2011491 Castro vs. Monsod The CA ruled that while respondent’s adverse claim could not be sanctioned because it did not fall under the requisites for registering an adverse claim, the same might be duly annotated in the title as recognition of the existence of a legal easement of subjacent and lateral support. The purpose of the annotation was to prevent petitioner from making injurious excavations on the subject embankment as to deprive the residential house and lot of respondent of its natural support and cause it to collapse.

Respondent only asked that petitioner respect the legal easement already existing thereon.16 On June 15, 2007, petitioner filed a motion for reconsideration. However, the CA denied the same in a Resolution17 dated July 14, 2008. Hence, this petition. The issue in this case is whether the easement of lateral and subjacent support exists on the subject adjacent properties and, if it does, whether the same may be annotated at the back of the title of the servient estate. Article 437 of the Civil Code provides that the owner of a parcel of land is the owner of its surface and of everything under it, and he can construct thereon any works, or make any plantations and excavations which he may deem proper. However, such right of the owner is not absolute and is subject to the following limitations: (1) servitudes or easements,18 (2) special laws,19 (3) ordinances,20 (4) reasonable requirements of aerial navigation,21 and (5) rights of third persons.22 Respondent filed before the RTC an affidavit of adverse claim, the pertinent portions of which read: _______________ 16 Id., at pp. 75-76. 17 Supra note 2. 18 Civil Code, Art. 437. 19 Id. 20 Id. 21 Id. 22 Civil Code, Art. 431. 492 492SUPREME COURT REPORTS ANNOTATED

Castro vs. Monsod “5. That our adverse claim consists of rights of legal or compulsory easement of lateral and subjacent support (under the Civil Code) over a portion of the above-described property of owner Margarita F. Castro, that is, covering the lengthwise or horizontal land support/embankment area of sixty-five (65) square meters, more or less. 6. That said registered owner has attempted to destroy and/or remove portions of the existing lateral/subjacent land and cement supports adjoining the said two properties. In fact, a portion of the easement was already destroyed/removed, to the continuing prejudice of herein adverse claimant, and that a formal complaint against said registered owner was filed by the herein adverse claimant before the Office of the Barangay Chairman of Talon V, Las Piñas City and the same proved futile.”23 Respondent’s assertion that he has an adverse claim over the 65 sq.m. property of petitioner is misplaced since he does not have a claim over the ownership of the land. The annotation of an adverse claim over registered land under Section 70 of Presidential Decree 152924 requires a claim on the title of _______________ 23 Rollo, p. 131. 24 Section 70 of Presidential Decree 1529 provides: Section 70. Adverse claim.—Whoever claims any part or interest in registered land adverse to the registered owner, arising subsequent to the date of the original registration, may, if no other provision is made in this Decree for registering the same, make a statement in writing setting forth fully his alleged

right or interest, and how or under whom acquired, a reference to the number of the certificate of title of the registered owner, the name of the registered owner, and a description of the land in which the right or interest is claimed. The statement shall be signed and sworn to, and shall state the adverse claimant's residence, and a place at which all notices may be served upon him. This statement shall be entitled to registration as an adverse claim on the certificate of title. The adverse claim shall be effective for a period of thirty days from the date of registration. After the lapse of said period, the annotation of adverse claim may be canceled upon filing of a verified petition therefor by the party in interest: Pro493 VOL. 641, FEBRUARY 2, 2011493 Castro vs. Monsod the disputed land. Annotation is done to apprise third persons that there is a controversy over the ownership of the land and to preserve and protect the right of the adverse claimant during the pendency of the controversy. It is a notice to third persons that any transaction regarding the disputed land is subject to the outcome of the dispute.25 In reality, what respondent is claiming is a judicial recognition of the existence of the easement of subjacent and lateral support over the 65 sq. m. portion of petitioner’s property covering the land support/embankment area. His reason for the annotation is only to prevent petitioner from removing the embankment or from digging on the property for fear of soil erosion that might weaken the foundation of the rear portion of his property which is adjacent to the property of petitioner.

An easement or servitude is an encumbrance imposed upon an immovable for the benefit of another immovable belonging to a different owner.26 There are two kinds of easements ac_______________ vided, however, that after cancellation, no second adverse claim based on the same ground shall be registered by the same claimant. Before the lapse of thirty days aforesaid, any party in interest may file a petition in the Court of First Instance where the land is situated for the cancellation of the adverse claim, and the court shall grant a speedy hearing upon the question of the validity of such adverse claim, and shall render judgment as may be just and equitable. If the adverse claim is adjudged to be invalid, the registration thereof shall be ordered canceled. If, in any case, the court, after notice and hearing, shall find that the adverse claim thus registered was frivolous, it may fine the claimant in an amount not less than one thousand pesos nor more than five thousand pesos, in its discretion. Before the lapse of thirty days, the claimant may withdraw his adverse claim by filing with the Register of Deeds a sworn petition to that effect. 25 Arrazola v. Bernas, 175 Phil. 452, 456-457; 86 SCRA 279, 284 (1978). 26 Civil Code, Art. 613. 494 494SUPREME COURT REPORTS ANNOTATED Castro vs. Monsod cording to source. An easement is established either by law or by will of the owners.27 The courts cannot impose or

constitute any servitude where none existed. They can only declare its existence if in reality it exists by law or by the will of the owners. There are therefore no judicial easements.28 Article 684 of the Civil Code provides that no proprietor shall make such excavations upon his land as to deprive any adjacent land or building of sufficient lateral or subjacent support. An owner, by virtue of his surface right, may make excavations on his land, but his right is subject to the limitation that he shall not deprive any adjacent land or building of sufficient lateral or subjacent support. Between two adjacent landowners, each has an absolute property right to have his land laterally supported by the soil of his neighbor, and if either, in excavating on his own premises, he so disturbs the lateral support of his neighbor’s land as to cause it, or, in its natural state, by the pressure of its own weight, to fall away or slide from its position, the one so excavating is liable.29 In the instant case, an easement of subjacent and lateral support exists in favor of respondent. It was established that the properties of petitioner and respondent adjoin each other. The residential house and lot of respondent is located on an elevated plateau of fifteen (15) feet above the level of petitioner’s property. The embankment and the riprapped stones have been in existence even before petitioner became the owner of the property. It was proven that petitioner has been making excavations and diggings on the subject embankment and, unless restrained, the continued excavation of the embankment could cause the foundation of the rear portion of the house of respondent to collapse, resulting in the destruction of a huge part of the family dwelling.30 _______________

27 Civil Code, Art. 619. 28 De Leon, Hector S., Comments and Cases on Property (5th ed.), p. 476. 29 Id., at p. 544. 30 Rollo, pp. 76-77. 495 VOL. 641, FEBRUARY 2, 2011495 Castro vs. Monsod We sustain the CA in declaring that a permanent injunction on the part of petitioner from making injurious excavations is necessary in order to protect the interest of respondent. However, an annotation of the existence of the subjacent and lateral support is no longer necessary. It exists whether or not it is annotated or registered in the registry of property. A judicial recognition of the same already binds the property and the owner of the same, including her successors-in-interest. Otherwise, every adjoining landowner would come to court or have the easement of subjacent and lateral support registered in order for it to be recognized and respected. WHEREFORE, in view of the foregoing, the Decision dated May 25, 2007 and the Resolution dated July 14, 2008 of the Court of Appeals in CA-G.R. CV No. 83973 are hereby AFFIRMED WITH MODIFICATION that the annotation at the back of Transfer Certificate of Title No. T-36071, recognizing the existence of the legal easement of subjacent and lateral support constituted on the lengthwise or horizontal land support/embankment area of sixty-five (65) square meters, more or less, of the property of petitioner Margarita F. Castro, is hereby ordered removed.

SO ORDERED. Carpio (Chairperson), Peralta, Abad and Mendoza, JJ., concur. Judgment and resolution affirmed with modification. Note.—It is settled that the registration of the dominant estate under the Torrens system without the annotation of the voluntary easement in its favor does not extinguish the easement. On the contrary, it is the registration of the servient estate as free, that is, without the annotation of the voluntary easement, which extinguishes the easement. (Unisource Commercial and Development Corporation vs. Chung, 593 SCRA 230 [2009] ——o0o—— [Castro vs. Monsod, 641 SCRA 486(2011)]

G.R. No. 134971. March 25, 2004.*SECOND DIVISION. HERMINIO TAYAG, petitioner, vs. AMANCIA LACSON, ROSENDO LACSON, ANTONIO LACSON, JUAN LACSON, TEODOSIA LACSON-ESPINOSA and THE COURT OF APPEALS, respondents. Remedial Law; Injunction; While generally the grant of a writ of preliminary injunction rests on the sound discretion of the trial court taking cognizance of the case, extreme caution must be observed in the exercise of such discretion.—A preliminary injunction is an extraordinary event calculated to preserve or maintain the status quo of things ante litem and is generally availed of to prevent actual or threatened acts, until the merits of the case can be heard. Injunction is accepted as the strong arm of equity or a transcendent remedy. While generally the grant of a writ of preliminary injunction rests on the sound discretion of the trial court taking cognizance of the case, extreme caution must be observed in the exercise of such discretion. Same; Same; Requisites for the issuance of a writ of preliminary injunction; The possibility of irreparable damage without proof of adequate existing rights is not a ground for injunction.—For the court to issue a writ of preliminary injunction, the petitioner was burdened to establish the following: (1) a right in esse or a clear and unmistakable right to be protected; (2) a violation of that right; (3) that there is an urgent and permanent act and urgent necessity for the writ to prevent serious damage. Thus, in the absence of a clear legal right, the issuance of the injunctive writ constitutes a grave abuse of discretion. Where the complainant’s right _______________

* SECOND DIVISION. 283 VOL. 426, MARCH 25, 2004 283 Tayag vs. Lacson is doubtful or disputed, injunction is not proper. Injunction is a preservative remedy aimed at protecting substantial rights and interests. It is not designed to protect contingent or future rights. The possibility of irreparable damage without proof of adequate existing rights is not a ground for injunction. Civil Law; Contracts; Options; Words and Phrases; An option is a contract by which the owner of the property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time; An option contract is a separate and distinct contract from which the parties may enter into upon the conjunction of the option.—We do not agree with the contention of the petitioner that the deeds of assignment executed by the defendants-tenants are perfected option contracts. An option is a contract by which the owner of the property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. It is a condition offered or contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a certain time, or under, or in compliance with certain terms and conditions, or which gives to the owner of the property the right to sell or demand a sale. It imposes no binding obligation on the person holding the option, aside from the consideration for the offer. Until accepted, it is not, properly speaking, treated as a contract. The second party gets in praesenti, not lands, not an agreement that

he shall have the lands, but the right to call for and receive lands if he elects. An option contract is a separate and distinct contract from which the parties may enter into upon the conjunction of the option. Same; Same; Damages; Requisites before Art. 1314 of the Civil Code may apply.—In So Ping Bun v. Court of Appeals, we held that for the said law to apply, the pleader is burdened to prove the following: (1) the existence of a valid contract; (2) knowledge by the third person of the existence of the contract; and (3) interference by the third person in the contractual relation without legal justification. PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. Ernesto L. Pineda for petitioner. Rafael De Claro for private respondents. 284 284 SUPREME COURT REPORTS ANNOTATED Tayag vs. Lacson CALLEJO, SR., J.: Before us is a petition for review on certiorari of the Decision1Penned by Associate Justice Demetrio G. Demetria with Associate Justices Minerva P. Gonzaga-Reyes, later a member of the Supreme Court, now retired, and Ramon A. Barcelona, retired, concurring. and the Resolution2CA Rollo, p. 142. of respondent Court of Appeals in CA-G.R. SP No. 44883. The Case for the Petitioner

Respondents Angelica Tiotuyco Vda. de Lacson,3Also referred to as Angela or Angelina Tiotuyco Vda. de Lacson. and her children Amancia, Antonio, Juan, and Teodosia, all surnamed Lacson, were the registered owners of three parcels of land located in Mabalacat, Pampanga, covered by Transfer Certificates of Title (TCT) Nos. 35922-R, 35923-R, and 35925-R, registered in the Register of Deeds of San Fernando, Pampanga. The properties, which were tenanted agricultural lands,4Rollo, pp. 34, 56. were administered by Renato Espinosa for the owner. On March 17, 1996, a group of original farmers/tillers, namely, Julio Tiamson, Renato Gozun, Rosita Hernandez, Bienvenido Tongol, Alfonso Flores, Norma Quiambao, Rosita Tolentino, Jose Sosa, Francisco Tolentino, Sr., Emiliano Laxamana, Ruben Torres, Meliton Allanigue, Dominga Laxamana, Felicencia de Leon, Emiliano Ramos, and another group, namely, Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo Quiambao, Roman Laxamana, Eddie San Luis, Ricardo Hernandez, Nicenciana Miranda, Jose Gozun, Alfredo Sosa, Jose Tiamson, Augusto Tolentino, Sixto Hernandez, Alex Quiambao, Isidro Tolentino, Ceferino de Leon, Alberto Hernandez, Orlando Flores, and Aurelio Flores,5The petitioner alleged in his complaint that the other group are sub-tenants but the respondents specifically denied allegation in their answer to the complaint. individually executed in favor of the petitioner separate Deeds of Assignment6Herein is a sample of such deed of assignment similarly signed by the thirty-five defendants-tenants—. . . in which the assignees assigned to the petitioner their _______________

1 Penned by Associate Justice Demetrio G. Demetria with Associate Justices Minerva P. Gonzaga-Reyes, later a member of the Supreme Court, now retired, and Ramon A. Barcelona, retired, concurring. 2 CA Rollo, p. 142. 3 Also referred to as Angela or Angelina Tiotuyco Vda. de Lacson. 4 Rollo, pp. 34, 56. 5 The petitioner alleged in his complaint that the other group are sub-tenants but the respondents specifically denied allegation in their answer to the complaint. 6 Herein is a sample of such deed of assignment similarly signed by the thirty-five defendants-tenants— ... 285 VOL. 426, MARCH 25, 2004 285 Tayag vs. Lacson respective rights as tenants/tillers of the landholdings possessed and tilled by them for and in consideration of P50.00 per square meter. The said amount was made payable “when the legal im_______________ WHEREAS, the ASSIGNOR is one of the agricultural lessee of a certain real property covered under Transfer Certificate of Title No. 35925-R registered in the names of the following persons: 1. ANGELA TIOTUYCO VDA. DE LACSON 2. AMANCIA LACSON

3. ANTONIO LACSON 4. JUAN LACSON 5. TEODOSIA LACSON situated at ANGELES CITY, MABALACAT and MAGALANG, PAMPANGA. WHEREAS, the said property is being administered by MR. RENATO ESPINOSA with postal address at Chateau de Bai Condominium, Roxas Boulevard cor. Airport Road, Baclaran, Parañaque, Metro Manila; WHEREAS, the ASSIGNOR offered to assign his rights as tenant/lessee over the portion of the aforecited land actually tilled and possessed by him and the ASSIGNEE has agreed and accepted such offer under the following terms and conditions to wit: 1. That the consideration of the said DEED OF ASSIGNMENT is the sum of TEN THOUSAND (P10,000.00) Philippine Currency receipt of which is hereby acknowledged by, ASSIGNOR; 2. That in case the ASSIGNOR and LANDOWNER will mutually agree to sell said lot to the ASSIGNEE, who is given an exclusive and absolute right to buy the lot, the ASSIGNOR shall receive the sum of FIFTY PESOS (P50.00) per square meter as consideration of the total area actually tilled and possessed by ASSIGNOR, less whatever amount received by the ASSIGNOR including commissions, taxes & all allowable deductions relative to the sale of the subject properties. 3. That this exclusive and absolute right given to the ASSIGNEE shall be exercised only when no legal impediments exist to the lot to effect the smooth transfer of lawful ownership of the lot/property in the name of the ASSIGNEE;

4. That the ASSIGNOR will remain in peaceful possession over the said property and shall enjoy the fruits/earnings and/or harvest of the said lot until such time that full payment of the agreed purchase price had been made by the ASSIGNEE. The petitioner claims that aside from the said deed, the defendants-tenants executed Memoranda of Agreement and Supplemental Deeds of Assignment. 286 286 SUPREME COURT REPORTS ANNOTATED Tayag vs. Lacson pediments to the sale of the property to the petitioner no longer existed.” The petitioner was also granted the exclusive right to buy the property if and when the respondents, with the concurrence of the defendants-tenants, agreed to sell the property. In the interim, the petitioner gave varied sums of money to the tenants as partial payments, and the latter issued receipts for the said amounts. On July 24, 1996, the petitioner called a meeting of the defendants-tenants to work out the implementation of the terms of their separate agreements.7CA Rollo, p. 33. However, on August 8, 1996, the defendants-tenants, through Joven Mariano, wrote the petitioner stating that they were not attending the meeting and instead gave notice of their collective decision to sell all their rights and interests, as tenants/lessees, over the landholding to the respondents.8Id., at p. 31. Explaining their reasons for their collective decision, they wrote as follows:

Kami ay nagtiwala sa inyo, naging tapat at nanindigan sa lahat ng ating napagkasunduan, hindi tumanggap ng ibang buyer o ahente, pero sinira ninyo ang aming pagtitiwala sa pamamagitan ng demanda ninyo at pagbibigay ng problema sa amin na hindi naman nagbenta ng lupa. Kaya kami ay nagpulong at nagpasya na ibenta na lang ang aming karapatan o ang aming lupang sinasaka sa landowner o sa mga pamilyang Lacson, dahil ayaw naming magkaroon ng problema. Kaya kung ang sasabihin ninyong ito’y katangahan, lalo sigurong magiging katangahan kung ibebenta pa namin sa inyo ang aming lupang sinasaka, kaya pasensya na lang Mister Tayag. Dahil sinira ninyo ang aming pagtitiwala at katapatan.9Id., at p. 31. On August 19, 1996, the petitioner filed a complaint with the Regional Trial Court of San Fernando, Pampanga, Branch 44, against the defendants-tenants, as well as the respondents, for the court to fix a period within which to pay the agreed purchase price of P50.00 per square meter to the defendants, as provided for in the Deeds of Assignment. The petitioner also prayed for a writ of preliminary injunction against the defendants and the respondents therein.10Rollo, p. 33. The case was docketed as Civil Case No. 10910. _______________ 7 CA Rollo, p. 33. 8 Id., at p. 31. 9 Id., at p. 31. 10 Rollo, p. 33. 287

VOL. 426, MARCH 25, 2004 287 Tayag vs. Lacson

CHECK NO. TOTAL

In his complaint, the petitioner alleged, inter alia, the following: 4. That defendants Julio Tiamson, Renato Gozun, Rosita Hernandez, Bienvenido Tongol, Alfonso Flores, Norma Quiambao, Rosita Tolentino, Jose Sosa, Francisco Tolentino, Sr., Emiliano Laxamana, Ruben Torres, Meliton Allanigue, Dominga Laxamana, Felicencia de Leon, Emiliano Ramos are original farmers or direct tillers of landholdings over parcels of lands covered by TransferCertificate of Title Nos. 35922-R. 35923-R and 35925-R which are registered in the names of defendants LACSONS; while defendants Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo Quiambao, Roman Laxamana, Eddie San Luis, Alfredo Gozun, Jose Tiamson, Augusto Tolentino, Sixto Hernandez, Alex Quiambao, Isidro Tolentino, Ceferino de Leon, Alberto Hernandez, and Aurelio Flores are sub-tenants over the same parcel of land. 5. That on March 17, 1996 the defendants TIAMSON, et al., entered into Deeds of Assignment with the plaintiff by which the defendants assigned all their rights and interests on their landholdings to the plaintiff and that on the same date (March 17, 1996), the defendants received from the plaintiff partial payments in the amounts corresponding to their names. Subsequent payments were also received:

1. Julio Tiamson P20,000 P10,621.54 231281 P30,621.54 2. Renato Gozun P10,000 96,000 106,000.00 [son of Felix Gozun (deceased)] 3. Rosita Hernandez P5,000 14,374.24 231274 P19,374.24 4. Bienvenido Tongol P10,000 14,465.90 231285 24,465.90 [son of Abundio Tongol (deceased)] 5. Alfonso Flores P30,000 26,648.40 231271 56,648.40 6. Norma Quiambao P10,000 41,501.10 231279 51,501.10 7. Rosita Tolentino P10,000 22,126.08 231284 32,126.08 8. Jose Sosa P10,000 14,861.31 231291 24,861.31 9. Francisco Tolentino, Sr. P10,000 24,237.62 231283 34,237.62 10. Emiliano Laxamana P10,000 -----------------------11. Ruben Torres P10,000 P33,587.31 --------P43,587.31 [son of Mariano Torres (deceased)] 12. Meliton Allanigue P10,000 12,944.77 231269 P22,944.77 13. Dominga Laxamana P5,000 22.269.02 231275 27,269.02 14. Felicencia de Leon 10,000 -----------------------15. Emiliano Ramos 5,000 18,869.60 231280 23,869.60 16. Felino G. Tolentino 10,000 ------------------------

1st PAYMENT 2nd PAYMENT

288

288 SUPREME COURT REPORTS ANNOTATED Tayag vs. Lacson 17. Rica Gozun 5,000 -----------------------18. Perla Gozun 10,000 -----------------------19. Benigno Tolentino 10,000 -----------------------20. Rodolfo Quiambao 10,000 -----------------------21. Roman Laxamana 10,000 -----------------------22. Eddie San Luis 10,000 -----------------------23. Ricardo Hernandez 10,000 -----------------------24. Nicenciana Miranda 10,000 -----------------------25. Jose Gozun 10,000 -----------------------26. Alfredo Sosa 5,000 -----------------------27. Jose Tiamson 10,000 -----------------------28. Augusto Tolentino 5,000 -----------------------29. Sixto Hernandez 10,000 -----------------------30. Alex Quiambao 10,000 -----------------------31. Isidro Tolentino 10,000 -----------------------32. Ceferino de Leon ----------11,378.70 231270 -------33. Alberto Hernandez 10,000 -----------------------34. Orlando Florez 10,000 -----------------------35. Aurelio Flores 10,000 -------------------------------6. That on July 24, 1996, the plaintiff wrote the defendants TIAM-SON, et al., inviting them for a meeting regarding the negotiations/implementations of the terms of their Deeds of Assignment; 7. That on August 8, 1996, the defendants TIAMSON, et al., through Joven Mariano, replied that they are no longer willing to pursue with the negotiations, and instead they gave notice to

the plaintiff that they will sell all their rights and interests to the registered owners (defendants LACSONS). A copy of the letter is hereto attached as Annex “A” etc.; 8. That the defendants TIAMSON, et al., have no right to deal with the defendants LACSON or with any third persons while their contracts with the plaintiff are subsisting; defendants LACSONS are inducing or have induced the defendants TIAMSON, et al., to violate their contracts with the plaintiff; 9. That by reason of the malicious acts of all the defendants, plaintiff suffered moral damages in the forms of mental anguish, mental torture and serious anxiety which in the sum of P500,000.00 for which defendants should be held liable jointly and severally.11CA Rollo, pp. 23-25. _______________ 11 CA Rollo, pp. 23-25. 289 VOL. 426, MARCH 25, 2004 289 Tayag vs. Lacson In support of his plea for injunctive relief, the petitioner, as plaintiff, also alleged the following in his complaint: 11. That to maintain the status quo, the defendants TIAMSON, et al., should be restrained from rescinding their contracts with the plaintiff, and the defendants LACSONS should also be restrained from accepting any offer of sale or alienation with the defendants TIAMSON, et al., in whatever form, the latter’s rights and interests in the properties mentioned in paragraph 4 hereof; further, the LACSONS should be restrained from encumbering/alienating the subject properties covered by TCT

No. 35922-R, 35923-R and TCT No. 35925-R, Registry of Deeds of San Fernando, Pampanga; 12. That the defendants TIAMSON, et al., threaten to rescind their contracts with the plaintiff and are also bent on selling/alienating their rights and interests over the subject properties to their co-defendants (LACSONS) or any other persons to the damage and prejudice of the plaintiff who already invested much money, efforts and time in the said transactions; 13. That the plaintiff is entitled to the reliefs being demanded in the complaint; 14. That to prevent irreparable damages and prejudice to the plaintiff, as the latter has no speedy and adequate remedy under the ordinary course of law, it is essential that a Writ of Preliminary Injunction be issued enjoining and restraining the defendants TIAMSON, et al., from rescinding their contracts with the plaintiff and from selling/alienating their properties to the LACSONS or other persons; 15. That the plaintiff is willing and able to put up a reasonable bond to answer for the damages which the defendants would suffer should the injunction prayed for and granted be found without basis.12Id., at pp. 26-27. The petitioner prayed, that after the proceedings, judgment be rendered as follows: 1. Pending the hearing, a Writ of Preliminary Injunction be issued prohibiting, enjoining and restraining defendants Julio Tiamson, Renato Gozun, Rosita Hernandez, Bienvenido Tongol, Alfonso Flores, Norma Quiambao, Rosita Tolentino, Jose Sosa, Francisco Tolentino, Sr., Emiliano Laxamana, Ruben Torres, Meliton Allanigue, Dominga Laxamana,

Felicencia de Leon, Emiliano Ramos, Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo Quiambao, Roman Laxamana, Eddie San Luis, Ricardo Hernandez, Nicenciana Miranda, Jose Gozun, Alfredo Sosa, Jose Tiamson, Augusto Tolentino, Ceferino de Leon, Alberto Her_______________ 12 Id., at pp. 26-27. 290 290 SUPREME COURT REPORTS ANNOTATED Tayag vs. Lacson nandez, Orlando Flores, and Aurelio Flores from rescinding their contracts with the plaintiff and from alienating their rights and interest over the aforementioned properties in favor of defendants LACSONS or any other third persons; and prohibiting the defendants LACSONS from encumbering/alienating TCT Nos. 35922-R, 35923-R and 35925-R of the Registry of Deeds of San Fernando. Pampanga. 2. And pending the hearing of the Prayer for a Writ of Preliminary Injunction, it is prayed that a restraining order be issued restraining the aforementioned defendants (TIAMSON, et al.) from rescinding their contracts with the plaintiff and from alienating the subject properties to the defendants LACSONS or any third persons; further, restraining and enjoining the defendants LACSONS from encumbering/selling the properties covered by TCT Nos. 35922-R, 35923-R, and 35925-R of the Registry of Deeds of San Fernando, Pampanga.

3. Fixing the period within which plaintiff shall pay the balance of the purchase price to the defendants TIAMSON, et al., after the lapse of legal impediment, if any. 4. Making the Writ of Preliminary Injunction permanent; 5. Ordering the defendants to pay the plaintiff the sum of P500,000.00 as moral damages; 6. Ordering the defendants to pay the plaintiff attorney’s fees in the sum of P100,000.00 plus litigation expenses of P50,000.00; Plaintiff prays for such other relief as may be just and equitable under the premises.13Id., at pp. 27-29. In their answer to the complaint, the respondents as defendants asserted that (a) the defendant Angelica Vda. de Lacson had died on April 24, 1993; (b) twelve of the defendants were tenants/lessees of respondents, but the tenancy status of the rest of the defendants was uncertain; (c) they never induced the defendants Tiamson to violate their contracts with the petitioner; and, (d) being merely tenants-tillers, the defendantstenants had no right to enter into any transactions involving their properties without their knowledge and consent. They also averred that the transfers or assignments of leasehold rights made by the defendants-tenants to the petitioner is contrary to Presidential Decree (P.D.) No. 27 and Republic Act No. 6657, the Comprehensive Agrarian Reform Program (CARP).14Id., at p. 41. The respondents interposed counterclaims for damages against the petitioner as plaintiff. _______________ 13 Id., at pp. 27-29. 14 Id., at p. 41. 291

VOL. 426, MARCH 25, 2004 291 Tayag vs. Lacson The defendants-tenants Tiamson, et al., alleged in their answer with counterclaim for damages, that the money each of them received from the petitioner were in the form of loans, and that they were deceived into signing the deeds of assignment: a) That all the foregoing allegations in the Answer are hereby repleaded and incorporated in so far as they are material and relevant herein; b) That the defendants Tiamson, et al., in so far as the Deeds of Assignment are concern[ed] never knew that what they did sign is a Deed of Assignment. What they knew was that they were made to sign a document that will serve as a receipt for the loan granted [to] them by the plaintiff; c) That the Deeds of Assignment were signed through the employment of fraud, deceit and false pretenses of plaintiff and made the defendants believe that what they sign[ed] was a mere receipt for amounts received by way of loans; d) That the documents signed in blank were filled up and completed after the defendants Tiamson, et al., signed the documents and their completion and accomplishment was done in the absence of said defendants and, worst of all, defendants were not provided a copy thereof; e) That as completed, the Deeds of Assignment reflected that the defendants Tiamson, et al., did assign all their rights and interests in the properties or landholdings they were tilling in favor of the plaintiff. That if this is so, assuming arguendo that the documents were voluntarily executed, the defendants Tiamson, et al., do not have any right to transfer their interest

in the landholdings they are tilling as they have no right whatsoever in the landholdings, the landholdings belong to their co-defendants, Lacson, et al., and therefore, the contract is null and void; f) That while it is admitted that the defendants Tiamson, et al., received sums of money from plaintiffs, the same were received as approved loans granted by plaintiff to the defendants Tiamson, et al., and not as part consideration of the alleged Deeds of Assignment; and by way of:. . . .15Id., at pp. 34-35. At the hearing of the petitioner’s plea for a writ of preliminary injunction, the respondents’ counsel failed to appear. In support of his plea for a writ of preliminary injunction, the petitioner adduced in evidence the Deeds of Assignment,16Exhibits “A” to “HH.... the receipts17Exhibits “I” to “II-18.... issued by the defendants-tenants for the amounts they received from him; and _______________ 15 Id., at pp. 34-35. 16 Exhibits “A” to “HH.” 17 Exhibits “I” to “II-18.” 292 292 SUPREME COURT REPORTS ANNOTATED Tayag vs. Lacson the letter18Exhibit “JJ.... the petitioner received from the defendants-tenants. The petitioner then rested his case. The respondents, thereafter, filed a Comment/Motion to dismiss/deny the petitioner’s plea for injunctive relief on the

following grounds: (a) the Deeds of Assignment executed by the defendants-tenants were contrary to public policy and P.D. No. 27 and Rep. Act No. 6657; (b) the petitioner failed to prove that the respondents induced the defendants-tenants to renege on their obligations under the “Deeds of Assignment;” (c) not being privy to the said deeds, the respondents are not bound by the said deeds; and, (d) the respondents had the absolute right to sell and dispose of their property and to encumber the same and cannot be enjoined from doing so by the trial court. The petitioner opposed the motion, contending that it was premature for the trial court to resolve his plea for injunctive relief, before the respondents and the defendants-tenants adduced evidence in opposition thereto, to afford the petitioner a chance to adduce rebuttal evidence and prove his entitlement to a writ of preliminary injunction. The respondents replied that it was the burden of the petitioner to establish the requisites of a writ of preliminary injunction without any evidence on their part, and that they were not bound to adduce any evidence in opposition to the petitioner’s plea for a writ of preliminary injunction. On February 13, 1997, the court issued an Order19CA Rollo, p. 62. denying the motion of the respondents for being premature. It directed the hearing to proceed for the respondents to adduce their evidence. The court ruled that the petitioner, on the basis of the material allegations of the complaint, was entitled to injunctive relief. It also held that before the court could resolve the petitioner’s plea for injunctive relief, there was need for a hearing to enable the respondents and the defendants-tenants to adduce evidence to controvert that of the petitioner. The

respondents filed a motion for reconsideration, which the court denied in its Order dated April 16, 1997. The trial court ruled that on the face of the averments of the complaint, the pleadings of the parties and the evidence adduced by the petitioner, the latter was entitled to injunctive relief unless _______________ 18 Exhibit “JJ.” 19 CA Rollo, p. 62. 293 VOL. 426, MARCH 25, 2004 293 Tayag vs. Lacson the respondents and the defendants-tenants adduced controverting evidence. The respondents, the petitioners therein, filed a petition for certiorari in the Court of Appeals for the nullification of the February 13, 1997 and April 16, 1997 Orders of the trial court. The case was docketed as CA-G.R. SP No. 44883. The petitioners therein prayed in their petition that: 1. An order be issued declaring the orders of respondent court dated February 13, 1997 and April 16, 1997 as null and void; 2. An order be issued directing the respondent court to issue an order denying the application of respondent Herminio Tayag for the issuance of a Writ of Preliminary Injunction and/or restraining order. 3. In the meantime, a Writ of Preliminary Injunction be issued against the respondent court, prohibiting it from issuing its own writ of injunction against Petitioners, and thereafter making said injunction to be issued by this Court permanent.

Such other orders as may be deemed just & equitable under the premises also prayed for.20Id., at p. 20. The respondents asserted that the Deeds of Assignment executed by the assignees in favor of the petitioner were contrary to paragraph 13 of P.D. No. 27 and the second paragraph of Section 70 of Rep. Act No. 6657, and, as such, could not be enforced by the petitioner for being null and void. The respondents also claimed that the enforcement of the deeds of assignment was subject to a supervening condition: 3. That this exclusive and absolute right given to the assignee shall be exercised only when no legal impediments exist to the lot to effect the smooth transfer of lawful ownership of the lot/property in the name of the ASSIGNEE.21Id., at p. 14. The respondents argued that until such condition took place, the petitioner would not acquire any right to enforce the deeds by injunctive relief. Furthermore, the petitioner’s plea in his complaint before the trial court, to fix a period within which to pay the balance of the amounts due to the tenants under said deeds after the “lapse” of any legal impediment, assumed that the deeds were _______________ 20 Id., at p. 20. 21 Id., at p. 14. 294 294 SUPREME COURT REPORTS ANNOTATED Tayag vs. Lacson valid, when, in fact and in law, they were not. According to the respondents, they were not parties to the deeds of assignment;

hence, they were not bound by the said deeds. The issuance of a writ of preliminary injunction would restrict and impede the exercise of their right to dispose of their property, as provided for in Article 428 of the New Civil Code. They asserted that the petitioner had no cause of action against them and the defendants-tenants. On April 17, 1998, the Court of Appeals rendered its decision against the petitioner, annulling and setting aside the assailed orders of the trial court; and permanently enjoining the said trial court from proceeding with Civil Case No. 10901. The decretal portion of the decision reads as follows: However, even if private respondent is denied of the injunctive relief he demands in the lower court still he could avail of other course of action in order to protect his interest such as the institution of a simple civil case of collection of money against TIAMSON, et al. For all the foregoing considerations, the orders dated 13 February 1997 and 16 April 1997 are hereby NULLIFIED and ordered SET ASIDE for having been issued with grave abuse of discretion amounting to lack or excess of jurisdiction. Accordingly, public respondent is permanently enjoined from proceeding with the case designated as Civil Case No. 10901.22Id., at p. 97. The CA ruled that the respondents could not be enjoined from alienating or even encumbering their property, especially so since they were not privies to the deeds of assignment executed by the defendants-tenants. The defendants-tenants were not yet owners of the portions of the landholdings respectively tilled by them; as such, they had nothing to assign to the petitioner. Finally, the CA ruled that the deeds of assignment executed by

the defendants-tenants were contrary to P.D. No. 27 and Rep. Act No. 6657. On August 4, 1998, the CA issued a Resolution denying the petitioner’s motion for reconsideration.23Id., at p. 142. Hence, the petitioner filed his petition for review on certiorari before this Court, contending as follows: _______________ 22 Id., at p. 97. 23 Id., at p. 142. 295 VOL. 426, MARCH 25, 2004 295 Tayag vs. Lacson I A MERE ALLEGATION IN THE ANSWER OF THE TENANTS COULD NOT BE USED AS EVIDENCE OR BASIS FOR ANY CONCLUSION, AS THIS ALLEGATION, IS STILL THE SUBJECT OF TRIAL IN THE LOWER COURT (RTC).24Rollo, p. 16. II THE COURT OF APPEALS CANNOT ENJOIN THE HEARING OF A PETITION FOR PRELIMINARY INJUNCTION AT A TIME WHEN THE LOWER COURT (RTC) IS STILL RECEIVING EVIDENCE PRECISELY TO DETERMINE WHETHER OR NOT THE WRIT OF PRELIMINARY INJUNCTION BEING PRAYED FOR BY TAYAG SHOULD BE GRANTED OR NOT.25Id., at p. 17. III

THE COURT OF APPEALS CANNOT USE “FACTS” NOT IN EVIDENCE, TO SUPPORT ITS CONCLUSION THAT THE TENANTS ARE NOT YET “AWARDEES OF THE LAND REFORM.”26Id., at p. 19. IV THE COURT OF APPEALS CANNOT CAUSE THE PERMANENT STOPPAGE OF THE ENTIRE PROCEEDINGS BELOW INCLUDING THE TRIAL ON THE MERITS OF THE CASE CONSIDERING THAT THE ISSUE INVOLVED ONLY THE PROPRIETY OF MAINTAINING THE STATUS QUO.27Id., at p. 21. V THE COURT OF APPEALS CANNOT INCLUDE IN ITS DECISION THE CASE OF THE OTHER 35 TENANTS WHO DO NOT QUESTION THE JURISDICTION OF THE LOWER COURT (RTC) OVER THE CASE AND WHO ARE IN FACT STILL PRESENTING THEIR EVIDENCE TO OPPOSE THE INJUNCTION PRAYED FOR, AND TO PROVE AT THE SAME TIME THE COUNTER-CLAIMS THEY FILED AGAINST THE PETITIONER.28Id. _______________ 24 Rollo, p. 16. 25 Id., at p. 17. 26 Id., at p. 19. 27 Id., at p. 21. 28 Id. 296 296 SUPREME COURT REPORTS ANNOTATED Tayag vs. Lacson

VI THE LOWER COURT (RTC) HAS JURISDICTION OVER THE CASE FILED BY TAYAG FOR “FIXING OF PERIOD” UNDER ART. 1197 OF THE NEW CIVIL CODE AND FOR “DAMAGES” AGAINST THE LACSONS UNDER ART. 1314 OF THE SAME CODE. THIS CASE CANNOT BE SUPPRESSED OR RENDERED NUGATORY UNCEREMONIOUSLY.29Id., at p. 22. The petitioner faults the Court of Appeals for permanently enjoining the trial court from proceeding with Civil Case No. 10910. He opines that the same was too drastic, tantamount to a dismissal of the case. He argues that at that stage, it was premature for the appellate court to determine the merits of the case since no evidentiary hearing thereon was conducted by the trial court. This, the Court of Appeals cannot do, since neither party moved for the dismissal of Civil Case No. 10910. The petitioner points out that the Court of Appeals, in making its findings, went beyond the issue raised by the private respondents, namely, whether or not the trial court committed a grave abuse of discretion amounting to excess or lack of jurisdiction when it denied the respondent’s motion for the denial/dismissal of the petitioner’s plea for a writ of preliminary injunction. He, likewise, points out that the appellate court erroneously presumed that the leaseholders were not DAR awardees and that the deeds of assignment were contrary to law. He contends that leasehold tenants are not prohibited from conveying or waiving their leasehold rights in his favor. He insists that there is nothing illegal with his

contracts with the leaseholders, since the same shall be effected only when there are no more “legal impediments.” At bottom, the petitioner contends that, at that stage, it was premature for the appellate court to determine the merits of his case since no evidentiary hearing on the merits of his complaint had yet been conducted by the trial court. _______________ 29 Id., at p. 22. 297 VOL. 426, MARCH 25, 2004 297 Tayag vs. Lacson The Comment/Motion of the Respondents to Dismiss/Deny Petitioner’s Plea for a Writ of Preliminary Injunction Was Not Premature. Contrary to the ruling of the trial court, the motion of the respondents to dismiss/deny the petitioner’s plea for a writ of preliminary injunction after the petitioner had adduced his evidence, testimonial and documentary, and had rested his case on the incident, was proper and timely. It bears stressing that the petitioner had the burden to prove his right to a writ of preliminary injunction. He may rely solely on the material allegations of his complaint or adduce evidence in support thereof. The petitioner adduced his evidence to support his plea for a writ of preliminary injunction against the respondents and the defendants-tenants and rested his case on the said incident. The respondents then had three options: (a) file a motion to deny/dismiss the motion on the ground that the petitioner failed to discharge his burden to prove the factual and legal basis for

his plea for a writ of preliminary injunction and, if the trial court denies his motion, for them to adduce evidence in opposition to the petitioner’s plea; (b) forgo their motion and adduce testimonial and/or documentary evidence in opposition to the petitioner’s plea for a writ of preliminary injunction; or, (c) waive their right to adduce evidence and submit the incident for consideration on the basis of the pleadings of the parties and the evidence of the petitioner. The respondents opted not to adduce any evidence, and instead filed a motion to deny or dismiss the petitioner’s plea for a writ of preliminary injunction against them, on their claim that the petitioner failed to prove his entitlement thereto. The trial court cannot compel the respondents to adduce evidence in opposition to the petitioner’s plea if the respondents opt to waive their right to adduce such evidence. Thus, the trial court should have resolved the respondents’ motion even without the latter’s opposition and the presentation of evidence thereon. 298 298 SUPREME COURT REPORTS ANNOTATED Tayag vs. Lacson The RTC Committed a Grave Abuse of Discretion Amounting to Excess or Lack of Jurisdiction in Issuing its February 13, 1997 and April 16, 1997 Orders In its February 13, 1997 Order, the trial court ruled that the petitioner was entitled to a writ of preliminary injunction against the respondents on the basis of the material averments of the complaint. In its April 16, 1997 Order, the trial court denied the respondents’ motion for reconsideration of the

previous order, on its finding that the petitioner was entitled to a writ of preliminary injunction based on the material allegations of his complaint, the evidence on record, the pleadings of the parties, as well as the applicable laws: . . . For the record, the Court denied the LACSONS’ COMMENT/MOTION on the basis of the facts culled from the evidence presented, the pleadings and the law applicable unswayed by the partisan or personal interests, public opinion or fear of criticism (Canon 3, Rule 3.02, Code of Judicial Ethics).30CA Rollo, p. 74. Section 3, Rule 58 of the Rules of Court, as amended, enumerates the grounds for the issuance of a writ of preliminary injunction, thus: (a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the commission or continuance of the act or acts complained of, or in requiring the performance of an act or acts, either for a limited period or perpetually; (b) That the commission, continuance or non-performance of the act or acts complained of during the litigation would probably work injustice to the applicant; or (c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action or proceeding, and tending to render the judgment ineffectual. A preliminary injunction is an extraordinary event calculated to preserve or maintain the status quo of things ante litem and is generally availed of to prevent actual or threatened acts, until the

_______________ 30 CA Rollo, p. 74. 299 VOL. 426, MARCH 25, 2004 299 Tayag vs. Lacson merits of the case can be heard. Injunction is accepted as the strong arm of equity or a transcendent remedy.31Cagayan de Oro City Landless Residents Asso., Inc. v. Court of Appeals, 254 SCRA 220 (1996). While generally the grant of a writ of preliminary injunction rests on the sound discretion of the trial court taking cognizance of the case, extreme caution must be observed in the exercise of such discretion.32Ong Ching Kian Chuan v. Court of Appeals, 363 SCRA 145 (2001). Indeed, in Olalia v. Hizon,33196 SCRA 665 (1991). we held: It has been consistently held that there is no power the exercise of which is more delicate, which requires greater caution, deliberation and sound discretion, or more dangerous in a doubtful case, than the issuance of an injunction. It is the strong arm of equity that should never be extended unless to cases of great injury, where courts of law cannot afford an adequate or commensurate remedy in damages. Every court should remember that an injunction is a limitation upon the freedom of action of the defendant and should not be granted lightly or precipitately. It should be granted only when the court is fully satisfied that the law permits it and the emergency demands it.34Id., at pp. 672-673. The very foundation of the jurisdiction to issue writ of injunction rests in the existence of a cause of action and in the

probability of irreparable injury, inadequacy of pecuniary compensation and the prevention of the multiplicity of suits. Where facts are not shown to bring the case within these conditions, the relief of injunction should be refused.35Id., citing Golding v. Balatbat, 36 Phil. 941 (1917). For the court to issue a writ of preliminary injunction, the petitioner was burdened to establish the following: (1) a right in esse or a clear and unmistakable right to be protected; (2) a violation of that right; (3) that there is an urgent and permanent act and urgent necessity for the writ to prevent serious damage.36Crystal v. Cebu International School, 356 SCRA 296 (2001); Verzosa v. Court of Appeals, 299 SCRA 100 (1998). Thus, in the absence of a clear legal right, the issuance of the injunctive writ constitutes a grave abuse of discretion. Where the complainant’s right is doubtful or disputed, injunction is not proper. Injunction is a preservative remedy aimed at protecting substantial _______________ 31 Cagayan de Oro City Landless Residents Asso., Inc. v. Court of Appeals, 254 SCRA 220 (1996). 32 Ong Ching Kian Chuan v. Court of Appeals, 363 SCRA 145 (2001). 33 196 SCRA 665 (1991). 34 Id., at pp. 672-673. 35 Id., citing Golding v. Balatbat, 36 Phil. 941 (1917). 36 Crystal v. Cebu International School, 356 SCRA 296 (2001); Verzosa v. Court of Appeals, 299 SCRA 100 (1998). 300 300 SUPREME COURT REPORTS ANNOTATED

Tayag vs. Lacson rights and interests. It is not designed to protect contingent or future rights. The possibility of irreparable damage without proof of adequate existing rights is not a ground for injunction.37Arcegas v. Court of Appeals, 275 SCRA 176 (1997); Idolor v. Court of Appeals, 351 SCRA 399 (2001). We have reviewed the pleadings of the parties and found that, as contended by the respondents, the petitioner failed to establish the essential requisites for the issuance of a writ of preliminary injunction. Hence, the trial court committed a grave abuse of its discretion amounting to excess or lack of jurisdiction in denying the respondents’ comment/motion as well as their motion for reconsideration. First. The trial court cannot enjoin the respondents, at the instance of the petitioner, from selling, disposing of and encumbering their property. As the registered owners of the property, the respondents have the right to enjoy and dispose of their property without any other limitations than those established by law, in accordance with Article 428 of the Civil Code. The right to dispose of the property is the power of the owner to sell, encumber, transfer, and even destroy the property. Ownership also includes the right to recover the possession of the property from any other person to whom the owner has not transmitted such property, by the appropriate action for restitution, with the fruits, and for indemnification for damages.38Tolentino, Civil Code of the Philippines, Vol. II, 1963 ed., p. 41. The right of ownership of the respondents is not, of course, absolute. It is limited by those set forth by law, such as the agrarian reform laws. Under Article 1306 of the

New Civil Code, the respondents may enter into contracts covering their property with another under such terms and conditions as they may deem beneficial provided they are not contrary to law, morals, good conduct, public order or public policy. The respondents cannot be enjoined from selling or encumbering their property simply and merely because they had executed Deeds of Assignment in favor of the petitioner, obliging themselves to assign and transfer their rights or interests as agricultural farmers/laborers/sub-tenants over the landholding, and granting the petitioner the exclusive right to buy the property subject to the occurrence of certain conditions. The respondents were not parties to the said deeds. There is no evidence that the respondents _______________ 37 Arcegas v. Court of Appeals, 275 SCRA 176 (1997); Idolor v. Court of Appeals, 351 SCRA 399 (2001). 38 Tolentino, Civil Code of the Philippines, Vol. II, 1963 ed., p. 41. 301 VOL. 426, MARCH 25, 2004 301 Tayag vs. Lacson agreed, expressly or impliedly, to the said deeds or to the terms and conditions set forth therein. Indeed, they assailed the validity of the said deeds on their claim that the same were contrary to the letter and spirit of P.D. No. 27 and Rep. Act No. 6657. The petitioner even admitted when he testified that he did not know any of the respondents, and that he had not met

any of them before he filed his complaint in the RTC. He did not even know that one of those whom he had impleaded as defendant, Angelica Vda. de Lacson, was already dead. Q: But you have not met any of these Lacsons? A: Not yet, sir. Q: Do you know that two (2) of the defendants are residents of the United States? A: I do not know, sir. Q: You do not know also that Angela Tiotuvie (sic) Vda. de Lacson had already been dead? A: I am aware of that, sir.39CA Rollo, p. 50. We are one of the Court of Appeals in its ruling that: We cannot see our way clear on how or why injunction should lie against petitioners. As owners of the lands being tilled by TIAMSON, et al, petitioners, undeer the law, have the right to enjoy and dispose of the same Thus, they have the right to possess the lands, as well as the right to encumber or alienate them. This principle of law notwithstanding, private respondent in the lower court sought to restrain the petitioners from encumbering and/or alienating the properties covered by TCT No. 35922-R, 35923-R and TCT No. 35925-R of the Registry of Deeds of San Fernando, Pampanga. This cannot be allowed to prosper since it would constitute a limitation or restriction, not otherwise established by law on their right of ownership, more so considering that petitioners were not even privy to the alleged transaction between private respondent and TIAMSON, et al.40Rollo, p. 30. Second. A reading the averments of the complaint will show that the petitioner clearly has no cause of action against the

respondents for the principal relief prayed for therein, for the trial court to fix a period within which to pay to each of the defendants-tenants the balance of the P50.00 per square meter, the consideration under the Deeds of Assignment executed by the defendants_______________ 39 CA Rollo, p. 50. 40 Rollo, p. 30. 302 302 SUPREME COURT REPORTS ANNOTATED Tayag vs. Lacson tenants. The respondents are not parties or privies to the deeds of assignment. The matter of the period for the petitioner to pay the balance of the said amount to each of the defendantstenants is an issue between them, the parties to the deed. Third. On the face of the complaint, the action of the petitioner against the respondents and the defendants-tenants has no legal basis. Under the Deeds of Assignment, the obligation of the petitioner to pay to each of the defendants-tenants the balance of the purchase price was conditioned on the occurrence of the following events: (a) the respondents agree to sell their property to the petitioner; (b) the legal impediments to the sale of the landholding to the petitioner no longer exist; and, (c) the petitioner decides to buy the property. When he testified, the petitioner admitted that the legal impediments referred to in the deeds were (a) the respondents’ refusal to sell their property; and, (b) the lack of approval of the Department of Agrarian Reform:

Q: There is no specific agreement prior to the execution of those documents as when they will pay? A: We agreed to that, that I will pay them when there are no legal impediment, sir. Q: Many of the documents are unlattered (sic) and you want to convey to this Honorable Court that prior to the execution of these documents you have those tentative agreement for instance that the amount or the cost of the price is to be paid when there are no legal impediment, you are using the word “legal impediment,” do you know the meaning of that? A: When there are (sic) no more legal impediment exist, sir. Q: Did you make how (sic) to the effect that the meaning of that phrase that you used the unlettered defendants? A: We have agreed to that, sir. ATTY. OCAMPO: May I ask, Your Honor, that the witness please answer my question not to answer in the way he wanted it. COURT: Just answer the question, Mr. Tayag. WITNESS: Yes, Your Honor. ATTY. OCAMPO: Q: Did you explain to them? A: Yes, sir. 303 VOL. 426, MARCH 25, 2004 303 Tayag vs. Lacson

Q: What did you tell them? A: I explain[ed] to them, sir, that the legal impediment then especially if the Lacsons will not agree to sell their shares to me or to us it would be hard to (sic) me to pay them in full. And those covered by DAR. I explain[ed] to them and it was clearly stated in the title that there is [a] prohibited period of time before you can sell the property. I explained every detail to them.41Id., at pp. 61-62. It is only upon the occurrence of the foregoing conditions that the petitioner would be obliged to pay to the defendants-tenants the balance of the P50.00 per square meter under the deeds of assignment. Thus: 2. That in case the ASSIGNOR and LANDOWNER will mutually agree to sell the said lot to the ASSIGNEE, who is given an exclusive and absolute right to buy the lot, the ASSIGNOR shall receive the sum of FIFTY PESOS (P50.00) per square meter as consideration of the total area actually tilled and possessed by the ASSIGNOR, less whatever amount received by the ASSIGNOR including commissions, taxes and all allowable deductions relative to the sale of the subject properties. 3. That this exclusive and absolute right given to the ASSIGNEE shall be exercised only when no legal impediments exist to the lot to effect the smooth transfer of lawful ownership of the lot/property in the name of the ASSIGNEE; 4. That the ASSIGNOR will remain in peaceful possession over the said property and shall enjoy the fruits/earnings and/or harvest of the said lot until such time that full payment of the agreed purchase price had been made by the ASSIGNEE.42Id.,

at p. 43. There is no showing in the petitioner’s complaint that the respondents had agreed to sell their property, and that the legal impediments to the agreement no longer existed. The petitioner and the defendants-tenants had yet to submit the Deeds of Assignment to the Department of Agrarian Reform which, in turn, had to act on and approve or disapprove the same. In fact, as alleged by the petitioner in his complaint, he was yet to meet with the defendants-tenants to discuss the implementation of the deeds of assignment. Unless and until the Department of Agrarian Reform approved the said deeds, if at all the petitioner had no right to enforce the same in a court of law by asking the trial court to fix _______________ 41 Id., at pp. 61-62. 42 Id., at p. 43. 304 304 SUPREME COURT REPORTS ANNOTATED Tayag vs. Lacson a period within which to pay the balance of the purchase price and praying for injunctive relief. We do not agree with the contention of the petitioner that the deeds of assignment executed by the defendants-tenants are perfected option contracts.43Id., at p. 21. An option is a contract by which the owner of the property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. It is a condition offered or

contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a certain time, or under, or in compliance with certain terms and conditions, or which gives to the owner of the property the right to sell or demand a sale. It imposes no binding obligation on the person holding the option, aside from the consideration for the offer. Until accepted, it is not, properly speaking, treated as a contract.44Adelfa Properties, Inc. v. Court of Appeals, 240 SCRA 565 (1995). The second party gets in praesenti, not lands, not an agreement that he shall have the lands, but the right to call for and receive lands if he elects.45Litonjua v. L & R Corporation, 328 SCRA 796 (2000). An option contract is a separate and distinct contract from which the parties may enter into upon the conjunction of the option.46Laforteza v. Machuca, 333 SCRA 643 (2000). In this case, the defendants-tenants-subtenants, under the deeds of assignment, granted to the petitioner not only an option but the exclusive right to buy the landholding. But the grantors were merely the defendants-tenants, and not the respondents, the registered owners of the property. Not being the registered owners of the property, the defendants-tenants could not legally grant to the petitioner the option, much less the “exclusive right” to buy the property. As the Latin saying goes, “NEMO DAT QUOD NON HABET.” Fourth. The petitioner impleaded the respondents as partiesdefendants solely on his allegation that the latter induced or are inducing the defendants-tenants to violate the deeds of assignment, contrary to the provisions of Article 1314 of the New Civil Code which reads: _______________

43 Id., at p. 21. 44 Adelfa Properties, Inc. v. Court of Appeals, 240 SCRA 565 (1995). 45 Litonjua v. L & R Corporation, 328 SCRA 796 (2000). 46 Laforteza v. Machuca, 333 SCRA 643 (2000). 305 VOL. 426, MARCH 25, 2004 305 Tayag vs. Lacson Art. 1314. Any third person who induces another to violate his contract shall be liable for damages to the other contracting party. In So Ping Bun v. Court of Appeals,47314 SCRA 751 (1999). we held that for the said law to apply, the pleader is burdened to prove the following: (1) the existence of a valid contract; (2) knowledge by the third person of the existence of the contract; and (3) interference by the third person in the contractual relation without legal justification. Where there was no malice in the interference of a contract, and the impulse behind one’s conduct lies in a proper business interest rather than in wrongful motives, a party cannot be a malicious interferer. Where the alleged interferer is financially interested, and such interest motivates his conduct, it cannot be said that he is an officious or malicious intermeddler.48Id., citing Gilchrist v. Cuddy, 29 Phil. 542 (1915). In fine, one who is not a party to a contract and who interferes thereon is not necessarily an officious or malicious intermeddler. The only evidence adduced by the petitioner to prove his claim is the letter from the defendants-tenants

informing him that they had decided to sell their rights and interests over the landholding to the respondents, instead of honoring their obligation under the deeds of assignment because, according to them, the petitioner harassed those tenants who did not want to execute deeds of assignment in his favor, and because the said defendants-tenants did not want to have any problem with the respondents who could cause their eviction for executing with the petitioner the deeds of assignment as the said deeds are in violation of P.D. No. 27 and Rep. Act No. 6657.49Exhibit “JJ.... The defendants-tenants did not allege therein that the respondents induced them to breach their contracts with the petitioner. The petitioner himself admitted when he testified that his claim that the respondents induced the defendants-assignees to violate contracts with him was based merely on what “he heard,” thus: Q: Going to your last statement that the Lacsons induces (sic) the defendants, did you see that the Lacsons were inducing the defendants? _______________ 47 314 SCRA 751 (1999). 48 Id., citing Gilchrist v. Cuddy, 29 Phil. 542 (1915). 49 Exhibit “JJ.” 306 306 SUPREME COURT REPORTS ANNOTATED Tayag vs. Lacson

A: I heard and sometime in [the] first week of August, sir, they went in the barrio (sic). As a matter of fact, that is the reason why they sent me letter that they will sell it to the Lacsons. Q: Incidentally, do you knew (sic) these Lacsons individually? A: No, sir, it was only Mr. Espinosa who I knew (sic) personally, the alleged negotiator and has the authority to sell the property.50CA Rollo, pp. 51-52. Even if the respondents received an offer from the defendantstenants to assign and transfer their rights and interests on the landholding, the respondents cannot be enjoined from entertaining the said offer, or even negotiating with the defendants-tenants. The respondents could not even be expected to warn the defendants-tenants for executing the said deeds in violation of P.D. No. 27 and Rep. Act No. 6657. Under Section 22 of the latter law, beneficiaries under P.D. No. 27 who have culpably sold, disposed of, or abandoned their land, are disqualified from becoming beneficiaries. From the pleadings of the petitioner, it is quite evident that his purpose in having the defendants-tenants execute the Deeds of Assignment in his favor was to acquire the landholding without any tenants thereon, in the event that the respondents agreed to sell the property to him. The petitioner knew that under Section 11 of Rep. Act No. 3844, if the respondents agreed to sell the property, the defendants-tenants shall have preferential right to buy the same under reasonable terms and conditions: SECTION 11. Lessee’s Right of Pre-emption.—In case the agricultural lessor desires to sell the landholding, the agricultural lessee shall have the preferential right to buy the same under reasonable terms and conditions: Provided, That

the entire landholding offered for sale must be pre-empted by the Land Authority if the landowner so desires, unless the majority of the lessees object to such acquisition: Provided, further, That where there are two or more agricultural lessees, each shall be entitled to said preferential right only to the extent of the area actually cultivated by him. . . .51Supra. Under Section 12 of the law, if the property was sold to a third person without the knowledge of the tenants thereon, the latter shall have the right to redeem the same at a reasonable price and _______________ 50 CA Rollo, pp. 51-52. 51 Supra. 307 VOL. 426, MARCH 25, 2004 307 Tayag vs. Lacson consideration. By assigning their rights and interests on the landholding under the deeds of assignment in favor of the petitioner, the defendants-tenants thereby waived, in favor of the petitioner, who is not a beneficiary under Section 22 of Rep. Act No. 6657, their rights of preemption or redemption under Rep. Act No. 3844. The defendants-tenants would then have to vacate the property in favor of the petitioner upon full payment of the purchase price. Instead of acquiring ownership of the portions of the landholding respectively tilled by them, the defendants-tenants would again become landless for a measly sum of P50.00 per square meter. The petitioner’s scheme is subversive, not only of public policy, but also of the

letter and spirit of the agrarian laws. That the scheme of the petitioner had yet to take effect in the future or ten years hence is not a justification. The respondents may well argue that the agrarian laws had been violated by the defendants-tenants and the petitioner by the mere execution of the deeds of assignment. In fact, the petitioner has implemented the deeds by paying the defendants-tenants amounts of money and even sought their immediate implementation by setting a meeting with the defendants-tenants. In fine, the petitioner would not wait for ten years to evict the defendants-tenants. For him, time is of the essence. The Appellate Court Erred In Permanently Enjoining The Regional Trial Court From Continuing with the Proceedings in Civil Case No. 10910. We agree with the petitioner’s contention that the appellate court erred when it permanently enjoined the RTC from continuing with the proceedings in Civil Case No. 10910. The only issue before the appellate court was whether or not the trial court committed a grave abuse of discretion amounting to excess or lack of jurisdiction in denying the respondents’ motion to deny or dismiss the petitioner’s plea for a writ of preliminary injunction. Not one of the parties prayed to permanently enjoin the trial court from further proceeding with Civil Case No. 10910 or to dismiss the complaint. It bears stressing that the petitioner may still amend his complaint, and the respondents and the defendants-tenants may file motions to dismiss the complaint. By permanently enjoining the 308 308 SUPREME COURT REPORTS ANNOTATED

Tayag vs. Lacson trial court from proceeding with Civil Case No. 10910, the appellate court acted arbitrarily and effectively dismissed the complaint motu proprio, including the counterclaims of the respondents and that of the defendants-tenants. The defendantstenants were even deprived of their right to prove their special and affirmative defenses. IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The Decision of the Court of Appeals nullifying the February 13, 1996 and April 16, 1997 Orders of the RTC is AFFIRMED. The writ of injunction issued by the Court of Appeals permanently enjoining the RTC from further proceeding with Civil Case No. 10910 is hereby LIFTED and SET ASIDE. The Regional Trial Court of Mabalacat, Pampanga, Branch 44, is ORDERED to continue with the proceedings in Civil Case No. 10910 as provided for by the Rules of Court, as amended. SO ORDERED. Puno (Chairman), Quisumbing, Austria-Martinez and Tinga, JJ., concur. Petition partially granted, judgment granted. Writs of injunction lifted and set aside. Note.—The sole purpose of injunction is not to correct a wrong of the past, in the sense of redress for injury already sustained, but to prevent further injury. (Paramount Insurance Corporation vs. Court of Appeals, 310 SCRA 377 [1999]) ——o0o—— [Tayag vs. Lacson, 426 SCRA 282(2004)]

G.R. No. 149570. March 12, 2004.*SECOND DIVISION. HEIRS OF ROSENDO SEVILLA FLORENCIO, as represented by ESTRELLITA FLORENCIO-CRUZ and RODRIGO R. FLOREN-CIO, petitioners, vs. HEIRS OF TERESA SEVILLA DE LEON as represented by VALERIANA MORENTE, respondents. Remedial Law; Ejectment; In ejectment cases, the issue is the physical or material possession (possession de facto) and any pronouncement made by the trial court on the question of ownership is provisional in nature.—Prefatorily, in ejectment cases, the issue is the physical or material possession (possession de facto) and any pronouncement made by the trial court on the question of ownership is provisional in nature. A judgment rendered in ejectment cases shall not bar an action between the same parties respecting title to the land and shall not be conclusive as to the facts found therein in a case between the same parties upon a different cause of action involving possession of the same property. Civil Law; Donation; Donation is one of the modes of acquiring ownership; Essential Elements of Donation.—Under the New Civil Code, donation is one of the modes of acquiring ownership. Among the attributes of ownership is the right to possess the property. The essential elements of donation are as follows: (a) the essential reduction of the patrimony of the donor; (b) the increase in the patrimony of the donee; and (c) the intent to do an act of liberality or animus donandi. When applied to a donation of an immovable property, the law further requires that the donation be made in a public document and that the acceptance thereof be made in the same deed or in a separate public instrument; in cases where the acceptance is

made in a separate instrument, it is mandated that the donor be notified thereof in an authentic form, to be noted in both instruments. Same; Same; Once the donation is accepted, it is generally considered irrevocable and the donee becomes the absolute owner of the property, except on account of officiousness, failure by the donee to comply with the charge imposed in the donation, or ingratitude.—As a mode of acquiring ownership, donation results in an effective transfer of title over the property from the donor to the donee, and is perfected from the moment the donor is made aware of the acceptance by the donee, provided that the donee is not disqualified or prohibited by law from accepting the donation. Once the donation is accepted, it is generally considered irrevocable, and the donee becomes the absolute owner of the property, except on account of officiousness, failure by the donee to comply with the charge imposed in _______________ * SECOND DIVISION. 448 448 SUPREME COURT REPORTS ANNOTATED Heirs of Rosendo Sevilla Florencio vs. Heirs of Teresa Sevilla De Leon the donation, or ingratitude. The acceptance, to be valid, must be made during the lifetime of both the donor and the donee. It must be made in the same deed or in a separate public document, and the donee’s acceptance must come to the knowledge of the donor.

Same; Same; In order that the donation of an immovable property may be valid, it must be made in a public document; Registration of the deed in the Office of the Register of Deeds or in the Assesor’s Office is not necessary for it to be considered valid and official.—In order that the donation of an immovable property may be valid, it must be made in a public document. Registration of the deed in the Office of the Register of Deeds or in the Assessor’s Office is not necessary for it to be considered valid and official. Registration does not vest title; it is merely evidence of such title over a particular parcel of land. The necessity of registration comes into play only when the rights of third persons are affected. Furthermore, the heirs are bound by the deed of contracts executed by their predecessors-in-interest. PETITION for review on certiorari of a decision and resolution of the Court of Appeals. The facts are stated in the opinion of the Court. Law Firm of Lapena & Associates for petitioners. Reyes, Francisco & Associates for private respondents. CALLEJO, SR., J.: Before us is a petition for review of the Joint Decision1Penned by Associate Justice Eugenio S. Labitoria with Associate Justices Eloy R. Bello, Jr. and Perlita J. Tria-Tirona concurring. of the Court of Appeals in CA-G.R. SP Nos. 59698-99 which affirmed the June 5, 2000 Decisions2Penned by Judge Oscar C. Herrera, Jr. of the Regional Trial Court of Malolos, Bulacan, Branch 20 in Civil Cases No. 1018-M-99 and 1019-M-99, and the resolution of the appellate court denying the petitioners’ motion for reconsideration. The Antecedents

Teresa Sevilla de Leon, owned a residential lot with an area of 828 square meters located in San Miguel, Bulacan. The said lot _______________ 1 Penned by Associate Justice Eugenio S. Labitoria with Associate Justices Eloy R. Bello, Jr. and Perlita J. Tria-Tirona concurring. 2 Penned by Judge Oscar C. Herrera, Jr. 449 VOL. 425, MARCH 12, 2004 449 Heirs of Rosendo Sevilla Florencio vs. Heirs of Teresa Sevilla De Leon was covered by Transfer Certificate of Title (TCT) No. T44349.3Registered in the name of Teresa Sevilla, married to Luis de Leon entered at Malolos, Bulacan on October 31, 1963; CA Rollo, pp. 38-39. (CA-G.R. SP No. 59699). In the 1960s, De Leon allowed the spouses Rosendo and Consuelo Florencio to construct a house on the said property and stay therein without any rentals therefor. On September 26, 1966, De Leon, with the consent of her husband Luis, leased the aforesaid parcel of land for P5 per month to Bienvenido Santos “for as long as the lessor (Teresa de Leon) had an outstanding loan with the Second Quezon City Development Bank of Quezon City but not to exceed the period of fifteen (15) years.”4CA Rollo, p. 41. (CA-G.R. SP No. 59699). De Leon assigned her leasehold right in favor of the Second Quezon City Development Bank. The lease and De Leon’s leasehold right were annotated at the back of TCT No. T-44349 as Entry Nos. 152248 and 152249,5Id., at p. 39.

respectively. Thereafter, Bienvenido Santos constructed a house thereon. In November 1978, De Leon, then already a widow, died intestate. In deference to her wishes, her heirs allowed Rosendo Florencio to continue staying in the property. In March 1995, Florencio died intestate, but his heirs, the respondents, remained in the property. On April 26, 1995, the heirs of De Leon, through counsel, sent a letter to the heirs of Florencio, demanding that they vacate the property within ninety (90) days from receipt thereof.6CA Rollo, p. 38. (CA-G.R. SP No. 59698). The latter refused and failed to vacate the property. The heirs of De Leon, through Valeriana L. Morente, thereafter filed a complaint for ejectment against the heirs of Florencio before the Municipal Trial Court of San Miguel, Bulacan, docketed as Civil Case No. 2061. Therein, the plaintiffs alleged that they were the pro-indiviso owners of the 828 square-meter lot covered by TCT No. T-44349, which they inherited from their mother. During her lifetime, their mother allowed Florencio and his family to occupy the property without any compensation, subject to the condition that they shall vacate the same upon demand; such arrangement went on even after their mother’s demise. They further averred _______________ 3 Registered in the name of Teresa Sevilla, married to Luis de Leon entered at Malolos, Bulacan on October 31, 1963; CA Rollo, pp. 38-39. (CA-G.R. SP No. 59699). 4 CA Rollo, p. 41. (CA-G.R. SP No. 59699). 5 Id., at p. 39. 6 CA Rollo, p. 38. (CA-G.R. SP No. 59698).

450 450 SUPREME COURT REPORTS ANNOTATED Heirs of Rosendo Sevilla Florencio vs. Heirs of Teresa Sevilla De Leon that sometime in 1995, they demanded that the heirs of Florencio vacate the property, but that the latter refused to do so.7Id., at pp. 33-34. The plaintiff thence prayed: WHEREFORE, premises considered, it is most respectfully prayed that after due hearing, judgment be rendered ordering defendants to: 1. Vacate the premises which they are presently occupying; 2. Pay plaintiff the amount of P100,000.00 as and by way of attorney’s fees; 3. Pay plaintiff P100,000.00 as moral damages; 4. Pay plaintiff P100,000.00 as exemplary damages. 5. Pay plaintiff P10,000.00 per month from April 26, 1995 up to and until defendants vacate the premises. Plaintiff prays for other reliefs just and equitable under the circumstances.8Id., at pp. 35-36. In their answer to the complaint, the heirs of Florencio alleged that the plaintiffs had no cause of action against them, as Teresa de Leon had executed a Deed of Donation on October 1, 1976 over the said parcel of land in favor of their predecessor, Rosendo Florencio. The latter accepted the donation, as shown by his signature above his typewritten name on page one of the deed. The execution of the deed was witnessed by Patria L. Manotoc and Valeriana L. Morente. Atty. Tirso L. Manguiat, a notary public in the City of Manila, notarized the deed on said

date and entered it in his notarial record as Doc. No. 1724, page 71, Book IV, series of 1976.9Id., at pp. 54-55. The heirs of Florencio further averred that since then, their predecessor and his family possessed the aforesaid property as owners. After De Leon’s death, Florencio and his children, in coordination with Jose de Leon, the administrator of the aforesaid property, arranged for the registration of the land subject of the donation in the name of Rosendo Florencio, which was, however, superseded by the untimely demise of Jose de Leon in 1991. Thus, the property remained in the name of Teresa Sevilla de Leon, even after Florencio’s death in March of 1995.10Rollo, p. 23. _______________ 7 Id., at pp. 33-34. 8 Id., at pp. 35-36. 9 Id., at pp. 54-55. 10 Rollo, p. 23. 451 VOL. 425, MARCH 12, 2004 451 Heirs of Rosendo Sevilla Florencio vs. Heirs of Teresa Sevilla De Leon On February 1, 1996, the heirs of De Leon, represented by Valeriana L. Morente, also filed a complaint for ejectment against the heirs of Bienvenido Santos before the MTC of San Miguel, Bulacan, docketed as Civil Case No. 2062.11CA Rollo, pp. 33-37. (CA-G.R. SP No. 59699). They prayed, thus:

WHEREFORE, premises considered, it is most respectfully prayed that after due hearing, judgment be rendered ordering defendants to: 1. Vacate the premises which they are presently occupying; 2. Pay plaintiff the amount of P100,000.00 as and by way of attorney’s fees; 3. Pay plaintiff P100,000.00 as moral damages; 4. Pay plaintiff P100,000.00 as exemplary damages; 5. Pay plaintiff P10,000.00 per month from April 26, 1995 up to and until defendants vacate the premises. Plaintiff prays for other reliefs just and equitable under the circumstances.12Docketed as I.S. No. 96-1513 filed before the Office of, the Provincial Prosecutor of Malolos, Bulacan; CA Rollo, pp. 35-36. (CA-G.R. SP No. 59699) In their answer to the complaint, the heirs of Bienvenido Santos, through counsel, alleged that the plaintiffs had no cause of action against them, and that they did not occupy the property by mere tolerance but on the basis of a contract of lease executed by De Leon on September 26, 1966. Furthermore, De Leon donated the property to Rosendo Florencio on October 1, 1976, and the latter, after the expiration of the contract of lease, allowed and permitted them to continue and remain in possession of the property without any compensation. According to the heirs of Bienvenido Santos, only Florencio’s heirs had the right to cause their eviction from the property by reason of the deed of donation executed in favor of the latter. The trial of the two cases was consolidated. The parties agreed to litigate the following issues:

After the preliminary conference, parties submitted their respective position papers. Plaintiffs raised and argued on the following issues: _______________ 11 CA Rollo, pp. 33-37. (CA-G.R. SP No. 59699). 12 Docketed as I.S. No. 96-1513 filed before the Office of, the Provincial Prosecutor of Malolos, Bulacan; CA Rollo, pp. 3536. (CA-G.R. SP No. 59699) 452 452 SUPREME COURT REPORTS ANNOTATED Heirs of Rosendo Sevilla Florencio vs. Heirs of Teresa Sevilla De Leon a). Defendants’ possession of the premises was merely on the tolerance of the late Teresa de Leon. b). The alleged Deed of Donation does not exist, is patently a falsified document and can never be the source of any right whatsoever. Defendants, on the other hand, raised and argued on the following issues: a). Defendants do not have only a better right of possession over the questioned parcel of land and they do not have only the absolute and lawful possession of the same but they have the absolute and lawful ownership of the same not only against the plaintiffs but against the whole world. b). Defendants are entitled to their counterclaim.13CA Rollo, p. 41. (CA-G.R. SP No. 59698). On motion of the plaintiffs in both cases, the court issued an Order directing the heirs of Florencio to produce the original of

the Deed of Donation purportedly executed by Teresa de Leon. However, they failed to comply with the order of the court and submitted a mere photocopy of the same.14Id., at p. 42. The plaintiffs adduced in evidence the following: (1) TCT No. T-44349 in the name of Teresa Sevilla;15Exhibit “A.... (2) demand letters sent by the plaintiffs’ counsel to the defendants demanding that the latter vacate the subject premises;16Exhibit “B.... (3) affidavit-complaint of Valeriana Morente filed in the Office of the Provincial Prosecutor of Bulacan docketed as I.S. No. 96-1513 for falsification, perjury and applicable crimes against Rodrigo Florencio and Atty. Tirso Manguiat, dated May 8, 1996;17Exhibits “C” & “C-1.... (4) affidavit-complaint executed by Ramon de Leon Manotoc dated May 8, 1996;18Exhibit “E.... (5) copies of Teresa de Leon’s passport issued on April 28, 1975 containing specimens of her signature;19Exhibit “D.... (6) copy of Patria Manotoc’s passport issued on September 16, 1997 with her specimen signature therein;20Exhibit “F.... (7) copy of Valeriana Morente’s passports issued on the following dates: (a) Febru_______________ 13 CA Rollo, p. 41. (CA-G.R. SP No. 59698). 14 Id., at p. 42. 15 Exhibit “A.” 16 Exhibit “B.” 17 Exhibits “C” & “C-1.” 18 Exhibit “E.” 19 Exhibit “D.” 20 Exhibit “F.” 453

VOL. 425, MARCH 12, 2004 453 Heirs of Rosendo Sevilla Florencio vs. Heirs of Teresa Sevilla De Leon ary 20, 1967;21Exhibit “G.... (b) April 28, 1975;22Exhibit “H.... (c) October 4, 1984;23Exhibit “I.... and (d) August 22, 1994,24Exhibit “J.... with specimens of her signature appearing therein covering a span of thirty years; (8) copy of the Certificate of Death of Patria Manotoc;25Exhibit “K.... (9) Certification dated April 23, 1996 issued by Teresita R. Ignacio, Chief, Archives Division of the Records Management and Archives Division of Manila26Exhibit “L.... to the effect that nothing in the notarial register of Atty. Tirso L. Manguiat show that he notarized a deed of donation dated October 1, 1976 in favor of Rosendo Florencio; (10) copy of Sinumpaang Salaysay dated July 19, 1996 executed by one Rodolfo Apolinario;27Exhibit “M.... and, (11) copies of the official receipts of the real estate taxes paid.28Exhibit “N.... For their part, the heirs of Florencio adduced in evidence a photocopy of the Deed of Donation dated October 1, 1976 purportedly executed by De Leon in favor of Rosendo Florencio.29Exhibit “1.... The heirs of Bienvenido Santos submitted in evidence as Exhibits “1” and “1-H” the Contract of Lease dated September 6, 1966 between Teresa Sevilla and Bienvenido R. Santos.30Supra. On December 3, 1996, the MTC rendered a decision in Civil Cases Nos. 2061 and 2062 dismissing the complaints for lack of jurisdiction upon the finding that the issue of possession cannot be determined without resolving, in a full blown trial,

the issue of ownership.31CA Rollo, pp. 43-51 (CA-G.R. SP No. 59699); CA Rollo, pp. 39-53. (CA-G.R. SP No. 59698) The heirs of De Leon appealed the decisions of the MTC to the RTC of Bulacan, Branch 83, which rendered judgment reversing the decision of the court a quo. It held that the MTC had jurisdiction over the cases; as such, the trial court should proceed and render judgment therefor. _______________ 21 Exhibit “G.” 22 Exhibit “H.” 23 Exhibit “I.” 24 Exhibit “J.” 25 Exhibit “K.” 26 Exhibit “L.” 27 Exhibit “M.” 28 Exhibit “N.” 29 Exhibit “1.” 30 Supra. 31 CA Rollo, pp. 43-51 (CA-G.R. SP No. 59699); CA Rollo, pp. 39-53. (CA-G.R. SP No. 59698) 454 454 SUPREME COURT REPORTS ANNOTATED Heirs of Rosendo Sevilla Florencio vs. Heirs of Teresa Sevilla De Leon In the course of the proceedings, the defendants adduced in evidence a copy of the Deed of Donation as certified by the RTC of Bulacan on May 29, 1996.32Id., at p. 51. (CA-G.R. SP No. 59698).

On August 27, 1999, the MTC rendered an Amended Decision in Civil Case No. 2061 in favor of the defendants and against the plaintiffs. The dispositive portion of the decision reads: “WHEREFORE, the court finds the defendants as having a better right of possession over the subject parcel of land as against the plaintiffs and hereby orders this case DISMISSED. “For lack of evidence to prove bad faith on the part of the plaintiffs in the filing of this case, and in line with the policy not to put premium on the right to litigate, the counterclaim of the defendants is, likewise, ordered DISMISSED. “With no pronouncements as to costs. “SO ORDERED.”33Id., at p. 53. The decision was appealed to the RTC of Bulacan. On June 5, 2000, the RTC rendered judgment reversing the decision of the MTC and rendered a new judgment in favor of the plaintiffs, as follows: “WHEREFORE, premises considered, the Decision dated August 27, 1999, rendered by the Municipal Trial Court of San Miguel, Bulacan, in Civil Case No. 2061, is hereby set aside and a new one is hereby rendered, as follows: “a) Ordering the heirs of Rosendo Florencio and all those claiming any rights under them to vacate the subject premises, particularly that parcel of land covered by Transfer Certificate of Title (TCT) No. T-44349, situated in San Jose, San Miguel, Bulacan; “b) Ordering the Heirs of Rosendo Florencio to pay the heirs of Teresa Sevilla the amount of P2,000.00 per month as reasonable monthly rental on the premises, to commence on April 1995 until the premises is vacated by them; and

“c) Ordering the heirs of Rosendo Florencio to pay the heirs of Teresa Sevilla the amount of P10,000.00, as attorney’s fees and expenses of litigation. “SO ORDERED.”34Rollo, pp. 67-68. _______________ 32 Id., at p. 51. (CA-G.R. SP No. 59698). 33 Id., at p. 53. 34 Rollo, pp. 67-68. 455 VOL. 425, MARCH 12, 2004 455 Heirs of Rosendo Sevilla Florencio vs. Heirs of Teresa Sevilla De Leon The RTC ruled that the deed of donation was insufficient to support the claim of the heirs of Florencio that they were the owners of the property and were, thus, entitled to its possession. The defendants, now the petitioners, filed a petition for review with the Court of Appeals of the decision of the RTC. On May 28, 2001, the Court of Appeals rendered judgment dismissing the petition and affirming the RTC decision. The CA adopted the findings of the RTC and its disquisitions on why the deed of donation was not a credible piece of evidence to support the petitioners’ claim over the property; hence, did not transfer title over the property in favor of the petitioners. First. The deed of donation (Exh. “1”), which purports to have been executed in 1976, is not annotated on the title to the property which remains registered in the name of Teresa Sevilla under TCT No. T-44349 (Exh. “A” and “A-1”). There

is no showing whatsoever that the same or a copy thereof was submitted to the Office of the Register of Deeds. Second. As earlier pointed out, throughout the years, the real estate taxes on the property continued to be paid in the name of Teresa Sevilla by the caretaker Rodolfo Apolinario and nobody else. There is no showing that the defendants had previously laid any claim of title or ownership over the property and attempted to pay the taxes thereon. Third. Although it purports to have been notarized in the City of Manila by one Atty. Tirso L. Manguiat, there is no indication of its existence in the notarial record of Atty. Manguiat, as per Certification dated April 23, 1996 (Exh. “L”) of the Manila Records Management and Archives Office. One can only wonder why from the place of execution in San Miguel, Bulacan on October 1, 1976, its notarization on the same date had to be in the City of Manila. Fourth. The Court has noted, as anyone can easily do, that the signature purported to be that of Teresa de Leon appearing in the deed of donation (Exh. “1-B”), is dissimilar to her customary signatures affixed to her passports (Exhs. “E” and “E-1”). The same is true with those of Patria Manotoc and Valeriana L. Morente appearing in the same deed of donation (Exhs. “1-D” and “1-E”), with those of their customary signatures appearing in their respective passports (Exhs. “F” and “F-1”; “G,” “G-1” and “G-2”; “H,” “H-1” and “H-2”; “I” and “I-1” and “J” and “J-1”). And Fifth. There is no explanation given why since 1976, when the deed of donation was supposedly executed, up to the present, the defendants did not register the same to secure a

new title in their names. In fact, there is no showing that efforts toward that end were ever executed. As it is, the Court holds that the deed of donation in question is not a credible piece of evidence to support the defendants’ claim of acquisition of 456 456 SUPREME COURT REPORTS ANNOTATED Heirs of Rosendo Sevilla Florencio vs. Heirs of Teresa Sevilla De Leon title and ownership over the subject property and therefore insufficient to justify their continuing possession and occupancy thereof. Thus, as against defendants’ claim which is unregistered, the plaintiffs’ right over the property as the legal heirs and successors-in-interest of the registered owner must prevail.35Id., at pp. 31-32. The Present Petition The petitioners now contend in this case that the Court of Appeals and the RTC erred in rendering judgment for the respondents, thus: 1. In finding no reversible error committed by the Regional Trial Court as an appellate court and affirming its decision. 2. In concluding that the evidence presented reveals serious doubts as to the veracity and authenticity of the notarized deed of donation, contrary to the findings of the trial court that there is a legal presumption of regularity in the execution thereof. 3. In holding that private respondents are entitled to possess the subject property notwithstanding petitioners’ claim to the

contrary and despite the latter’s continuous, open and adverse possession for more than forty years.36Id., at pp. 14-15. The petitioners aver that donation is one of the modes of acquiring ownership. Their claim for possession is precisely based on the deed of donation executed by Teresa Sevilla de Leon on October 1, 1976 in favor of their father, Rosendo Florencio. The aforesaid deed was duly notarized, and by virtue of its notarization, such deed became a public document. Furthermore, according to the petitioners, an examination of the deed reveals that it had conformed to all the essential requisites of donation, as required by the provisions of the New Civil Code; hence, its validity must be presumed.37(1) The reduction of the patrimony of the donor; (2) the increase in the patrimony of the donee; and (3) the intent to do an act of liberality or animus donandi. From the time of the donation up to the present, the petitioners assert that they possessed the property openly, publicly and against the whole world. As regards the alleged forgery of the signatures of the donor and the witnesses, the petitioners assert that absent any clear, positive _______________ 35 Id., at pp. 31-32. 36 Id., at pp. 14-15. 37 (1) The reduction of the patrimony of the donor; (2) the increase in the patrimony of the donee; and (3) the intent to do an act of liberality or animus donandi. 457 VOL. 425, MARCH 12, 2004 457

Heirs of Rosendo Sevilla Florencio vs. Heirs of Teresa Sevilla De Leon and convincing evidence that the same were forged, the presumption is that they are genuine. The mere variance in the signatures of the donor and the witnesses cannot be considered as conclusive proof of the forgery. They aver that the Certification dated April 23, 1996 of the Manila Records Management and Archives Office stating that no such notarized deed existed in the notarial records of Atty. Manguiat cannot be conclusive evidence that no donation ever existed. According to the petitioners, such certification was merely preponderant and, therefore, not enough to overthrow the presumption of regularity in the notarization as well as the genuineness of the document. The petitioners posit that their failure to register the deed of donation did not affect its validity, it not being a requisite of a valid donation. They allege that their effort to register the same during the lifetime of Jose de Leon, the administrator of the property, did not materialize because of the latter’s untimely death in 1991. The petitioners conclude that because of the respondents’ failure to destroy the validity of the deed of donation, their right over the property should prevail; the petitioners’ right accrued on October 1, 1976, while that of the respondents accrued only in November of 1978. In their comment, the respondents, through counsel, argue that the deed of donation executed by De Leon dated October 1, 1976 in favor of Rosendo Florencio is not a credible piece of evidence. The deed is insufficient to justify the petitioners’ stay in the premises because the original copy was never presented

to them or to the court. Furthermore, while the photocopy of the deed of donation states that it was notarized by a certain Tirso Manguiat, a notary public for the City of Manila, under Doc. 1724, Page No. 71, Book No. IV, Series of 1976, the presumption of regularity in the notarization of the deed was destroyed by the certification from the Records Management and Archives Office of Manila that no such deed exists. The respondents further assert that the signatures appearing on the said deed, i.e., that of Teresa Sevilla de Leon, Patria Manotoc and Valeriana Morente, were all forgeries. According to the respondents, the following facts bolster the incredibility of the deed of donation: (a) the deed of donation was executed in 1976 but was not registered; (b) the TCT is still registered in the name of Teresa Sevilla de Leon; (c) the owner's duplicate copy of the TCT should have been transmitted to the donees; 458 458 SUPREME COURT REPORTS ANNOTATED Heirs of Rosendo Sevilla Florencio vs. Heirs of Teresa Sevilla De Leon and, (d) the real estate taxes were continuously paid in the name of Teresa Sevilla de Leon. Thus, the respondents, as her heirs, are the legal owners of the property. The Ruling of the Court The threshold issue in this case is whether or not the petitioners, as heirs of Rosendo Florencio, who appears to be the donee under the unregistered Deed of Donation, have a better right to the physical or material possession of the

property over the respondents, the heirs of Teresa de Leon, the registered owner of the property. The petition has no merit. Prefatorily, in ejectment cases, the issue is the physical or material possession (possession de facto) and any pronouncement made by the trial court on the question of ownership is provisional in nature.38Amagan vs. Marayag, 326 SCRA 581 (2000). A judgment rendered in ejectment cases shall not bar an action between the same parties respecting title to the land and shall not be conclusive as to the facts found therein in a case between the same parties upon a different cause of action involving possession of the same property.39Olan vs. Court of Appeals, 314 SCRA 273 (1999). We agree with the petitioners that under the New Civil Code, donation is one of the modes of acquiring ownership.40Art. 712. Ownership is acquired by occupation and by intellectual creation.Ownership and other real rights over the property are acquired and transmitted by law, by donation, by testate and intestate succession, and in no consequence of certain contracts... Among the attributes of ownership is the right to possess the property.41Art. 428. The owner has the right to enjoy and dispose of a thing, without other limitations than those established by law.The owner has also a right of action against the holder and possessor of the thing in order to recover it. The essential elements of donation are as follows: (a) the essential reduction of the patrimony of the donor; (b) the increase in the patrimony of the donee; and (c) the intent to do an act of liberality _______________

38 Amagan vs. Marayag, 326 SCRA 581 (2000). 39 Olan vs. Court of Appeals, 314 SCRA 273 (1999). 40 Art. 712. Ownership is acquired by occupation and by intellectual creation. Ownership and other real rights over the property are acquired and transmitted by law, by donation, by testate and intestate succession, and in no consequence of certain contracts by tradition. They may also be acquired by means of prescription. 41 Art. 428. The owner has the right to enjoy and dispose of a thing, without other limitations than those established by law. The owner has also a right of action against the holder and possessor of the thing in order to recover it. 459 VOL. 425, MARCH 12, 2004 459 Heirs of Rosendo Sevilla Florencio vs. Heirs of Teresa Sevilla De Leon or animus donandi. When applied to a donation of an immovable property, the law further requires that the donation be made in a public document and that the acceptance thereof be made in the same deed or in a separate public instrument; in cases where the acceptance is made in a separate instrument, it is mandated that the donor be notified thereof in an authentic form, to be noted in both instruments.42Republic vs. Guzman, 326 SCRA 90 (2000). As a mode of acquiring ownership, donation results in an effective transfer of title over the property from the donor to the donee, and is perfected from the moment the donor is made

aware of the acceptance by the donee, provided that the donee is not disqualified or prohibited by law from accepting the donation.43Quilala vs. Alcantara, 371 SCRA 311 (2001). Once the donation is accepted, it is generally considered irrevocable, and the donee becomes the absolute owner of the property, except on account of officiousness, failure by the donee to comply with the charge imposed in the donation, or ingratitude.44Gestopa vs. Court of Appeals, 342 SCRA 105 (2000). The acceptance, to be valid, must be made during the lifetime of both the donor and the donee. It must be made in the same deed or in a separate public document, and the donee’s acceptance must come to the knowledge of the donor.45See note 43, supra. In order that the donation of an immovable property may be valid, it must be made in a public document.46Article 749, New Civil Code. Registration of the deed in the Office of the Register of Deeds or in the Assessor’s Office is not necessary for it to be considered valid and official. Registration does not vest title; it is merely evidence of such title over a particular parcel of land.47Cabrera vs. Court of Appeals, 276 SCRA 339 (1997). The necessity of registration comes into play only when the rights of third persons are affected.48Gonzales vs. Court of Appeals, 358 SCRA 598 (2001). Furthermore, the heirs are bound by the deed of contracts executed by their predecessors-in-interest.49San Agustin vs. Court of Appeals, 371 SCRA 348 (2001). On the other hand, the fundamental principle is that a certificate of title serves as evidence of an indefeasible and incontrovertible title to the property in favor of the person whose name appears

_______________ 42 Republic vs. Guzman, 326 SCRA 90 (2000). 43 Quilala vs. Alcantara, 371 SCRA 311 (2001). 44 Gestopa vs. Court of Appeals, 342 SCRA 105 (2000). 45 See note 43, supra. 46 Article 749, New Civil Code. 47 Cabrera vs. Court of Appeals, 276 SCRA 339 (1997). 48 Gonzales vs. Court of Appeals, 358 SCRA 598 (2001). 49 San Agustin vs. Court of Appeals, 371 SCRA 348 (2001). 460 460 SUPREME COURT REPORTS ANNOTATED Heirs of Rosendo Sevilla Florencio vs. Heirs of Teresa Sevilla De Leon therein as the registered owner.50Retuerto vs. Barz, 372 SCRA 712 (2001). The registered owner has the right to possess, enjoy and dispose of the property without any limitations other than those imposed by law. In this case, the deed of donation, on its face, appears to bear all the essential requisites of a valid donation inter vivos. With Teresa de Leon as the donor and Rosendo Florencio as the donee, the deed of donation appears to have been notarized by Notary Public Tirso Manguiat. On this premise, Florencio, and after his death, his heirs, acquired ownership over the property although Certificate of Title No. T-44349 under the name of Teresa de Leon had not yet been cancelled. However, as pointed out by the RTC and the Court of Appeals, there are cogent facts and circumstances of substance which engender veritable doubts as to whether the petitioners have a

better right of possession over the property other than the respondents, the lawful heirs of the deceased registered owner of the property, Teresa de Leon, based on the Deed of Donation. First. Teresa de Leon purportedly executed the Deed of Donation on October 1, 1976 in favor of Rosendo S. Florencio. If she, indeed, donated the property, she would surely have turned over the owner’s duplicate of TCT No. T-44349 to Florencio, to facilitate the issuance of a new title over the property in his favor. There was an imperative need for the deed to be registered in the Office of the Register of Deeds, and the title to the property to be thereafter issued in the name of the donee, Florencio. Before then, Florencio and his family had been residing in the property solely at the sufferance of Teresa de Leon and her husband. Their possession of the property and their continued stay therein was precarious. They could be driven out from the property at any time by De Leon if she disowned the deed or, after her death, by her heirs. It behooved Florencio to have the said deed filed and duly registered51In Cheng vs. Genato, 300 SCRA 722 (1998), we held that:“Registration,” defined by Soler and Castillo, means any entry made in the books of the registry, including both registration in its ordinary and strict sense, and cancellation, annotation,... with the _______________ 50 Retuerto vs. Barz, 372 SCRA 712 (2001). 51 In Cheng vs. Genato, 300 SCRA 722 (1998), we held that: “Registration,” defined by Soler and Castillo, means any entry made in the books of the registry, including both registration in its ordinary and strict sense, and cancellation, annotation, and

even marginal notes. In its strict acceptance, it is the entry made in the registry which records solemnly and permanently the right of ownership and other real rights. We have ruled before that when a Deed of Sale is inscribed in the registry of property on the original document 461 VOL. 425, MARCH 12, 2004 461 Heirs of Rosendo Sevilla Florencio vs. Heirs of Teresa Sevilla De Leon Office of the Register of Deeds without delay and, thereafter, to secure a new title under his name. This would have resulted in the cancellation of TCT No. T-44349 under the name of Teresa de Leon, and thereby averted any disturbance of Florencio’s possession of the property, and after his death, that of his heirs. At the very least, Florencio should have caused the annotation of the deed immediately after October 1, 1976 or shortly thereafter, at the dorsal portion of TCT No. T-44349. Such annotation would have been binding on the respondents, as De Leon’s successors-in-interest, as well as to third persons. However, Florencio failed to do so. Even as De Leon died intestate in 1978, Florencio failed to secure title over the property in his name before he himself died intestate in 1995. If, as the petitioners claimed, Florencio acquired ownership over the property under the deed, it is incredible that he would fail to register the deed and secure title over the property under his name for almost twenty years. All these years, Florencio, and thereafter, his heirs, remained passive and failed to act

upon the deed of donation to protect their right. This, the Court finds difficult to understand. The claim that Florencio and his heirs sought the registration of the deed and the transfer of the title to and under Florencio’s name from 1978 to 1991, in coordination with Jose de Leon is incredible. There is no evidence on record that the deed of donation was ever filed with and registered in the Office of the Register of Deeds at any time during the period from 1978 to 1991. The petitioners’ claim that the registration of the deed was delayed and later aborted by the demise of Jose de Leon is not substantiated by evidence. Moreover, there is no reason why Florencio, or after his death, the petitioners, could not have had the deed registered even after Jose de Leon’s death. Second. Florencio failed to inform the heirs of De Leon that the latter, before her death, had executed a deed of donation on October 1, 1976 over the property in his favor. It was only in 1996, or eighteen years after the death of De Leon when the respondents sued the petitioners for ejectment that the latter claimed, for the first time, that De Leon had executed a deed of donation over the property in favor of their predecessor, Florencio. _______________ itself, what was done with respect to said entries or annotations and marginal notes amounted to a registration of the sale. 462 462 SUPREME COURT REPORTS ANNOTATED Heirs of Rosendo Sevilla Florencio vs. Heirs of Teresa Sevilla De Leon

Third. In the meantime, the respondents consistently paid the realty taxes for the property from 1978 up to 1996, completely oblivious to the existence of the deed of donation. On the other hand, Florencio, and, after his death, the petitioners, never paid a single centavo for the realty taxes due on the property, even as they continued staying in the property without paying a single centavo therefor. The petitioners should have declared the property under their names and paid the realty taxes therefor, if they truly believed that they were its owners. They failed to do so. The fact of Florencio’s inaction and that of the petitioners’ weakened the latter’s claim that they acquired ownership over the property under the deed of donation. Fourth. The petitioners never adduced in evidence the owner’s duplicate of TCT No. T-44349 under the name of De Leon. Their possession of the owner’s duplicate of the title would have fortified their claim that indeed, De Leon had intended to convey the property by donation to Florencio. Furthermore, the petitioners did not explain why they failed to adduce in evidence the said owner’s duplicate of the title. The only conclusion is that the said owner’s duplicate copy was not turned over to Florencio contemporaneously with or after the execution of the deed of donation; hence, their failure to secure title over the property.52Section 1 of P.D. No. 1529 provides that:SEC. 53. Presentation of owner’s duplicate upon entry of new certificate.—No voluntary instrument shall be registered by the Register of Deeds, unless owner’s duplicate certificate is presented w... Fifth. The respondents adduced in evidence the affidavitcomplaint of Valeriana Morente dated May 8, 1996, one of the witnesses to the deed, for falsification and perjury against

Florencio and Atty. Tirso Manguiat. They also adduced the Certification _______________ 52 Section 1 of P.D. No. 1529 provides that: SEC. 53. Presentation of owner’s duplicate upon entry of new certificate.—No voluntary instrument shall be registered by the Register of Deeds, unless owner’s duplicate certificate is presented with such instrument, except in case expressly provided for in this Decree or upon order of the court, for cause shown. The production of the owner’s duplicate certificate, whenever any voluntary is presented for registration, shall be conclusive authority from the registered owner to the Register of deeds to enter a new certificate or to make a memorandum of registration in accordance with such instrument, and the new certificate or memorandum shall be binding upon the registered owner and upon all persons claiming under him, in favor of every purchaser for value and in good faith. 463 VOL. 425, MARCH 12, 2004 463 Heirs of Rosendo Sevilla Florencio vs. Heirs of Teresa Sevilla De Leon dated April 23, 1996 issued by Teresita R. Ignacio, Chief, Archives Division of the Records Management and Archives Division of Manila, to the effect that nothing in the notarial register of Atty. Tirso L. Manguiat, a notary public of Manila, showed that the latter notarized a Deed of Donation executed by De Leon and Florencio in San Miguel, Bulacan dated

October 1, 1976. However, the petitioners failed to adduce in evidence Atty. Manguiat’s counter-affidavit to the said complaint, or, at the very least, a separate affidavit explaining the facts and circumstances surrounding the notarization of the deed of donation. Sixth. A reading of the deed will show that at the bottom of page one thereof, Florencio was to subscribe and swear to the truth of his acceptance of the donation before Municipal Mayor Marcelo G. Aure of San Miguel, Bulacan. However, the mayor did not affix his signature above his typewritten name, thus: SUBSCRIBED AND SWORN to before me this 1st day of October, 1976, the DONOR having exhibited her Res. Cert. No. A-3723337 issued at Quezon City on January 10, 1976. MARCELO G. AURE Municipal Mayor53CA Rollo, p. 54. (CA-G.R. SP No. 59698). It appears that a second page was added, with the name of Atty. Manguiat typewritten therein as notary public, obviously, with the use of a different typewriter. In sum then, we agree with the RTC and the Court of Appeals that the deed of donation relied upon by the petitioners is unreliable as evidence on which to anchor a finding that the latter have a better right over the property than the respondents, who, admittedly, are the heirs of Teresa de Leon, the registered owner of the property under TCT No. T-44349 of the Registry of Deeds of Bulacan. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The Decisions of the Regional Trial Court of Malolos, Bulacan, Branch 20, in Civil Cases Nos. 1018-M-99 and 1019-M-99, and the Court of Appeals in CA-G.R. SP No. 59698-99, are AFFIRMED.

_______________ 53 CA Rollo, p. 54. (CA-G.R. SP No. 59698). 464 464 SUPREME COURT REPORTS ANNOTATED Acuzar vs. Ocampo SO ORDERED. Quisumbing (Actg. Chairman), Austria-Martinez and Tinga, JJ., concur. Puno (Chairman), J., On Leave. Petition denied. Assailed decisions affirmed. Note.—The donation is a real alienation which conveys ownership upon its acceptance, hence, any increase in value or any deterioration or loss thereof is for the account of the heir or donee. (Imperial vs. Court of Appeals, 316 SCRA 393 [1999]) [Heirs of Rosendo Sevilla Florencio vs. Heirs of Teresa Sevilla De Leon, 425 SCRA 447(2004)]

G.R. No. 163794. November 28, 2008.* REPUBLIC OF THE PHILIPPINES, represented by Romeo T. Acosta (formerly Jose D. Malvas), Director of Forest Management Bureau, Department of Environment and Natural Resources, petitioners, vs. HON. NORMELITO J. BALLOCANAG, Presiding Judge, Branch 41, Regional Trial Court, Pinamalayan, Oriental Mindoro and DANILO REYES, respondents. Civil Law; Property; Builder in Good Faith; Words and Phrases; A builder or planter in good faith is one who builds or plants on land with the belief that he is the owner thereof, unaware of any flaw in his title to the land at the time he builds or plants on it.—The courts in the reversion case overlooked the issue of whether Reyes, vis-à-vis his improvements, is a builder or planter in good faith. In the instant case, the issue assumes full significance, because Articles 448 and 546 of the Civil Code grant the builder or planter in good faith full reimbursement of useful improvements and retention of the premises until reimbursement is made. A builder or planter in good faith is one who builds or plants on land with the belief that he is the owner thereof, unaware of any flaw in his title to the land at the time he builds or plants on it. Same; Same; Same; To order Reyes to simply surrender all of the fruit-bearing trees in favor of the State would inequitably result in unjust enrichment of the State at the expense of Reyes, a planter in good faith.—We are disposed to agree with the CA that Reyes was a planter in good faith. Reyes was of the belief that he was the owner of the subject land; in fact, a TCT over the property was issued in his name. He tilled the land, planted

fruit trees thereon, and invested money from 1970. He received notice of the Republic’s claim only when the reversion case was filed on May 13, 1987. The trees are now full-grown and fruit-bearing. To order Reyes to simply surrender all of these fruit-bearing trees in favor of the State—because the decision in the reversion case declaring that the land is part of inalienable forest land and belongs to the State is already final and _______________ * THIRD DIVISION. 437 VOL. 572, NOVEMBER 28, 2008437 Republic vs. Ballocanag immutable—would inequitably result in unjust enrichment of the State at the expense of Reyes, a planter in good faith. Same; Same; Same; Unjust Enrichment; There is unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience.—Nemo cum alterius detrimento locupletari potest. This basic doctrine on unjust enrichment simply means that a person shall not be allowed to profit or enrich himself inequitably at another’s expense. There is unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience. Same; Same; Same; Same; Options that Reyes may exercise under Articles 448 and 546 of the Civil Code have been

restricted by the terms of Agro-Forestry Farm Lease Agreement [AFFLA]; The only equitable alternative would be to order the Republic to pay Reyes the value of the improvements he introduced on the property.—The options that Reyes may exercise under Articles 448 and 546 of the Civil Code have been restricted. It is no longer feasible to permit him to remove the trees he planted. The only equitable alternative would be to order the Republic to pay Reyes the value of the improvements he introduced on the property. This is only fair because, after all, by the terms of the AFFLA, upon the expiration of the lease or upon its cancellation if there be any violation or breach of its terms, all permanent improvements on the land shall pass to the ownership of the Republic without any obligation on its part to indemnify the lessee. Remedial Law; Judgments; Court is not precluded from rectifying errors of judgment if blind and stubborn adherence to the doctrine of immutability of final judgments would involve the sacrifice of justice for technicality.—In the exercise of our mandate as a court of justice and equity, we rule in favor of Reyes pro hac vice. We reiterate that this Court is not precluded from rectifying errors of judgment if blind and stubborn adherence to the doctrine of immutability of final judgments would involve the sacrifice of justice for technicality. Indubitably, to order the reversion of the subject land without payment of just compensation, in absolute disregard of the rights of 438 438SUPREME COURT REPORTS ANNOTATED Republic vs. Ballocanag

Reyes over the improvements which he, in good faith, introduced therein, would not only be unjust and inequitable but cruel as well. PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. Miguel J. Lagman for respondent. NACHURA, J.: Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Civil Procedure seeking the reversal of the Court of Appeals (CA) Decision2 dated June 4, 2004, in CA-G.R. SP No. 52261, which affirmed the Joint Order3 of the Regional Trial Court (RTC) of Pinamalayan, Oriental Mindoro, Branch 41, dated December 28, 1998. The facts, as summarized by the CA, are as follows: “Sometime in 1970, [private respondent Danilo] Reyes bought the subject 182,941-square-meter land at Bgy. Banus, Pinamalayan, Oriental Mindoro [subject land] from one Regina Castillo (or Castillo) in whose name it was titled under Original Transfer Certificate of Title No. P-2388 issued pursuant to Free Patent No. V-79606. Right after his purchase, Reyes introduced improvements and planted the land with fruit trees, including about a thousand mango[es], more than a hundred Mandarin citrus, and more than a hundred guyabanos. He also had the title transferred in his name and was issued TCT No. 45232. Reyes so prized this land which he bought in good faith. Unfortunately, it turned out that about 162,500 square meters

of this land is part of the timberland of Oriental Mindoro and, therefore, cannot _______________ 1 Rollo, pp. 26-51. 2 Penned by Associate Justice Roberto A. Barrios (now deceased), with Associate Justices Mariano C. Del Castillo and Magdangal M. De Leon, concurring; id., at pp. 53-66. 3 Penned by public respondent Judge Normelito J. Ballocanag; id., at pp. 115-118. 439 VOL. 572, NOVEMBER 28, 2008439 Republic vs. Ballocanag be subject to any disposition or acquisition under any existing law, and is not registrable. Thus, in the Complaint (Annex “A,” pp. 15 to 21, Rollo) for “Cancellation of Title and/or Reversion” filed by the Office of the Solicitor General (or OSG) in behalf of the Republic [petitioner], as represented by the Bureau of Forest Development (or BFD), it was explained that the source[,] Original Transfer Certificate of Title No. P-2388 of Castillo, issued pursuant to Free Patent No. V-79606, is spurious, fictitious and irregularly issued on account of: a) ONE HUNDRED SIXTY-TWO THOUSAND FIVE HUNDRED (162,500) SQUARE METERS, more or less, of the land covered by OCT No. P-2388 was, at the time it was applied for patent and or titling, a part of the timberland of Oriental Mindoro, per BFD Land Classification Map Nos. 2319 and 1715. Copy of said maps are attached hereto as Annexes “B” and “C”;

b) The 162,500 square meters covered by OCT No. P-2388 are entirely inside the 140 hectares Agro-Forestry Farm Lease Agreement No. 175 in favor of Atty. Augusto D. Marte4 [Atty. Marte], copy of the Map of AFFLA No. 175 and AFFLA No. 175 are attached hereto as Annexes “D” and “E”; c) Neither the private defendant nor his predecessors-ininterest have been in possession of the property because the rightful occupant is Atty. Augusto D. Marte by virtue of the Agro-Forestry Farm Lease Agreement [AFFLA] No. 175, issued to him by the Ministry of Natural Resources in 1986 to expire on December 21, 2011; d) Since the parcel of land covered by TCT No. 45232, in the name of defendant Danilo Reyes, is a part of the timberland of Oriental Mindoro, per BFD Land Classification Map Nos. 2319 & 1715, the same cannot be the subject of any disposition or acquisition under any existing law (Li Hong Giap vs. Director of Lands, 55 Phil. 693; Veno vs. Gov’t of P.I., 41 Phil. 161; Director of Lands vs. Abanzado, 65 SCRA 5). (pp. 18 to 19, Rollo) _______________ 4 Also referred to as Atty. Augusto Sarte in other pleadings and documents. 440 440SUPREME COURT REPORTS ANNOTATED Republic vs. Ballocanag Aside from the documentary evidence presented to support these allegations, the Republic presented as well and called to the witness stand:

a) Armando Cruz, the supervising cartographer of the DENR, who explained that based on Land Classification Map No. 1715 (Exh. “A”) which was later amended to LC Map No. 2319 (Exh. “B”), the plotting shows that the 162,000 square meters covered by OCT No. 2388 are entirely inside the 140 hectares of the Agro-Forestry Farm Lease Agreement No. 175 in favor of Atty. Marte and the alienable and disposable area of Castillo’s land is only around two (2) hectares; b) Alberto Cardiño, an employee of the DENR who conducted the survey on the land under litigation, corroborated the testimony of Cruz that only two hectares is alienable and disposable land; and c) Vicente Mendoza, a Geodetic Engineer, who expounded on the procedure before the title could be issued to an applicant for a disposable and alienable public land. He clarified that he did not make the survey for Castillo but upon presentation to him of the carpeta in open court he noticed that, while it appears to be valid, it however has no certification of the Bureau of Forestry—an essential requirement before title could be issued. For his side, Reyes presented evidence showing his extensive development of and investment in the land, but however failed to traverse squarely the issue raised by the Republic against the inalienability and indisposability of his acquired land. His lame argument that the absence of the Certification by the Bureau of Forestry on his carpeta does not necessarily mean that there was none issued, failed to convince the court a quo. Hence, Judge Edilberto Ramos, the then Presiding Judge of Branch 41 of the Regional Trial Court of Pinamalayan, Oriental Mindoro, held5 that:

The defendants in this case did not assail the evidence of the plaintiff but concentrated itself to the expenses incurred in the cultivation and in the planting of trees in that disputed areas. Aside thereto, the plaintiff cited that it is elementary principle of law that said areas not being capable of registration their inclusion in a certi_______________ 5 RTC Decision dated April 13, 1992; Rollo, pp. 80-83. 441 VOL. 572, NOVEMBER 28, 2008441 Republic vs. Ballocanag fication of ownership or confer title on the registrant. (Republic of the Philippines, et al. vs. Hon. Judge Jaime de los Angeles of the Court of First Instance of Balayan, Batangas, et al., G.R. No. L-30240) It is also a matter of principle that public forest [are non-alienable public lands. Accession of public forests] on the part of the claimant, however long, cannot convert the same into private property. (Vano v. Government of PI, 41 Phil. 161) In view thereof, it appears that the preponderance of evidence is in favor of the plaintiff and against the defendants and therefore it is hereby declared that Free Patent No. V-79606 issued on July 22, 1957 with Psu No. 155088 and OCT No. P2388 in the name of Regina Castillo and its derivative TCT No. 45232 in the name of Danilo Reyes is hereby declared null and void; and the defendant Danilo Reyes is hereby ordered to surrender the owner’s duplicate copy of TCT No. 45232 and to vacate the premises and directing the defendant Register of Deeds of Calapan, Oriental Mindoro, to cancel the title as null and void ab initio; and declaring the reversion of the land in

question to the government subject to the Agro-Forestry Farm Lease Agreement No. 175, to form part of the public domain in the province of Oriental Mindoro. The two-hectare lot, which appears disposable and alienable, is declared null and void for failure to secure certification from the Bureau of Forest Development. The counter-claim of the defendant is hereby denied for lack of merit, with cost against the defendant.6 Reyes appealed the aforementioned RTC Decision to the CA. In its Decision7 dated September 16, 1996, the CA affirmed the RTC Decision. His motion for reconsideration was denied.8 _______________ 6 Rollo, pp. 54-57. (Emphasis supplied) 7 Particularly docketed as CA-G.R. CV No. 39105; penned by Associate Justice Cancio C. Garcia (a retired member of this Court), with Associate Justices Eugenio S. Labitoria and Artemio G. Tuquero, concurring; id., at pp. 84-98. 8 CA Resolution dated January 24, 1997; id., at pp. 102-104. 442 442SUPREME COURT REPORTS ANNOTATED Republic vs. Ballocanag Thus, Reyes sought relief from this Court via a petition for review on certiorari. But in our Resolution9 dated June 23, 1997, we resolved to deny his petition for failure to sufficiently show that the CA had committed any reversible error in the questioned judgment. On November 24, 1997, this Court denied with finality Reyes’ motion for reconsideration.10 On February 4, 1998, Reyes filed a Motion11 to Remove Improvements Introduced by Defendant Danilo D. Reyes on

the Property which is the Subject of Execution in Accordance with Rule 39, Section 10, paragraph (d) of the 1997 Rules of Civil Procedure (motion).12 There he averred that: he occupied in good faith the subject land for around thirty years; he had already spent millions of pesos in planting fruit-bearing trees thereon; and he employed many workers who regularly took care of the trees and other plants. Reyes prayed that he and/or his agents be given at least one (1) year from the issuance of the corresponding order to remove his mango, citrus and guyabano trees, and that they be allowed to stay in the premises within that period to work on the cutting and removal of the said trees. He also asked the RTC that in the meantime that these trees are not yet removed, all the unharvested fruits be appropriated by him, as provided for by law, to the exclusion of all other persons who may take advantage of the situation and harvest said fruits. _______________ 9 Id., at p. 105. 10 Id., at p. 106. 11 Id., at pp. 107-110. 12 SEC. 10. Execution of judgments for specific act. xxxx (d) Removal of improvements on property subject of execution.—When the property subject of execution contains improvements constructed or planted by the judgment obligor or his agent, the officer shall not destroy, demolish or remove said improvements, except upon special order of the court, issued upon motion of the judgment obligee after due hearing and after the former has failed to remove the same within a reasonable time fixed by the court.

443 VOL. 572, NOVEMBER 28, 2008443 Republic vs. Ballocanag Petitioner opposed the motion, citing the principle of accession under Article 44013 of the Civil Code. It further argued that the subject land, being timber land, is property of public dominion and, therefore, outside the commerce of man and cannot be leased, donated, sold, or be the object of any contract. This being the case, there are no improvements to speak of, because the land in question never ceased to be a property of the Republic, even if Reyes claimed that he was a purchaser for value and in good faith and was in possession for more than thirty (30) years. Moreover, petitioner averred that, assuming Reyes was initially a planter/sower in good faith, Article 448 of the Civil Code cannot be of absolute application since from the time the reversion case was filed by the petitioner on May 13, 1987, Reyes ceased to be a planter/sower in good faith and had become a planter/sower in bad faith.14 Meanwhile, on March 2, 1998, Atty. Marte filed a Complaint for Injunction With an Ancillary Prayer for the Immediate Issuance of a Temporary Restraining Order against Reyes for allegedly encroaching upon and taking possession by stealth, fraud and strategy some 16 hectares of his leased area without his permission or acquiescence and planted trees thereon in bad faith despite the fact that the area is non-disposable and part of the public domain, among others. But the respondent RTC dismissed the said complaint in the assailed Joint Order and ruled in favor of Reyes, finding Rule

39, Section 10, paragraph (d) of the 1997 Rules of Civil Procedure, applicable. The RTC ratiocinated: “Under the circumstance, it is but just and fair and equitable that Danilo Reyes be given the opportunity to enjoy the fruits of his labor on the land which he honestly believes was legally his. He was _______________ 13 ART. 440. The ownership of property gives the right of accession to everything which is produced thereby, or which is incorporated or attached thereto, either naturally or artificially. 14 OSG Comment dated August 11, 1998; Rollo, pp. 111-114. 444 444SUPREME COURT REPORTS ANNOTATED Republic vs. Ballocanag not aware that his certificate of title which was derived from OCT No. P-2388 issued in 1957 by the government itself in the name of Regina Castillo contained legal infirmity, otherwise he would not have expoused (sic) himself from the risk of being ejected from the land and losing all improvements thereon. Any way, if the court will grant the motion for the defendant’s (sic) Danilo Reyes to remove his improvements on the disputed property, it will not prejudice Augusto Marte, otherwise, as the court sees it, he will immensely [benefit] from the toils of Danilo Reyes.” and then disposed, as follows: “WHEREFORE, premises considered, the motion to remove improvements filed by defendant Danilo Reyes dated January 28, 1998 is hereby GRANTED pursuant to the provisions of Section 10, paragraph (d) of Rule 39 of the 1997 Rules of Civil

Procedure and he is given a period of one (1) year from the issuance of this ORDER to remove, cut and appropriate the fruit-bearing trees which he had planted in the property in disputes (sic). The COMMENT filed by the Office of the Solicitor General dated August 11, 1998 is hereby denied for lack of merit. The [C]omplaint for Injunction filed by Augusto D. Marte on March 2, 1998 against Danilo Reyes is hereby ordered dismissed for lack of merit.” Petitioner, through the OSG, filed its Motion for Reconsideration15 which was denied by the RTC.16 Aggrieved, petitioner went to the CA via Certiorari under Rule 65 of the Rules of Civil Procedure17 ascribing to the RTC grave abuse of discretion and acting without jurisdiction in granting Reyes’ motion to remove improvements. However, the CA dismissed the petition for certiorari, and affirmed the ruling of the RTC, in this wise: _______________ 15 Id., at pp. 119-130. 16 RTC Order dated February 17, 1999; id., at p. 131. 17 Petition for Certiorari dated April 5, 1999; id., at pp. 132144. 445 VOL. 572, NOVEMBER 28, 2008445 Republic vs. Ballocanag “It is notable that in the course of the suit for “Cancellation of Title and/or Reversion” there was not an iota of evidence presented on record that Reyes was in bad faith in acquiring the land nor in planting thereon perennial plants. So it could never

be said and held that he was a planter/sower in bad faith. Thus, this Court holds that Reyes sowed and planted in good faith, and that being so the appropriate provisions on right accession are Articles 445 and 448 also of the Civil Code.”18 Hence, this Petition based on the sole ground that: THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE TRIAL COURT HOLDING THAT THE MOTION TO REMOVE IMPROVEMENTS FILED BY PRIVATE RESPONDENT IS BUT AN INCIDENT OF THE REVERSION CASE OVER WHICH THE TRIAL COURT STILL HAS JURISDICTION DESPITE THE FACT THAT THE DECISION IN THE REVERSION CASE HAD LONG BECOME FINAL AND EXECUTORY.19 The OSG posits that Reyes’ assailed motion is barred by prior judgment under Section 47, Rule 39 of the 1997 Rules of Civil Procedure because said motion merely sprang from the civil case of reversion tried and decided on the merits by the RTC, and the decision is already final, after it was duly affirmed by the CA and by this Court. The OSG stresses that one of Reyes’ assigned errors in the reversion case before the CA was that the RTC “erred in not granting his (Reyes’) counterclaims as well as his claims for improvements.” The OSG claims that such assigned error was duly resolved by the CA when it held, to wit: The non-award of appellant’s “counterclaims” is understandable. To begin with, no evidence whatsoever was presented by the appellant to sustain his plea for damages. In fact, appellant never testified to prove his allegations as regards his counterclaims.

_______________ 18 Rollo, p. 63. 19 Id., at p. 36. 446 446SUPREME COURT REPORTS ANNOTATED Republic vs. Ballocanag Then, too, there is no showing that appellant paid the docket fees for the court to acquire jurisdiction over his purported counterclaims (Metal Engineering Resources Corp. vs. Court of Appeals, 203 SCRA 273). Lastly, the allegations made in the Answer in support of the socalled “counterclaims” clearly negate the nature of the claims as compulsory counterclaim like that of reimbursement of the useful expenses (Cabangis vs. Court of Appeals, 200 SCRA 414).20 Thus, the OSG posits that the issue of the improvements cannot be made the subject of the assailed motion on the pretext that such removal of improvements is merely incidental to the reversion case. The OSG submits that the consideration of the issue is now barred by res judicata. Lastly, the OSG argues that: the RTC and CA cannot vary a decision which has already attained finality; for purposes of execution, what is controlling is the dispositive portion of the decision; the RTC, except to order the execution of a decision which had attained finality, had long lost jurisdiction over the case; and the RTC erred and acted without jurisdiction when it granted Reyes’ motion to remove the improvements when the dispositive portion of the decision in the reversion case did not provide for the removal of the same.21

In his Comment22 on the OSG petition, Reyes avers that the points raised by the OSG are merely rehashed arguments which were adequately passed upon by the CA. He fully agrees with the ruling of the CA that: he is a planter/sower in good faith, as such, Articles 445 and 448 of the New Civil Code are applicable; his motion is not entirely a new case, but merely an incident to the reversion case, a consequence of its grant and a legal solution to an important issue overlooked, if not ignored by the State and by the courts in their decisions in the reversion case; under Section 10, Rule 39 of the 1997 _______________ 20 Supra note 7, at pp. 97-98. 21 Supra note 1. 22 Rollo, pp. 195-200. 447 VOL. 572, NOVEMBER 28, 2008447 Republic vs. Ballocanag Rules of Civil Procedure, he is allowed to remove the improvements; and the instant Petition failed to abide with the proper manner as to the “proof of service” required under Section 13, Rule 13 of the 1997 Rules of Civil Procedure. Most importantly, Reyes avers that the land on which about 1,000 mango trees, 100 mandarin citrus trees and 100 guyabano trees are planted, was leased by the government to Atty. Marte, who entered into the possession of the subject land when the trees were already bearing fruits. Thus, if said trees are not removed, Atty. Marte would be unduly enriched as the beneficiary of these fruits without even spending a single centavo, at the expense of Reyes. Reyes posits that it is a well-established fact,

unrebutted by the petitioner, that he planted these trees and to deny him the right to remove them would constitute a grave injustice and amount to confiscation without just compensation which is violative of the Constitution. The OSG counters that copies of the instant Petition were properly served as shown by the photocopies of the registry return cards. Moreover, the OSG avers that granting, without admitting, that another person would stand to be benefited by the improvements that Reyes introduced on the land is beside the point and is not the fault of the petitioner because the particular issue of the improvements was already resolved with finality in the reversion case. The OSG claims that a lower court cannot reverse or set aside decisions or orders of a superior court, for to do so will negate the principle of hierarchy of courts and nullify the essence of review—a final judgment, albeit erroneous, is binding on the whole world.23 The instant Petition lacks merit. In an action for reversion, the pertinent allegations in the complaint would admit State ownership of the disputed _______________ 23 OSG’s Reply dated March 21, 2005; id., at 207-213, citing Manila Electric Co. v. Philippine Consumers Foundation, Inc., 374 SCRA 262 (2002). 448 448SUPREME COURT REPORTS ANNOTATED Republic vs. Ballocanag land.24 Indeed, the ownership over the subject land reverted to the State by virtue of the decisions of the RTC and CA and our Resolution on the matter. But these decisions simply ordered

the reversion of the property to the State, and did not consider the improvements that Reyes had introduced on the property or provide him with any remedy relative thereto. Thus, Reyes was left out in the cold, faced with the prospect of losing not only the land which he thought he owned, but also of forfeiting the improvements that he painstakingly built with his effort, time and money. We cannot agree with the OSG that the denial by the CA of Reyes’ counterclaim in the reversion case had the effect of completely foreclosing whatever rights Reyes may have over these improvements. We note that the counterclaim was denied because Reyes failed to prove that it was in the nature of a compulsory counterclaim, and he did not pay docket fees thereon, even as the CA found that Reyes “never testified to prove his allegations as regards his counterclaims.” Yet, the records of the reversion case reveal that Reyes adduced ample evidence of the extent of the improvements he introduced and the expenses he incurred therefor. This is reflected in the findings of the CA in the case at bench, and we concur with the appellate court when it said: “But this Court notes that while Reyes was half-hearted in his opposition to the reversion, he instead focused on proving the improvements he has introduced on the land, its extent and his expenses. Despite these proofs, the Decision of April 13, 1992 made no mention nor provision for the improvements on the land. With this legal vacuum, Reyes could not exercise the options allowed the sower and planter in good faith. This thus left him no other alternative but to avail of Paragraph (d) of Section 10 of Rule 39 of the 1997 Rules of Civil Procedure in

order to collect or get a return of his investment as allowed to a sower and planter in good faith by the Civil Code.” _______________ 24 Evangelista v. Santiago, G.R. No. 157447, April 29, 2005, 457 SCRA 744, 764, citing Heirs of Ambrocio Kionisala v. Heirs of Honorio Dacut, 378 SCRA 206, 214-215 (2002). 449 VOL. 572, NOVEMBER 28, 2008449 Republic vs. Ballocanag Correlatively, the courts in the reversion case overlooked the issue of whether Reyes, vis-à-vis his improvements, is a builder or planter in good faith. In the instant case, the issue assumes full significance, because Articles 44825 and 54626 of the Civil Code grant the builder or planter in good faith full reimbursement of useful improvements and retention of the premises until reimbursement is made. A builder or planter in good faith is one who builds or plants on land with the belief that he is the owner thereof, unaware of any flaw in his title to the land at the time he builds or plants on it.27 On this issue, we are disposed to agree with the CA that Reyes was a planter in good faith. Reyes was of the belief that he was the owner of the subject land; in fact, a TCT over the property was issued in his name. He tilled the land, planted fruit trees thereon, and invested money from 1970. He re_______________ 25 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 a case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after the proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof. 26 Art. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain the thing until he has been reimbursed therefor. Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the person who has defeated him in the possession having the option of refunding the amount of the expenses or of paying the increase in value which the thing may have acquired by reason thereof. 27 Florentino v. Supervalue, Inc., G.R. No. 172384, September 12, 2007, 533 SCRA 156, 171, citing Lopez v. Sarabia, 439 SCRA 35, 49 (2004). 450 450SUPREME COURT REPORTS ANNOTATED Republic vs. Ballocanag ceived notice of the Republic’s claim only when the reversion case was filed on May 13, 1987. The trees are now full-grown and fruit-bearing. To order Reyes to simply surrender all of these fruit-bearing trees in favor of the State—because the decision in the

reversion case declaring that the land is part of inalienable forest land and belongs to the State is already final and immutable—would inequitably result in unjust enrichment of the State at the expense of Reyes, a planter in good faith. Nemo cum alterius detrimento locupletari potest.28 This basic doctrine on unjust enrichment simply means that a person shall not be allowed to profit or enrich himself inequitably at another’s expense.29 There is unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience.30 Article 22 of the Civil Code states the rule in this wise: “ART. 22. Every person who, through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.” The requisites for the application of this doctrine are present in the instant case. There is enrichment on the part of the petitioner, as the State would come into possession of—and may technically appropriate—the more than one thousand fruit-bearing trees planted by the private respondent. There is impoverishment on the part of Reyes, because he stands to lose the improvements he had painstakingly _______________ 28 No one shall enrich himself at the expense of another. 29 Almocera v. Ong, G.R. No. 170479, February 18, 2008, 546 SCRA 164, 176-177.

30 Allied Banking Corporation v. Li Sio Wan, G.R. No. 133179, March 27, 2008, 549 SCRA 504, 524, citing Reyes v. Lim, 408 SCRA 560 (2003). 451 VOL. 572, NOVEMBER 28, 2008451 Republic vs. Ballocanag planted and invested in. There is lack of valid cause for the State to acquire these improvements, because, as discussed above, Reyes introduced the improvements in good faith. Thus, the Court of Appeals did not commit any error in ruling that Reyes is entitled to the benefits of Articles 448 and 546 of the Civil Code. Thus, even if we accept the OSG’s submission that Reyes’ entitlement to these benefits is not absolute because he can no longer claim good faith after the filing of the reversion case in 1987, still, there is no gainsaying that prior to that―all the way back to 1970―he had possessed the land and introduced improvements thereon in good faith. At the very least, then, Reyes is entitled to these benefits for the 17 years that he had been a planter in good faith. However, we are mindful of the fact that the subject land is currently covered by Agro-Forestry Farm Lease Agreement (AFFLA) No. 175 issued by the Ministry of (now Department of Environment and) Natural Resources in favor of Atty. Augusto D. Marte, which will expire on December 21, 2011. By the terms of the AFFLA, the lessee shall, among others, do all in his power to suppress fires, cooperate with the Bureau of Forest Development (BFD) in the protection and conservation of the forest growth in the area and undertake all possible

measures to insure the protection of watershed and environmental values within the leased area and areas adjacent thereto. This obligation to prevent any damage to the land subject of the lease is consonant with fundamental principles and state policies set forth in Section 16,31 Article II and Section 4,32 Article XII of the Constitution. _______________ 31 SEC. 16. The State shall protect and advance the right of the people to a balanced and healthful ecology in accord with the rhythm and harmony of nature. 32 SEC. 4. The Congress shall, as soon as possible, determine by law the specific limits of forest lands and national parks, marking clearly their boundaries on the ground. Thereafter, such forest lands and national parks shall be conserved and may not be increased or 452 452SUPREME COURT REPORTS ANNOTATED Republic vs. Ballocanag To allow Reyes to remove the fruit-bearing trees now fullgrown on the subject land, even if he is legally entitled to do so, would be risking substantial damage to the land. It would negate the policy consideration underlying the AFFLA—to protect and preserve the biodiversity and the environment, and to prevent any damage to the land. Further, it would violate the implicit mandate of Article 547 of the Civil Code which provides: “ART. 547. If the useful improvements can be removed without damage to the principal thing, the possessor in good faith may remove them unless the person who recovers the

possession exercises the option under paragraph 2 of the preceding article.” In this light, the options that Reyes may exercise under Articles 448 and 546 of the Civil Code have been restricted. It is no longer feasible to permit him to remove the trees he planted. The only equitable alternative would be to order the Republic to pay Reyes the value of the improvements he introduced on the property. This is only fair because, after all, by the terms of the AFFLA, upon the expiration of the lease or upon its cancellation if there be any violation or breach of its terms, all permanent improvements on the land shall pass to the ownership of the Republic without any obligation on its part to indemnify the lessee. However, the AFFLA is not due to expire until December 21, 2011. In the interim, it is logical to assume that the lessee, Atty. Augusto D. Marte, will derive financial gain from the fruits that the trees planted by Reyes would yield. In fact, Atty. Marte may already have profited therefrom in the past several years. It is, therefore, reasonable to grant the Republic the right of subrogation against the lessee who may have benefited from the improvements. The Republic may, thus, _______________ diminished, except by law. The Congress shall provide, for such period as it may determine, measures to prohibit logging in endangered forests and watershed areas. 453 VOL. 572, NOVEMBER 28, 2008453 Republic vs. Ballocanag

demand reimbursement from Atty. Marte for whatever amount it will have to pay Reyes for these improvements. As to the OSG’s insistent invocation of res judicata and the immutability of final judgments, our ruling in Temic Semiconductors, Inc. Employees Union (TSIEU)-FFW, et al. v. Federation of Free Workers (FFW), et al.33 is instructive: “It is axiomatic that a decision that has acquired finality becomes immutable and unalterable. A final judgment may no longer be modified in any respect, even if the modification is meant to correct erroneous conclusions of fact and law; and whether it be made by the court that rendered it or by the highest court in the land. Any act which violates such principle must immediately be struck down. Indeed, the principle of conclusiveness of prior adjudications is not confined in its operation to the judgments of what are ordinarily known as courts, but it extends to all bodies upon which judicial powers had been conferred. The only exceptions to the rule on the immutability of a final judgment are: (1) the correction of clerical errors; (2) the socalled nunc pro tunc entries which cause no prejudice to any party; (3) void judgments; and (4) whenever circumstances transpire after the finality of the decision rendering its execution unjust and inequitable.” In the exercise of our mandate as a court of justice and equity,34 we rule in favor of Reyes pro hac vice. We reiterate that this Court is not precluded from rectifying errors of judgment if blind and stubborn adherence to the doctrine of immutability of final judgments would involve the sacrifice of justice for technicality.35 Indubitably, to order the reversion of the sub-

_______________ 33 G.R. No. 160993, May 20, 2008, 554 SCRA 122. (Citations omitted). 34 Chieng v. Santos, G.R. No. 169647, August 31, 2007, 531 SCRA 730, 748, citing National Development Company v. Madrigal Wan Hai Lines Corporation, 458 Phil. 1038, 1055; 412 SCRA 375, 382 (2003). 35 Heirs of Maura So v. Obliosca, G.R. No. 147082, January 28, 2008, 542 SCRA 406, 421-422. 454 454SUPREME COURT REPORTS ANNOTATED Republic vs. Ballocanag ject land without payment of just compensation, in absolute disregard of the rights of Reyes over the improvements which he, in good faith, introduced therein, would not only be unjust and inequitable but cruel as well. WHEREFORE, the instant Petition is DENIED. The Decision dated June 4, 2004 of the Court of Appeals is AFFIRMED with MODIFICATION in that: 1) The Regional Trial Court of Pinamalayan, Oriental Mindoro, Branch 41, is hereby DIRECTED to determine the actual improvements introduced on the subject land, their current value and the amount of the expenses actually spent by private respondent Danilo Reyes for the said improvements thereon from 1970 until May 13, 1987 with utmost dispatch. 2) The Republic, through the Bureau of Forest Development of the Department of Environment and Natural Resources, is DIRECTED to pay private respondent Danilo Reyes the value of such actual improvements he introduced on the subject land

as determined by the Regional Trial Court, with the right of subrogation against Atty. Augusto D. Marte, the lessee in Agro-Forestry Farm Lease Agreement No. 175. No costs. SO ORDERED. Ynares-Santiago (Chairperson), Austria-Martinez, ChicoNazario and Reyes, JJ., concur. Petition denied, judgment affirmed with modifications. Note.—There is unjust enrichment when (1) a person is unjustly benefited, and (2) such benefit is derived at the expense of or with damages to another. (Tamio vs. Ticson, 443 SCRA 44 [2004]) ——o0o—— ...Page Edit Line Bottom [Republic vs. Ballocanag, 572 SCRA 436(2008)]

G.R. No. 79688. February 1, 1996.*THIRD DIVISION. PLEASANTVILLE DEVELOPMENT CORPORATION, petitioner, vs. COURT OF APPEALS, WILSON KEE, C.T. TORRES ENTERPRISES, INC. and ELDRED JARDINICO, respondents. Civil Law; Property; Builder in Good Faith; Court agrees with the findings and conclusions of the Court of Appeals that Kee was a builder in good faith.—Petitioner fails to persuade this Court to abandon the findings and conclusions of the Court of Appeals that Kee was a builder in good faith. Same; Same; Same; 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.—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. And as good faith is presumed, petitioner has the burden of proving bad faith on the part of Kee. At the time he built improvements on Lot 8, Kee believed that said lot was what he bought from petitioner. He was not aware that the lot delivered to him was not Lot 8. Thus, Kee’s good faith. Petitioner failed to prove otherwise. Same; Same; Same; Violation of the Contract of Sale on Installment may not be the basis to negate the presumption that Kee was a builder in good faith.—Such violations have no bearing whatsoever on whether Kee was a builder in good faith, that is, on his state of mind at the time he built the improvements on Lot 9. These _______________ * THIRD DIVISION. 11 VOL. 253, FEBRUARY 1, 1996 11

Pleasantville Development Corporation vs. Court of Appeals alleged violations may give rise to petitioner’s cause of action against Kee under the said contract (contractual breach), but may not be bases to negate the presumption that Kee was a builder in good faith. Same; Same; Waiver; Rights may be waived unless the waiver is contrary to law, public order, public policy, morals or good customs or prejudicial to a third person with a right recognized by law.—We do not agree with the interpretation of petitioner that Kee contracted away his right to recover damages resulting from petitioner’s negligence. Such waiver would be contrary to public policy and cannot be allowed. “Rights may be waived, unless the waiver is contrary to law, public order, public policy, morals, or good customs, or prejudicial to a third person with a right recognized by law.” Same; Agency; Damages; Rule is that the principal is responsible for the acts of the agent, done within the scope of his authority and should bear the damage caused to third persons.—The rule is that the principal is responsible for the acts of the agent, done within the scope of his authority, and should bear the damage caused to third persons. On the other hand, the agent who exceeds his authority is personally liable for the damage. PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. Mirano, Mirano & Associates Law Offices for petitioner. Federico T. Tabino, Jr. for C.T. Torres Enterprises, Inc. Abraham D. Caña for Wilson Kee.

PANGANIBAN, J.: Is a lot buyer who constructs improvements on the wrong property erroneously delivered by the owner’s agent, a builder in good faith? This is the main issue resolved in this petition for review on certiorari to reverse the Decision1Rollo, pp. 3746. of the Court of _______________ 1 Rollo, pp. 37-46. 12 12 SUPREME COURT REPORTS ANNOTATED Pleasantville Development Corporation vs. Court of Appeals Appeals2Eleventh Division, composed of J. Alfredo L. Benipayo, ponente, and JJ. Lorna S. Lombos-dela Fuente, chair, and Ricardo J. Francisco, member. in CA-G.R. SP No. 11040, promulgated on August 20, 1987. By resolution dated November 13, 1995, the First Division of this Court resolved to transfer this case (along with several others) to the Third Division. After due deliberation and consultation, the Court assigned the writing of this Decision to the undersigned ponente. The Facts The facts, as found by respondent Court, are as follows: Edith Robillo purchased from petitioner a parcel of land designated as Lot 9, Phase II and located at Taculing Road, Pleasantville Subdivision, Bacolod City. In 1975, respondent Eldred Jardinico bought the rights to the lot from Robillo. At that time, Lot 9 was vacant.

Upon completing all payments, Jardinico secured from the Register of Deeds of Bacolod City on December 19, 1978 Transfer Certificate of Title No. 106367 in his name. It was then that he discovered that improvements had been introduced on Lot 9 by respondent Wilson Kee, who had taken possession thereof. It appears that on March 26, 1974, Kee bought on installment Lot 8 of the same subdivision from C.T. Torres Enterprises, Inc. (CTTEI), the exclusive real estate agent of petitioner. Under the Contract to Sell on Installment, Kee could possess the lot even before the completion of all installment payments. On January 20, 1975, Kee paid CTTEI the relocation fee of P50.00 and another P50.00 on January 27, 1975, for the preparation of the lot plan. These amounts were paid prior to Kee’s taking actual possession of Lot 8. After the preparation of the lot plan and a copy thereof given to Kee, CTTEI through its employee, Zenaida Octaviano, accompanied Kee’s wife, Donabelle Kee, to inspect Lot 8. Unfortu_______________ 2 Eleventh Division, composed of J. Alfredo L. Benipayo, ponente, and JJ. Lorna S. Lombos-dela Fuente, chair, and Ricardo J. Francisco, member. 13 VOL. 253, FEBRUARY 1, 1996 13 Pleasantville Development Corporation vs. Court of Appeals nately, the parcel of land pointed by Octaviano was Lot 9. Thereafter, Kee proceeded to construct his residence, a store, an auto repair shop and other improvements on the lot.

After discovering that Lot 9 was occupied by Kee, Jardinico confronted him. The parties tried to reach an amicable settlement, but failed. On January 30, 1981, Jardinico’s lawyer wrote Kee, demanding that the latter remove all improvements and vacate Lot 9. When Kee refused to vacate Lot 9, Jardinico filed with the Municipal Trial Court in Cities, Branch 3, Bacolod City (MTCC), a complaint for ejectment with damages against Kee. Kee, in turn, filed a third-party complaint against petitioner and CTTEI. The MTCC held that the erroneous delivery of Lot 9 to Kee was attributable to CTTEI. It further ruled that petitioner and CTTEI could not successfully invoke as a defense the failure of Kee to give notice of his intention to begin construction required under paragraph 22 of the Contract to Sell on Installment and his having built a sari-sari store without the prior approval of petitioner required under paragraph 26 of said contract, saying that the purpose of these requirements was merely to regulate the type of improvements to be constructed on the lot.3Rollo, pp. 28-29. However, the MTCC found that petitioner had already rescinded its contract with Kee over Lot 8 for the latter’s failure to pay the installments due, and that Kee had not contested the rescission. The rescission was effected in 1979, before the complaint was instituted. The MTCC concluded that Kee no longer had any right over the lot subject of the contract between him and petitioner. Consequently, Kee must pay reasonable rentals for the use of Lot 9, and, furthermore, he cannot claim reimbursement for the improvements he introduced on said lot.

_______________ 3 Rollo, pp. 28-29. 14 14 SUPREME COURT REPORTS ANNOTATED Pleasantville Development Corporation vs. Court of Appeals The MTCC thus disposed: “IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered as follows: 1. Defendant Wilson Kee is ordered to vacate the premises of Lot 9, covered by TCT No. 106367 and to remove all structures and improvements he introduced thereon; 2. Defendant Wilson Kee is ordered to pay to the plaintiff rentals at the rate of P15.00 a day computed from the time this suit was filed on March 12, 1981 until he actually vacates the premises. This amount shall bear interests (sic) at the rate of 12 per cent (sic) per annum. 3. Third-Party Defendant C.T. Torres Enterprises, Inc. and Pleasantville Subdivision are ordered to pay the plaintiff jointly and severally the sum of P3,000.00 as attorney’s fees and P700.00 as cost and litigation expenses.”4Rollo, pp. 30-31. On appeal, the Regional Trial Court, Branch 48, Bacolod City (RTC) ruled that petitioner and CTTEI were not at fault or were not negligent, there being no preponderant evidence to show that they directly participated in the delivery of Lot 9 to Kee.5Rollo, p. 34. It found Kee a builder in bad faith. It further ruled that even assuming arguendo that Kee was acting in good faith, he was, nonetheless, guilty of unlawfully usurping the possessory right of Jardinico over Lot 9 from the time he was

served with notice to vacate said lot, and thus was liable for rental. The RTC thus disposed: “WHEREFORE, the decision appealed from is affirmed with respect to the order against the defendant to vacate the premises of Lot No. 9 covered by Transfer Certificate of Title No. T-106367 of the land records of Bacolod City; the removal of all structures and improvements introduced thereon at his expense and the payment to plaintiff (sic) the sum of Fifteen (P15.00) Pesos a day as reasonable rental to be computed from January 30, 1981, the date of the de_______________ 4 Rollo, pp. 30-31. 5 Rollo, p. 34. 15 VOL. 253, FEBRUARY 1, 1996 15 Pleasantville Development Corporation vs. Court of Appeals mand, and not from the date of the filing of the complaint, until he had vacated (sic) the premises, with interest thereon at 12% per annum. This Court further renders judgment against the defendant to pay the plaintiff the sum of Three Thousand (P3,000.00) Pesos as attorney’s fees, plus costs of litigation. “The third-party complaint against Third-Party Defendants Pleasantville Development Corporation and C.T. Torres Enterprises, Inc. is dismissed. The order against Third-Party Defendants to pay attorney’s fees to plaintiff and costs of litigation is reversed.”6Rollo, p. 35.

Following the denial of his motion for reconsideration on October 20, 1986, Kee appealed directly to the Supreme Court, which referred the matter to the Court of Appeals. The appellate court ruled that Kee was a builder in good faith, as he was unaware of the “mix-up” when he began construction of the improvements on Lot 8. It further ruled that the erroneous delivery was due to the negligence of CTTEI, and that such wrong delivery was likewise imputable to its principal, petitioner herein. The appellate court also ruled that the award of rentals was without basis. Thus, the Court of Appeals disposed: “WHEREFORE, the petition is GRANTED, the appealed decision is REVERSED, and judgment is rendered as follows: 1. Wilson Kee is declared a builder in good faith with respect to the improvements he introduced on Lot 9, and is entitled to the rights granted him under Articles 448, 546 and 548 of the New Civil Code. 2. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville Development Corporation are solidarily liable under the following circumstances: a. If Eldred Jardinico decides to appropriate the improvements and, thereafter, remove these structures, the third-party defendants shall answer for all demolition expenses and the value of the improvements thus destroyed or rendered useless; _______________ 6 Rollo, p. 35. 16 16 SUPREME COURT REPORTS ANNOTATED Pleasantville Development Corporation vs. Court of Appeals

b. If Jardinico prefers that Kee buy the land, the third-party defendants shall answer for the amount representing the value of Lot 9 that Kee should pay to Jardinico. 3. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville Development Corporation are ordered to pay in solidum the amount of P3,000.00 to Jardinico as attorney’s fees, as well as litigation expenses. 4. The award of rentals to Jardinico is dispensed with. “Furthermore, the case is REMANDED to the court of origin for the determination of the actual value of the improvements and the property (Lot 9), as well as for further proceedings in conformity with Article 448 of the New Civil Code.”7Rollo, pp. 45-46. Petitioner then filed the instant petition against Kee, Jardinico and CTTEI. The Issues The petition submitted the following grounds to justify a review of the respondent Court’s Decision, as follows: “1. The Court of Appeals has decided the case in a way probably not in accord with law or the the (sic) applicable decisions of the Supreme Court on third-party complaints, by ordering third-party defendants to pay the demolition expenses and/or price of the land; “2. The Court of Appeals has so far departed from the accepted course of judicial proceedings, by granting to private respondent-Kee the rights of a builder in good faith in excess of what the law provides, thus enriching private respondent Kee at the expense of the petitioner;

“3. In the light of the subsequent events or circumstances which changed the rights of the parties, it becomes imperative to set aside or at least modify the judgment of the Court of Appeals to harmonize with justice and the facts; “4. Private respondent-Kee in accordance with the findings of facts of the lower court is clearly a builder in bad faith, having vio_______________ 7 Rollo, pp. 45-46. 17 VOL. 253, FEBRUARY 1, 1996 17 Pleasantville Development Corporation vs. Court of Appeals lated several provisions of the contract to sell on installments; “5. The decision of the Court of Appeals, holding the principal, Pleasantville Development Corporation (liable) for the acts made by the agent in excess of its authority is clearly in violation of the provision of the law; “6. The award of attorney’s fees is clearly without basis and is equivalent to putting a premium in (sic) court litigation.” From these grounds, the issues could be re-stated as follows: (1) Was Kee a builder in good faith? (2) What is the liability, if any, of petitioner and its agent, C.T. Torres Enterprises, Inc.? and (3) Is the award of attorney’s fees proper? The First Issue: Good Faith Petitioner contends that the Court of Appeals erred in reversing the RTC’s ruling that Kee was a builder in bad faith.

Petitioner fails to persuade this Court to abandon the findings and conclusions of the Court of Appeals that Kee was a builder in good faith. We agree with the following observation of the Court of Appeals: “The roots of the controversy can be traced directly to the errors committed by CTTEI, when it pointed the wrong property to Wilson Kee and his wife. It is highly improbable that a purchaser of a lot would knowingly and willingly build his residence on a lot owned by another, deliberately exposing himself and his family to the risk of being ejected from the land and losing all improvements thereon, not to mention the social humiliation that would follow. “Under the circumstances, Kee had acted in the manner of a prudent man in ascertaining the identity of his property. Lot 8 is covered by Transfer Certificate of Title No. T-69561, while Lot 9 is identified in Transfer Certificate of Title No. T106367. Hence, under the Torrens system of land registration, Kee is presumed to have knowledge of the metes and bounds of the property with which he is dealing. x x x 18 18 SUPREME COURT REPORTS ANNOTATED Pleasantville Development Corporation vs. Court of Appeals xxx xxx xxx “But as Kee is a layman not versed in the technical description of his property, he had to find a way to ascertain that what was described in TCT No. 69561 matched Lot 8. Thus, he went to the subdivision developer’s agent and applied and paid for the relocation of the lot, as well as for the production of a lot plan

by CTTEI’s geodetic engineer. Upon Kee’s receipt of the map, his wife went to the subdivision site accompanied by CTTEI’s employee, Octaviano, who authoritatively declared that the land she was pointing to was indeed Lot 8. Having full faith and confidence in the reputation of CTTEI, and because of the company’s positive identification of the property, Kee saw no reason to suspect that there had been a misdelivery. The steps Kee had taken to protect his interests were reasonable. There was no need for him to have acted ex-abundantia cautela, such as being present during the geodetic engineer’s relocation survey or hiring an independent geodetic engineer to countercheck for errors, for the final delivery of subdivision lots to their owners is part of the regular course of everyday business of CTTEI. Because of CTTEI’s blunder, what Kee had hoped to forestall did in fact transpire. Kee’s efforts all went to naught.”8Rollo, pp. 43-44. 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.9Floreza vs. Evangelista, 96 SCRA 130 (February 21, 1980); cf. Art. 526, Civil Code of the Philippines. And as good faith is presumed, petitioner has the burden of proving bad faith on the part of Kee.10Art. 527, Civil Code of the Philippines. At the time he built improvements on Lot 8, Kee believed that said lot was what he bought from petitioner. He was not aware that the lot delivered to him was not Lot 8. Thus, Kee’s good faith. Petitioner failed to prove otherwise. To demonstrate Kee’s bad faith, petitioner points to Kee’s violation of paragraphs 22 and 26 of the Contract of Sale on Installment.

We disagree. Such violations have no bearing whatsoever on whether Kee was a builder in good faith, that is, on his _______________ 8 Rollo, pp. 43-44. 9 Floreza vs. Evangelista, 96 SCRA 130 (February 21, 1980); cf. Art. 526, Civil Code of the Philippines. 10 Art. 527, Civil Code of the Philippines. 19 VOL. 253, FEBRUARY 1, 1996 19 Pleasantville Development Corporation vs. Court of Appeals state of mind at the time he built the improvements on Lot 9. These alleged violations may give rise to petitioner’s cause of action against Kee under the said contract (contractual breach), but may not be bases to negate the presumption that Kee was a builder in good faith. Petitioner also points out that, as found by the trial court, the Contract of Sale on Installment covering Lot 8 between it and Kee was rescinded long before the present action was instituted. This has no relevance on the liability of petitioner, as such fact does not negate the negligence of its agent in pointing out the wrong lot to Kee. Such circumstance is relevant only as it gives Jardinico a cause of action for unlawful detainer against Kee. Petitioner next contends that Kee cannot “claim that another lot was erroneously pointed out to him” because the latter agreed to the following provision in the Contract of Sale on Installment, to wit:

“13. The Vendee hereby declares that prior to the execution of his contract he/she has personally examined or inspected the property made subject-matter hereof, as to its location, contours, as well as the natural condition of the lots and from the date hereof whatever consequential change therein made due to erosion, the said Vendee shall bear the expenses of the necessary fillings, when the same is so desired by him/her.”11Rollo, p. 17. The subject matter of this provision of the contract is the change of the location, contour and condition of the lot due to erosion. It merely provides that the vendee, having examined the property prior to the execution of the contract, agrees to shoulder the expenses resulting from such change. We do not agree with the interpretation of petitioner that Kee contracted away his right to recover damages resulting from petitioner’s negligence. Such waiver would be contrary to public policy and cannot be allowed. “Rights may be waived, unless the waiver is contrary to law, public order, _______________ 11 Rollo, p. 17. 20 20 SUPREME COURT REPORTS ANNOTATED Pleasantville Development Corporation vs. Court of Appeals public policy, morals, or good customs, or prejudicial to a third person with a right recognized by law.”12Art. 6, Civil Code of the Philippines; see Cañete vs. San Antonio Agro-Industrial Development Corp., 113 SCRA 723 (April 27, 1982). The Second Issue: Petitioner’s Liability

Kee filed a third-party complaint against petitioner and CTTEI, which was dismissed by the RTC after ruling that there was no evidence from which fault or negligence on the part of petitioner and CTTEI can be inferred. The Court of Appeals disagreed and found CTTEI negligent for the erroneous delivery of the lot by Octaviano, its employee. Petitioner does not dispute the fact that CTTEI was its agent. But it contends that the erroneous delivery of Lot 9 to Kee was an act which was clearly outside the scope of its authority, and consequently, CTTEI alone should be liable. It asserts that “while [CTTEI] was authorized to sell the lot belonging to the herein petitioner, it was never authorized to deliver the wrong lot to Kee.”13Rollo, p. 19. Petitioner’s contention is without merit. The rule is that the principal is responsible for the acts of the agent, done within the scope of his authority, and should bear the damage caused to third persons.14Lopez vs. Alvendia, 120 Phil. 1424 (December 24, 1964); cf. Art. 1910, Civil Code. On the other hand, the agent who exceeds his authority is personally liable for the damage.15BA Finance Corporation vs. Court of Appeals, 211 SCRA 112 (July 3, 1992); Art. 1897, Civil Code. CTTEI was acting within its authority as the sole real estate representative of petitioner when it made the delivery to Kee. In acting within its scope of authority, it was, however, negligent. It is this negligence that is the basis of petitioner’s liability, as principal of CTTEI, per Articles 1909 and 1910 of _______________

12 Art. 6, Civil Code of the Philippines; see Cañete vs. San Antonio Agro-Industrial Development Corp., 113 SCRA 723 (April 27, 1982). 13 Rollo, p. 19. 14 Lopez vs. Alvendia, 120 Phil. 1424 (December 24, 1964); cf. Art. 1910, Civil Code. 15 BA Finance Corporation vs. Court of Appeals, 211 SCRA 112 (July 3, 1992); Art. 1897, Civil Code. 21 VOL. 253, FEBRUARY 1, 1996 21 Pleasantville Development Corporation vs. Court of Appeals the Civil Code. Pending resolution of the case before the Court of Appeals, Jardinico and Kee on July 24, 1987 entered into a deed of sale, wherein the former sold Lot 9 to Kee. Jardinico and Kee did not inform the Court of Appeals of such deal. The deed of sale contained the following provision: “1. That Civil Case No. 3815 entitled “Jardinico vs. Kee” which is now pending appeal with the Court of Appeals, regardless of the outcome of the decision shall be mutually disregarded and shall not be pursued by the parties herein and shall be considered dismissed and without effect whatsoever”;16Rollo, p. 47. Kee asserts though that the “terms and conditions in said deed of sale are strictly for the parties thereto” and that “(t)here is no waiver made by either of the parties in said deed of whatever favorable judgment or award the honorable respondent Court of Appeals may make in their favor against herein petitioner

Pleasantville Development Corporation and/or private respondent C.T. Torres Enterprises, Inc.”17Rollo, p. 61. Obviously, the deed of sale can have no effect on the liability of petitioner. As we have earlier stated, petitioner’s liability is grounded on the negligence of its agent. On the other hand, what the deed of sale regulates are the reciprocal rights of Kee and Jardinico; it stressed that they had reached an agreement independent of the outcome of the case. Petitioner further assails the following holding of the Court of Appeals: “2. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville Development Corporation are solidarily liable under the following circumstances: “a. If Eldred Jardinico decides to appropriate the improvements and, thereafter, remove these structures, the _______________ 16 Rollo, p. 47. 17 Rollo, p. 61. 22 22 SUPREME COURT REPORTS ANNOTATED Pleasantville Development Corporation vs. Court of Appeals third-party defendants shall answer for all demolition expenses and the value of the improvements thus destroyed or rendered useless; “b. If Jardinico prefers that Kee buy the land, the third-party defendants shall answer for the amount representing the value of Lot 9 that Kee should pay to Jardinico.”18Rollo, pp. 9-10.

Petitioner contends that if the above holding would be carried out, Kee would be unjustly enriched at its expense. In other words, Kee would be able to own the lot, as buyer, without having to pay anything on it, because the aforequoted portion of respondent Court’s Decision would require petitioner and CTTEI jointly and solidarily to “answer” or reimburse Kee therefor. We agree with petitioner. Petitioner’s liability lies in the negligence of its agent CTTEI. For such negligence, the petitioner should be held liable for damages. Now, the extent and/or amount of damages to be awarded is a factual issue which should be determined after evidence is adduced. However, there is no showing that such evidence was actually presented in the trial court; hence no damages could now be awarded. The rights of Kee and Jardinico vis-a-vis each other, as builder in good faith and owner in good faith, respectively, are regulated by law (i.e., Arts. 448, 546 and 548 of the Civil Code). It was error for the Court of Appeals to make a “slight modification” in the application of such law, on the ground of “equity.” At any rate, as it stands now, Kee and Jardinico have amicably settled through their deed of sale their rights and obligations with regards to Lot 9. Thus, we delete items 2 (a) and (b) of the dispositive portion of the Court of Appeals’ Decision [as reproduced above] holding petitioner and CTTEI solidarily liable. _______________ 18 Rollo, pp. 9-10. 23

23 VOL. 253, FEBRUARY 1, 1996 Pleasantville Development Corporation vs. Court of Appeals The Third Issue: Attorney’s Fees The MTCC awarded Jardinico attorney’s fees and costs in the amount of P3,000.00 and P700.00, respectively, as prayed for in his complaint. The RTC deleted the award, consistent with its ruling that petitioner was without fault or negligence. The Court of Appeals, however, reinstated the award of attorney’s fees after ruling that petitioner was liable for its agent’s negligence. The award of attorney’s fees lies within the discretion of the court and depends upon the circumstances of each case.19Universal Shipping Lines, Inc. vs. Intermediate Appellate Court, 188 SCRA 170 (July 31, 1990). We shall not interfere with the discretion of the Court of Appeals. Jardinico was compelled to litigate for the protection of his interests and for the recovery of damages sustained as a result of the negligence of petitioner’s agent.20Art. 2208, Civil Code of the Philippines. In sum, we rule that Kee is a builder in good faith. The disposition of the Court of Appeals that Kee “is entitled to the rights granted him under Articles 448, 546 and 548 of the New Civil Code” is deleted, in view of the deed of sale entered into by Kee and Jardinico, which deed now governs the rights of Jardinico and Kee as to each other. There is also no further need, as ruled by the appellate Court, to remand the case to the court of origin “for determination of the actual value of the improvements and the property (Lot 9), as well as for further

proceedings in conformity with Article 448 of the New Civil Code.” WHEREFORE, the petition is partially GRANTED. The Decision of the Court of Appeals is hereby MODIFIED as follows: (1) Wilson Kee is declared a builder in good faith; (2) Petitioner Pleasantville Development Corporation and respondent C.T. Torres Enterprises, Inc. are declared solidarily liable for damages due to negligence; _______________ 19 Universal Shipping Lines, Inc. vs. Intermediate Appellate Court, 188 SCRA 170 (July 31, 1990). 20 Art. 2208, Civil Code of the Philippines. 24 24 SUPREME COURT REPORTS ANNOTATED Pleasantville Development Corporation vs. Court of Appeals however, since the amount and/or extent of such damages was not proven during the trial, the same cannot now be quantified and awarded; (3) Petitioner Pleasantville Development Corporation and respondent C.T. Torres Enterprises, Inc. are ordered to pay in solidum the amount of P3,000.00 to Jardinico as attorney’s fees, as well as litigation expenses; and (4) The award of rentals to Jardinico is dispensed with. SO ORDERED. Narvasa (C.J., Chairman), Davide, Jr. and Melo, JJ., concur. Francisco, J., No part. Member of the division in the Court of Appeals which rendered the assailed decision.

Petition partially granted. Judgment modified. Note.—Person who claims that he has a better right to a real property must prove not only his ownership of the same but he must also satisfactorily prove the identity thereof. (Javier vs. Court of Appeals, 231 SCRA 498 [1994]) [Pleasantville Development Corporation vs. Court of Appeals, 253 SCRA 10(1996)]

G.R. No. 152319. October 28, 2009.* HEIRS OF THE LATE JOAQUIN LIMENSE, namely: CONCESA LIMENSE, Surviving Spouse; and DANILO and JOSELITO, both surnamed LIMENSE, children, petitioners, vs. RITA VDA. DE RAMOS, RESTITUTO RAMOS, VIRGILIO DIAZ, IRENEO RAMOS, BENJAMIN RAMOS, WALDY-TRUDES RAMOS-BASILIO, TRINIDAD RAMOSBRAVO, PAZ RAMOS-PASCUA, FELICISIMA RAMOSREYES, and JACINTA RAMOS, respondents. Civil Law; Land Titles; Land Registration; Section 32 of Presidential Decree (PD) 1529 provides that “upon the expiration of said period of one year, the decree of registration and the certificate of title shall become incontrovertible. Any person aggrieved by such decree of registration in any case may pursue his remedy by action for damages against the applicant or other persons responsible for the fraud.”—It has been held that a certificate of title, once registered, should not thereafter be impugned, altered, changed, modified, enlarged or diminished, except in a direct proceeding permitted by law. Otherwise, the reliance on registered titles would be lost. The title became inde-feasible and incontrovertible after the lapse of one year from the time of its registration and issuance. Section 32 of PD 1529 provides that “upon the expiration of said period of one year, the decree of registration and the certificate of title shall become incontrovertible. Any person aggrieved by such decree of registration in any case may pursue his remedy by action for damages against the applicant or other persons responsible for the fraud.” It has, therefore, become an ancient rule that the issue on the validity of title, i.e., whether or not it was fraudulently issued, can only be

raised in an action expressly instituted for that purpose. In the present case, TCT No. 96886 was registered in 1969 and respondents never instituted any direct proceeding or action to assail Joaquin Limense’s title. Same; Property; Easements; An easement is a real right on another’s property, corporeal and immovable, whereby the owner of the latter must refrain from doing or allowing somebody else to do or something to be done on his property, for the benefit of another person _______________ * THIRD DIVISION. 600 600SUPREME COURT REPORTS ANNOTATED Heirs of the Late Joaquin Limense vs. Vda. De Ramos or tenement.—An easement is a real right on another’s property, corporeal and immovable, whereby the owner of the latter must refrain from doing or allowing somebody else to do or something to be done on his property, for the benefit of another person or tenement. Same; Possession; The essence of good faith lies in an honest belief in the validity of one’s right, ignorance of a superior claim, and absence of intension to overreach another. Applied to possession, one is considered in good faith if he is not aware that there exists in his title or mode of acquisition any flaw which invalidates it.—Good faith is an intangible and abstract quality with no technical meaning or statutory definition; and it encompasses, among other things, an honest belief, the absence of malice and the absence of a design to defraud or to seek an unconscionable advantage. An individual’s personal good faith

is a concept of his own mind and, therefore, may not conclusively be determined by his protestations alone. It implies honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry. The essence of good faith lies in an honest belief in the validity of one’s right, ignorance of a superior claim, and absence of intention to overreach another. Applied to possession, one is considered in good faith if he is not aware that there exists in his title or mode of acquisition any flaw which invalidates it. PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. M.B. Tomacruz Law Office for petitioners. M.S. Meneses for respondents. PERALTA, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to annul and set aside the Decision1 _______________ 1 Penned by Associate Justice Rebecca De Guia-Salvador, with Associate Justices Eugenio S. Labitoria and Teodoro P. Regino, concurring; Rollo, pp. 29-35. 601 VOL. 604, OCTOBER 28, 2009601 Heirs of the Late Joaquin Limense vs. Vda. De Ramos of the Court of Appeals dated December 20, 2001 in CA-G.R. CV No. 33589 affirming in toto the Decision2 of the Regional Trial Court of Manila, Branch 15, dated September 21, 1990 in Civil Case No. 83-16128. The antecedent facts are as follows:

Dalmacio Lozada was the registered owner of a parcel of land identified as Lot No. 12, Block No. 1074 of the cadastral survey of the City of Manila covered by Original Certificate of Title (OCT) No. 7036 issued at the City of Manila on June 14, 1927,3 containing an area of 873.80 square meters, more or less, located in Beata Street, Pandacan, Manila. Dalmacio Lozada subdivided his property into five (5) lots, namely: Lot Nos. 12-A, 12-B, 12-C, 12-D and 12-E. Through a Deed of Donation dated March 9, 1932,4 he donated the subdivided lots to his daughters, namely: Isabel, Salud, Catalina, and Felicidad, all surnamed Lozada. The Deed of Donation was registered with the office of the Register of Deeds of Manila on March 15, 1932. Under the said Deed of Donation, the lots were adjudicated to Dalmacio’s daughters in the following manner: a. Lot No. 12-A in favor of Isabel Lozada, married to Isaac Limense; b. Lot No. 12-B in favor of Catalina Lozada, married to Sotero Natividad; c. Lot No. 12-C in favor of Catalina Lozada, married to Sotero Natividad; Isabel Lozada, married to Isaac Limense; and Salud Lozada, married to Francisco Ramos, in equal parts; d. Lot No. 12-D in favor of Salud Lozada, married to Francisco Ramos; and _______________ 2 Id., at pp. 52-55. 3 Records, p. 231. 4 Id., at pp. 14-19. 602 602SUPREME COURT REPORTS ANNOTATED

Heirs of the Late Joaquin Limense vs. Vda. De Ramos e. Lot No. 12-E in favor of Isabel Lozada, married to Isaac Limense, and Felicidad Lozada, married to Galicano Centeno. By virtue of the Deed of Donation executed by Dalmacio Lozada, OCT No. 7036, which was registered in his name, was cancelled and, in lieu thereof, Transfer Certificates of Title (TCTs) bearing Nos. 40041, 40042, 40043, 40044, and 40045 were issued in favor of the donees, except TCT No. 40044, which remained in his name. These new TCTs were annotated at the back of OCT No. 7036.5 TCT No. 40043, which covered Lot No. 12-C, was issued in the name of its co-owners Catalina Lozada, married to Sotero Natividad; Isabel Lozada, married to Isaac Limense; and Salud Lozada, married to Francisco Ramos. It covered an area of 68.60 square meters, more or less, was bounded on the northeast by Lot No. 12-A, on the southwest by Calle Beata, and on the northwest by Lot No. 12-D of the subdivision plan. In 1932, respondents’ predecessor-in-interest constructed their residential building on Lot No. 12-D, adjacent to Lot No. 12-C. On May 16, 1969, TCT No. 968866 was issued in the name of Joaquin Limense covering the very same area of Lot No. 12-C. On October 1, 1981, Joaquin Limense secured a building permit for the construction of a hollow block fence on the boundary line between his aforesaid property and the adjacent parcel of land located at 2759 Beata Street, Pandacan, Manila, designated as Lot No. 12-D, which was being occupied by respondents. The fence, however, could not be constructed because a substantial portion of respondents’ residential

building in Lot No. 12-D encroached upon portions of Joaquin Limense’s property in Lot No. 12-C. _______________ 5 Id., at pp. 231. 6 Id., at p. 183. 603 VOL. 604, OCTOBER 28, 2009603 Heirs of the Late Joaquin Limense vs. Vda. De Ramos Joaquin Limense demanded the removal of the encroached area; however, respondent ignored both oral and written demands. The parties failed to amicably settle the differences between them despite referral to the barangay. Thus, on March 9, 1983, Joaquin Limense, duly represented by his Attorney-inFact, Teofista L. Reyes, instituted a Complaint7 against respondents before the Regional Trial Court (RTC) of Manila, Branch 15, for removal of obstruction and damages. Joaquin Limense prayed that the RTC issue an order directing respondents, jointly and severally, to remove the portion which illegally encroached upon his property on Lot No. 12-C and, likewise, prayed for the payment of damages, attorney’s fees and costs of suit. Respondents, on the other hand, averred in their Answer8 that they were the surviving heirs of Francisco Ramos,9 who, during his lifetime, was married to Salud Lozada, one of the daughters of Dalmacio Lozada, the original owner of Lot No. 12. After subdividing the said lot, Dalmacio Lozada donated Lot No. 12-C in favor of his daughters Catalina, married to Sotero Natividad; Isabel, married to Isaac Limense; and Salud, married to Francisco Ramos. Being the surviving heirs of

Francisco Ramos, respondents later became co-owners of Lot No. 12-C. Lot No. 12-C has served as right of way or common alley of all the heirs of Dalmacio Lozada since 1932 up to the present. As a common alley, it could not be closed or fenced by Joaquin Limense without causing damage and prejudice to respondents. After trial on the merits, the RTC rendered a Decision10 dated September 21, 1990 dismissing the complaint of Joaquin Limense. It ruled that an apparent easement of right of _______________ 7 Id., at pp. 1-5. 8 Id., at pp. 10-13. 9 In their answer, respondents referred to Francisco Ramos as “Francisco Ramos, Sr.” 10 Records, pp. 311-314. 604 604SUPREME COURT REPORTS ANNOTATED Heirs of the Late Joaquin Limense vs. Vda. De Ramos way existed in favor of respondents. Pertinent portions of the decision read as follows: “The Court finds that an apparent easement of right of way exists in favor of the defendants under Article 624 of the Civil Code. It cannot be denied that there is an alley which shows its existence. It is admitted that this alley was established by the original owner of Lot 12 and that in dividing his property, the alley established by him continued to be used actively and passively as such. Even when the division of the property occurred, the non-existence of the easement was not expressed

in the corresponding titles nor were the apparent sign of the alley made to disappear before the issuance of said titles. The Court also finds that when plaintiff acquired the lot (12-C) which forms the alley, he knew that said lot could serve no other purpose than as an alley. That is why even after he acquired it in 1969, the lot continued to be used by defendants and occupants of the other adjoining lots as an alley. The existence of the easement of right of way was therefore known to plaintiff who must respect the same in spite of the fact that his transfer certificate of title does not mention the lot of defendants as among those listed therein as entitled to such right of way. It is an established principle that actual notice or knowledge is as binding as registration.”11 Aggrieved by said decision, Joaquin Limense filed a notice of appeal. The records of the case were transmitted to the Court of Appeals (CA). During the pendency of the appeal with the CA, Joaquin Limense died in 1999.12 The CA, Seventh Division, in CA-G.R. CV No. 33589, in its Decision13 dated December 20, 2001 dismissed the appeal and affirmed in toto the decision of the RTC. Frustrated by this turn of events, petitioners, as surviving heirs of Joaquin Limense, elevated the case to this Court via a Petition for Review on Certiorari14 raising the following issues: _______________ 11 Id., at p. 314. 12 Rollo, p. 27. 13 Id., at pp. 29-35. 14 Id., at pp. 9-25. 605

VOL. 604, OCTOBER 28, 2009605 Heirs of the Late Joaquin Limense vs. Vda. De Ramos 1. DID THE HONORABLE COURT OF APPEALS COMMIT A GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION, IN HOLDING, LIKE THE TRIAL COURT DID, THAT RESPONDENTS’ LOT 12-D HAS AN EASEMENT OF RIGHT OF WAY OVER JOAQUIN LIMENSE’S LOT 12-C? 2. DID THE HONORABLE COURT OF APPEALS COMMIT A GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION, IN FAILING TO HOLD, LIKE THE TRIAL COURT DID, THAT THE PROTRUDING PORTIONS OF RESPONDENTS’ HOUSE ON LOT 12-D EXTENDING INTO JOAQUIN LIMENSE’S LOT 12-C CONSTITUTE A NUISANCE AND, AS SUCH, SHOULD BE REMOVED? Petitioners aver that the CA erred in ruling that since Lot No. 12-C was covered by two TCT’s, i.e., TCT Nos. 40043 and 96886, and there was no evidence on record to show how Joaquin Limense was able to secure another title over an already titled property, then one of these titles must be of dubious origin. According to the CA, TCT No. 96886, issued in the name of Joaquin Limense, was spurious because the Lozada sisters never disposed of the said property covered by TCT No. 40043. The CA further ruled that a co-ownership existed over Lot No. 12-C between petitioners and respondents. Petitioners countered that TCT No. 96886, being the only and best legitimate proof of ownership over Lot No. 12-C, must prevail over TCT No. 40043.

Respondents allege that it was possible that TCT No. 96886, in the name of Joaquin Limense, was obtained thru fraud, misrepresentation or falsification of documents because the donees of said property could not possibly execute any valid transfer of title to Joaquin Limense, as they were already dead prior to the issuance of TCT No. 96886 in 1969. Respondents further allege that petitioners failed to produce proof substantiating the issuance of TCT No. 96886 in the name of Joaquin Limense. 606 606SUPREME COURT REPORTS ANNOTATED Heirs of the Late Joaquin Limense vs. Vda. De Ramos Apparently, respondents are questioning the legality of TCT No. 96886, an issue that this Court cannot pass upon in the present case. It is a rule that the validity of a torrens title cannot be assailed collaterally.15 Section 48 of Presidential Decree (PD) No. 1529 provides that: [a] certificate of title shall not be subject to collateral attack. It cannot be altered, modified, or cancelled except in a direct proceeding in accordance with law. In the case at bar, the action filed before the RTC against respondents was an action for removal of obstruction and damages. Respondents raised the defense that Joaquin Limense’s title could have been obtained through fraud and misrepresentation in the trial proceedings before the RTC. Such defense is in the nature of a collateral attack, which is not allowed by law. Further, it has been held that a certificate of title, once registered, should not thereafter be impugned, altered, changed,

modified, enlarged or diminished, except in a direct proceeding permitted by law. Otherwise, the reliance on registered titles would be lost. The title became indefeasible and incontrovertible after the lapse of one year from the time of its registration and issuance. Section 32 of PD 1529 provides that “upon the expiration of said period of one year, the decree of registration and the certificate of title shall become incontrovertible. Any person aggrieved by such decree of registration in any case may pursue his remedy by action for damages against the applicant or other persons responsible for the fraud.”16 It has, therefore, become an ancient rule that the issue on the validity of title, i.e., whether or not it was fraudulently issued, can only be raised in an action expressly insti_______________ 15 Vda. de Gualberto v. Go, G.R. No. 139843, July 21, 2005, 463 SCRA 671, 677. 16 Seville v. National Development Company, 403 Phil. 843, 859; 351 SCRA 112, 125 (2001). 607 VOL. 604, OCTOBER 28, 2009607 Heirs of the Late Joaquin Limense vs. Vda. De Ramos tuted for that purpose.17 In the present case, TCT No. 96886 was registered in 1969 and respondents never instituted any direct proceeding or action to assail Joaquin Limense’s title. Additionally, an examination of TCT No. 40043 would readily show that there is an annotation that it has been “CANCELLED.”18 A reading of TCT No. 96886 would also reveal that said title is a transfer from TCT No. 4886619 and

not TCT 40043. Thus, it is possible that there was a series of transfers effected from TCT No. 40043 prior to the issuance of TCT No. 96886. Hence, respondents’ position that the issuance of TCT No. 96886 in the name of Joaquin Limense is impossible, because the registered owners of TCT No. 40043 were already dead prior to 1969 and could not have transferred the property to Joaquin Limense, cannot be taken as proof that TCT No. 96886 was obtained through fraud, misrepresentation or falsification of documents. Findings of fact of the CA, although generally deemed conclusive, may admit review by this Court if the CA failed to notice certain relevant facts that, if properly considered, would justify a different conclusion, and if the judgment of the CA is premised on a misapprehension of facts.20 As with the present case, the CA’s observation that TCT No. 96886 is of dubious origin, as TCT No. 40043 does not appear to have been disposed of by Catalina, Isabel and Salud Lozada, is improper and constitutes an indirect attack on TCT No. 96886. As we see it, TCT No. 96886, at present, is the best proof of Joaquin Limense’s ownership over Lot No. 12-C. Thus, the CA erred in ruling that respondents and petitioners co-owned Lot No. 12-C, as said lot is now registered exclusively in the name of Joaquin Limense. _______________ 17 Tanenglian v. Lorenzo, G.R. No. 173415, March 28, 2008, 550 SCRA 348, 380. 18 Records, p. 239. 19 Id., at p. 183. 20 Fuentes v. Court of Appeals, 335 Phil. 1163, 1168; 268 SCRA 703, 708 (1997).

608 608SUPREME COURT REPORTS ANNOTATED Heirs of the Late Joaquin Limense vs. Vda. De Ramos Due to the foregoing, Joaquin Limense, as the registered owner of Lot 12-C, and his successors-in-interest, may enclose or fence his land or tenements by means of walls, ditches, live or dead hedges, or by any other means without detriment to servitudes constituted thereon.21 However, although the owner of the property has the right to enclose or fence his property, he must respect servitudes constituted thereon. The question now is whether respondents are entitled to an easement of right of way. Petitioners contend that respondents are not entitled to an easement of right of way over Lot No. 12-C, because their Lot No. 12-D is not duly annotated at the back of TCT No. 96886 which would entitle them to enjoy the easement, unlike Lot Nos. 12-A-1, 12-A-2, 12-A-3, 12-A-4, 12-A-5, and 12-A-6. Respondents, on the other hand, allege that they are entitled to an easement of right of way over Lot No. 12-C, which has been continuously used as an alley by the heirs of Dalmacio Lozada, the residents in the area and the public in general from 1932 up to the present. Since petitioners are fully aware of the long existence of the said alley or easement of right of way, they are bound to respect the same. As defined, an easement is a real right on another’s property, corporeal and immovable, whereby the owner of the latter must refrain from doing or allowing somebody else to do or something to be done on his property, for the benefit of another person or tenement.22

Easements may be continuous or discontinuous, apparent or non-apparent. Continuous easements are those the use of which is or may be incessant, without the intervention of any act of man. Discontinuous easements are those which are used at intervals and depend upon the acts of man. Apparent easements are _______________ 21 New Civil Code, Art. 430. 22 Quimen v. Court of Appeals, 326 Phil. 969, 976; 257 SCRA 163, 168-169 (1996), citing 3 Sanchez Roman 472. 609 VOL. 604, OCTOBER 28, 2009609 Heirs of the Late Joaquin Limense vs. Vda. De Ramos those which are made known and are continually kept in view by external signs that reveal the use and enjoyment of the same. Non-apparent easements are those which show no external indication of their existence.23 In the present case, the easement of right of way is discontinuous and apparent. It is discontinuous, as the use depends upon the acts of respondents and other persons passing through the property. Being an alley that shows a permanent path going to and from Beata Street, the same is apparent. Being a discontinuous and apparent easement, the same can be acquired only by virtue of a title.24 In the case at bar, TCT No. 96886, issued in the name of Joaquin Limense, does not contain any annotation that Lot No. 12-D was given an easement of right of way over Lot No. 12C. However, Joaquin Limense and his successors-in-interests are fully aware that Lot No. 12-C has been continuously used

and utilized as an alley by respondents and residents in the area for a long period of time. Joaquin Limense’s Attorney-in-Fact, Teofista L. Reyes, testified that respondents and several other residents in the area have been using the alley to reach Beata Street since 1932. Thus: Atty. Manuel B. Tomacruz: Q: Mrs. Witness, by virtue of that Deed of Donation you claim that titles were issued to the children of Dalmacio Lozada namely Salud Lozada, Catalina Lozada and Isabel Lozada, is that right? A: Yes, sir. Q: And after the said property was adjudicated to his said children the latter constructed their houses on their lots. A: Yes, sir. _______________ 23 New Civil Code, Art. 615. 24 New Civil Code, Art. 622. 610 610SUPREME COURT REPORTS ANNOTATED Heirs of the Late Joaquin Limense vs. Vda. De Ramos Q: As a matter of fact, the herein defendants have constructed their houses on the premises alloted to them since the year 1932? A: Yes, sir, they were able to construct their house fronting Beata Street. Q: And that house they have constructed on their lot in 1932 is still existing today?

A: Yes, sir and they still used the alley in question and they are supposed to use Beata Street but they are not using Beata Street. Q: They are using the alley? A: Yes, sir, they are using the alley and they do not pass through Beata Street. Q:And they have been using the alley since 1932 up to the present? A:Yes, sir they have been using the alley since that time. That was their mistake and they should be using Beata Street because they are fronting Beata Strret. Q: As a matter of fact, it is not only herein defendants who have been using that alley since 1932 up to the present? A: Yes, sir they are using the alley up to now. Q: As a matter of fact, in this picture marked as Exh. “C-1” the alley is very apparent. This is the alley? A: Yes, sir. Q: And there are houses on either side of this alley? A: Yes, sir. Q: As a matter of fact, all the residents on either side of the alley are passing through this alley? A: Yes, sir, because the others have permit to use this alley and they are now allowed to use the alley but the Ramos’s family are now [not] allowed to use this alley.25 In Mendoza v. Rosel,26 this Court held that: _______________ 25 TSN, May 9, 1990, pp. 13-15. 26 74 Phil. 84 (1943). (Emphasis supplied). 611 VOL. 604, OCTOBER 28, 2009611

Heirs of the Late Joaquin Limense vs. Vda. De Ramos “Petitioners claim that inasmuch as their transfer certificates of title do not mention any lien or encumbrance on their lots, they are purchasers in good faith and for value, and as such have a right to demand from respondents some payment for the use of the alley. However, the Court of Appeals found, as a fact, that when respondents acquired the two lots which form the alley, they knew that said lots could serve no other purpose than as an alley. The existence of the easement of right of way was therefore known to petitioners who must respect the same, in spite of the fact that their transfer certificates of title do not mention any burden or easement. It is an established principle that actual notice or knowledge is as binding as registration.” Every buyer of a registered land who takes a certificate of title for value and in good faith shall hold the same free of all encumbrances except those noted on said certificate. It has been held, however, that “where the party has knowledge of a prior existing interest that was unregistered at the time he acquired a right to the same land, his knowledge of that prior unregistered interest has the effect of registration as to him.”27 In the case at bar, Lot No. 12-C has been used as an alley ever since it was donated by Dalmacio Lozada to his heirs. It is undisputed that prior to and after the registration of TCT No. 96886, Lot No. 12-C has served as a right of way in favor of respondents and the public in general. We quote from the RTC’s decision: “x x x It cannot be denied that there is an alley which shows its existence. It is admitted that this alley was established by the original owner of Lot 12 and that in dividing his property the

alley established by him continued to be used actively and passively as such. Even when the division of the property occurred, the non-existence of the easement was not expressed in the corresponding titles nor were _______________ 27 Private Development Corporation of the Philippines v. Court of Appeals, G.R. No. 136897, November 22, 2005, 475 SCRA 591, 607. 612 612SUPREME COURT REPORTS ANNOTATED Heirs of the Late Joaquin Limense vs. Vda. De Ramos the apparent sign of the alley made to disappear before the issuance of said titles. The Court also finds that when plaintiff acquired the lot (12-C) which forms the alley, he knew that said lot could serve no other purpose than as an alley. That is why even after he acquired it in 1969 the lot continued to be used by defendants and occupants of the other adjoining lots as an alley. x x x”28 Thus, petitioners are bound by the easement of right of way over Lot No. 12-C, even though no registration of the servitude has been made on TCT No. 96886. However, respondents’ right to have access to the property of petitioners does not include the right to continually encroach upon the latter’s property. It is not disputed that portions of respondents’ house on Lot No. 12-D encroach upon Lot No. 12-C. Geodetic Engineer Jose Agres, Jr. testified on the encroachment of respondents’ house on Lot No. 12-C, which he surveyed.29 In order to settle the rights of the parties

relative to the encroachment, We should determine whether respondents were builders in good faith. Good faith is an intangible and abstract quality with no technical meaning or statutory definition; and it encompasses, among other things, an honest belief, the absence of malice and the absence of a design to defraud or to seek an unconscionable advantage. An individual’s personal good faith is a concept of his own mind and, therefore, may not conclusively be determined by his protestations alone. It implies honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry. The essence of good faith lies in an honest belief in the validity of one’s right, ignorance of a superior claim, and absence of intention to overreach another. Applied to possession, one is considered in _______________ 28 Rollo, p. 55. 29 TSN, May 21, 1986. 613 VOL. 604, OCTOBER 28, 2009613 Heirs of the Late Joaquin Limense vs. Vda. De Ramos good faith if he is not aware that there exists in his title or mode of acquisition any flaw which invalidates it.30 Good faith is always presumed, and upon him who alleges bad faith on the part of the possessor rests the burden of proof.31 It is a matter of record that respondents’ predecessor-in-interest constructed their residential building on Lot No. 12-D, adjacent to Lot No. 12-C, in 1932.32 Respondents’ predecessor-ininterest owned the 1/3 portion of Lot No. 12-C at the time the property was donated to them by Dalmacio Lozada in 1932.

The Deed of Donation executed by the late Dalmacio Lozada, dated March 9, 1932, specifically provides that: “I hereby grant, cede and donate in favor of Catalina Lozada married to Sotero Natividad, Isabel Lozada married to Isaac “Limense and Salud Lozada married to Francisco Ramos, all Filipinos, of legal age, the parcel of land known as Lot No. 12C, in equal parts.33 The portions of Lot No. 12-D, particularly the overhang, covering 1 meter in width and 17 meters in length; the stairs; and the concrete structures are all within the 1/3 share al_______________ 30 Elvira T. Arangote v. Spouses Martin and Lourdes S. Mag-lunob, and Romeo Salido, G.R No. 178906, February 18, 2009, 579 SCRA 620, 640-645; Heirs of Marcelino Cabal v. Cabal, G.R. No. 153625, July 31, 2006, 497 SCRA 301, 315316. 31 New Civil Code, Art. 527; Ballatan v. Court of Appeals, 363 Phil. 408, 419; 304 SCRA 34, 45 (1999). 32 Direct Examination of Ms. Rita Vda. de Ramos by Atty. Meneses, TSN, October 12, 1987, p. 11. Q: How about the land which was donated to the defendants therein, namely Lot No. 12-D, what happened to this land? A: That is where our house is located. Q: When did you construct your house on that land? A: Sometime in 1932. Q: And that house is still existing today? A: Yes, sir. 33 Records, p. 228. (Emphasis supplied.) 614

614SUPREME COURT REPORTS ANNOTATED Heirs of the Late Joaquin Limense vs. Vda. De Ramos loted to them by their donor Dalmacio Lozada and, hence, there was absence of a showing that respondents acted in bad faith when they built portions of their house on Lot No. 12-C. Using the above parameters, we are convinced that respondents’ predecessors-in-interest acted in good faith when they built portions of their house on Lot 12-C. Respondents being builders in good faith, we shall now discuss the respective rights of the parties relative to the portions encroaching upon respondents’ house. Articles 448 and 546 of the New Civil Code provide: “Art. 448. The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in Articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of the lease and, in case of disagreement, the court shall fix the terms thereof. Art. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain the thing until he has been reimbursed therefor.

Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the person who has defeated him in the possession having the option of refunding the amount of the expenses or of paying the increase in value which the thing may have acquired by reason thereof.” In Spouses Del Campo v. Abesia,34 this provision was applied to one whose house, despite having been built at the time he was still co-owner, overlapped with the land of another. In that case, this Court ruled: _______________ 34 No. L-49219, April 15, 1988, 160 SCRA 379. 615 VOL. 604, OCTOBER 28, 2009615 Heirs of the Late Joaquin Limense vs. Vda. De Ramos “The court a quo correctly held that Article 448 of the Civil Code cannot apply where a co-owner builds, plants or sows on the land owned in common for then he did not build, plant or sow upon the land that exclusively belongs to another but of which he is a 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 house of defendants overlaps or occupies a portion of 5 square meters of the land pertaining to plaintiffs which the defendants obviously built in good faith, then the provisions of Article 448 of the new Civil Code should apply. x x x”35 In other words, when the co-ownership is terminated by a partition, and it appears that the house of an erstwhile co-owner

has encroached upon a portion pertaining to another co-owner, but the encroachment was in good faith, then the provisions of Article 448 should apply to determine the respective rights of the parties. In this case, the co-ownership was terminated due to the transfer of the title of the whole property in favor of Joaquin Limense. Under the foregoing provision, petitioners have the right to appropriate said portion of the house of respondents upon payment of indemnity to respondents, as provided for in Article 546 of the Civil Code. Otherwise, petitioners may oblige respondents to pay the price of the land occupied by their house. However, if the price asked for is considerably much more than the value of the portion of the house of respondents built thereon, then the latter cannot be obliged to buy the land. Respondents shall then pay the reasonable rent to petitioners upon such terms and conditions that they may agree. In case of disagreement, the trial court shall fix the terms thereof. Of course, respondents may demolish or remove the said portion of their house, at their own expense, if they so decide.36 _______________ 35 Spouses Del Campo v. Abesia, supra, at 382-383. 36 Id., at p. 383. 616 616SUPREME COURT REPORTS ANNOTATED Heirs of the Late Joaquin Limense vs. Vda. De Ramos The choice belongs to the owner of the land, a rule that accords with the principle of accession that the accessory follows the principal and not the other way around.37 Even as the option lies with the landowner, the grant to him,

never-the-less, is preclusive. He must choose one. He cannot, for instance, compel the owner of the building to instead remove it from the land.38 The obvious benefit to the builder under this article is that, instead of being outrightly ejected from the land, he can compel the landowner to make a choice between two options: (1) to appropriate the building by paying the indemnity required by law, or (2) to sell the land to the builder.39 The raison d’être for this provision has been enunciated, thus: “Where the builder, planter or sower has acted in good faith, a conflict of rights arises between the owners, and it becomes necessary to protect the owner of the improvements without causing injustice to the owner of the land. In view of the impracticability of creating a state of forced co-ownership, the law has provided a just solution by giving the owner of the land the option to acquire the improvements after payment of the proper indemnity, or to oblige the builder or planter to pay for the land and the sower the proper rent. He cannot refuse to exercise either option. It is the owner of the land who is authorized to exercise the option, because his right is older, and because, by the principle of accession, he is entitled to the ownership of the accessory thing.”40 _______________ 37 Ochoa v. Apeta, G.R. No. 146259, September 13, 2007, 533 SCRA 235, 241. 38 Philippine National Bank v. De Jesus, 458 Phil. 454, 459; 411 SCRA 557, 560-561 (2003). 39 Technogas Philippines Manufacturing Corp. v. Court of Appeals, 335 Phil. 471, 482; 268 SCRA 5, 16-17 (1997).

40 Rosales v. Castelltort, G.R No. 157044, October 5, 2005, 472 SCRA 144, 161. 617 VOL. 604, OCTOBER 28, 2009617 Heirs of the Late Joaquin Limense vs. Vda. De Ramos In accordance with Depra v. Dumlao,41 this case must be remanded to the trial court to determine matters necessary for the proper application of Article 448 in relation to Article 546. Such matters include the option that petitioners would take and the amount of indemnity that they would pay, should they decide to appropriate the improvements on the lots. Anent the second issue, although it may seem that the portions encroaching upon respondents’ house can be considered a nuisance, because it hinders petitioners’ use of their property, it cannot simply be removed at respondents’ expense, as prayed for by petitioner. This is because respondents built the subject encroachment in good faith, and the law affords them certain rights as discussed above. WHEREFORE, the petition is DENIED, the Decision of the Court of Appeals dated December 20, 2001 in CA-G.R. CV No. 33589 is AFFIRMED with the following MODIFICATIONS: 1. No co-ownership exists over Lot No. 12-C, covered by TCT No. 96886, between petitioners and respondents. 2. The case is REMANDED to the Regional Trial Court, Branch 15, Manila, for further proceedings without further delay to determine the facts essential to the proper application of Articles 448 and 546 of the Civil Code. SO ORDERED.

Quisumbing,** Carpio (Chairperson), Chico-Nazario and Abad ,*** JJ., concur. [Heirs of the Late Joaquin Limense vs. Vda. De Ramos, 604 SCRA 599(2009)]

G.R. No. 117642. April 24, 1998.*SECOND DIVISION. EDITHA ALVIOLA and PORFERIO ALVIOLA, petitioners, vs. HONORABLE COURT OF APPEALS, FLORENCIA BULING VDA. DE TINAGAN, DEMOSTHENES TINAGAN, JESUS TINAGAN, ZENAIDA T., JOSEP and JOSEPHINE TINAGAN, respondents. Land Titles; Tax Declarations; If a party acknowledges in his tax declarations that the disputed portions belong to another, his claim as owner thereof must fail.—Petitioners’ own evidence recognized the ownership of the land in favor of Victoria Tinagan. In their tax declarations, petitioners stated that the house and copra dryer are located on the land of Victoria S. Tinagan/Agustin Tinagan. By acknowledging that the disputed portions belong to Victoria/Agustin Tinagan in their tax declarations, petitioners’ claim as owners thereof must fail. Same; Where a person’s occupation of a property was merely tolerated by another, the former’s posture of having acquired the property by “occupation” for 20 years does not have any factual or legal foundation.—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. _______________ * SECOND DIVISION. 538 538 SUPREME COURT REPORTS ANNOTATED Alviola vs. Court of Appeals Same; Builders in Good Faith; To fall within the provision of Article 448 of the New Civil Code, 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.—As correctly ruled by the respondent court, there was bad faith on the part of the petitioners when they constructed the copra dryer and store on the disputed portions since they were fully aware that the parcels of land belonged to Victoria Tinagan. And, there was likewise bad faith on the part of the private respondents, having knowledge of the arrangement between petitioners and Victoria Tinagan relative to the construction of the copra dryer and store. Thus, for purposes of indemnity, Article 448 of the New Civil Code should be applied. However, the copra dryer and the store, as

determined by the trial court and respondent court, are transferable in nature. Thus, it would not fall within the coverage of Article 448. As the noted civil law authority, Senator Arturo Tolentino, aptly explains: “To fall within the provision of this Article, the construction must be of permanent character, attached to the soil with an idea of perpetuity; but if it is of a transitory character or is transferable, there is no accession, and the builder must remove the construction. The proper remedy of the landowner is an action to eject the builder from the land.” PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. Leo B. Diocos for petitioners. Saleto J. Erames for private respondents. MARTINEZ, J.: In this petition for review on certiorari, petitioners assail the decision1Penned by the Honorable Justices of the Court of Appeals, Ma. Alicia Austria-Martinez, Ponente, Alfredo M. Marigomen, Chairman, and Ruben T. Reyes, Junior Member, 13th Division. of the Court of Appeals dated April 8, 1994 which affirmed the decision of the lower court ordering peti________________ 1 Penned by the Honorable Justices of the Court of Appeals, Ma. Alicia Austria-Martinez, Ponente, Alfredo M. Marigomen, Chairman, and Ruben T. Reyes, Junior Member, 13th Division. 539 VOL. 289, APRIL 24, 1998 539 Alviola vs. Court of Appeals

tioners 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.2Exhibit “L,” Deed of Purchase and Sale, Folder of Exhibits. One parcel of land contains an area of 5,704 square meters, more or less;3Exhibit “L-1,” ibid. while the other contains 10,860 square meters.4Exhibit “L-2,” ibid. 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.5Exhibit “B,” ibid.

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.6Order, Exhibit “E,” Folder of Exhibits. _______________ 2 Exhibit “L,” Deed of Purchase and Sale, Folder of Exhibits. 3 Exhibit “L-1,” ibid. 4 Exhibit “L-2,” ibid. 5 Exhibit “B,” ibid. 6 Order, Exhibit “E,” Folder of Exhibits. 540 540 SUPREME COURT REPORTS ANNOTATED Alviola vs. Court of Appeals Petitioners assailed the order of dismissal by filing a petition for certiorari and mandamus before this Court.7Petition, Exhibit “A,” ibid. On August 9, 1982, this Court dismissed the petition for lack of merit.8Resolution of the Second Division, Exhibit “J,” ibid. Petitioners filed a motion for reconsideration but the same was denied on October 19, 1982.9Resolution of the Second Division, Exhibit “K,” ibid. 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.10Complaint, pp. 2-5, Original Record. 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.11Answer, pp. 12-13, ibid. 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 ________________ 7 Petition, Exhibit “A,” ibid. 8 Resolution of the Second Division, Exhibit “J,” ibid. 9 Resolution of the Second Division, Exhibit “K,” ibid. 10 Complaint, pp. 2-5, Original Record. 11 Answer, pp. 12-13, ibid. 541 VOL. 289, APRIL 24, 1998 541

Alviola vs. Court of Appeals 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.12Decision, pp. 161-181, Original Record. Petitioners appealed to the Court of Appeals. On April 8, 1994, the respondent court rendered its decision,13Decision, pp. 2533, CA Rollo. affirming the judgment of the lower court. Petitioners filed a motion for reconsideration14Motion for Reconsideration, pp. 34-35, ibid. but the same was denied by the respondent court in an order dated October 6, 1994.15Order, page 42, ibid. 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-ininterest, 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 _______________ 12 Decision, pp. 161-181, Original Record. 13 Decision, pp. 25-33, CA Rollo. 14 Motion for Reconsideration, pp. 34-35, ibid. 15 Order, page 42, ibid. 542 542 SUPREME COURT REPORTS ANNOTATED Alviola vs. Court of Appeals 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,16Exhibit “L.... wherein the two (2) lots, Parcels 1 and 2, are described.17Exhibits “L-1” and “L-2.... Anent Parcel 1, tax declarations indicate that the property has always been declared in the name of the Tinagans. The first, Tax Declaration No. 333518Exhibit “M.... is in the name of Mauro Tinagan. It was thereafter cancelled by Tax Declaration No. 19534 effective 1968,19Exhibit “N.... still in the name of Mauro. This declaration was cancelled by Tax Declaration No. 016740 now in the name of Agustin Tinagan,20Exhibit “O.... effective 1974, followed by Tax Declaration No. 08-421 in the name of Jesus Tinagan, effec________________ 16 Exhibit “L.” 17 Exhibits “L-1” and “L-2.” 18 Exhibit “M.” 19 Exhibit “N.” 20 Exhibit “O.” 543 VOL. 289, APRIL 24, 1998 543 Alviola vs. Court of Appeals tive 1980;21Exhibit “P.... and finally by Tax Declaration No. 08-816 in the name of Jesus Tinagan, effective 1985.22Exhibit “Q.... With regard to Parcel 2, private respondents presented Tax Declaration No. 20973 in the name of Mauro Tinagan,

effective 1959,23Exhibit “R.... Tax Declaration No. 016757, effective 1974;24Exhibit “S.... Tax Declaration No. 08-405-C in the name of Agustin Tinagan, effective 198025Exhibit “T.... and Tax Declaration No. 08-794 in the name of Agustin Tinagan, effective 1985.26Exhibit “U.... Moreover, the realty taxes on the two lots have always been paid by the private respondents.27Exhibits “W” to “CC-3.... There 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,28Exhibits “2,” “2-A” to “2-C” and Exhibits “3,” “3-A” and “3-B.... 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 par_______________ 21 Exhibit “P.” 22 Exhibit “Q.”

23 Exhibit “R.” 24 Exhibit “S.” 25 Exhibit “T.” 26 Exhibit “U.” 27 Exhibits “W” to “CC-3.” 28 Exhibits “2,” “2-A” to “2-C” and Exhibits “3,” “3-A” and “3-B.” 544 544 SUPREME COURT REPORTS ANNOTATED Alviola vs. Court of Appeals cels of land from his mother Victoria; and that plaintiffsappellees, in turn, inherited the same from Agustin.”29P. 4, CA Decision; p. 18, Petition. 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 P7,602.04.30P. 18, Petition. 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, 3B). 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.”31P. 5, Petition. ________________ 29 P. 4, CA Decision; p. 18, Petition. 30 P. 18, Petition. 31 P. 5, Petition. 545 VOL. 289, APRIL 24, 1998 545 Alviola vs. Court of Appeals 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 Tina-gan. 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.32P. 8, CA Decision. 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, _______________ 32 P. 8, CA Decision. 546 546 SUPREME COURT REPORTS ANNOTATED Alviola vs. Court of Appeals and the builder must remove the construction. The proper remedy of the landowner is an action to eject the builder from the land.”33Ibid. 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. Regalado (Chairman), Melo, Puno and Mendoza, JJ., concur. Petition dismissed, judgment affirmed. Notes.—Any person who claims ownership by virtue of tax declarations must also prove he is in actual possession of the property. (Heirs of Juan Oclarit vs. Court of Appeals, 233 SCRA 239 [1994]) The fact that the title to the lot was lost does not mean that the lot ceased to be a registered land before the reconstitution of its title. (Rivera vs. Court of Appeals, 244 SCRA 218 [1995])

Art. 448 of the Civil Code does not apply to a case where the owner of the land is the builder, sower, or planter who then later loses ownership of the land by sale or donation. (Pecson vs. Court of Appeals, 244 SCRA 407 [1995]) While tax declarations and receipts are not conclusive evidence of ownership, yet, when coupled with proof of actual possession, they are strong evidence of ownership. (Heirs of Segunda Maningding vs. Court of Appeals, 276 SCRA 601 [1997]) [Alviola vs. Court of Appeals, 289 SCRA 537(1998)]

No. L-25462. February 21, 1980.*FIRST DIVISION MARIANO FLOREZA, petitioner, vs. MARIA D. de EVANGELISTA and SERGIO EVANGELISTA, respondents. Civil Law; Builder in good faith, not a case of; Applicability of Art 448 of the Civil Code.—We uphold the Court of Appeals in its conclusion that Article 448 of the Civil Code is inapplicable to the factual milieu herein. Said codal provision applies only when the builder, planter, or sower believes he has the right so to build, plant or sow because he thinks he owns the land or believes himself to have a claim of title. In this case, petitioner makes no pretensions of ownership whatsoever. Same; Same; Rights of a person who made useful improvements on the lot of another before effectivity of the pacto de retro sale of the lot; Rights akin to those of the usufructuary.—Since petitioner cannot be classified as a builder in good faith within the purview of Article 448 of the Civil Code, nor as a vendee a retro, who made useful improvements during the lifetime of the pacto de retro, petitioner has no right to reimbursement of the value of the house which he had erected on the residential lot of the EVANGELISTAS, much less to retention of the premises until he is reimbursed. The rights of petitioner are more akin to those of a usufructuary who, under Article 579 of the Civil Code (Art. 487 of the old Code), may make on the property useful improvements but with no right to be indemnified therefor. He may, however, remove such improvements should it be possible to do so without damage to the property. For if the improvements made by the usufructuary were subject to indemnity, we would have a dangerous and unjust situation in which the usufructuary could dispose of the owner’s funds by

compelling him to pay for improvements which perhaps he would not have made. Same; Damages; Liability for damages for retention of property although redemption thereof had been made.—Having retained the property although a redemption had been made, he should be held liable for damages in the form of rentals for the continued use of the subject residential lot at the rate of P10.00 monthly from January 3, ________________ * FIRST DIVISION 131 VOL. 96, FEBRUARY 21, 1980 131 Floreza vs. Evangelista 1955, and not merely from the date of demand on May 4, 1956, as held by the Court of Appeals, until the house was removed and the property vacated by petitioner or his heirs. PETITION for review on certiorari of the decision of the Court of Appeals. The facts are stated in the opinion of the Court. R. D. Hipolito & B. P. Fabir for petitioner. E. G. Tanjuatco & Associates for respondents. MELENCIO-HERRERA, J.: This is a Petition for Review on Certiorari of the Decision of the Court of Appeals (CA-G.R. No. 23516-R) promulgated on November 4, 1965, entitled “Maria de Evangelista and Sergio Evangelista, (now the respondents) vs. Mariano Floreza (petitioner herein),” reversing the judgment of the Court of First Instance of Rizal rendered on July 17, 1957, and instead ordering petitioner to vacate respondents’ residential lot, to

remove his house at his own expenses and to pay rental from May 5, 1956. Plaintiffs Maria de Evangelista and Sergio Evangelista, who are mother and son, (the EVANGELISTAS, for short) are the owners of a residential lot located at Sumilang St., Tanay, Rizal, with an area of 204.08 sq. ms., assessed at P410.00. In May 1945, the EVANGELISTAS borrowed from FLOREZA the amount of P100.00. On or about November 1945, with the consent of the EVANGELISTAS, FLOREZA occupied the above residential lot and built thereon a house of light materials (barong-barong) without any agreement as to payment for the use of said residential lot owing to the fact that the EVANGELISTAS has then a standing loan of P100.00 in favor of FLOREZA.1Exh. A, p. 1, Record of Exhibits. On the following dates, the EVANGELISTAS again borrowed the indicated amounts: September 16, 1946 - P100.00;2Exh. 9, p. 29, ibid. August 17, 1947 - P200.00;3Exh. 10, p. 30, ibid. January 30, 1949 - P200.00;4Exh. 2, p. 24, ibid. April ________________ 1 Exh. A, p. 1, Record of Exhibits. 2 Exh. 9, p. 29, ibid. 3 Exh. 10, p. 30, ibid. 4 Exh. 2, p. 24, ibid. 132 132 SUPREME COURT REPORTS ANNOTATED Floreza vs. Evangelista 1, 1949 - P140.00,5Exh. 3, p. 25, ibid. or a total of P740.00 including the first loan. The last three items are evidenced by

private documents stating that the residential lot stands as security therefor and that the amounts covered thereunder are payable within six years from date, without mention of interest. The document executed on September 16, 1946 stated specifically that the loan was without interest “walang anumang patubo.” On January 10, 1949, FLOREZA demolished this house of light materials and in its place constructed one of strong materials assessed in his name at P1,410.00 under Tax Declaration No. 4448. FLOREZA paid no rental as before.6Exh. 11, p. 31, ibid. On August 1, 1949, the EVANGELISTAS, for and in consideration of P1,000.00 representing the total outstanding loan of P740.00 plus P260.00 in cash, sold their residential lot to FLOREZA, with a right to repurchase within a period of 6 years from date, or up to August 1, 1955, as evidenced by a notarial document, Exh. B, registered under Act 3344 on December 6, 1949, as Inscription No. 2147.7Pp. 3-4, ibid. On January 2, 1955, or seven months before the expiry of the repurchase period, the EVANGELISTAS paid in full the repurchase price of P1,000.00. On April 25, 1956, the EVANGELISTAS, through their counsel, wrote FLOREZA a letter8Exh. 5, p. 27, ibid. asking him to vacate the premises as they wanted to make use of their residential lot besides the fact that FLOREZA had already been given by them more than one year within which to move his house to another site. On May 4, 1956, the EVANGELISTAS made a formal written demand to vacate, within five days from notice, explaining that they had already fully paid the consideration for the repurchase of the lot.9Exh. 6, p. 28, ibid.

FLOREZA refused to vacate unless he was first reimbursed the value of his house. Hence, the filing of this Complaint on May 18, 1956 by the EVANGELISTAS. ________________ 5 Exh. 3, p. 25, ibid. 6 Exh. 11, p. 31, ibid. 7 Pp. 3-4, ibid. 8 Exh. 5, p. 27, ibid. 9 Exh. 6, p. 28, ibid. 133 VOL. 96, FEBRUARY 21, 1980 133 Floreza vs. Evangelista The EVANGELISTAS prayed that: 1) they be declared the owners of the house of strong materials built by FLOREZA on their residential lot, without payment of indemnity; or, in the alternative to order FLOREZA to remove said house; 2) that FLOREZA pay them the sum of P10.00 per month as the reasonable value for the use and occupation of the same from January 2, 1955 (the date the repurchase price was paid) until FLOREZA removes the house and delivers the lot to them; and 3) to declare the transaction between them and FLOREZA as one of mortgage and not of pacto de retro. In his Answer, FLOREZA admitted the repurchase but controverted by stating that he would execute a deed of repurchase and leave the premises upon payment to him of the reasonable value of the house worth P7,000.00. In a Decision dated July 17, 1957, the Court of First Instance of Rizal opined that the question of whether the transaction

between the parties is one of mortgage or pacto de retro is no longer material as the indebtedness of P1,000.00 of the EVANGELISTAS to FLOREZA had already been fully paid. And, applying Article 448 of the Civil Code,10”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... it rendered a decision dispositively decreeing: “FOR ALL THE FOREGOING CONSIDERATIONS, the Court hereby renders judgment granting the plaintiffs the right to elect, as owners of the land, to purchase the house built on the said lot in question by the defendant for P2,500 or to sell their said land to the defendant for P1,500. In the event that the plaintiffs shall decide ________________ 10”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.”

134 134 SUPREME COURT REPORTS ANNOTATED Floreza vs. Evangelista not to purchase the house in question, the defendant should be allowed to remain in plaintiffs’ premises by paying a monthly rental of P10.00 which is the reasonable value for the use of the same per month as alleged by plaintiffs in their complaint. The Court also orders the defendant to pay a monthly rental of P10.00 for the use of the land in question from May 18, 1956, the date of the commencement of this action. The counterclaim of the defendant is hereby ordered dismissed. Without pronouncement as to costs. “SO ORDERED.”11Amended Record on Appeal, p. 22. Both parties appealed to the Court of Appeals. On November 4, 1965, the Court of Appeals concluded that Article 448 of the Civil Code, supra, was inapplicable; that FLOREZA was not entitled to reimbursement for his house but that he could remove the same at his expense; and accordingly rendered judgment thus: “WHEREFORE, judgment is hereby rendered: (1) adjudging the defendant-appellant Mariano Floreza to vacate plaintiffs’ residential lot described in the complaint and to pay rental of P10.00 a month from May 5, 1956, until he (defendant) shall have vacated the premises; (2) ordering defendant to remove his house from the land in question within 30 days from the time this decision becomes final and executory; (3) ordering the Register of Deeds of Rizal to cancel inscription No. 2147, Page 210, Vol. 36, in the Registration Book under Act 3344 upon payment of his lawful fees; and (4) taxing the costs in

both instances against defendant-appellant Mariano Floreza.”12Decision, pp. 9-10. Hence, this Petition for Review on Certiorari by FLOREZA, seeking a reversal of the aforestated judgment and ascribing the following errors: 1) That the Court of Appeals erred in holding that petitioner Floreza was a builder in bad faith without likewise holding that respondents as owners of the land in dispute, were likewise in bad faith and therefore both parties should in accordance with Art. 453 of the New Civil Code be considered as having acted in good faith. ________________ 11 Amended Record on Appeal, p. 22. 12 Decision, pp. 9-10. 135 VOL. 96, FEBRUARY 21, 1980 135 Floreza vs. Evangelista 2) That the Court of Appeals erred in completely ignoring the issue raised on appeal as to whether or not respondents as owners of the questioned lot, were in bad faith in the sense that they had knowledge of and acquiesced to the construction of the house of petitioner on their lot. 3) That the Court of Appeals erred in not applying Art. 448 of the New Civil Code in the adjudication of the rights of petitioner and respondent. 4) That the Court of Appeals erred in declaring that petitioner is not entitled to reimbursement for the value of his house and that he should instead remove the same at his expense.

5) That the Court of Appeals erred in adjudging petitioner to vacate respondents’ lot in question and to pay rentals commencing from May 5, 1956, until he shall have vacated the premises, notwithstanding that petitioner is entitled under Arts. 448 and 546 of the New Civil Code, to retention without payment of rental while the corresponding indemnity of his house had not been paid. 6) That the Court of Appeals erred in taxing costs against petitioner. 7) That the Court of Appeals erred in not awarding petitioner’s counterclaim. During the pendency of this appeal, petitioner Maria D. de Evangelista died and was ordered substituted by her son, petitioner Sergio, as her legal representative, in a Resolution dated May 14, 1976. On October 20, 1978, the EVANGELISTAS filed a Motion to Dismiss stating that FLOREZA had since died and that his heirs had voluntarily vacated the residential lot in question. The date FLOREZA passed away and the date his heirs had voluntarily vacated the property has not been stated. Required to comment, “petitioner (represented by his heirs)”, through counsel, confirmed his death and the removal of the house and manifested that thereby the question of reimbursement had become moot and academic. He objected to the dismissal of the case, however, on the ground that the issue of rentals still pends. On January 21, 1980, complying with a Resolution of this Court, the EVANGELISTAS clarified that the dismissal they were praying for was not of the entire case but only of this Petition for Review on Certiorari.

136 136 SUPREME COURT REPORTS ANNOTATED Floreza vs. Evangelista We are not in agreement that the question of reimbursement of the value of the improvement erected on the subject property has become moot. Petitioner’s right of retention of subject property until he is reimbursed for the value of his house, as he had demanded, is inextricably linked with the question of rentals. For if petitioner has the right to indemnity, he has the right of retention and no rentals need be paid. Conversely, if no right of retention exists, damages in the form of rentals for the continued use and occupation of the property should be allowed. We uphold the Court of Appeals in its conclusion that Article 448 of the Civil Code is inapplicable to the factual milieu herein. Said codal provision applies only when the builder, planter, or sower believes he had the right so to build, plant or sow because he thinks he owns the land or believes himself to have a claim of title.13Alburo vs. Villanueva, 7 Phil. 277 (1907): Quemuel vs. Olaes, 1 SCRA 1159 (1961); Racaza vs. Susana Realty, Inc., 18 SCRA 1172 (1966). In this case, petitioner makes no pretensions of ownership whatsoever. Petitioner concedes that he was a builder in bad faith but maintains that the EVANGEUSTAS should also be held in bad faith, so that both of them being in bad faith, Article 453 of the Civil Code14”ART. 453. If there was bad faith, not only on the part of the person who built, planted or sowed on the land of another, but also on the part of the owner of such land, the rights of one and the other shall be the same as though both had

acted in go... should apply. By the same token, however, that Article 448 of the same Code is not applicable, neither is Article 453 under the ambiance of this case. Would petitioner, as vendee a retro, then be entitled to the rights granted in Article 1616 of the Civil Code (Art. 1518 of the old Code)? To quote: “Art. 1616. The vendor cannot avail himself of the right of repurchase without returning to the vendee the price of the sale, and in addition: ________________ 13 Alburo vs. Villanueva, 7 Phil. 277 (1907): Quemuel vs. Olaes, 1 SCRA 1159 (1961); Racaza vs. Susana Realty, Inc., 18 SCRA 1172 (1966). 14 ”ART. 453. If there was bad faith, not only on the part of the person who built, planted or sowed on the land of another, but also on the part of the owner of such land, the rights of one and the other shall be the same as though both had acted in good faith. “It is understood that there is bad faith on the part of the landowner whenever the act was done with his knowledge and without opposition on his part.” 137 VOL. 96, FEBRUARY 21, 1980 137 Floreza vs. Evangelista (1) The expenses of the contract, and any other legitimate payments made by reason of the sale; (2) The necessary and useful expenses made on the thing sold.” The question again calls for a negative answer. It should be noted that petitioner did not construct his house as a vendee a

retro. The house had already been constructed as far back as 1949 (1945 for the house of light materials) even before the pacto de retro sale in 1949. Petitioner incurred no useful expense, therefore, after that sale. The house was already there at the tolerance of the EVANGELISTAS in consideration of the several loans extended to them. Since petitioner cannot be classified as a builder in good faith within the purview of Article 448 of the Civil Code, nor as a vendee a retro, who made useful improvements during the lifetime of the pacto de retro, petitioner has no right to reimbursement of the value of the house which he had erected on the residential lot of the EVANGELISTAS, much less to retention of the premises until he is reimbursed. The rights of petitioner are more akin to those of a usufructuary who, under Article 579 of the Civil Code (Art 487 of the old Code), may make on the property useful improvements but with no right to be indemnified therefor. He may, however, remove such improvements should it be possible to do so without damage to the property: For if the improvements made by the usufructuary were subject to indemnity, we would have a dangerous and unjust situation in which the usufructuary could dispose of the owner’s funds by compelling him to pay for improvements which perhaps he would not have made.15Tolentino, Civil Code, citing Castan 237, citing de Diego Vol. II, pp. 315-316, 1972 ed. We come now to the issue of rentals. It is clear that from the date that the redemption price had been paid by the EVANGELISTAS on January 2, 1955, petitioner’s right to the use of the residential lot without charge had ceased. Having retained the property although a redemption had been made, he should be held liable for damages in the form of rentals for the

continued use of the subject residential lot16Cho Chun Chac vs. Garcia, 47 Phil. 530 (1925). at the ________________ 15 Tolentino, Civil Code, citing Castan 237, citing de Diego Vol. II, pp. 315-316, 1972 ed. 16 Cho Chun Chac vs. Garcia, 47 Phil. 530 (1925). 138 138 SUPREME COURT REPORTS ANNOTATED Floreza vs. Evangelista rate of P10.00 monthly from January 3, 1955, and not merely from the date of demand on May 4, 1956, as held by the Court of Appeals, until the house was removed and the property vacated by petitioner or his heirs. WHEREFORE, the judgment appealed from is hereby affirmed, with the modification that payment of rentals by the heirs of Mariano Floreza, who are hereby ordered substituted for him, shall commence on January 3, 1955 until the date that the residential lot in question was vacated. Costs against petitioner. SO ORDERED. Teehankee (Chairman), Makasiar, Fernandez, Guerrero, and De Castro, JJ., concur. Judgment affirmed. Notes.—Improvements on a parcel of land which fall under Article 415 of the New Civil Code are immovable property insofar as third persons are concerned and the mortgage con stituted thereon must be susceptible of registration as a real estate mortgage. (Tolentino vs. Baltazar, 1 SCRA 822).

Pursuant to the right of retention granted to possessors in good faith by Article 546 of the Civil Code, which is applicable to builders in good faith (Art. 448), the latter may be ordered to vacate the land upon payment by the landowner of indemnity for improvements. (People vs. Repato, 6 SCRA 207). Where a house stands on a rented land belonging to another person, it may be the subject-matter of a chattel mortgage as person or movable property if so stipulated in the document of mortgage, and in an action by the mortgage for foreclosure, the validity of the chattel mortgage cannot be assailed by one of the parties to the contract of mortgage. (Navarro vs. Pineda, 9 SCRA 631). Article 167 of the Civil Code on disposition of the fruits of property redeemed applies only when the parties failed to provide a sharing arrangement thereon. (Budlong vs. Pondoc, 79 SCRA 24). 139 VOL. 96, FEBRUARY 21, 1980 139 Sto. Domingo vs. De los Angeles A vendee a retro has a right to share in the harvest of palay planted when said vendee was still owner of the land. (Almeda, vs. Daluro, 79 SCRA 327). It is not always necessary for owner of real property to wait after expiration of 12 months before he may maintain a forcible entry suit in the nature of accion publiciana in the Court of First Instance. (Banayos vs. Susana Realty, Inc., 71 SCRA 557). Article 593 of the Civil Code in its second paragraph grants to the possessor, who was deprived of the possession of his real

property through forcible entry, the right to secure from an inferior court in the action for forcible entry a writ of preliminary mandatory injunction to restore him in his possession. (Laureano vs. Adil, 72 SCRA 148). The damages contemplated in Section 8 of Rule 70 refer to the reasonable compensation for the use and occupation of the property which is generally measured by its fair rental value. (Laureano vs. Adil, 72 SCRA 148). Trial court should give reasonable time for defendant to make deposit to stay execution pending appeal of ejectment case. (Sanchez vs. Zosa, 68 SCRA 171). [Floreza vs. Evangelista, 96 SCRA 130(1980)]

G.R. No. 72876. January 18, 1991.*THIRD DIVISION. FLORENCIO IGNAO, petitioner, vs. HON. INTERMEDIATE APPELLATE COURT, JUAN IGNAO, substituted by his Legal Heirs, and ISIDRO IGNAO, respondents. Co-ownership; Property; Art. 448, new Civil Code applies to property held in common once it is partitioned.—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. Same; Same; When co-owned estate is partitioned, it is the coowner whose portion is encroached upon who has the option to sell that portion or buy the improvement.—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 _______________ * THIRD DIVISION. 18 18 SUPREME COURT REPORTS ANNOTATED Ignao vs. Intermediate Appellate Court Grana vs. Court of Appeals, 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 xxx shall have the right to

appropriate xxx or to oblige the one who built xxx to pay the price of the land xxx.” The law is clear and unambiguous when it confers the right of choice upon the landowner and not upon the builder and the courts. Same; Same; Same.—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. PETITION for certiorari to review the decision of the Intermediate Appellate Court. The facts are stated in the opinion of the Court. 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 19 VOL. 193, JANUARY 18, 1991 19 Ignao vs. Intermediate Appellate Court 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.1Record on Appeals, p. 5. 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 partition2Civil Case No. N-1681. and quoted: _______________ 1 Record on Appeals, p. 5. 2 Civil Case No. N-1681. 20 20 SUPREME COURT REPORTS ANNOTATED Ignao vs. Intermediate Appellate Court “xxx.Hence, it is the well-consired 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.”3Record on Appeals, p. 20, italics supplied. 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,4109 Phil. 260. 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.”5Rollo, p. 35, Record on Appeal, p. 24. Petitioner Florencio Ignao appealed to the Intermediate Appellate Court. On August 27, 1985, the Appellate Court,

Second Civil Cases Division, promulgated a decision,6Through Associate Justices Serafin E. Camilon, ponente, Crisolito Pascual, Jose C. Campos, Jr. and Desiderio P. Jurado, concuraffirming _______________ 3 Record on Appeals, p. 20, italics supplied. 4 109 Phil. 260. 5 Rollo, p. 35, Record on Appeal, p. 24. 6 Through Associate Justices Serafin E. Camilon, ponente, Crisolito Pascual, Jose C. Campos, Jr. and Desiderio P. Jurado, concur21 VOL. 193, JANUARY 18, 1991 21 Ignao vs. Intermediate Appellate Court 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 x x x is applicable, the respondent Court has adjudged the working solution suggested in Grana and Torralba vs. C.A. (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.”7Rollo, pp. 9-10. 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 halfbrothers 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 ring. _______________ 7 Rollo, pp. 9-10. 22 22 SUPREME COURT REPORTS ANNOTATED

Ignao vs. Intermediate Appellate Court 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,8G.R. No. 72188, September 15, 1986, 144 SCRA 154. “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.9Felices vs. Colegado, No. L-23374, September 30, 1970, 35 SCRA 173, 178. 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 _______________ 8 G.R. No. 72188, September 15, 1986, 144 SCRA 154. 9 Felices vs. Colegado, No. L-23374, September 30, 1970, 35 SCRA 173, 178. 23 VOL. 193, JANUARY 18, 1991 23 Ignao vs. Intermediate Appellate Court 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,10No. L-49219, April 18, 1988, 160 SCRA 379. 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 coownership. “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.”11Italics supplied. 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,12Supra. 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 _______________ 10 No. L-49219, April 18, 1988, 160 SCRA 379.

11 Italics supplied. 12 Supra. 24 24 SUPREME COURT REPORTS ANNOTATED Ignao vs. Intermediate Appellate Court owner of the land xxx shall have the right to appropriate xxx or to oblige the one who built xxx to pay the price of the land xxx.” 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,13G.R. No. L-11084, April 29, 1961, 1 SCRA 1159. 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.14See Spouses del Campo vs. Abesia, No. L-49219, April 15, 1988, 160 SCRA 379. No costs. SO ORDERED. Gutierrez, Jr., Feliciano and Bidin, JJ., concur. Decision modified. _______________ 13 G.R. No. L-11084, April 29, 1961, 1 SCRA 1159. 14 See Spouses del Campo vs. Abesia, No. L-49219, April 15, 1988, 160 SCRA 379. 25 VOL. 193, JANUARY 18, 1991 25 Vill Transport Services, Inc. vs. Court of Appeals Notes.—A person who obtains property through mistake or fraud is by force of law considered a trustee of an implied trust for the benefit of the person from whom the property comes. (Tomas vs. Court of Appeals, 185 SCRA 627.) Imprescriptibility of property inherited cannot be invoked when a co-owner possessed the property as exclusive owner. (Bicarme vs. Court of Appeals, 186 SCRA 294.) Barron being a builder in good faith the house she built cannot become the landowner’s property without proper recompense.

(Santos vs. Intermediate Appellate Court, 186 SCRA 694.) [Ignao vs. Intermediate Appellate Court, 193 SCRA 17(1991)]

G.R. No. 104828. January 16, 1997.*THIRD DIVISION. SPOUSES RAFAEL BENITEZ AND AVELINA BENITEZ, petitioners, vs. COURT OF APPEALS, SPOUSES RENATO MACAPAGAL and ELIZABETH MACAPAGAL, respondents. Remedial Law; Civil Law; Ejectment; Possession; Prior possession is not always a condition sine qua non in ejectment.—That petitioners occupied the land prior to private respondents’ purchase thereof does not negate the latter’s case for ejectment. Prior possession is not always a condition sine qua non in ejectment. This is one of the distinctions between forcible entry and unlawful detainer. In forcible entry, the plaintiff is deprived of physical possession of his land or building by means of force, intimidation, threat, strategy or stealth; thus, he must allege and prove prior possession. But in unlawful detainer, the defendant unlawfully withholds possession after the expiration or termination of his right thereto under any contract, express or implied. In such a case, prior physical possession is not required. _______________ * THIRD DIVISION. 243 VOL. 266, JANUARY 16, 1997 243 Benitez vs. Court of Appeals Same; Same; Same; Same; Possession can also be acquired by the fact that a thing is subject to the action of one’s will or by the proper acts and legal formalities established for acquiring such right.—Possession can also be acquired, not only by material occupation, but also by the fact that a thing is subject

to the action of one’s will or by the proper acts and legal formalities established for acquiring such right. Possession of land can be acquired upon the execution of the deed of sale thereof by its vendor. Actual or physical occupation is not always necessary. Same; Same; Same; The MeTC has jurisdiction over ejectment cases.—In the case before us, considering that private respondents are unlawfully deprived of possession of the encroached land and that the action for the recovery of possession thereof was made within the one-year reglementary period, ejectment is the proper remedy. The MeTC of San Juan had jurisdiction. Same; Same; Same; Damages; Damages in the context of Section 8, Rule 70 is limited to “rent” or “fair rental value” for the use and occupation of the property.—Petitioners erroneously construed the order of the MeTC to pay private respondents Nine Hundred Thirty Pesos (P930.00) a month starting July 17, 1989 until they (petitioners) finally vacate the subject premises as “rentals.” Technically, such award is not rental, but damages. Damages are recoverable in ejectment cases under Section 8, Rule 70 of the Revised Rules of Court. These damages arise from the loss of the use and occupation of the property, and not the damages which private respondents may have suffered but which have no direct relation to their loss of material possession. Damages in the context of Section 8, Rule 70 is limited to “rent” or “fair rental value” for the use and occupation of the property. Same; Same; Same; Option to sell the land on which another in good faith builds, plants or sows on, belongs to the landowner.—Article 448 of the Civil Code is unequivocal that

the option to sell the land on which another in good faith builds, plants or sows on, belongs to the landowner. PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. 244 244 SUPREME COURT REPORTS ANNOTATED Benitez vs. Court of Appeals Leonides S. Respicio & Associates Law Office for petitioners. Pedro T. Santos, Jr. for private respondents. PANGANIBAN, J.: May possession of a lot encroached upon by a part of another’s house be recovered in an action for ejectment? This is the main question raised by the petition for review on certiorari assailing the Resolution1Rollo, pp. 25-27. of the Court of Appeals, Sixth Division,2Penned by Associate Justice Jose C. Campos, Jr. and concurred in by Associate Justices Alfredo M. Marigomen and Fortunato A. Vailoces. dated March 24, 1992, in CA-G.R. SP No. 26853 denying due course to petitioner’s appeal and affirming the decision of the Regional Trial Court of Pasig in Civil Case No. 61004, which in turn affirmed the decision of the Metropolitan Trial Court of San Juan, Metro Manila, Branch 58. The Facts On January 22, 1986, petitioners Rafael and Avelina Benitez purchased a 303-square-meter parcel of land with improvement

from the Cavite Development Bank, covered by Transfer Certificate of Title No. 41961 (now, TCT No. 55864). Subsequently, private respondents Renato and Elizabeth Macapagal bought a 361-square-meter lot covered by TCT No. 40155. On September 18, 1986, they filed Civil Case No. 53835 with the Regional Trial Court of Pasig, Branch 157 against petitioners for the recovery of possession of an encroached portion of the lot they purchased. The parties were able to reach a compromise in which private respondents sold the encroached portion to petitioners at the acquisition cost of One Thousand Pesos (P1,000.00) per square meter. _______________ 1 Rollo, pp. 25-27. 2 Penned by Associate Justice Jose C. Campos, Jr. and concurred in by Associate Justices Alfredo M. Marigomen and Fortunato A. Vailoces. 245 VOL. 266, JANUARY 16, 1997 245 Benitez vs. Court of Appeals On July 17, 1989, private respondents purchased still another property, a 285.70 square-meter-lot covered by TCT No. 3249R, adjacent to that of petitioners. After a relocation survey was conducted, private respondents discovered that some 46.50 square meters of their property was occupied by petitioners’ house. Despite verbal and written demands, petitioners refused to vacate. A last notice to vacate was sent to petitioners on October 26, 1989.

On January 18, 1990, private respondents filed with the Metropolitan Trial Court of San Juan, Branch 58, Civil Case No. 61004 for ejectment against petitioners. The MeTC of San Juan decided in favor of the former, with the following disposition:3Rollo, pp. 25-26. “WHEREFORE, in view of all the foregoing, judgment is hereby rendered for the plaintiffs and against the defendants ordering them and all persons claiming rights under them to vacate and surrender possession of the subject premises to the plaintiffs as well as to pay the following: 1. The amount of P930.00 a month starting July 17, 1989 until they finally vacate the subject premises; 2. The amount of P5,000.00 for and as attorney’s fees; and 3. Cost of suit.” On appeal, the Regional Trial Court of Pasig, Branch 167, affirmed said decision.4Penned by Judge Alfredo C. Flores, C.A. Rollo, pp. 10-13. The RTC said:5CA Rollo, pp. 11-12. “The controversy in this case is not an encroachment or overlapping of two (2) adjacent properties owned by the parties. It is a case where a part of the house of the defendants is constructed on a portion of the property of the plaintiffs. So that as new owner of the real property, who has a right to the full enjoyment and possession of the entire parcel covered by Transfer Certificate of Title No. _______________ 3 Rollo, pp. 25-26. 4 Penned by Judge Alfredo C. Flores, C.A. Rollo, pp. 10-13. 5 CA Rollo, pp. 11-12. 246

246 SUPREME COURT REPORTS ANNOTATED Benitez vs. Court of Appeals 41961, plaintiffs have the right to demand that defendants remove the portion of the house standing on plaintiff’s realty. x x x.” The dispositive portion thereof reads:6CA Rollo, p. 13. “WHEREFORE, finding no reversible error in the decision appealed from, it being more consistent with the facts and the law applicable, the same is hereby AFFIRMED in toto. Costs against the defendant-appellants. SO ORDERED.” On further appeal, the respondent Court found no merit in petitioners’ plea. In a Resolution dated March 24, 1992, the Sixth Division of said Court found the petition to be a mere rehash of the issues and arguments presented before the lower courts. It ruled in part that:7Rollo, p. 27. “3) Petitioners were fully aware that part of their house encroached on their neighbor’s property, while respondents became aware of it only after purchasing said property. Petitioners cannot claim good faith as against the respondents. “4) Since petitioners are not builders in good faith, they cannot demand that respondents sell the disputed portion; what the law provides is that the builders in bad faith can be ordered to dismantle said structure at their own expense. In the interim period that petitioners’ structure remains, they should pay reasonable rent until they remove the structure.” The dispositive portion thereof reads:8Ibid. “For reasons indicated, We find the appeal without merit and deny it due course, with costs against the petitioners.

SO ORDERED.” Hence, this petition. _______________ 6 CA Rollo, p. 13. 7 Rollo, p. 27. 8 Ibid. 247 VOL. 266, JANUARY 16, 1997 247 Benitez vs. Court of Appeals The Issues The main issue is whether the possession of the portion of the private respondents’ land encroached by petitioners’ house can be recovered through an action of ejectment, not accion publiciana. Corollarily, petitioners question (a) the validity of the imposition of “rental” for the occupancy of the encroached portion, (b) the denial of their claimed pre-emptive right to purchase the encroached portion of the private respondents’ land, and (c) the propriety of a factual review of the CA’s finding of bad faith on the part of petitioners. In a nutshell, petitioners insist that the MeTC had no jurisdiction over the case at bar because its real nature is accion publiciana or recovery of possession, not unlawful detainer. It is not forcible entry because private respondents did not have prior possession of the contested property as petitioners possessed it ahead of private respondents. It is not unlawful detainer because petitioners were not the private respondents’ tenants nor vendee unlawfully withholding possession thereof. Said court also has no jurisdiction to impose payment of

“rentals” as there is no lessor-lessee relationship between the parties. They pray for a review of the factual finding of bad faith, insisting that the facts uphold their position. Due to their alleged good faith, they claim the pre-emptive right to purchase the litigated portion as a matter of course. Finally, they insist that the award of attorney’s fees is unwarranted as private respondents allegedly had knowledge of the encroachment prior to their acquisition of said land. Private respondents counter that petitioners are estopped from questioning the jurisdiction of the MeTC after they voluntarily participated in the trial on the merits and lost; that there is no law giving petitioners the option to buy the encroached property; and that petitioners acted in bad faith because they waived in their deed of sale the usual seller’s warranty as to the absence of any and all liens and encumbrances on the property, thereby implying they had knowledge of the encroachment at the time of purchase. 248 248 SUPREME COURT REPORTS ANNOTATED Benitez vs. Court of Appeals The Court’s Ruling The petition lacks merit and should be denied. First Issue: MeTC Has Jurisdiction The jurisdictional requirements for ejectment, as borne out by the facts, are: after conducting a relocation survey, private respondents discovered that a portion of their land was encroached by petitioners’ house; notices to vacate were sent to petitioners, the last one being dated October 26, 1989; and

private respondents filed the ejectment suit against petitioners on January 18, 1990 or within one (1) year from the last demand. Private respondents’ cause of action springs from Sec. 1, Rule 70 of the Revised Rules of Court, which provides: “Sec. 1. Who may institute proceedings, and when.—Subject to the provisions of the next succeeding section, a person deprived of the possession of any land or building by force, intimidation, threat, strategy, or stealth, or a landlord, vendor, vendee, or other person against whom the possession of any land or building is unlawfully withheld after the expiration or termination of the right to hold possession, by virtue of any contract, express or implied, or the legal representatives or assigns of any such landlord, vendor, vendee, or other person, may, at any time within one (1) year after such unlawful deprivation or withholding of possession, bring an action in the proper inferior court against the person or persons unlawfully withholding or depriving of possession, or any person or persons claiming under them, for the restitution of such possession, together with damages and costs. x x x.” That petitioners occupied the land prior to private respondents’ purchase thereof does not negate the latter’s case for ejectment. Prior possession is not always a condition sine qua non in ejectment.9Pharma Industries, Inc., vs. Pajarillaga, 100 SCRA 339, 345, October 17, 1980. This is one of the distinctions between _______________ 9 Pharma Industries, Inc., vs. Pajarillaga, 100 SCRA 339, 345, October 17, 1980.

249 VOL. 266, JANUARY 16, 1997 249 Benitez vs. Court of Appeals forcible entry and unlawful detainer. In forcible entry, the plaintiff is deprived of physical possession of his land or building by means of force, intimidation, threat, strategy or stealth; thus, he must allege and prove prior possession. But in unlawful detainer, the defendant unlawfully withholds possession after the expiration or termination of his right thereto under any contract, express or implied. In such a case, prior physical possession is not required.10Sumulong vs. Court of Appeals, 232 SCRA 372, 382-383, May 10, 1994 and Javelosa vs. Court of Appeals, G.R. No. 124292, promulgated on December 10, 1996, p. 10. Possession can also be acquired, not only by material occupation, but also by the fact that a thing is subject to the action of one’s will or by the proper acts and legal formalities established for acquiring such right.11Pharma Industries, Inc. vs. Pajarillaga, op cit. Possession of land can be acquired upon the execution of the deed of sale thereof by its vendor. Actual or physical occupation is not always necessary. In the case before us, considering that private respondents are unlawfully deprived of possession of the encroached land and that the action for the recovery of possession thereof was made within the one-year reglementary period, ejectment is the proper remedy.12Del Castillo vs. Aguinaldo, 212 SCRA 169, 173-174, August 5, 1992. The MeTC of San Juan had jurisdiction.

In addition, after voluntarily submitting themselves to its proceedings, petitioners are estopped from assailing the jurisdiction of the MeTC.13Tejones vs. Gironello, 159 SCRA 100, 104, March 21, 1988 and Romualdez vs. Regional Trial Court, Br. 7, Tacloban City, 226 SCRA 408, 414, September 14, 1993. This Court will not allow petitioners to attack the jurisdiction of the trial court after receiving a decision adverse to their position. _______________ 10 Sumulong vs. Court of Appeals, 232 SCRA 372, 382-383, May 10, 1994 and Javelosa vs. Court of Appeals, G.R. No. 124292, promulgated on December 10, 1996, p. 10. 11 Pharma Industries, Inc. vs. Pajarillaga, op cit. 12 Del Castillo vs. Aguinaldo, 212 SCRA 169, 173-174, August 5, 1992. 13 Tejones vs. Gironello, 159 SCRA 100, 104, March 21, 1988 and Romualdez vs. Regional Trial Court, Br. 7, Tacloban City, 226 SCRA 408, 414, September 14, 1993. 250 250 SUPREME COURT REPORTS ANNOTATED Benitez vs. Court of Appeals Second Issue: Compensation For Occupancy Petitioners erroneously construed the order of the MeTC to pay private respondents Nine Hundred Thirty Pesos (P930.00) a month starting July 17, 1989 until they (petitioners) finally vacate the subject premises as “rentals.” Technically, such award is not rental, but damages. Damages are recoverable in ejectment cases under Section 8, Rule 70 of the Revised Rules

of Court.14Rule 70, Section 8 provides:“Sec. 8. Immediate execution of judgment. How to stay same.—If judgment is rendered against the defendant, execution shall issue immediately, unless an appeal has been perfected and the defendant to stay execution fi... These damages arise from the loss of the use and occupation of the property, and not the damages which private respondents may have suffered but which have no direct relation to their loss of material possession.15Hualam Construction and Dev’t. Corp. vs. Court of Appeals, 214 SCRA 612, 624-625, October 16, 1992 and Araos vs. Court of Appeals, 232 SCRA 770, 776, June 2, 1994. Damages in the context of Section 8, Rule 70 is limited to “rent” or “fair rental value” for the use and occupation of the property.16Ibid. and De Guzman vs. Court of Appeals, 195 SCRA 715, 721, April 8, 1991. _______________ 14 Rule 70, Section 8 provides: “Sec. 8. Immediate execution of judgment. How to stay same.—If judgment is rendered against the defendant, execution shall issue immediately, unless an appeal has been perfected and the defendant to stay execution files a sufficient bond, approved by the justice of the peace or municipal court and executed to the plaintiff to enter the action in the Court of First Instance and to pay the rents, damages, and costs accruing down to the time of the judgment appealed from, and unless, during the pendency of the appeal, he deposits with the appellate court the amount of rent due from time to time under the contract, if any, as found by the judgment of the justice of the peace or municipal court to exist. In the absence of a contract, he shall deposit with the court the reasonable value of

the use and occupation of the premises for the preceding month or period at the rate determined by the judgment, on or before the tenth day of each succeeding month or period. x x x x.” 15 Hualam Construction and Dev’t. Corp. vs. Court of Appeals, 214 SCRA 612, 624-625, October 16, 1992 and Araos vs. Court of Appeals, 232 SCRA 770, 776, June 2, 1994. 16 Ibid. and De Guzman vs. Court of Appeals, 195 SCRA 715, 721, April 8, 1991. 251 VOL. 266, JANUARY 16, 1997 251 Benitez vs. Court of Appeals There is no question that petitioners benefited from their occupation of a portion of private respondents’ property. Such benefit justifies the award of the damages of this kind. Nemo cum alterius, detrimenti locupletari potest. No one shall enrich himself at the expense of another. Third Issue: Option To Sell Belongs To Owner Article 448 of the Civil Code17ART. 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... is unequivocal that the option to sell the land on which another in good faith builds, plants or sows on, belongs to the landowner. The option is to sell, not to buy, and it is the landowner’s choice. Not even a declaration of the builder, planter, or sower’s bad faith shifts this option to him per Article 450 of the Civil Code.18ART. 450. The owner of the land on which

anything has been built, planted or sown in bad faith may demand the demolition of the work, or that the planting or sowing be removed, in order to replace things in their former condition at the expense of the pers... This advantage in Article 448 is accorded the landowner because “his right is older, and because, by the principle of accession, he is entitled to the ownership of the accessory thing.”19Depra vs. Dumlao, supra, p. 483. There can be no pre-emptive right to buy even as a compromise, as this prerogative belongs solely to _______________ 17 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. 18 ART. 450. The owner of the land on which anything has been built, planted or sown in bad faith may demand the demolition of the work, or that the planting or sowing be removed, in order to replace things in their former condition at the expense of the person who built, planted or sowed; or he may compel the builder or planter to pay the price of the land, and the sower the proper rent.

19 Depra vs. Dumlao, supra, p. 483. 252 252 SUPREME COURT REPORTS ANNOTATED Benitez vs. Court of Appeals the landowner. No compulsion can be legally forced on him, contrary to what petitioners asks from this Court. Such an order would certainly be invalid and illegal. Thus, the lower courts were correct in rejecting the petitioners’ offer to buy the encroached land. Fourth Issue: A Review of Factual Findings Is Unwarranted Petitioners ask this Court to review the alleged error of the respondent Court in appreciating bad faith on their part. According to them, this is contradictory to the fact that private respondents acquired their lot and discovered the encroachment after petitioners bought their house. After careful deliberation on this issue, this Court finds this petition for review inadequate as it failed to show convincingly a reversible error on the part of the respondent Court in this regard. Thus, for very good reasons, this Court has consistently and emphatically declared that review of the factual findings of the Court of Appeals is not a function that is normally undertaken in petitions for review under Rule 45 of the Rules of Court. Such findings, as a general rule, are binding and conclusive.20De la Serna vs. Court of Appeals, 233 SCRA 325, 329, June 21, 1994; Tay Chun Suy vs. Court of Appeals, 229 SCRA 151, 156, January 7, 1994; First Philippine International Bank vs. Court of Appeals, 252 SCRA 259, 307-308, January 24, 1996; and Liberty Constr... The jurisdiction of this Court is limited to

reviewing errors of law unless there is a showing that the findings complained of are totally devoid of support in the records or that they are so glaringly erroneous as to constitute reversible error.21Meneses vs. Court of Appeals, 246 SCRA 162, 171, July 14, 1995; The Municipality of Candijay, Bohol vs. Court of Appeals, 251 SCRA 530, 534, December 28, 1995; and Tañedo vs. Court of Appeals, 252 SCRA 80, 91 January 22, 1996. _______________ 20 De la Serna vs. Court of Appeals, 233 SCRA 325, 329, June 21, 1994; Tay Chun Suy vs. Court of Appeals, 229 SCRA 151, 156, January 7, 1994; First Philippine International Bank vs. Court of Appeals, 252 SCRA 259, 307-308, January 24, 1996; and Liberty Construction & Development Corp. vs. Court of Appeals, G.R. No. 106601, promulgated on June 28, 1996, p. 7. 21 Meneses vs. Court of Appeals, 246 SCRA 162, 171, July 14, 1995; The Municipality of Candijay, Bohol vs. Court of Appeals, 251 SCRA 530, 534, December 28, 1995; and Tañedo vs. Court of Appeals, 252 SCRA 80, 91 January 22, 1996. 253 VOL. 266, JANUARY 16, 1997 253 Benitez vs. Court of Appeals Even respondent Court has taken note of the inadequacy of the petition before it, as it wryly said:22Rollo, p. 26.

“The Petition for Review is not certainly a manifestation of clarity nor an example of a well-organized summation of petitioners’ cause of action. x x x x. xxx xxx xxx A careful scrutiny of the above issues discloses that they are mere repetitions in a rehashed form of the same issues with the same supporting arguments raised by petitioners when they appealed from the decision of the (MeTC) to the RTC. x x x.” This petition is no different. We share the foregoing sentiments of the respondent Court. In essence, respondent Court merely affirmed the decision of the MeTC. The Court of Appeal’s finding of petitioners’ bad faith did not alter nor affect the MeTC’s disposition. Petitioners want this Court to declare them in good faith and to determine their rights under Article 448, Civil Code. However, the mere fact that they bought their property ahead of the private respondents does not establish this point. Nor does it prove that petitioners had no knowledge of the encroachment when they purchased their property. Reliance on the presumption in Article 526 of the Code is misplaced in view of the declaration of the respondent Court that petitioners are not builders in good faith. What petitioners presented are mere allegations and arguments, without sufficient evidence to support them. As such, we have no ground to depart from the general rule against factual review. In sum, the petition has not shown cogent reasons and sufficient grounds to reverse the unanimous ruling of the three lower courts. The MeTC, RTC and the Court of Appeals were all in agreement in sustaining private respondents’ rights. And we uphold them.

_______________ 22 Rollo, p. 26. 254 254 SUPREME COURT REPORTS ANNOTATED People vs. Briones WHEREFORE, the petition is DENIED. The assailed Resolution is hereby AFFIRMED. Narvasa (C.J., Chairman), Davide, Jr., Melo and Francisco, JJ., concur. Petition denied, resolution affirmed. Note.—Ejectment may be effected only through an action for forcible entry or unlawful detainer. (De la Paz vs. Panis, 245 SCRA 242 [1995]) ——o0o [Benitez vs. Court of Appeals, 266 SCRA 242(1997)]

No. L-47475. August 19, 1988.*THIRD DIVISION. MANOTOK REALTY, INC., petitioner, vs. THE HONORABLE JOSE H. TECSON, Judge of the Court of First Instance of Manila and NILO MADLANGAWA, respondents. Remedial Law; Civil Procedure; Judgment; Execution; When the trial court’s decision becomes final and executory, the writ of execution shall issue.—When the decision of the trial court became final and executory, it became incumbent upon the respondent judge to issue the necessary writ for the execution of the same. There is, therefore, no basis for the respondent judge to deny the petitioner’s motion to avail of its option to appropriate the improvement made on its property. Same; Same; Same; Civil Law; Property; Builder in good faith; Issuance of writ of execution, proper even if private respondent was adjudged a builder in good faith or peculiar circumstances supervened; Option to retain the premises and pay for improvements or to sell the premises to the builder in good faith belongs to the owner of the property.—Neither can the respondent judge deny the issuance of a writ of execution because the private respondent was adjudged a builder in good faith or on the ground of peculiar circumstances which supervened after the institution of this case, like, for instance, the introduction of certain major repairs of and other substantial improvements x x x” because the option given by law either to retain the premises and pay for the improvements thereon or to sell the said premises to the builder in good faith belongs to the owner of the property. Same; Same; Same; Same; Same; Concept of a builder in good faith.—Again, in the recent case of Paz Mercado, et al. v. Hon. Court of Appeals, et al., (G.R. No. L-44001, June 10, 1988),

we said: “x x x To be deemed a builder in good faith, it is essential that a person assert title to the land on which he builds; i.e., that he be a possessor in concept of owner, (Art. 525, Civil Code; Lopez, Inc. v. Phil. Eastern Trading Co., Inc., 98 Phil. 348) and that he be unaware ‘that there exists in his title or mode of acquisition any flaw which invalidates it.’ (Art. 526, Civil Code; Granados v. Monton, 86 Phil. 42; Arriola v. Gomez de la Serna, 14 Phil. 627; See also Manotok Realty, Inc. v. C.A., 134 SCRA 329, citing Caram v. Laureta, 103 SCRA 7) It is such a builder in good faith who is given the right to retain the thing, even _______________ * THIRD DIVISION. 588 588 SUPREME COURT REPORTS ANNOTATED Manotok Realty, Inc. vs. Tecson as against the real owner, until he has been reimbursed in full not only for the necessary expenses but also for useful expenses. (Art. 546, Civil Code; Policarpio v. CA., 129 SCRA 51; Sarmiento v. Agana, 129 SCRA 122; cf, Queto v. C.A. 122 SCRA 206) xxx” Same; Same; Same; Same; Same; Good faith of private respondent ceased after the filing of the complaint below.— Furthermore, the private respondent’s good faith ceased after the filing of the complaint below by the petitioner. x x x Thus, the repairs and improvements introduced by the said respondents after the complaint was filed cannot be considered

to have been built in good faith, much less, justify the denial of the petitioner’s exercise of option. Same; Same; Same; Same; Same; Where the improvements have been gutted by fire, the basis for private respondent’s right to retain the premises has already been extinguished without petitioner’s fault.—Since the improvements have been gutted by fire, and therefore, the basis for private respondent’s right to retain the premises has already been extinguished without the fault of the petitioner, there is no other recourse for the private respondent but to vacate the premises and deliver the same to herein petitioner. PETITION for mandamus to review the judgment of the Court of First Instance of Manila, Br. 5, Tecson, J. The facts are stated in the opinion of the Court. Ceferino V. Argueza for petitioner. Magtanggol C. Gunigundo for respondents. GUTIERREZ, JR., J.: In a complaint filed by the petitioner for recovery of possession and damages against the private respondent, the then Court of First Instance of Manila rendered judgment, the dispositive portion of which provides inter alia: WHEREFORE, judgment is hereby rendered: xxx xxx xxx xxx xxx xxx “(c) In Civil Case No. 72872, declaring the defendant Nilo Mad-langawa as a builder or possessor in good faith; ordering the plaintiff to recognize the right of said defendant to remain in Lot No. 345, 589

VOL. 164, AUGUST 19, 1988 589 Manotok Realty, Inc. vs. Tecson Block 1, of the Clara Tambunting Subdivision until after he shall have been reimbursed by the plaintiff the sum of P7,500.00, without pronouncement as to costs.” (p. 24, Rollo) Not satisfied with the trial court’s decision, the petitioner appealed to the Court of Appeals and upon affirmance by the latter of the decision below, the petitioner elevated its case to this Court. On July 13, 1977, we issued a resolution dated July 11, 1977 denying the petitioner’s petition for lack of merit. Hence, on August 5, 1977, the petitioner filed with the trial court, presided over by respondent Judge Jose H. Tecson, a motion for the approval of petitioner’s exercise of option and for satisfaction of judgment, praying that the court issue an order: a) approving the exercise of petitioner’s option to appropriate the improvements introduced by the private respondent on the property; b) thereafter, private respondent be ordered to deliver possession of the property in question to the petitioner. On October 7, 1977, the respondent judge issued the disputed order, to wit: “Acting on the motion for approval of plaintiff’s exercise of option and for satisfaction of judgment filed by the plaintiff, and the opposition thereto interposed by the defendant, both through counsels, and after a judicious review of all the facts and circumstances obtaining in this case, in the light of statutory provisions (Art. 6, New Civil Code) and jurisprudential doctrines (Vide, Benares v. Capitol Subdivision, Inc., L-7330 (Nov. 29, 1960), and considering further the

definitive ruling of our Supreme Tribunal in the case of Jose C. Cristobal v. Alejandro Melchor, G.R. No. L-43203 promulgated on July 29, 1977, wherein the Court says: “ ‘This Court, applying the principle of equity, need not be bound to a rigid application of the law, but rather its action should conform to the conditions or exigencies of a given problem or situation in order to grant relief that will serve the ends of justice. xxx xxx xxx the Court is of the considered view that under the peculiar circumstances which supervened after the institution of this case, like, for instance, the introduction of certain major repairs of and other substantial improvements on the controverted property, the instant motion of the plaintiff is not well-taken and therefore not legally 590 590 SUPREME COURT REPORTS ANNOTATED Manotok Realty, Inc. vs. Tecson proper and tenable. “WHEREFORE, and for lack of merit, the instant motion for approval of the plaintiff’s exercise of option and for satisfaction of judgment should be, as hereby it is, denied.” (pp. 45-46, Rollo) After a denial of its motion for reconsideration, the petitioner filed the present petition for mandamus alleging that the respondent judge committed grave abuse of discretion in denying his motion to exercise option and for execution of judgment on the grounds that under Articles 448 and 546 of the

Civil Code, the exercise of option belongs to the owner of the property, who is the petitioner herein, and that upon finality of judgment, the prevailing party is entitled, as a matter of right, to its execution which is only a ministerial act on the part of the respondent judge. On April 15, 1978, the private respondent filed his comment on the petition alleging that the same has already become moot and academic for two reasons: first, fire gutted not only the house of the private respondent but the majority of the houses in Tambunting Estate; and second, as a result of the said fire, the then First Lady and Metro Manila Governor Imelda R. Marcos has placed the disputed area under her Zonal Improvement Project, thereby allowing the victims of the fire to put up new structures on the premises, so that the willingness and readiness of the petitioner to exercise the alleged option can no longer be exercised since the subjectmatter thereof has been extinguished by the fire. Furthermore, the President of the Philippines has already issued a Presidential Decree for the expropriation of certain estates in Metro Manila including the Tambunting Estate. Therefore, the beneficent and humanitarian purpose of the Zonal Improvement Project and the expropriation proceeding would be defeated if petitioner is allowed to exercise an option which would result in the ejectment of the private respondent. On December 28, 1980, Presidential Decree (P.D.) No. 1669 was issued providing for the expropriation of the Tambunting Estate. However, this decree was challenged before this Court in G.R. No. 55166 entitled “Elisa R. Manotok, et al. v. National Housing Authority, et al.” Hence, we decided to hold the

decision on this petition pending the resolution of the aboveentitled case. 591 VOL. 164, AUGUST 19, 1988 591 Manotok Realty, Inc. vs. Tecson On May 21, 1987, the Court rendered a decision in the Elisa Manotok case (Manotok v. National Housing Authority, 150 SCRA 89) ruling that P.D. 1669 is unconstitutional for being violative of the due process clause. Thus, since the present petition has not been rendered moot and academic by the decision in said case, we will now decide on its merits. As stated earlier, the petitioner argues that since the judgment of the trial court has already become final, it is entitled to the execution of the same and that moreover, since the house of the private respondent was gutted by fire, the execution of the decision would now involve the delivery of possession of the disputed area by the private respondent to the petitioner. We find merit in these arguments. When the decision of the trial court became final and executory, it became incumbent upon the respondent judge to issue the necessary writ for the execution of the same. There is, therefore, no basis for the respondent judge to deny the petitioner’s motion to avail of its option to appropriate the improvements made on its property. In the case of Duenas v. Mandi (151 SCRA 530, 545), we said: xxx xxx xxx “x x x Likewise settled is the rule that after a judgment has become final, no additions can be made thereto, and nothing

can be done therewith except its execution, otherwise there would be no end to legal processes. (Fabular v. Court of Appeals, 119 SCRA 329)” Neither can the respondent judge deny the issuance of a writ of execution because the private respondent was adjudged a builder in good faith or on the ground of “peculiar circumstances which supervened after the institution of this case, like, for instance, the introduction of certain major repairs of and other substantial improvements x x x” because the option given by law either to retain the premises and pay for the improvements thereon or to sell the said premises to the builder in good faith belongs to the owner of the property. As we have in Quemel v. Olaes (1 SCRA 1159, 1163): xxx xxx xxx “x x x The plaintiff’s claim that their second cause of action is based on Article 448 in connection with Art. 546, of the new Civil Code. A cursory reading of these provisions, however, will show that 592 592 SUPREME COURT REPORTS ANNOTATED Manotok Realty, Inc. vs. Tecson they are not applicable to plaintiff’s case. Under Article 448, the right to appropriate the works or improvements or ‘to oblige the one who built or planted to pay the price of the land’ belongs to the owner of the land. The only right given to the builder in good faith is the right to reimbursement for the improvements; the builder, cannot compel the owner of the land to sell such land to the former. x x x”

Again, in the recent case of Paz Mercado, et al. v. Hon. Court of Appeals, et al., (G.R. No. L-44001, June 10, 1988), we said: “x x x To be deemed a builder in good faith, it is essential that a person assert title to the land on which he builds; i.e., that he be a possessor in concept of owner, (Art. 525, Civil Code; Lopez, Inc. v. Phil. Eastern Trading Co., Inc., 98 Phil. 348) and that he be unaware ‘that there exists in his title or mode of acquisition any flaw which invalidates it.’ (Art. 526, Civil Code; Granados v. Monton, 86 Phil. 42; Arriola v. Gomez de la Serna, 14 Phil. 627; See also Manotok Realty, Inc. v. CA, 134 SCRA 329, citing Caram v. Laureta, 103 SCRA 7) It is such a builder in good faith who is given the right to retain the thing, even as against the real owner, until he has been reimbursed in full not only for the necessary expenses but also for useful expenses. (Art. 546, Civil Code; Policarpio v. CA., 129 SCRA 51; Sarmiento v. Agana, 129 SCRA 122; cf, Queto v. C.A., 122 SCRA 206) x x x” Furthermore, the private respondent’s good faith ceased after the filing of the complaint below by the petitioner. In the case of Mindanao Academy, Inc. v. Yap (13 SCRA 190, 196), we ruled: xxx xxx xxx “x x x Although the bad faith of one party neutralizes that of the other and hence as between themselves their rights would be as if both of them had acted in good faith at the time of the transaction, this legal fiction of Yap’s good faith ceased when the complaint against him was filed, and consequently the court’s declaration of liability for the rents thereafter is correct and proper. A possessor in good faith is entitled to the fruits only so long as his possession is not legally interrupted, and

such interruption takes place upon service of judicial summons (Arts. 544 and 1123, Civil Code).” Thus, the repairs and improvements introduced by the said respondents after the complaint was filed cannot be considered to have been built in good faith, much less, justify the denial of the petitioner’s exercise of option. 593 VOL. 164, AUGUST 19, 1988 593 National Development Company vs. Court of Appeals Since the improvements have been gutted by fire, and therefore, the basis for private respondent’s right to retain the premises has already been extinguished without the fault of the petitioner, there is no other recourse for the private respondent but to vacate the premises and deliver the same to herein petitioner. WHEREFORE, IN VIEW OF THE FOREGOING, the petition is GRANTED and the respondent judge is hereby ordered to immediately issue a writ of execution ordering the private respondent to vacate the disputed premises and deliver possession of the same to the petitioner. SO ORDERED. Fernan (C.J.), Feliciano, Bidin and Cortés, JJ., concur. Petition granted. Note.—Immediate execution is stronger when the judgment in an ejectment case has long been final and executory. Equitable consideration favor the parties complainant in the ejectment case. (Gonzales, Jr. vs. Intermediate Appellate Court, 131

SCRA 468.) [Manotok Realty, Inc. vs. Tecson, 164 SCRA 587(1988)]

G.R. No. 175399. October 27, 2009.* OPHELIA L. TUATIS, petitioner, vs. SPOUSES ELISEO ESCOL and VISMINDA ESCOL; HONORABLE COURT OF APPEALS, 22ND DIVISION, CAGAYAN DE ORO CITY; REGIONAL TRIAL COURT, BRANCH 11, SINDANGAN, ZAMBOANGA DEL NORTE; and THE SHERIFF OF RTC, BRANCH 11, SINDANGAN, ZAMBOANGA DEL NORTE, respondents. Remedial Law; Pleadings and Practice; Appeals; Reason behind the policy of the Court in requiring the attachment to the petition for certiorari, prohibition, mandamus or quo warranto of a clearly legible duplicate original or certified true copy of the assailed judgment or order; Payment of dockets fees within the prescribed period is jurisdictional and is necessary for the perfection of an appeal.—The sound reason behind the policy of the Court in requiring the attachment to the petition for certiorari, prohibition, mandamus, or quo warranto of a clearly legible duplicate original or certified true copy of the assailed judgment or order, is to ensure that the said copy submitted for review is a faithful reproduction of the original, so that the reviewing court would have a definitive basis in its determination of whether the court, body, or tribunal which rendered the assailed judgment or order committed grave abuse of discretion. Also, the Court has consistently held that payment of docket fees within the prescribed period is jurisdictional and is necessary for the perfection of an appeal. Same; Same; Same; Court in several cases also declared that Section 3, Rule 46 must not be taken to mean that the petition shall be automatically dismissed in every instance of non-

compliance; To dismiss an appeal or even an original action is discretionary and not merely ministerial.—The last paragraph of Section 3, Rule 46 states that non-compliance with any of the requirements stated therein shall constitute sufficient ground for the dismissal of the petition. However, the Court, in several cases, also declared that said provision must not be taken to mean that the petition shall be automatically dismissed in every instance of non-compliance. The power _______________ * THIRD DIVISION. 472 472SUPREME COURT REPORTS ANNOTATED Tuatis vs. Escol conferred upon the Court of Appeals to dismiss an appeal, or even an original action, as in this case, is discretionary and not merely ministerial. With that affirmation comes the caution that such discretion must be a sound one, to be exercised in accordance with the tenets of justice and fair play, having in mind the circumstances obtaining in each case. Same; Same; Every party-litigant must be afforded the amplest opportunity for the proper and just determination of his cause, free from the unacceptable plea of technicalities.— Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant consideration from courts. Litigations must be decided on their merits and not on technicality. Every partylitigant must be afforded the amplest opportunity for the proper and just determination of his cause, free from the unacceptable plea of technicalities. Thus, dismissal of appeals purely on

technical grounds is frowned upon where the policy of the court is to encourage hearings of appeals on their merits and the rules of procedure ought not to be applied in a very rigid, technical sense; rules of procedure are used only to help secure, not override, substantial justice. Same; Same; Judgments; Immutability of Judgments; Nothing is more settled in law than that when a final judgment is executory, it thereby becomes immutable and unalterable; Doctrine is founded on considerations of public policy and sound practice that at the risk of occasional errors, judgments must become final at some definite point in time.—Nothing is more settled in law than that when a final judgment is executory, it thereby becomes immutable and unalterable. The judgment may no longer be modified in any respect, even if the modification is meant to correct what is perceived to be an erroneous conclusion of fact or law, and regardless of whether the modification is attempted to be made by the court rendering it or by the highest Court of the land. The doctrine is founded on considerations of public policy and sound practice that, at the risk of occasional errors, judgments must become final at some definite point in time. The only recognized exceptions are the corrections of clerical errors or the making of the so-called nunc pro tunc entries, in which case there is no prejudice to any party, and, of course, where the judgment is void. 473 VOL. 604, OCTOBER 27, 2009473 Tuatis vs. Escol Same; Same; Same; Where there is conflict between the fallo and the body of the decision, the fallo controls.—Equally well-

settled is the rule that the operative part in every decision is the dispositive portion or the fallo, and where there is conflict between the fallo and the body of the decision, the fallo controls. This rule rests on the theory that the fallo is the final order, while the opinion in the body is merely a statement, ordering nothing. Same; Same; Same; Where there is an ambiguity caused by an omission or a mistake in the dispositive portion of the decision, the Court may clarify such an ambiguity by an amendment even after the judgment has become final.—Jurisprudence also provides, however, that where there is an ambiguity caused by an omission or a mistake in the dispositive portion of the decision, the Court may clarify such an ambiguity by an amendment even after the judgment has become final. In doing so, the Court may resort to the pleadings filed by the parties and the findings of fact and the conclusions of law expressed in the text or body of the decision. Therefore, even after the RTC Decision dated 29 April 1999 had already become final and executory, this Court cannot be precluded from making the necessary amendment thereof, so that the fallo will conform to the body of the said decision. Civil Law; Property; Amount to be refunded to the builder under Article 546; The amount to be refunded to the builder under Article 546 of the Civil Code should be the current market value of the improvement.—It is worthy to mention that in Pecson v. Court of Appeals, 244 SCRA 407 (1995), the Court pronounced that the amount to be refunded to the builder under Article 546 of the Civil Code should be the current market value of the improvement.

Same; Same; Builders in Good Faith; Choice under Article 448 of the Civil Code belongs to the owner of the land is in accord with the principle of accession; Landowner’s option is nevertheless preclusive; Landowner cannot refuse to exercise either option and compel instead the owner of the building to remove it from the land.—The rule that the choice under Article 448 of the Civil Code belongs to the owner of the land is in accord with the principle of accession, i.e., that the accessory follows the principal and not the other way around. Even as the option lies with the landowner, the grant to him, nevertheless, is preclusive. The landowner cannot refuse to exercise either option and compel instead the owner of the building to remove it from the 474 474SUPREME COURT REPORTS ANNOTATED Tuatis vs. Escol land. The raison d’être for this provision has been enunciated thus: Where the builder, planter or sower has acted in good faith, a conflict of rights arises between the owners, and it becomes necessary to protect the owner of the improvements without causing injustice to the owner of the land. SPECIAL CIVIL ACTION in the Supreme Court. Certiorari and Mandamus. The facts are stated in the opinion of the Court. Mejorada, Mejorada and Mejorada Law Firm for petitioner. Public Attorney’s Office for private respondents. CHICO-NAZARIO, J.: This Petition for Certiorari and Mandamus1 under Rule 65 of the Rules of Court seeks the annulment of the following

Resolutions of the Court of Appeals in CA-G.R. SP No. 00737MIN: (a) Resolution2 dated 10 February 2006 dismissing the Petition for Certiorari, Prohibition and Mandamus with Prayer for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction of herein petitioner Ophelia L. Tuatis (Tuatis); (b) Resolution3 dated 25 July 2006 denying Tuatis’ Motion for Reconsideration of the Resolution dated 10 February 2006; and (c) Resolution4 dated 9 October 2006 denying Tuatis’ Motion for Leave to File a Second Motion for Reconsideration. The instant Petition further prays for the annulment of the Order5 dated 26 September 2005 of the Regional Trial Court (RTC) of Sindangan, Zamboanga del Norte, Branch 11, in Civil Case No. S-618, ordering the Sher_______________ 1 Rollo, pp. 4-22. 2 Penned by Associate Justice Ricardo R. Rosario with Associate Justices Romulo V. Borja and Myrna DimarananVidal, concurring; Rollo, pp. 38-39. 3 Rollo, pp. 45-46. 4 Id., at p. 58. 5 Id., at p. 55. 475 VOL. 604, OCTOBER 27, 2009475 Tuatis vs. Escol iff to immediately serve the Writ of Execution issued on 7 March 2002. The dispute arose from the following factual and procedural antecedents:

On 18 June 1996, Tuatis filed a Complaint for Specific Performance with Damages6 against herein respondent Visminda Escol (Visminda) before the RTC, docketed as Civil Case No. S-618. Tuatis alleged in her Complaint that sometime in November 1989, Visminda, as seller, and Tuatis, as buyer, entered into a Deed of Sale of a Part of a Registered Land by Installment7 (Deed of Sale by Installment). The subject matter of said Deed was a piece of real property situated in Poblacion, Sindangan, Zamboanga del Norte and more particularly described as “[a] part of a registered land being known as Lot No. 251, Pls-66 covered under OCT [Original Certificate of Title] No. P-5421; x x x with an area of THREE HUNDRED (300) square meters, more or less” (subject property). The significant portions of the Deed of Sale by Installment stated: “That for and in consideration of the sum of TEN THOUSAND PESOS (P10,000.00), Philippine currency, the SELLER [Visminda8] hereby SELLS to the BUYER [Tuatis], the above-described parcel of land under the following terms and conditions: 1. That the BUYER [Tuatis] shall pay to the SELLER [Visminda] the amount of THREE THOUSAND PESOS (P3,000.00), as downpayment; 2. That the BUYER [Tuatis] shall pay to the SELLER [Visminda] the amount of FOUR THOUSAND PESOS (P4,000.00), on or before December 31, 1989; _______________ 6 CA Rollo, pp. 17-20. 7 Id., at p. 21.

8 In the Deed of Sale of a Part of a Registered Land by Installment, Visminda was referred to as “Visminda Crampatanta, x x x married to Eliseo Escol x x x.” 476 476SUPREME COURT REPORTS ANNOTATED Tuatis vs. Escol 3. That the remaining balance of THREE THOUSAND PESOS (P3,000.00) shall be paid by the BUYER [Tuatis] to the SELLER [Visminda] on or before January 31, 1990; 4. That failure of the BUYER [Tuatis] to pay the remaining balance within the period of three months from the period stipulated above, then the BUYER [Tuatis] shall return the land subject of this contract to the SELLER [Visminda] and the SELLER [Visminda] [shall] likewise return all the amount paid by the BUYER [Tuatis].9 Tuatis claimed that of the entire purchase price of P10,000.00, she had paid Visminda P3,000.00 as downpayment. The exact date of said payment was not, however, specified. Subsequently, Tuatis paid P3,000.00 as installment on 19 December 1989, and another P1,000.00 installment on 17 February 1990. Tuatis averred that she paid Visminda the remaining P3,000.00 on 27 February 1990 in the presence of Eric Selda (Eric), a clerk in the law office of one Atty. Alanixon Selda. In support of this averment, Tuatis attached to her Complaint a certification10 executed by Eric on 27 May 1996. In the meantime, Tuatis already took possession of the subject property and constructed a residential building thereon.

In 1996, Tuatis requested Visminda to sign a prepared absolute deed of sale covering the subject property, but the latter refused, contending that the purchase price had not yet been fully paid. The parties tried to amicably settle the case before the Lupon Barangay, to no avail.11 Tuatis contended that Visminda failed and refused to sign the absolute deed of sale without any valid reason. Thus, Tuatis prayed that the RTC order Visminda to do all acts for the consummation of the contract sale, sign the absolute deed of sale and pay damages, as well as attorney’s fees. _______________ 9 CA Rollo, p. 21. 10 Id., at pp. 22A-23. 11 Id., at p. 24. 477 VOL. 604, OCTOBER 27, 2009477 Tuatis vs. Escol In her Answer,12 Visminda countered that, except for the P3,000.00 downpayment and P1,000.00 installment paid by Tuatis on 19 December 1989 and 17 February 1990,13 respectively, Tuatis made no other payment to Visminda. Despite repeated verbal demands, Tuatis failed to comply with the conditions that she and Visminda agreed upon in the Deed of Sale by Installment for the payment of the balance of the purchase price for the subject property. Visminda asked that the RTC dismiss Tuatis’ Complaint, or in the alternative, order Tuatis to return the subject property to Visminda after Visminda’s reimbursement of the P4,000.00 she had received from Tuatis.

After trial, the RTC rendered a Decision14 on 29 April 1999 in Civil Case No. S-618 in Visminda’s favor. The RTC concluded: “Under the facts and circumstances, the evidence for [Tuatis] has not established by satisfactory proof as to (sic) her compliance with the terms and conditions setforth (sic) in [the Deed of Sale by Installment] x x x. xxxx In contracts to sell, where ownership is retained by the seller and is not to pass until the full payment, such payment, as we said, is a positive suspensive condition, the failure of which is not a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force x x x. xxxx As the contract x x x is clear and unmistakable and the terms employed therein have not been shown to belie or otherwise fail to _______________ 12 Id., at pp. 25-29. 13 The payments were each evidenced by a certification signed by Visminda that she received the aforesaid amounts from Tuatis, which were marked as Exhibits “B” and “C,” respectively, in the proceedings before the RTC; CA Rollo, p. 22. 14 Penned by Judge Wilfredo G. Ochotorena; CA Rollo, pp. 30-54. 478 478SUPREME COURT REPORTS ANNOTATED

Tuatis vs. Escol express the true intention of the parties, and that the deed has not been assailed on the ground of mutual mistake which would require its reformation, [the] same should be given its full force and effect. EVIDENCE (sic) at hand points of no full payment of the price, hence No. 4 of the stipulation applies[,] which provides: “That failure (sic) of the Buyer [Tuatis] to pay the remaining balance within the period of three months from the period stipulated above, then the Buyer [Tuatis] shall return the land subject of this Contract to the Seller [Visminda] and the Seller [Visminda] [shall] likewise return all the (sic) amount paid by the Buyer [Tuatis].” This stipulation is the law between the [Buyer] and [Seller], and should be complied with in good faith x x x. [Tuatis] constructed the building x x x in bad faith for, (sic) she had knowledge of the fact that the Seller [Visminda] is still the absolute owner of the subject land. There was bad faith also on the part of [Visminda] in accordance with the express provisions of Article 454 [of the New Civil Code]15 since [she] allowed [Tuatis] to construct the building x x x without any opposition on [her] part and so occupy it. The rights of the parties must, therefore, be determined as if they both had acted in bad faith. Their rights in such cases are governed by Article 448 of the New Civil Code of the Philippines.”16 The RTC decreed the dismissal of Tuatis’ Complaint for lack of merit, the return by Tuatis of physical possession of the subject property to Visminda, and the return by Visminda of the P4,000.00 she received from Tuatis.

_______________ 15 Although the Decision mentioned Article 454 of the New Civil Code, the same was apparently erroneous since the applicable provision was Article 453 of the said code, which provides: ART. 453. If there was bad faith, not only on the part of the person who built, planted or sowed on the land of another, but also on the part of the owner of such land, the rights of one and the other shall be the same as though both had acted in good faith. It is understood that there is bad faith on the part of the landowner whenever the act was done with his knowledge and without opposition on his part. 16 CA Rollo, pp. 49-54. 479 VOL. 604, OCTOBER 27, 2009479 Tuatis vs. Escol Tuatis filed an appeal with the Court of Appeals, docketed as CA-G.R. CV No. 65037. In a Resolution17 dated 29 August 2000, however, the appellate court dismissed the appeal for failure of Tuatis to serve and file her appellant’s brief within the second extended period for the same. An Entry of Judgment18 was made in CA-G.R. CV No. 65037 on 29 September 2000, as a result of which, the appealed RTC Decision dated 29 April 1999 in Civil Case No. S-618 became final and executory. Visminda filed a Motion for Issuance of a Writ of Execution19 before the RTC on 14 January 2002. The RTC granted

Visminda’s Motion in a Resolution dated 21 February 2002, and issued the Writ of Execution20 on 7 March 2002. Tuatis thereafter filed before the RTC on 22 April 2002 a Motion to Exercise Right under Article 448 of the Civil Code of the Philippines.21 Tuatis moved that the RTC issue an order allowing her to buy the subject property from Visminda. While Tuatis indeed had the obligation to pay the price of the subject property, she opined that such should not be imposed if the value of the said property was considerably more than the value of the building constructed thereon by Tuatis. Tuatis alleged that the building she constructed was valued at P502,073.00,22 but the market value of the entire piece of land measuring 4.0144 hectares, of which the subject property measuring 300 square meters formed a part, was only about P27,000.00.23 Tuatis maintained that she then had the right _______________ 17 Penned by Associate Justice B.A. Adefuin-De la Cruz with Associate Justices Cancio C. Garcia and Renato C. Dacudao, concurring. Records, p. 123. 18 Records, p. 124. 19 Id., at pp. 125-126. 20 CA Rollo, pp. 76-77. 21 Id., at pp. 55-59. 22 Id., at pp. 60-61. 23 This amount was derived from Tax Declaration No. 12464, covering the subject property. (CA Rollo, p. 62.) 480 480SUPREME COURT REPORTS ANNOTATED Tuatis vs. Escol

to choose between being indemnified for the value of her residential building or buying from Visminda the parcel of land subject of the case. Tuatis stated that she was opting to exercise the second option. On 20 December 2004, Visminda deposited the amount of P4,000.00 to the office of the Clerk of Court of the RTC, pursuant to the Decision of the trial court dated 29 April 1999.24 In the intervening time, the Writ of Execution issued on 7 March 2002 was yet to be served or implemented by the Sheriff. This prompted Visminda to write a letter to the Office of the Court Administrator (OCA) to complain about the said delay. The OCA endorsed the letter to the RTC. On 26 September 2005, the RTC issued an Order25 directing the Sheriff to immediately serve or enforce the Writ of Execution previously issued in Civil Case No. S-618, and to make a report and/or return on the action taken thereon within a period of fifteen (15) days from receipt of the order. On 10 October 2005, Tuatis filed before the RTC a Motion for Reconsideration26 of the Order dated 26 September 2005, praying that the same be set aside in view of the pendency of her previous Motion to Exercise Right under Article 448 of the Civil Code of the Philippines. However, before the RTC could rule upon Tuatis’ Motion for Reconsideration, the Sheriff enforced the Writ of Execution on 27 October 2005 and submitted his Return to the RTC on 2 November 2005, reporting that the subject writ was fully satisfied. Tuatis immediately filed with the Court of Appeals a Petition for Certiorari, Prohibition and Mandamus with Prayer for the Issuance of a Temporary Restraining Order and/or

_______________ 24 Records, p. 176. 25 CA Rollo, p. 66. 26 Id., at pp. 67-75. 481 VOL. 604, OCTOBER 27, 2009481 Tuatis vs. Escol Writ of Preliminary Injunction,27 which was docketed as CAG.R. No. 00737-MIN. Tuatis sought in said Petition the annulment of the RTC Order dated 26 September 2005, as well as the issuance of an order commanding the RTC and the Sheriff to desist from undertaking any further proceedings in Civil Case No. S-618, and an order directing the RTC to determine the rights of the parties under Article 448 of the Civil Code. In a Resolution28 dated 10 February 2006, the Court of Appeals dismissed outright Tuatis’ Petition for failure to completely pay the required docket fees, to attach a certified true or authenticated copy of the assailed RTC Order dated 26 September 2005, and to indicate the place of issue of her counsel’s IBP and PTR Official Receipts. Tuatis filed a Motion for Reconsideration29 of the Resolution dated 10 February 2006, but said Motion was denied by the appellate court in another Resolution dated 25 July 2006 on the ground that Tuatis had not taken any action to rectify the infirmities of her Petition. Tuatis subsequently filed a Motion for Leave to File a Second Motion for Reconsideration,30 but it was similarly denied by the Court of Appeals in a Resolution dated 9 October 2006, as

Section 2, Rule 5231 of the Rules of Court proscribes the filing of a second motion for reconsideration. _______________ 27 Impleaded therein were the spouses Eliseo and Visminda Escol, the RTC of Sindangan, Zamboanga del Norte, Branch 11 and the Sheriff of the said trial court. (CA Rollo, pp. 1-16.) 28 CA Rollo, pp. 81-82. 29 Id., at pp. 85-89. 30 Id., at pp. 94-106. 31 Section 2, Rule 52 of the Rules of Court provides: SEC. 2. Second motion for reconsideration.—No second motion for reconsideration of a judgment or final resolution by the same party shall be entertained. 482 482SUPREME COURT REPORTS ANNOTATED Tuatis vs. Escol Hence, Tuatis filed the instant Petition, principally arguing that Article 448 of the Civil Code must be applied to the situation between her and Visminda. According to Tuatis, grave abuse of discretion, amounting to lack or excess of their jurisdiction, was committed by the RTC in issuing the Order dated 26 September 2005, and by the Sheriff in enforcing the Writ of Execution on 27 October 2005. Tuatis insists that the Motion for Reconsideration of the Order dated 26 September 2005 that she filed on 10 October 2005 legally prevented the execution of the RTC Decision dated 29 April 1999, since the rights of the parties to the case had yet to be determined pursuant to Article 448 of the Civil Code.32 Tuatis reiterates that the building she constructed is valued at

P502,073.00, per assessment of the Municipal Assessor of Sindangan, Zamboanga del Norte; while the entire piece of land, which includes the subject property, has a market value of only about P27,000.00, based on Tax Declaration No. 12464 issued in the year 2000.33 Such being the case, Tuatis posits that she is entitled to buy the land at a price to be determined by the Court or, alternatively, she is willing to sell her house to Visminda in the amount of P502,073.00. In addition, Tuatis attributes grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the Court of Appeals for dismissing outright her Petition for Cer_______________ 32 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. 33 CA Rollo, p. 62. 483 VOL. 604, OCTOBER 27, 2009483 Tuatis vs. Escol

tiorari, Prohibition and Mandamus with Prayer for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction, and subsequently denying her Motion for Reconsideration and Motion for Leave to File a Second Motion for Reconsideration. The Court grants the present Petition but for reasons other than those proffered by Tuatis. Procedural deficiencies of Tuatis’ Petition before the Court of Appeals It is true that Tuatis committed several procedural faux pas that would have, ordinarily, warranted the dismissal of her Petition in CA-G.R. No. 00737-MIN before the Court of Appeals. In its Resolution dated 10 February 2006, the Court of Appeals dismissed outright the Petition for Certiorari, Prohibition and Mandamus with Prayer for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction filed by Tuatis for failure to comply with the following requirements for such a petition: (a) to completely pay the required docket fees, (b) to attach a certified true or authenticated copy of the assailed RTC Order dated 26 September 2005, and (c) to indicate the place of issue of her counsel’s IBP and PTR Official Receipts. Section 3, Rule 46 of the Rules of Court lays down the requirements for original cases filed before the Court of Appeals and the effect of non-compliance therewith, relevant portions of which are reproduced below: “SEC. 3. Contents and filing of petition; effect of noncom-pliance with requirements.—x x x. xxxx

It shall be filed in seven (7) clearly legible copies together with proof of service thereof on the respondent with the original copy intended for the court indicated as such by the petitioner, and shall be accompanied by a clearly legible duplicate original or 484 484SUPREME COURT REPORTS ANNOTATED Tuatis vs. Escol certified true copy of the judgment, order, resolution, or ruling subject thereof, such material portions of the record as are referred to therein, and other documents relevant or pertinent thereto. The certification shall be accomplished by the proper clerk of court or by his duly authorized representative, or by the proper officer of the court, tribunal, agency or office involved or by his duly authorized representative. The other requisite number of copies of the petition shall be accompanied by clearly legible plain copies of all documents attached to the original. xxxx The petitioner shall pay the corresponding docket and other lawful fees to the clerk of court and deposit the amount of P500.00 for costs at the time of the filing of the petition. The failure of the petitioner to comply with any of the foregoing requirements shall be sufficient ground for the dismissal of the petition.” (Emphases ours.) The sound reason behind the policy of the Court in requiring the attachment to the petition for certiorari, prohibition, mandamus, or quo warranto of a clearly legible duplicate original or certified true copy of the assailed judgment or order,

is to ensure that the said copy submitted for review is a faithful reproduction of the original, so that the reviewing court would have a definitive basis in its determination of whether the court, body, or tribunal which rendered the assailed judgment or order committed grave abuse of discretion.34 Also, the Court has consistently held that payment of docket fees within the prescribed period is jurisdictional and is necessary for the perfection of an appeal.35 Indeed, the last paragraph of Section 3, Rule 46 states that noncompliance with any of the requirements stated therein _______________ 34 Durban Apartments Corporation v. Catacutan, G.R. No. 167136, 14 December 2005, 477 SCRA 801, 808; Quintano v. National Labor Relations Commission, G.R. No. 144517, 13 December 2004, 446 SCRA 193, 202-203. 35 Carlos v. Court of Appeals, G.R. No. 134473, 30 March 2006, 485 SCRA 578, 583. 485 VOL. 604, OCTOBER 27, 2009485 Tuatis vs. Escol shall constitute sufficient ground for the dismissal of the petition. However, the Court, in several cases,36 also declared that said provision must not be taken to mean that the petition shall be automatically dismissed in every instance of noncompliance. The power conferred upon the Court of Appeals to dismiss an appeal, or even an original action, as in this case, is discretionary and not merely ministerial. With that affirmation comes the caution that such discretion must be a sound one, to be exercised in accordance with the tenets of

_______________ 36 In Garcia v. Philippine Airlines, Inc. (G.R. No. 160798, 8 June 2005, 459 SCRA 768, 780), the Court held that “if, upon its initial review of the petition, the Court of Appeals is of the view that additional pleadings, documents or order should have been submitted and appended to the petition, it has the following options: (a) dismiss the petition under the last paragraph of [Section 3,] Rule 46 of the Rules of Court; (b) order the petitioner to submit the required additional pleadings, documents, or order within a specific period of time; or (c) order the petitioner to file an amended petition appending thereto the required pleadings, documents or order within a fixed period.” (See also Lao v. Court of Appeals [382 Phil. 583, 604; 325 SCRA 694 (2000)]; Paras v. Judge Baldado [406 Phil. 589, 596; 354 SCRA 141, 145 (2001)]; Hilario v. People [G.R. No. 161070, 14 April 2008, 551 SCRA 191, 201].) Similarly, in La Salette College v. Pilotin (463 Phil. 785, 794; 418 SCRA 380, 387 [2003]), the Court recognized that, notwithstanding the mandatory nature of the requirement of payment of appellate docket fees, its strict application is qualified by the following: first, failure to pay those fees within the reglementary period allows only discretionary, not automatic, dismissal; second, such power should be used by the court in conjunction with its exercise of sound discretion in accordance with the tenets of justice and fair play, as well as with a great deal of circumspection in consideration of all attendant circumstances. (See also Public Estates Authority v. Yujuico [404 Phil. 91, 101; 351 SCRA 280 (2001); Jose v. Court of Appeals [447 Phil. 159, 165; 339 SCRA 83, 88 (2003); Villamor v. Court of Appeals [478 Phil. 728, 735-736;

434 SCRA 565, 572 (2004), citing Buenaflor v. Court of Appeals [400 Phil. 395, 401-402; 346 SCRA 563, 567 (2000)].) 486 486SUPREME COURT REPORTS ANNOTATED Tuatis vs. Escol justice and fair play, having in mind the circumstances obtaining in each case.37 It must be borne in mind that the rules of procedure are intended to promote, rather than frustrate, the ends of justice, and while the swift unclogging of court dockets is a laudable objective, it, nevertheless, must not be met at the expense of substantial justice. Technical and procedural rules are intended to help secure, not suppress, the cause of justice; and a deviation from the rigid enforcement of the rules may be allowed to attain that prime objective for, after all, the dispensation of justice is the core reason for the existence of courts.38 Hence, technicalities must be avoided. The law abhors technicalities that impede the cause of justice. The court’s primary duty is to render or dispense justice. A litigation is not a game of technicalities. Lawsuits, unlike duels, are not to be won by a rapier’s thrust. Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant consideration from courts. Litigations must be decided on their merits and not on technicality. Every party-litigant must be afforded the amplest opportunity for the proper and just determination of his cause, free from the unacceptable plea of technicalities. Thus,

dismissal of appeals purely on technical grounds is frowned upon where the policy of the court is to encourage hearings of appeals on their merits and the rules of procedure ought not to be applied in a very rigid, technical sense; rules of procedure are used only to help secure, not override, substantial justice. It is a far better and more prudent course of action for the court to excuse a technical lapse and afford the parties a review of the case on appeal to attain the ends of justice rather than dispose of the case on technicality and cause a grave injustice to the parties, giving a false impression of _______________ 37 Philippine Merchant Marine School, Inc. v. Court of Appeals, 432 Phil. 733, 741-742; 383 SCRA 175, 183 (2002). 38 General Milling Corporation v. National Labor Relations Commission, 442 Phil. 425, 428; 394 SCRA 207, 209 (2002). 487 VOL. 604, OCTOBER 27, 2009487 Tuatis vs. Escol speedy disposal of cases while actually resulting in more delay, if not a miscarriage, of justice.39 In this case, the Court finds that the Court of Appeals committed grave abuse of discretion in focusing on the procedural deficiencies of Tuatis’ Petition and completely turning a blind eye to the merits of the same. The peculiar circumstances of the present case and the interest of substantial justice justify the setting aside, pro hac vice, of the procedural defects of Tuatis’ Petition in CA-G.R. No. 00737-MIN. Perusal of the RTC Decision dated 29 April 1999

The RTC, in the body of its Decision dated 29 April 1999 in Civil Case No. S-618, found that Tuatis breached the conditions stipulated in the Deed of Sale by Installment between her and Visminda; but since both Tuatis and Visminda were guilty of bad faith, “[t]heir rights in such cases are governed by Article 448 of the New Civil Code of the Philippines.”40 Article 448 of the Civil Code, referred to by the RTC, 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 _______________ 39 Aguam v. Court of Appeals, 388 Phil. 587, 595; 332 SCRA 784, 789-790 (2000). 40 In accordance with Article 453 of the Civil Code which provides: ART. 453. If there was bad faith, not only on the part of the person who built, planted or sowed on the land of another, but also on the part of the owner of such land, the rights of one and the other shall be the same as though both had acted in good faith. It is understood that there is bad faith on the part of the landowner whenever the act was done with his knowledge and without opposition on his part. (Emphasis ours.) 488 488SUPREME COURT REPORTS ANNOTATED Tuatis vs. Escol

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.” (Emphases supplied.) According to the aforequoted provision, the landowner can choose between appropriating the building by paying the proper indemnity for the same, as provided for in Articles 54641 and 54842 of the Civil Code; or obliging the builder to pay the price of the land, unless its value is considerably more than that of the structures, in which case the builder in good faith shall pay reasonable rent.43 The Court notes, however, that the RTC, in the dispositive portion of its 29 April 1999 Decision, which exactly reads— _______________ 41 ART. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain the thing until he has been reimbursed therefor. Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the person who has defeated him in the possession having the option of refunding the amount of the expenses or of paying the increase in value which the thing may have acquired by reason thereof. 42 ART. 548. Expenses for pure luxury or mere pleasure shall not be refunded to the possessor in good faith; but he may

remove the ornaments with which he has embellished the principal thing if it suffers no injury thereby, and if his successor in the possession does not prefer to refund the amount expended. 43 Macasaet v. Macasaet, 482 Phil. 853, 874; 439 SCRA 625, 646 (2004). 489 VOL. 604, OCTOBER 27, 2009489 Tuatis vs. Escol “WHEREFORE, premises studiedly considered, judgment is hereby rendered as follows: (1) DISMISSING the Complaint for lack of merit; (2) ORDERING [Tuatis] to return the physical possession of the land in question to [Visminda]; and, (3) ORDERING [Visminda] to return the P4,000.00 she received as evidenced by Exhibit “B” and Exhibit “C”44 to [Tuatis].”45 utterly failed to make an adjudication on the rights of Tuatis and Visminda under Article 448 of the Civil Code. It would seem that the decretal part of said RTC judgment was limited to implementing the following paragraph in the Deed of Sale by Installment: “4. That failure of the BUYER [Tuatis] to pay the remaining balance within the period of three months from the period stipulated above, then the BUYER [Tuatis] shall return the land subject of this contract to the SELLER [Visminda] and the SELLER [Visminda] [shall] likewise return all the amount paid by the BUYER [Tuatis].”46

without considering the effects of Article 448 of the Civil Code. It was this apparent incompleteness of the fallo of the RTC Decision dated 29 April 1999 that resulted in the present controversy, and that this Court is compelled to address for a just and complete settlement of the rights of the parties herein. _______________ 44 Exhibits “B” and “C” are the certifications signed by Visminda, stating that she indeed received the amounts of P3,000.00 and P1,000.00 from Tuatis on 19 December 1989 and 17 February 1990, respectively. 45 CA Rollo, p. 54. 46 Id., at p. 21. 490 490SUPREME COURT REPORTS ANNOTATED Tuatis vs. Escol Finality of the RTC Decision dated 19 April 1999 The Court has not lost sight of the fact that the RTC Decision dated 29 April 1999 in Civil Case No. S-618 already became final and executory in view of the dismissal by the appellate court of Tuatis’ appeal in CA-G.R. CV No. 650307 and the entry of judgment made on 29 September 2000. Nothing is more settled in law than that when a final judgment is executory, it thereby becomes immutable and unalterable. The judgment may no longer be modified in any respect, even if the modification is meant to correct what is perceived to be an erroneous conclusion of fact or law, and regardless of whether the modification is attempted to be made by the court

rendering it or by the highest Court of the land. The doctrine is founded on considerations of public policy and sound practice that, at the risk of occasional errors, judgments must become final at some definite point in time. The only recognized exceptions are the corrections of clerical errors or the making of the so-called nunc pro tunc entries, in which case there is no prejudice to any party, and, of course, where the judgment is void.47 Equally well-settled is the rule that the operative part in every decision is the dispositive portion or the fallo, and where there is conflict between the fallo and the body of the decision, the fallo controls. This rule rests on the theory that the fallo is the final order, while the opinion in the body is merely a statement, ordering nothing.48 Jurisprudence also provides, however, that where there is an ambiguity caused by an omission or a mistake in the dispositive portion of the decision, the Court may clarify such an _______________ 47 Mayon Estate Corporation v. Altura, G.R. No. 134462, 18 October 2004, 440 SCRA 377, 386. 48 Mendoza, Jr. v. San Miguel Foods, Inc., G.R. No. 158684, May 16, 2005, 458 SCRA 664, 676-677, cited in Florentino v. Rivera, G.R. No. 167968, 23 January 2006, 479 SCRA 522, 528-529. 491 VOL. 604, OCTOBER 27, 2009491 Tuatis vs. Escol

ambiguity by an amendment even after the judgment has become final. In doing so, the Court may resort to the pleadings filed by the parties and the findings of fact and the conclusions of law expressed in the text or body of the decision.49 Therefore, even after the RTC Decision dated 29 April 1999 had already become final and executory, this Court cannot be precluded from making the necessary amendment thereof, so that the fallo will conform to the body of the said decision. If the Court does not act upon the instant Petition, Tuatis loses ownership over the building she constructed, and in which she has been residing, allegedly worth P502,073.00, without any recompense therefor whatsoever; while Visminda, by returning Tuatis’ previous payments totaling P4,000.00, not just recovers the subject property, but gains the entire building without paying indemnity for the same. Hence, the decision of the Court to give due course to the Petition at bar, despite the finality of the RTC Decision dated 29 April 1999, should not be viewed as a denigration of the doctrine of immutability of final judgments, but a recognition of the equally sacrosanct doctrine that a person should not be allowed to profit or enrich himself inequitably at another’s expense. Furthermore, the Court emphasizes that it is not even changing or reversing any of the findings of fact and law of the RTC in its Decision dated 29 April 1999. This Court is still bound by said RTC judgment insofar as it found that Tuatis failed to fully pay for the price of the subject property; but since both Tuatis and Visminda were in bad faith, Article 448 of the Civil Code would govern their rights. The Court herein is simply clarifying or completing the obviously deficient decretal

portion of the decision, so that said portion could effectively order the implementation of the actual ruling _______________ 49 Partosa-Jo v. Court of Appeals, G.R. No. 82606, 18 December 1992, 216 SCRA 692, 697. 492 492SUPREME COURT REPORTS ANNOTATED Tuatis vs. Escol of the RTC, as clearly laid down in the rationale of the same decision. Applying Article 448 and other related provisions of the Civil Code Taking into consideration the provisions of the Deed of Sale by Installment and Article 448 of the Civil Code, Visminda has the following options: Under the first option, Visminda may appropriate for herself the building on the subject property after indemnifying Tuatis for the necessary50 and useful expenses51 the latter incurred for said building, as provided in Article 546 of the Civil Code. It is worthy to mention that in Pecson v. Court of Appeals,52 the Court pronounced that the amount to be refunded to the builder under Article 546 of the Civil Code should be the current market value of the improvement, thus: “The objective of Article 546 of the Civil Code is to administer justice between the parties involved. In this regard, this Court had long ago stated in Rivera vs. Roman Catholic Archbishop of Manila [40 Phil. 717 (1920)] that the said provision was formulated in trying _______________

50 Necessary expenses have been variously described by the Spanish commentators as those made for the preservation of the thing (4 Manresa’s Comentarios al Codigo Civil, p. 258); as those without which the thing would deteriorate or be lost (Scaevola’s Comentarios al Codigo Civil, p. 408); as those that augment the income of the things upon which they are expanded (4 Manresa’s Comentarios al Codigo Civil, p. 261; 8 Scaevola’s Comentarios al Codigo Civil, p. 416). Among the necessary expenditures are those incurred for cultivation, production, upkeep, etc. (4 Manresa’s Comentarios al Codigo Civil, p. 257). (Mendoza v. De Guzman, 52 Phil. 164, 171 [1928].) 51 Useful expenses are incurred to give greater utility or productivity to the thing. (Tolentino, Civil Code, Vol. II (1992 ed.), p. 294. 52 314 Phil. 313, 324-325; 244 SCRA 407, 416 (1995). 493 VOL. 604, OCTOBER 27, 2009493 Tuatis vs. Escol to adjust the rights of the owner and possessor in good faith of a piece of land, to administer complete justice to both of them in such a way as neither one nor the other may enrich himself of that which does not belong to him. Guided by this precept, it is therefore the current market value of the improvements which should be made the basis of reimbursement. A contrary ruling would unjustly enrich the private respondents who would otherwise be allowed to acquire a highly valued incomeyielding four-unit apartment building for a measly amount. Consequently, the parties should therefore be allowed to

adduce evidence on the present market value of the apartment building upon which the trial court should base its finding as to the amount of reimbursement to be paid by the landowner.” (Emphasis ours.) Until Visminda appropriately indemnifies Tuatis for the building constructed by the latter, Tuatis may retain possession of the building and the subject property. Under the second option, Visminda may choose not to appropriate the building and, instead, oblige Tuatis to pay the present or current fair value of the land.53 The P10,000.00 price of the subject property, as stated in the Deed of Sale on Installment executed in November 1989, shall no longer apply, since Visminda will be obliging Tuatis to pay for the price of the land in the exercise of Visminda’s rights under Article 448 of the Civil Code, and not under the said Deed. Tuatis’ obligation will then be statutory, and not contractual, arising only when Visminda has chosen her option under Article 448 of the Civil Code. Still under the second option, if the present or current value of the land, the subject property herein, turns out to be considerably more than that of the building built thereon, Tuatis cannot be obliged to pay for the subject property, but she must pay Visminda reasonable rent for the same. Visminda and Tuatis must agree on the terms of the lease; otherwise, the court will fix the terms. _______________ 53 See Depra v. Dumlao, G.R. No. L-57348, 16 May 1985, 136 SCRA 475. 494 494SUPREME COURT REPORTS ANNOTATED

Tuatis vs. Escol Necessarily, the RTC should conduct additional proceedings before ordering the execution of the judgment in Civil Case No. S-618. Initially, the RTC should determine which of the aforementioned options Visminda will choose. Subsequently, the RTC should ascertain: (a) under the first option, the amount of indemnification Visminda must pay Tuatis; or (b) under the second option, the value of the subject property vis-à-vis that of the building, and depending thereon, the price of, or the reasonable rent for, the subject property, which Tuatis must pay Visminda. The Court highlights that the options under Article 448 are available to Visminda, as the owner of the subject property. There is no basis for Tuatis’ demand that, since the value of the building she constructed is considerably higher than the subject property, she may choose between buying the subject property from Visminda and selling the building to Visminda for P502,073.00. Again, the choice of options is for Visminda, not Tuatis, to make. And, depending on Visminda’s choice, Tuatis’ rights as a builder under Article 448 are limited to the following: (a) under the first option, a right to retain the build-ing and subject property until Visminda pays proper indemnity; and (b) under the second option, a right not to be obliged to pay for the price of the subject property, if it is considerably higher than the value of the building, in which case, she can only be obliged to pay reasonable rent for the same. The rule that the choice under Article 448 of the Civil Code belongs to the owner of the land is in accord with the principle

of accession, i.e., that the accessory follows the principal and not the other way around. Even as the option lies with the landowner, the grant to him, nevertheless, is preclusive.54 The _______________ 54 Philippine National Bank v. De Jesus, 458 Phil. 454, 459; 411 SCRA 557, 560 (2003). 495 VOL. 604, OCTOBER 27, 2009495 Tuatis vs. Escol landowner cannot refuse to exercise either option and compel instead the owner of the building to remove it from the land.55 The raison d’être for this provision has been enunciated thus: Where the builder, planter or sower has acted in good faith, a conflict of rights arises between the owners, and it becomes necessary to protect the owner of the improvements without causing injustice to the owner of the land. In view of the impracticability of creating a state of forced co-ownership, the law has provided a just solution by giving the owner of the land the option to acquire the improvements after payment of the proper indemnity, or to oblige the builder or planter to pay for the land and the sower the proper rent. He cannot refuse to exercise either option. It is the owner of the land who is authorized to exercise the option, because his right is older, and because, by the principle of accession, he is entitled to the ownership of the accessory thing.56 Visminda’s Motion for Issuance of Writ of Execution cannot be deemed as an expression of her choice to recover possession of the subject property under the first option, since the options under Article 448 of the Civil Code and their respective

consequences were also not clearly presented to her by the 19 April 1999 Decision of the RTC. She must then be given the opportunity to make a choice between the options available to her after being duly informed herein of her rights and obligations under both. As a final note, the directives given by the Court to the trial court in Depra v. Dumlao57 may prove useful as guide_______________ 55 Technogas Philippines Manufacturing Corporation v. Court of Appeals, 335 Phil. 471, 482; 268 SCRA 5, 17 (1997). 56 Depra v. Dumlao, supra note 53 at p. 483. 57 The fallo in Depra v. Dumlao (ibid.) reads: 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: 496 496SUPREME COURT REPORTS ANNOTATED Tuatis vs. Escol lines to the RTC herein in ensuring that the additional proceedings for the final settlement of the rights of the parties _______________ 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 the expenses spent by DUMLAO for 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 497

VOL. 604, OCTOBER 27, 2009497 Tuatis vs. Escol under Article 448 of the Civil Code shall be conducted as thoroughly and promptly as possible. WHEREFORE, premises considered, the Court: _______________ 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 Decision shall be inextendible, and upon failure of the party obliged to tender to the trial Court the amount due to the obligee, the party entitled to such payment shall be entitled to an order of execution for the enforcement of payment of the amount d ue and for compliance with such other acts as may be required by the prestation due the obligee. No costs. 498 498SUPREME COURT REPORTS ANNOTATED Tuatis vs. Escol (1) GRANTS the instant Petition; (2) ANNULS AND SETS ASIDE (a) the Resolution dated 21 February 2002 of the Regional Trial Court of Sindangan, Zamboanga del Norte, Branch 11, ordering the issuance of a writ for the execution of the Decision dated 19 April 1999 of the said trial court in Civil Case No. S-618; (b) the Writ of Execution issued on 7 March 2002; and (c) the actions undertaken by the Sheriff to enforce the said Writ of Execution; (3) DIRECTS the Regional Trial Court of Sindangan, Zamboanga del Norte, Branch 11, to conduct further proceedings to determine with deliberate dispatch: (a) the facts

essential to the proper application of Article 448 of the Civil Code, and (b) respondent Visminda Escol’s choice of option under the same provision; and (4) Further DIRECTS the Regional Trial Court of Sindangan, Zamboanga del Norte, Branch 11, to undertake the implementation of respondent Visminda Escol’s choice of option under Article 448 of the Civil Code, as soon as possible. No costs. SO ORDERED. Quisumbing,** Carpio (Chairperson), Peralta and Abad,*** JJ., concur. Petition granted, Resolution dated February 21, 2002 of Regional Trial Court of Sindangan, Zamboanga del Norte annulled and set aside [Tuatis vs. Escol, 604 SCRA 471(2009)]

No. L-11084. April 29, 1961. ALEJANDRO QUEMUEL and RUPERTA SOLIS, plaintiffsappellants, vs. ANGEL S. OLAES and JULIANA PRUDENTE, defendants-appellees. 1160 1160SUPREME COURT REPORTS ANNOTATED Quemuel vs. Olaes Ownership; Accession; Improvements on land; Builders in good faith; Right of landowner and builder: Option granted to landoumer.—The right to appropriate the works or improvements or to oblige the builder or planter to pay the price of the land belongs to the landowner. The only right given to the builder in good faith is the right to reimbursement for the improvements; he cannot compel the owner of the land to sell it to him. Same; Tenant cannot be a builder in good faith.—Article 448 of the New Civil Code is intended to apply only to a case where one builds, or sows, or plants on land in which he believes himself to have a claim of title and not to lands wherein one's only interest is that of a tenant and a tenant cannot be said to be a builder in good faith, as he has no pretention to be an owner of the land. Pleading and practice; Counterclaim; When barred if not pleaded in first case.—Where the claim is necessarily connected with or arose out. of, the transactions involved in the first case, the same claim is barred if not set up as a counterclaim in the previous case.

APPEAL from an order of dismissal rendered by the Court of First Instance of Cavite. Bocar, J. The facts are stated in the opinion of the Court. Baldomero S. Luque for plaintiffs-appellants. Jose P. Santillan for defendants-appellees. PAREDES, J.: Angel S. Olaes and his wife, Juliana Prudente, defendantsappellees herein, were plaintiffs in another case (No. 5442 of the CFI of Cavite), wherein Alejandro Quemuel and his wife Ruperta Solis, plaintiffs-appellants herein were defendants. In that case No. 5442, the Olaes spouses, registered owners of lot 1095 of the San Francisco de Malabon Estate, located in Rosario, Cavite, sought the recovery of the possession of the said lot and rentals therefor, from the Quemuel spouses, who in their verified answer admitted plaintiffs' ownership, but contended that their occupation was gratuitous. On March 16, 1954, the trial court ordered Quemuel and his wife to return the possession of lot 1095 to the Olaes spouses and to pay the latter P20.00 a month from January, 1954, until they shall have vacated the premises, Quemuel and his wife did not ap1161 VOL. 1, APRIL 29, 19611161 Quemuel vs. Olaes peal from said decision which became final on April 22, 1954. Thereafter, the Olaes spouses sought the execution of the decision and to forestall ejectment, the Quemuel spouses, filed on July 1, 1954, the present complaint, docketed as Civil Case No. 5518, CFI of Cavite.

In the present complaint, the Quemuel spouses seek to reduce the monthly rental of P20.00 fixed in Civil Case No. 5442, and to compel the Olaes spouses to sell to them (Quemuels) the portion of the lot 1095 where their house is erected. Respondents, the Olaes spouses, filed a motion to dismiss dated July 9, 1954, alleging lack of cause of action, res adjudicata; prescription, and the cause of action, if any, is barred by plaintiffs' failure to set it up as a counter-claim in civil case No. 5442. On September 17, 1954, the trial court dismissed the complaint, without pronouncement as to costs. An appeal was taken by plaintiffs to the Court of Appeals (Case No. CA-G.R. No. 14837-R) which, by the agreement of the parties certified the case to this Court. The ex parte petition filed by the plaintiffs-appellants in this Court on August 9, 1956, asking that a writ of prohibition and injunction be issued to the Provincial Sheriff of Cavite and the defendantsappellees, enjoining them from demolishing the house of plaintiffs-appellants until there is a final decision in said case No. 14837, by the Supreme Court, was denied on August 14, 1956 by the latter court. The lone assignment alleges that the trial court erred in dismissing the complaint without trial on the merits and in not granting the reliefs prayed for by the plaintiffsappellants. Appellants stated in their brief that if there will be trial on the merits, they would be entitled to a decision in their favor, because they will establish by competent evidence the allegations in their complaint. And on the claim that they were builders in good faith, they based the right to buy the lot on which their house is built, upon the decision of Belen Uy

Tayag v. Rosario Yuseco, et al., G.R. No. L-8139, Oct. 24, 1955. It should be recalled at the outstart, that the trial court ordered the dismissal of the complaint, which must have been granted in all or any of the grounds therein alleged, to wit: 1162 1162SUPREME COURT REPORTS ANNOTATED Quemuel vs. Olaes I. The Complaint states no cause of action.— The first cause of action on the present complaint alleges that in Civil Case No. 5442, the trial court rendered the decision of March 16, 1954, ordering the latter to vacate lot No. 1095 belonging to Olaes and his wif e and to pay them a monthly rental of P20.00 from January, 1954, until they shall have vacated the premises; that plaintiffs believe that the portion they are occupying belonged to them; that they occupy only about one-half of the lot; that considering the purchase price of the land, its assessed value and the interest the price would have earned, the rental should not be more than 7-1/2% or P5.60 monthly. Plaintiffs prayed that the rental be reduced to P5.60 a month. Assuming the truth of the above allegations, the same do not constitute a cause of action. A cause of action presupposes a right of the plaintiff and a violation of such right by the defendant. According to the complaint itself, the rental of P20.00 monthly and the order to vacate, were provided in a prior judgment (Civil Case No. 5442), which is final and its validity is not assailed. There being no law that f ixes the rental

of the same land at 71/2 of the allowed market value, the plaintiffs have no right thereto or a right which could be violated. The defendants are not compelling the plaintiffs to rent the property but wanted them to vacate the premises (Civil Case No. 5442). If the rental determined by the trial court were excessive, the plaintiffs are free to vacate the property. For plaintiffs to insist on possessing the property and fixing the rentals themselves, would have no legal sanction at all. In the second cause of action of the present complaint, the plaintiffs allege: That they actually occupy about 384 square meters or one-half of lot 1095; of the said area they thought they own 256 square meters by iBheritance from Romualdo Solis, father of plaintiff, Ruperta Solis, who became the owner thereof pursuant to a verbal extrajudicial partition made in 1924; Agapita Solis who sold the entire lot 1095 to defendants, is a sister of Romualdo Solis, and there was an error in the inclusion of the 256 square meters in the Torrens Title and the sale: they ac1163 VOL. 1, APRIL 29, 19611163 Quemuel vs. Olaes quired from Valentin Solis, brother of both Romualdo and Agapita, a part of the portion occupied by plaintiff's house and warehouse; their house has been there for almost 34 years and is worth P4,000; the defendants are rich, have a house and a lot of their own, and will not suffer any material or sentimental damage if they sell to the plaintiffs one-half of lot No. 1095;

plaintiff offered to pay P960 for the portion they are occupying or Pl,920.00 for the whole lot. On the assumption that the allegations of the second cause of action are true, what would be the rights of the parties? The plaintiffs claim that their second cause of action is based on Article 448 in connection with Art. 546, of the new Civil Code. A cursory reading of these provisions, however, will show that they are not applicable to plaintiffs' case. Under Article 448, the right to appropriate the works or improvements or "to oblige the one who built or planted to pay the price of the land" belongs to the owner of the land. The only right given to the builder in good faith is the right to reimbursement for the improvements; the builder, cannot compel the owner of the land to sell such land to the former. This is assuming that the plaintiffs are builders in good faith. But the plaintiffs are not builders in good faith. From the pleadings and the documentary evidence submitted, it is indisputable that the land in question originally belonged to the government as part of the Friar Lands Estate and the title thereto was in the name of the government, until it was purchased by Agapita Solis who applied, thru the Bureau of Lands, to purchase the land by installments. The corresponding Sale Certificate No. 531, effective July 1, 1909 Exhibit 2) was executed. In defendants' complaint (as plaintiffs in Civil Case No. 5442), they alleged that they are the owners of lot 1095 and that defendants (plaintiffs herein), "have been occupying southeastern half portion thereof, without any right thereto, except the tolerance of plaintiffs" (defendants herein), which were admitted expressly and under oath, in the answer of plaintiffs herein. It would, therefore, appear that plaintiffs herein were not unaware

of the flaw in their title, if any, and that their true relation with the herein def endants was that of tenant 1164 1164SUPREME COURT REPORTS ANNOTATED Quemuel vs. Olaes and landlord, and that their rights are governed by Article 1573 in relation to article 487 of the old Civil Code, which reads as follows:— "Art. 1573. A lessee shall have with respect to useful and voluntary improvements, the same right which are granted the usufructuaries." "Art. 487. The usuf ructuary may make on the property held in usufruct any improvements, useful or recreative, which he may deem proper, provided he does not change its form or substance, but he shall have no right to be indemnified therefor, He may, however, remove such improvements, should it be possible to do so without injury to the property". From the above provisions, it can clearly be inferred that plaintiffs can not compel the defendants to pay for the improvements the former made on the property or to sell the latter's land. Plaintiffs' only right, is to remove the improvements, if it is possible to do so, without damage to the land. It should be noted that article 448 of the new Civil Code, (equivalent to Art. 361 of the old Civil Code), relied upon by plaintiffs, is intended to apply only to a case where one builds, or sows, or plants on land in which he believes himself to have a claim of title and not to lands wherein one's interest is that of

tenant, under a rental contract, which is the present case (Alburo v. Villanueva, 7 Phil. 277). The tenant cannot be said to be a builder in good faith as he has no pretension to be owner (Rivera v. Trinidad, 48 Phil. 396; see also 3 Manresa 4th Ed pp 215-216). The trial court, therefore, did not commit any error in dismissing the two causes of action. II. The first cause of action, if any, is barred by a prior judgment. As plaintiffs in Civil Case No. 5442, the defendants alleged iTi their complaint that the reasonable rental value of the premises in question was P20.00 a month (par. 5). In said case No. 5442, the matter of the rental was in issue, and the same was considered and decided by the trial court, which ordered the defendants therein "to pay a reasonable compensation of P20.00 a month beginning with 1165 VOL. 1, APRIL 29, 19611165 Quemuel vs. Olaes January, 1954, until they shall have left the premises". In the instant case, the parties are the identical parties in Civil Case No. 5442; the same lot 1095 is the subject matter of both cases; the same issue, namely, the amount of the rental is involved. Even assuming that appellants have a cause of action, the doctrine of res judicata already operates against them. III. The second cause of action, if any, is barred by the statute of limitations.

As shown by the documentary evidence submitted with the defendant's motion to dismiss, lot No. 1095 was purchased by Agapita Solis from the Government on July 1, 1909. After full payment of the purchase price, T.C.T. No. 10771 covering said lot was issued to said Agapita Solis on June 8, 1933, (Exhibits 1 and 2). Assuming that plaintiffs or their alleged predecessorin-interest, had a cause of action for claiming the ownership of portions of said lot, such cause of action accrued at the latest, on June 8, 1933. The plaintiffs or their predecessors had ten (10) years from said date, within which to file the corresponding action. They, however, filed the instant complaint only on July I, 1954, or more than 21 years, after the accrual of the cause of action. IV. The cause of action, if any, is barred by plaintiffs' failure to set it up as counterclaim in Civil Case No. 5442. Whether the cause of action is for recovery of ownership or for an alleged right to purchase the property, or for reimbursement for some improvements, the herein plaintiffs as defendants in Civil Case No. 5442, should have set it up as a counterclaim in said case, because same was necessarily connected with, or arose out of the transactions involved in said case No. 5442 (Sec. 6, Rule 10, Rules of Court). It is alleged that plaintiffs-appellants' complaint should not have been dismissed without trial on the merits, because in the case of De Jesus, et al. v. Belarmino, et al. G.R. No. L-6665, June SO, 1954; Off. Gaz. July 1954, p. 3064. it was held that "where the complaint was dismissed not because of any evidence presented by the parties, or as a result of a trial on the merits, but merely on a motion

1166 1166SUPREME COURT REPORTS ANNOTATED Republic vs. Go Bon Lee to dismiss filed by the defendants, the sufficiency of the motion should be tested on the strength of the allegation of facts contained in the complaint and no other", which has been interpreted to apply to cases where the motion to dismiss is based solely on the ground of lack of cause of action. Considering the fact that (1) In the case at bar, documentary evidence and the records of the Civil Case No. 5442 were presented and considered by the trial court; and (2) in the De Jesus case, the only ground for dismissal was the lack of cause of action, while in the present case, aside from said ground, plaintiffs alleged other grounds, the said ruling finds no application. IN VIEW HEREOF, we hereby affirm the order appealed from, with costs against the plaintiffs-appellants. Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera and Dizon, JJ., concur. Order affirmed. [Quemuel vs. Olaes, 1 SCRA 1159(1961)]

LUCIANO BRIONES and NELLY BRIONES, petitioners, vs. JOSE MACABAGDAL, FE D. MACABAGDAL and VERGON REALTY INVESTMENTS CORPORATION, respondents. Remedial Law; Appeals; Well-settled is the rule that the jurisdiction of the Court in cases brought to it from the Court of Appeals via a petition for review on certiorari under Rule 45 is limited to the review of errors of law.—We note that petitioners raise factual issues, which are beyond the scope of a petition for review on certiorari under Rule 45 of the Rules. Well settled is the rule that the jurisdiction of this Court in cases brought to it from the Court of Appeals via a petition for review on certiorari under Rule 45 is limited to the review of errors of law. The Court is not bound to weigh all over again the evidence adduced by the parties, particularly where the findings of both the trial court and the appellate court coincide. The resolution of factual issues is a function of the trial court whose findings on these matters are, as a general rule, binding on this Court, more so where these have been affirmed by the CA. We note that the CA and RTC did not overlook or fail to appreciate any material circumstance which, when properly considered, would have altered the result of the case. Civil Law; Property; Builders in Good Faith; When a person builds in good faith on the land of another, Article 448 of the Civil Code governs.—The conclusiveness of the factual findings notwithstanding, we find that the trial court nonetheless erred in outrightly ordering petitioners to vacate the subject property or to pay respondent spouses the prevailing price of the land as compensation. Article 527 of the Civil Code presumes good faith, and since no proof exists to

show that the mistake was done by petitioners in bad faith, the latter should be presumed to have built the house in good faith. When a person builds in good faith on the land of another, Article 448 of the Civil Code governs. Same; Same; Same; The builder in good faith can compel the landowner to make a choice between appropriating the building by _______________ * THIRD DIVISION. 301 VOL. 626, AUGUST 3, 2010301 Briones vs. Macabagdal paying the proper indemnity or obliging the builder to pay the price of the land.—The above-cited article covers cases in which the builders, sowers or planters believe themselves to be owners of the land or, at least, to have a claim of title thereto. The builder in good faith can compel the landowner to make a choice between appropriating the building by paying the proper indemnity or obliging the builder to pay the price of the land. The choice belongs to the owner of the land, a rule that accords with the principle of accession, i.e., that the accessory follows the principal and not the other way around. However, even as the option lies with the landowner, the grant to him, nevertheless, is preclusive. He must choose one. He cannot, for instance, compel the owner of the building to remove the building from the land without first exercising either option. It is only if the owner chooses to sell his land, and the builder or planter fails to purchase it where its value is not more than the value of the improvements, that the owner may remove the

improvements from the land. The owner is entitled to such remotion only when, after having chosen to sell his land, the other party fails to pay for the same. Same; Negligence; Damages; Requisites for Recovery of Damages under Article 2176.—Under this provision, it is the plaintiff who has to prove by a preponderance of evidence: (1) the damages suffered by the plaintiff; (2) the fault or negligence of the defendant or some other person for whose act he must respond; and (3) the connection of cause and effect between the fault or negligence and the damages incurred. Same; Attorney’s Fees; Attorney’s fees are not to be awarded every time a party wins a suit; court must explicitly state in the body of the decision, and not only in the dispositive portion thereof, the legal reason for the award of attorney’s fees.—It must also be noted that aside from the following, the body of the trial court’s decision was devoid of any statement regarding attorney’s fees. In Scott Consultants & Resource Development Corporation, Inc. v. Court of Appeals, 242 SCRA 393 (1995), we reiterated that attorney’s fees are not to be awarded every time a party wins a suit. The power of the court to award attorney’s fees under Article 2208 of the Civil Code demands factual, legal, and equitable justification; its basis cannot be left to speculation or conjecture. Where granted, the court must explicitly state in the body of the decision, and not only in the dispositive portion thereof, the legal reason for the award of attorney’s fees. 302 302SUPREME COURT REPORTS ANNOTATED Briones vs. Macabagdal

PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. Jaso, Salgado, Neri Law Office for petitioners. Delbert F. Evora for respondents Sps. Jose and Fe Macabagdal. Reynaldo F. Ramos for respondent Vergon Realty Investment Corp. VILLARAMA, JR., J.: On appeal under Rule 45 of the 1997 Rules of Civil Procedure, as amended, is the Decision1 dated December 11, 2000 of the Court of Appeals (CA) in CA-G.R. CV No. 48109 which affirmed the September 29, 1993 Decision2 of the Regional Trial Court (RTC) of Makati City, Branch 135, ordering petitioners Luciano and Nelly Briones to remove the improvements they have made on the disputed property or to pay respondent-spouses Jose and Fe Macabagdal the prevailing price of the land as compensation. The undisputed factual antecedents of the case are as follows: Respondent-spouses purchased from Vergon Realty Investments Corporation (Vergon) Lot No. 2-R, a 325-squaremeter land located in Vergonville Subdivision No. 10 at Las Piñas City, Metro Manila and covered by Transfer Certificate _______________ 1Rollo, pp. 43-51. Penned by Associate Justice Presbitero J. Velasco, Jr. (now a member of this Court) and concurred in by Associate Justices Conrado M. Vasquez, Jr. and Juan Q. Enriquez, Jr. The dispositive portion reads as follows: WHEREFORE, premises considered, the appealed Decision is hereby AFFIRMED in toto.

SO ORDERED. 2 Id., at pp. 81-84. Penned by Judge Omar U. Amin. 303 VOL. 626, AUGUST 3, 2010303 Briones vs. Macabagdal of Title No. 62181 of the Registry of Deeds of Pasay City. On the other hand, petitioners are the owners of Lot No. 2-S, which is adjacent to Lot No. 2-R. Sometime in 1984, after obtaining the necessary building permit and the approval of Vergon, petitioners constructed a house on Lot No. 2-R which they thought was Lot No. 2-S. After being informed of the mix up by Vergon’s manager, respondent-spouses immediately demanded petitioners to demolish the house and vacate the property. Petitioners, however, refused to heed their demand. Thus, respondentspouses filed an action to recover ownership and possession of the said parcel of land with the RTC of Makati City.3 Petitioners insisted that the lot on which they constructed their house was the lot which was consistently pointed to them as theirs by Vergon’s agents over the seven (7)-year period they were paying for the lot. They interposed the defense of being buyers in good faith and impleaded Vergon as third-party defendant claiming that because of the warranty against eviction, they were entitled to indemnity from Vergon in case the suit is decided against them.4 The RTC ruled in favor of respondent-spouses and found that petitioners’ house was undoubtedly built on Lot No. 2-R. The dispositive portion of the trial court’s decision reads as follows:

“PREMISES CONSIDERED, let judgment be rendered declaring, to wit: 1. That plaintiffs are the owners of Lot No. 2-R of subdivision plan (LRC) Psd-147392 at Vergonville Subdivision, No. 10, Las Piñas, Metro Manila covered by TCT No. 62181 of the Registry of Deeds of Pasay City on which defendants have constructed their house; _______________ 3 Id., at pp. 6-8. 4 Id., at p. 71, 75-76. 304 304SUPREME COURT REPORTS ANNOTATED Briones vs. Macabagdal 2. Defendants, jointly and severally, are ordered to demolish their house and vacate the premises and return the possession of the portion of Lot No. 2-R as above-described to plaintiffs within thirty (30) days from receipt of this decision, or in the alternative, plaintiffs should be compensated by defendants, jointly and severally, by the payment of the prevailing price of the lot involved as Lot No. 2-R with an area of 325 square meters which should not be less than P1,500.00 per square meter, in consideration of the fact that prices of real estate properties in the area concerned have increased rapidly; 3. Defendants, jointly and severally, pay to plaintiffs for moral damages with plaintiffs’ plans and dreams of building their own house on their own lot being severely shattered and frustrated due to defendants’ incursion as interlopers of Lot No. 2-R in the sum of P50,000.00;

4. Defendants, jointly and severally, to pay plaintiffs in the amount of P30,000.00 as attorney’s fees; and, 5. to pay the costs of the proceedings. Defendants’ counterclaim against plaintiffs is dismissed for lack of merit and with no cause of action. Defendants’ third-party complaint against third-party defendant Vergonville Realty and Investments Corporation is likewise ordered dismissed for lack of cause of action and evidently without merit. On the other hand, defendants, jointly and severally, are liable for the litigation expenses incurred by Vergonville Realty by way of counterclaim, which is also proven by the latter with a mere preponderance of evidence, and are hereby ordered to pay the sum of P20,000.00 as compensatory damage; and attorney’s fees in the sum of P10,000.00 SO ORDERED.”5 On appeal, the CA affirmed the RTC’s finding that the lot upon which petitioners built their house was not the one (1) which Vergon sold to them. Based on the documentary evidence, such as the titles of the two (2) lots, the contracts to _______________ 5 Id., at pp. 83-84. 305 VOL. 626, AUGUST 3, 2010305 Briones vs. Macabagdal sell, and the survey report made by the geodetic engineer, petitioners’ house was built on the lot of the respondentspouses.6 There was no basis to presume that the error was Vergon’s fault. Also the warranty against eviction under

Article 1548 of the Civil Code was not applicable as there was no deprivation of property: the lot on which petitioners built their house was not the lot sold to them by Vergon, which remained vacant and ready for occupation.7 The CA further ruled that petitioners cannot use the defense of allegedly being a purchaser in good faith for wrongful occupation of land.8 Aggrieved, petitioners filed a motion for reconsideration, but it was denied by the appellate court.9 Hence, this petition for review on certiorari. Petitioners raise the following assignment of errors: I. THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE CONTRARY TO LAW AND APPLICABLE DECISIONS OF THE SUPREME COURT IN AFFIRMING THE DECISION OF THE TRIAL COURT ORDERING PETITIONERS TO DEMOLISH THEIR ONLY HOUSE AND VACATE THE LOT AND TO PAY MORAL AND COMPENSATORY DAMAGES AS WELL AS ATTORNEY’S FEE IN THE TOTAL AMOUNT OF PS[P] 110,000; AND II. THE COURT OF APPEALS SANCTIONED THE DEPARTURE OF THE LOWER COURT FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS AS TO CALL FOR AN EXERCISE OF THE POWER OF SUPERVISION.10 _______________ 6 Id., at pp. 46-47. 7 Id., at p. 48. 8 Id., at pp. 48-49.

9 Id., at p. 54. The Resolution was penned by Associate Justice Conrado M. Vasquez, Jr., with Associate Justices Mercedes Gozo-Dadole and Juan Q. Enriquez, Jr., concurring. 10 Id., at pp. 14-15. 306 306SUPREME COURT REPORTS ANNOTATED Briones vs. Macabagdal In the main, it is petitioners’ position that they must not bear the damage alone. Petitioners insist that they relied with full faith and confidence in the reputation of Vergon’s agents when they pointed the wrong property to them. Even the President of Vergon, Felix Gonzales, consented to the construction of the house when he signed the building permit.11 Also, petitioners are builders in good faith.12 The petition is partly meritorious. At the outset, we note that petitioners raise factual issues, which are beyond the scope of a petition for review on certiorari under Rule 45 of the Rules. Well settled is the rule that the jurisdiction of this Court in cases brought to it from the CA via a petition for review on certiorari under Rule 45 is limited to the review of errors of law. The Court is not bound to weigh all over again the evidence adduced by the parties, particularly where the findings of both the trial court and the appellate court coincide. The resolution of factual issues is a function of the trial court whose findings on these matters are, as a general rule, binding on this Court, more so where these have been affirmed by the CA.13 We note that the CA and RTC did not overlook or fail to appreciate any material circumstance which, when properly considered, would have

altered the result of the case. Indeed, it is beyond cavil that petitioners mistakenly constructed their house on Lot No. 2-R which they thought was Lot No. 2-S. However, the conclusiveness of the factual findings notwithstanding, we find that the trial court nonetheless erred in outrightly ordering petitioners to vacate the subject property or to pay respondent spouses the prevailing price of the land _______________ 11 Id., at pp. 16-27. 12 Id., at pp. 27-28. 13 Bernarda Ch. Osmeña v. Nicasio Ch. Osmeña, et al., G.R. No. 171911, January 26, 2010, 611 SCRA 164. 307 VOL. 626, AUGUST 3, 2010307 Briones vs. Macabagdal as compensation. Article 52714 of the Civil Code presumes good faith, and since no proof exists to show that the mistake was done by petitioners in bad faith, the latter should be presumed to have built the house in good faith. When a person builds in good faith on the land of another, Article 448 of the Civil Code governs. Said article provides, “ART. 448. The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in Articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the building or trees. In such

case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof.” (Emphasis ours.) The above-cited article covers cases in which the builders, sowers or planters believe themselves to be owners of the land or, at least, to have a claim of title thereto.15 The builder in good faith can compel the landowner to make a choice between appropriating the building by paying the proper indemnity or obliging the builder to pay the price of the land. The choice belongs to the owner of the land, a rule that accords with the principle of accession, i.e., that the accessory follows the principal and not the other way around. However, even as the option lies with the landowner, the grant to him, _______________ 14 ART. 527. Good faith is always presumed, and upon him who alleges bad faith on the part of a possessor rests the burden of proof. 15 Vide Philippine National Bank v. De Jesus, 458 Phil. 454, 458; 411 SCRA 557, 561 (2003) and Pada-Kilario v. Court of Appeals, 379 Phil. 515, 529-530; 322 SCRA 481, 492-493 (2000). 308 308SUPREME COURT REPORTS ANNOTATED Briones vs. Macabagdal nevertheless, is preclusive. He must choose one.16 He cannot, for instance, compel the owner of the building to remove the building from the land without first exercising either option. It

is only if the owner chooses to sell his land, and the builder or planter fails to purchase it where its value is not more than the value of the improvements, that the owner may remove the improvements from the land. The owner is entitled to such remotion only when, after having chosen to sell his land, the other party fails to pay for the same.17 Moreover, petitioners have the right to be indemnified for the necessary and useful expenses they may have made on the subject property. Articles 546 and 548 of the Civil Code provide, “ART. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain the thing until he has been reimbursed therefor. Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the person who has defeated him in the possession having the option of refunding the amount of the expenses or of paying the increase in value which the thing may have acquired by reason thereof. ART. 548. Expenses for pure luxury or mere pleasure shall not be refunded to the possessor in good faith; but he may remove the ornaments with which he has embellished the principal thing if it suffers no injury thereby, and if his successor in the possession does not prefer to refund the amount expended.” Consequently, the respondent-spouses have the option to appropriate the house on the subject land after payment to petitioners of the appropriate indemnity or to oblige petitioners to pay the price of the land, unless its value is considera_______________

16 Arangote v. Maglunob, G.R. No. 178906, February 18, 2009, 579 SCRA 620, 644. 17 Sarmiento v. Agana, G.R. No. L-57288, April 30, 1984, 129 SCRA 122, 126 and Ignacio v. Hilario, 76 Phil. 605, 608 (1946). 309 VOL. 626, AUGUST 3, 2010309 Briones vs. Macabagdal bly more than the value of the structures, in which case petitioners shall pay reasonable rent. In accordance with Depra v. Dumlao,18 this case must be remanded to the RTC which shall conduct the appropriate proceedings to assess the respective values of the improvement and of the land, as well as the amounts of reasonable rentals and indemnity, fix the terms of the lease if the parties so agree, and to determine other matters necessary for the proper application of Article 448, in relation to Articles 546 and 548, of the Civil Code. As to the liability of Vergon, petitioners failed to present sufficient evidence to show negligence on Vergon’s part. Petitioners’ claim is obviously one (1) for tort, governed by Article 2176 of the Civil Code, which provides: “ART. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no preexisting contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.” (Emphasis ours.)

Under this provision, it is the plaintiff who has to prove by a preponderance of evidence: (1) the damages suffered by the plaintiff; (2) the fault or negligence of the defendant or some other person for whose act he must respond; and (3) the connection of cause and effect between the fault or negligence and the damages incurred.19 This the petitioners failed to do. The President of Vergon signed the building permit as a precondition for its approval by the local government, but it did not guarantee that petitioners were constructing the structure within the metes and bounds of petitioners’ lot. The sig_______________ 18 No. L-57348, May 16, 1985, 136 SCRA 475, 483, cited in National Housing Authority v. Grace Baptist Church, G.R. No. 156437, March 1, 2004, 424 SCRA 147, 154. 19 Child Learning Center, Inc. v. Tagorio, G.R. No. 150920, November 25, 2005, 476 SCRA 236, 242. 310 310SUPREME COURT REPORTS ANNOTATED Briones vs. Macabagdal nature of the President of Vergon on the building permit merely proved that petitioners were authorized to make constructions within the subdivision project of Vergon. And while petitioners acted in good faith in building their house on Lot No. 2-R, petitioners did not show by what authority the agents or employees of Vergon were acting when they pointed to the lot where the construction was made nor was petitioners’ claim on this matter corroborated by sufficient evidence. One (1) last note on the award of damages. Considering that petitioners acted in good faith in building their house on the

subject property of the respondent-spouses, there is no basis for the award of moral damages to respondent-spouses. Likewise, the Court deletes the award to Vergon of compensatory damages and attorney’s fees for the litigation expenses Vergon had incurred as such amounts were not specifically prayed for in its Answer to petitioners’ third-party complaint. Under Article 220820 of the Civil Code, attorney’s fees and _______________ 20 Art. 2208. In the absence of stipulation, attorney’s fees and expenses of litigation, other than judicial costs, cannot be recovered, except: (1) When exemplary damages are awarded; (2) When the defendant’s act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest; (3) In criminal cases of malicious prosecution against the plaintiff; (4) In case of a clearly unfounded civil action or proceeding against the plaintiff; (5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid, just and demandable claim; (6) In actions for legal support; (7) In actions for the recovery of wages of household helpers, laborers and skilled workers; (8) In actions for indemnity under workmen’s compensation and employer’s liability laws; 311 VOL. 626, AUGUST 3, 2010311 Briones vs. Macabagdal

expenses of litigation are recoverable only in the concept of actual damages, not as moral damages nor judicial costs. Hence, such must be specifically prayed for—as was not done in this case—and may not be deemed incorporated within a general prayer for “such other relief and remedy as this court may deem just and equitable.”21 It must also be noted that aside from the following, the body of the trial court’s decision was devoid of any statement regarding attorney’s fees. In Scott Consultants & Resource Development Corporation, Inc. v. Court of Appeals,22 we reiterated that attorney’s fees are not to be awarded every time a party wins a suit. The power of the court to award attorney’s fees under Article 2208 of the Civil Code demands factual, legal, and equitable justification; its basis cannot be left to speculation or conjecture. Where granted, the court must explicitly state in the body of the decision, and not only in the dispositive portion thereof, the legal reason for the award of attorney’s fees. WHEREFORE, the Decision dated December 11, 2000 of the Court of Appeals in CA-G.R. CV No. 48109 is AFFIRMED WITH MODIFICATION. The award of moral damages in favor of respondent-spouses Jose and Fe Macabagdal and the award of compensatory damages and attorney’s fees to respondent Vergon Realty Investments Corporation are DELETED. The case is REMANDED to the Regional Trial Court of Makati City, Branch 135, for further proceedings consistent _______________ (9) In a separate civil action to recover civil liability arising from a crime;

(10) When at least double judicial costs are awarded; (11) In any other case where the court deems it just and equitable that attorney’s fees and expenses of litigation should be recovered. In all cases, the attorney’s fees and expenses of litigation must be reasonable. 21 Mirasol v. de la Cruz, No. L-32552, 84 SCRA 337, 342343. 22G.R. No. 112916, March 16, 1995, 242 SCRA 393, 406. 312 312SUPREME COURT REPORTS ANNOTATED Briones vs. Macabagdal with the proper application of Articles 448, 546 and 548 of the Civil Code, as follows: 1. The trial court shall determine: a. the present fair price of the respondent-spouses’ lot; b. the amount of the expenses spent by petitioners for the building of their house; c. the increase in value (“plus value”) which the said lot may have acquired by reason thereof; and d. whether the value of said land is considerably more than that of the house built thereon. 2. After said amounts shall have been determined by competent evidence, the Regional Trial Court shall render judgment, as follows: a. The trial court shall grant the respondent-spouses a period of fifteen (15) days within which to exercise their option under Article 448 of the Civil Code, whether to appropriate the house as their own by paying to petitioners either the amount of the

expenses spent by petitioners for the building of the house, or the increase in value (“plus value”) which the said lot may have acquired by reason thereof, or to oblige petitioners to pay the price of said land. The amounts to be respectively paid by the respondent-spouses and petitioners, in accordance with the option thus exercised by written notice of the other party and to the Court, shall be paid by the obligor within fifteen (15) days from such notice of the option by tendering the amount to the Court in favor of the party entitled to receive it; b. The trial court shall further order that if the respondentspouses exercises the option to oblige petitioners to pay the price of the land but the latter 313 VOL. 626, AUGUST 3, 2010313 Briones vs. Macabagdal rejects such purchase because, as found by the trial court, the value of the land is considerably more than that of the house, petitioners shall give written notice of such rejection to the respondent-spouses and to the Court within fifteen (15) days from notice of the respondent-spouses’ option to sell the land. In that event, the parties shall be given a period of fifteen (15) days from such notice of rejection within which to agree upon the terms of the lease, and give the Court formal written notice of such agreement and its provisos. If no agreement is reached by the parties, the trial court, within fifteen (15) days from and after the termination of the said period fixed for negotiation, shall then fix the terms of the lease, payable within the first five (5) days of each calendar month. The period for the forced lease shall not be more than two (2) years, counted from the

finality of the judgment, considering the long period of time since petitioners have occupied the subject area. The rental thus fixed shall be increased by ten percent (10%) for the second year of the forced lease. Petitioners shall not make any further constructions or improvements on the house. Upon expiration of the two (2)-year period, or upon default by petitioners in the payment of rentals for two (2) consecutive months, the respondent-spouses shall be entitled to terminate the forced lease, to recover their land, and to have the house removed by petitioners or at the latter’s expense. The rentals herein provided shall be tendered by petitioners to the Court for payment to the respondent-spouses, and such tender shall constitute evidence of whether or not compliance was made within the period fixed by the Court. c. In any event, petitioners shall pay the respondent-spouses reasonable compensation for the occupancy of the respondentspouses’ land for the period 314 314SUPREME COURT REPORTS ANNOTATED Briones vs. Macabagdal counted from the year petitioners occupied the subject area, up to the commencement date of the forced lease referred to in the preceding paragraph; d. The periods to be fixed by the trial court in its Decision shall be inextendible, and upon failure of the party obliged to tender to the trial court the amount due to the obligee, the party entitled to such payment shall be entitled to an order of execution for the enforcement of payment of the amount due

and for compliance with such other acts as may be required by the prestation due the obligee. No costs. SO ORDERED. Carpio-Morales (Chairperson), Brion, Bersamin and Abad,** JJ., concur. Judgment affirmed with modification. Note.—There must always be factual basis in the award of attorney’s fees. (Pepsi Cola Products Philippines, Inc. vs. Santos, 551 SCRA 245 [2008]) ——o0o—— [Briones vs. Macabagdal, 626 SCRA 300(2010)]

G.R. No. 163794. November 28, 2008.* REPUBLIC OF THE PHILIPPINES, represented by Romeo T. Acosta (formerly Jose D. Malvas), Director of Forest Management Bureau, Department of Environment and Natural Resources, petitioners, vs. HON. NORMELITO J. BALLOCANAG, Presiding Judge, Branch 41, Regional Trial Court, Pinamalayan, Oriental Mindoro and DANILO REYES, respondents. Civil Law; Property; Builder in Good Faith; Words and Phrases; A builder or planter in good faith is one who builds or plants on land with the belief that he is the owner thereof, unaware of any flaw in his title to the land at the time he builds or plants on it.—The courts in the reversion case overlooked the issue of whether Reyes, vis-à-vis his improvements, is a builder or planter in good faith. In the instant case, the issue assumes full significance, because Articles 448 and 546 of the Civil Code grant the builder or planter in good faith full reimbursement of useful improvements and retention of the premises until reimbursement is made. A builder or planter in good faith is one who builds or plants on land with the belief that he is the owner thereof, unaware of any flaw in his title to the land at the time he builds or plants on it. Same; Same; Same; To order Reyes to simply surrender all of the fruit-bearing trees in favor of the State would inequitably result in unjust enrichment of the State at the expense of Reyes, a planter in good faith.—We are disposed to agree with the CA that Reyes was a planter in good faith. Reyes was of the belief that he was the owner of the subject land; in fact, a TCT over the property was issued in his name. He tilled the land, planted fruit trees thereon, and invested money from 1970. He received

notice of the Republic’s claim only when the reversion case was filed on May 13, 1987. The trees are now full-grown and fruit-bearing. To order Reyes to simply surrender all of these fruit-bearing trees in favor of the State—because the decision in the reversion case declaring that the land is part of inalienable forest land and belongs to the State is already final and _______________ * THIRD DIVISION. 437 VOL. 572, NOVEMBER 28, 2008437 Republic vs. Ballocanag immutable—would inequitably result in unjust enrichment of the State at the expense of Reyes, a planter in good faith. Same; Same; Same; Unjust Enrichment; There is unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience.—Nemo cum alterius detrimento locupletari potest. This basic doctrine on unjust enrichment simply means that a person shall not be allowed to profit or enrich himself inequitably at another’s expense. There is unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience. Same; Same; Same; Same; Options that Reyes may exercise under Articles 448 and 546 of the Civil Code have been restricted by the terms of Agro-Forestry Farm Lease

Agreement [AFFLA]; The only equitable alternative would be to order the Republic to pay Reyes the value of the improvements he introduced on the property.—The options that Reyes may exercise under Articles 448 and 546 of the Civil Code have been restricted. It is no longer feasible to permit him to remove the trees he planted. The only equitable alternative would be to order the Republic to pay Reyes the value of the improvements he introduced on the property. This is only fair because, after all, by the terms of the AFFLA, upon the expiration of the lease or upon its cancellation if there be any violation or breach of its terms, all permanent improvements on the land shall pass to the ownership of the Republic without any obligation on its part to indemnify the lessee. Remedial Law; Judgments; Court is not precluded from rectifying errors of judgment if blind and stubborn adherence to the doctrine of immutability of final judgments would involve the sacrifice of justice for technicality.—In the exercise of our mandate as a court of justice and equity, we rule in favor of Reyes pro hac vice. We reiterate that this Court is not precluded from rectifying errors of judgment if blind and stubborn adherence to the doctrine of immutability of final judgments would involve the sacrifice of justice for technicality. Indubitably, to order the reversion of the subject land without payment of just compensation, in absolute disregard of the rights of 438 438SUPREME COURT REPORTS ANNOTATED Republic vs. Ballocanag

Reyes over the improvements which he, in good faith, introduced therein, would not only be unjust and inequitable but cruel as well. PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. Miguel J. Lagman for respondent. NACHURA, J.: Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Civil Procedure seeking the reversal of the Court of Appeals (CA) Decision2 dated June 4, 2004, in CA-G.R. SP No. 52261, which affirmed the Joint Order3 of the Regional Trial Court (RTC) of Pinamalayan, Oriental Mindoro, Branch 41, dated December 28, 1998. The facts, as summarized by the CA, are as follows: “Sometime in 1970, [private respondent Danilo] Reyes bought the subject 182,941-square-meter land at Bgy. Banus, Pinamalayan, Oriental Mindoro [subject land] from one Regina Castillo (or Castillo) in whose name it was titled under Original Transfer Certificate of Title No. P-2388 issued pursuant to Free Patent No. V-79606. Right after his purchase, Reyes introduced improvements and planted the land with fruit trees, including about a thousand mango[es], more than a hundred Mandarin citrus, and more than a hundred guyabanos. He also had the title transferred in his name and was issued TCT No. 45232. Reyes so prized this land which he bought in good faith. Unfortunately, it turned out that about 162,500 square meters of this land is part of the timberland of Oriental Mindoro and, therefore, cannot

_______________ 1 Rollo, pp. 26-51. 2 Penned by Associate Justice Roberto A. Barrios (now deceased), with Associate Justices Mariano C. Del Castillo and Magdangal M. De Leon, concurring; id., at pp. 53-66. 3 Penned by public respondent Judge Normelito J. Ballocanag; id., at pp. 115-118. 439 VOL. 572, NOVEMBER 28, 2008439 Republic vs. Ballocanag be subject to any disposition or acquisition under any existing law, and is not registrable. Thus, in the Complaint (Annex “A,” pp. 15 to 21, Rollo) for “Cancellation of Title and/or Reversion” filed by the Office of the Solicitor General (or OSG) in behalf of the Republic [petitioner], as represented by the Bureau of Forest Development (or BFD), it was explained that the source[,] Original Transfer Certificate of Title No. P-2388 of Castillo, issued pursuant to Free Patent No. V-79606, is spurious, fictitious and irregularly issued on account of: a) ONE HUNDRED SIXTY-TWO THOUSAND FIVE HUNDRED (162,500) SQUARE METERS, more or less, of the land covered by OCT No. P-2388 was, at the time it was applied for patent and or titling, a part of the timberland of Oriental Mindoro, per BFD Land Classification Map Nos. 2319 and 1715. Copy of said maps are attached hereto as Annexes “B” and “C”; b) The 162,500 square meters covered by OCT No. P-2388 are entirely inside the 140 hectares Agro-Forestry Farm Lease

Agreement No. 175 in favor of Atty. Augusto D. Marte4 [Atty. Marte], copy of the Map of AFFLA No. 175 and AFFLA No. 175 are attached hereto as Annexes “D” and “E”; c) Neither the private defendant nor his predecessors-ininterest have been in possession of the property because the rightful occupant is Atty. Augusto D. Marte by virtue of the Agro-Forestry Farm Lease Agreement [AFFLA] No. 175, issued to him by the Ministry of Natural Resources in 1986 to expire on December 21, 2011; d) Since the parcel of land covered by TCT No. 45232, in the name of defendant Danilo Reyes, is a part of the timberland of Oriental Mindoro, per BFD Land Classification Map Nos. 2319 & 1715, the same cannot be the subject of any disposition or acquisition under any existing law (Li Hong Giap vs. Director of Lands, 55 Phil. 693; Veno vs. Gov’t of P.I., 41 Phil. 161; Director of Lands vs. Abanzado, 65 SCRA 5). (pp. 18 to 19, Rollo) _______________ 4 Also referred to as Atty. Augusto Sarte in other pleadings and documents. 440 440SUPREME COURT REPORTS ANNOTATED Republic vs. Ballocanag Aside from the documentary evidence presented to support these allegations, the Republic presented as well and called to the witness stand: a) Armando Cruz, the supervising cartographer of the DENR, who explained that based on Land Classification Map No. 1715 (Exh. “A”) which was later amended to LC Map No. 2319

(Exh. “B”), the plotting shows that the 162,000 square meters covered by OCT No. 2388 are entirely inside the 140 hectares of the Agro-Forestry Farm Lease Agreement No. 175 in favor of Atty. Marte and the alienable and disposable area of Castillo’s land is only around two (2) hectares; b) Alberto Cardiño, an employee of the DENR who conducted the survey on the land under litigation, corroborated the testimony of Cruz that only two hectares is alienable and disposable land; and c) Vicente Mendoza, a Geodetic Engineer, who expounded on the procedure before the title could be issued to an applicant for a disposable and alienable public land. He clarified that he did not make the survey for Castillo but upon presentation to him of the carpeta in open court he noticed that, while it appears to be valid, it however has no certification of the Bureau of Forestry—an essential requirement before title could be issued. For his side, Reyes presented evidence showing his extensive development of and investment in the land, but however failed to traverse squarely the issue raised by the Republic against the inalienability and indisposability of his acquired land. His lame argument that the absence of the Certification by the Bureau of Forestry on his carpeta does not necessarily mean that there was none issued, failed to convince the court a quo. Hence, Judge Edilberto Ramos, the then Presiding Judge of Branch 41 of the Regional Trial Court of Pinamalayan, Oriental Mindoro, held5 that: The defendants in this case did not assail the evidence of the plaintiff but concentrated itself to the expenses incurred in the cultivation and in the planting of trees in that disputed areas.

Aside thereto, the plaintiff cited that it is elementary principle of law that said areas not being capable of registration their inclusion in a certi_______________ 5 RTC Decision dated April 13, 1992; Rollo, pp. 80-83. 441 VOL. 572, NOVEMBER 28, 2008441 Republic vs. Ballocanag fication of ownership or confer title on the registrant. (Republic of the Philippines, et al. vs. Hon. Judge Jaime de los Angeles of the Court of First Instance of Balayan, Batangas, et al., G.R. No. L-30240) It is also a matter of principle that public forest [are non-alienable public lands. Accession of public forests] on the part of the claimant, however long, cannot convert the same into private property. (Vano v. Government of PI, 41 Phil. 161) In view thereof, it appears that the preponderance of evidence is in favor of the plaintiff and against the defendants and therefore it is hereby declared that Free Patent No. V-79606 issued on July 22, 1957 with Psu No. 155088 and OCT No. P2388 in the name of Regina Castillo and its derivative TCT No. 45232 in the name of Danilo Reyes is hereby declared null and void; and the defendant Danilo Reyes is hereby ordered to surrender the owner’s duplicate copy of TCT No. 45232 and to vacate the premises and directing the defendant Register of Deeds of Calapan, Oriental Mindoro, to cancel the title as null and void ab initio; and declaring the reversion of the land in question to the government subject to the Agro-Forestry Farm Lease Agreement No. 175, to form part of the public domain in the province of Oriental Mindoro.

The two-hectare lot, which appears disposable and alienable, is declared null and void for failure to secure certification from the Bureau of Forest Development. The counter-claim of the defendant is hereby denied for lack of merit, with cost against the defendant.6 Reyes appealed the aforementioned RTC Decision to the CA. In its Decision7 dated September 16, 1996, the CA affirmed the RTC Decision. His motion for reconsideration was denied.8 _______________ 6 Rollo, pp. 54-57. (Emphasis supplied) 7 Particularly docketed as CA-G.R. CV No. 39105; penned by Associate Justice Cancio C. Garcia (a retired member of this Court), with Associate Justices Eugenio S. Labitoria and Artemio G. Tuquero, concurring; id., at pp. 84-98. 8 CA Resolution dated January 24, 1997; id., at pp. 102-104. 442 442SUPREME COURT REPORTS ANNOTATED Republic vs. Ballocanag Thus, Reyes sought relief from this Court via a petition for review on certiorari. But in our Resolution9 dated June 23, 1997, we resolved to deny his petition for failure to sufficiently show that the CA had committed any reversible error in the questioned judgment. On November 24, 1997, this Court denied with finality Reyes’ motion for reconsideration.10 On February 4, 1998, Reyes filed a Motion11 to Remove Improvements Introduced by Defendant Danilo D. Reyes on the Property which is the Subject of Execution in Accordance with Rule 39, Section 10, paragraph (d) of the 1997 Rules of Civil Procedure (motion).12 There he averred that: he occupied

in good faith the subject land for around thirty years; he had already spent millions of pesos in planting fruit-bearing trees thereon; and he employed many workers who regularly took care of the trees and other plants. Reyes prayed that he and/or his agents be given at least one (1) year from the issuance of the corresponding order to remove his mango, citrus and guyabano trees, and that they be allowed to stay in the premises within that period to work on the cutting and removal of the said trees. He also asked the RTC that in the meantime that these trees are not yet removed, all the unharvested fruits be appropriated by him, as provided for by law, to the exclusion of all other persons who may take advantage of the situation and harvest said fruits. _______________ 9 Id., at p. 105. 10 Id., at p. 106. 11 Id., at pp. 107-110. 12 SEC. 10. Execution of judgments for specific act. xxxx (d) Removal of improvements on property subject of execution.—When the property subject of execution contains improvements constructed or planted by the judgment obligor or his agent, the officer shall not destroy, demolish or remove said improvements, except upon special order of the court, issued upon motion of the judgment obligee after due hearing and after the former has failed to remove the same within a reasonable time fixed by the court. 443 VOL. 572, NOVEMBER 28, 2008443 Republic vs. Ballocanag

Petitioner opposed the motion, citing the principle of accession under Article 44013 of the Civil Code. It further argued that the subject land, being timber land, is property of public dominion and, therefore, outside the commerce of man and cannot be leased, donated, sold, or be the object of any contract. This being the case, there are no improvements to speak of, because the land in question never ceased to be a property of the Republic, even if Reyes claimed that he was a purchaser for value and in good faith and was in possession for more than thirty (30) years. Moreover, petitioner averred that, assuming Reyes was initially a planter/sower in good faith, Article 448 of the Civil Code cannot be of absolute application since from the time the reversion case was filed by the petitioner on May 13, 1987, Reyes ceased to be a planter/sower in good faith and had become a planter/sower in bad faith.14 Meanwhile, on March 2, 1998, Atty. Marte filed a Complaint for Injunction With an Ancillary Prayer for the Immediate Issuance of a Temporary Restraining Order against Reyes for allegedly encroaching upon and taking possession by stealth, fraud and strategy some 16 hectares of his leased area without his permission or acquiescence and planted trees thereon in bad faith despite the fact that the area is non-disposable and part of the public domain, among others. But the respondent RTC dismissed the said complaint in the assailed Joint Order and ruled in favor of Reyes, finding Rule 39, Section 10, paragraph (d) of the 1997 Rules of Civil Procedure, applicable. The RTC ratiocinated: “Under the circumstance, it is but just and fair and equitable that Danilo Reyes be given the opportunity to enjoy the fruits

of his labor on the land which he honestly believes was legally his. He was _______________ 13 ART. 440. The ownership of property gives the right of accession to everything which is produced thereby, or which is incorporated or attached thereto, either naturally or artificially. 14 OSG Comment dated August 11, 1998; Rollo, pp. 111-114. 444 444SUPREME COURT REPORTS ANNOTATED Republic vs. Ballocanag not aware that his certificate of title which was derived from OCT No. P-2388 issued in 1957 by the government itself in the name of Regina Castillo contained legal infirmity, otherwise he would not have expoused (sic) himself from the risk of being ejected from the land and losing all improvements thereon. Any way, if the court will grant the motion for the defendant’s (sic) Danilo Reyes to remove his improvements on the disputed property, it will not prejudice Augusto Marte, otherwise, as the court sees it, he will immensely [benefit] from the toils of Danilo Reyes.” and then disposed, as follows: “WHEREFORE, premises considered, the motion to remove improvements filed by defendant Danilo Reyes dated January 28, 1998 is hereby GRANTED pursuant to the provisions of Section 10, paragraph (d) of Rule 39 of the 1997 Rules of Civil Procedure and he is given a period of one (1) year from the issuance of this ORDER to remove, cut and appropriate the fruit-bearing trees which he had planted in the property in disputes (sic).

The COMMENT filed by the Office of the Solicitor General dated August 11, 1998 is hereby denied for lack of merit. The [C]omplaint for Injunction filed by Augusto D. Marte on March 2, 1998 against Danilo Reyes is hereby ordered dismissed for lack of merit.” Petitioner, through the OSG, filed its Motion for Reconsideration15 which was denied by the RTC.16 Aggrieved, petitioner went to the CA via Certiorari under Rule 65 of the Rules of Civil Procedure17 ascribing to the RTC grave abuse of discretion and acting without jurisdiction in granting Reyes’ motion to remove improvements. However, the CA dismissed the petition for certiorari, and affirmed the ruling of the RTC, in this wise: _______________ 15 Id., at pp. 119-130. 16 RTC Order dated February 17, 1999; id., at p. 131. 17 Petition for Certiorari dated April 5, 1999; id., at pp. 132144. 445 VOL. 572, NOVEMBER 28, 2008445 Republic vs. Ballocanag “It is notable that in the course of the suit for “Cancellation of Title and/or Reversion” there was not an iota of evidence presented on record that Reyes was in bad faith in acquiring the land nor in planting thereon perennial plants. So it could never be said and held that he was a planter/sower in bad faith. Thus, this Court holds that Reyes sowed and planted in good faith, and that being so the appropriate provisions on right accession are Articles 445 and 448 also of the Civil Code.”18

Hence, this Petition based on the sole ground that: THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE TRIAL COURT HOLDING THAT THE MOTION TO REMOVE IMPROVEMENTS FILED BY PRIVATE RESPONDENT IS BUT AN INCIDENT OF THE REVERSION CASE OVER WHICH THE TRIAL COURT STILL HAS JURISDICTION DESPITE THE FACT THAT THE DECISION IN THE REVERSION CASE HAD LONG BECOME FINAL AND EXECUTORY.19 The OSG posits that Reyes’ assailed motion is barred by prior judgment under Section 47, Rule 39 of the 1997 Rules of Civil Procedure because said motion merely sprang from the civil case of reversion tried and decided on the merits by the RTC, and the decision is already final, after it was duly affirmed by the CA and by this Court. The OSG stresses that one of Reyes’ assigned errors in the reversion case before the CA was that the RTC “erred in not granting his (Reyes’) counterclaims as well as his claims for improvements.” The OSG claims that such assigned error was duly resolved by the CA when it held, to wit: The non-award of appellant’s “counterclaims” is understandable. To begin with, no evidence whatsoever was presented by the appellant to sustain his plea for damages. In fact, appellant never testified to prove his allegations as regards his counterclaims. _______________ 18 Rollo, p. 63. 19 Id., at p. 36. 446

446SUPREME COURT REPORTS ANNOTATED Republic vs. Ballocanag Then, too, there is no showing that appellant paid the docket fees for the court to acquire jurisdiction over his purported counterclaims (Metal Engineering Resources Corp. vs. Court of Appeals, 203 SCRA 273). Lastly, the allegations made in the Answer in support of the socalled “counterclaims” clearly negate the nature of the claims as compulsory counterclaim like that of reimbursement of the useful expenses (Cabangis vs. Court of Appeals, 200 SCRA 414).20 Thus, the OSG posits that the issue of the improvements cannot be made the subject of the assailed motion on the pretext that such removal of improvements is merely incidental to the reversion case. The OSG submits that the consideration of the issue is now barred by res judicata. Lastly, the OSG argues that: the RTC and CA cannot vary a decision which has already attained finality; for purposes of execution, what is controlling is the dispositive portion of the decision; the RTC, except to order the execution of a decision which had attained finality, had long lost jurisdiction over the case; and the RTC erred and acted without jurisdiction when it granted Reyes’ motion to remove the improvements when the dispositive portion of the decision in the reversion case did not provide for the removal of the same.21 In his Comment22 on the OSG petition, Reyes avers that the points raised by the OSG are merely rehashed arguments which were adequately passed upon by the CA. He fully agrees with the ruling of the CA that: he is a planter/sower in good faith, as

such, Articles 445 and 448 of the New Civil Code are applicable; his motion is not entirely a new case, but merely an incident to the reversion case, a consequence of its grant and a legal solution to an important issue overlooked, if not ignored by the State and by the courts in their decisions in the reversion case; under Section 10, Rule 39 of the 1997 _______________ 20 Supra note 7, at pp. 97-98. 21 Supra note 1. 22 Rollo, pp. 195-200. 447 VOL. 572, NOVEMBER 28, 2008447 Republic vs. Ballocanag Rules of Civil Procedure, he is allowed to remove the improvements; and the instant Petition failed to abide with the proper manner as to the “proof of service” required under Section 13, Rule 13 of the 1997 Rules of Civil Procedure. Most importantly, Reyes avers that the land on which about 1,000 mango trees, 100 mandarin citrus trees and 100 guyabano trees are planted, was leased by the government to Atty. Marte, who entered into the possession of the subject land when the trees were already bearing fruits. Thus, if said trees are not removed, Atty. Marte would be unduly enriched as the beneficiary of these fruits without even spending a single centavo, at the expense of Reyes. Reyes posits that it is a well-established fact, unrebutted by the petitioner, that he planted these trees and to deny him the right to remove them would constitute a grave injustice and amount to confiscation without just compensation which is violative of the Constitution.

The OSG counters that copies of the instant Petition were properly served as shown by the photocopies of the registry return cards. Moreover, the OSG avers that granting, without admitting, that another person would stand to be benefited by the improvements that Reyes introduced on the land is beside the point and is not the fault of the petitioner because the particular issue of the improvements was already resolved with finality in the reversion case. The OSG claims that a lower court cannot reverse or set aside decisions or orders of a superior court, for to do so will negate the principle of hierarchy of courts and nullify the essence of review—a final judgment, albeit erroneous, is binding on the whole world.23 The instant Petition lacks merit. In an action for reversion, the pertinent allegations in the complaint would admit State ownership of the disputed _______________ 23 OSG’s Reply dated March 21, 2005; id., at 207-213, citing Manila Electric Co. v. Philippine Consumers Foundation, Inc., 374 SCRA 262 (2002). 448 448SUPREME COURT REPORTS ANNOTATED Republic vs. Ballocanag land.24 Indeed, the ownership over the subject land reverted to the State by virtue of the decisions of the RTC and CA and our Resolution on the matter. But these decisions simply ordered the reversion of the property to the State, and did not consider the improvements that Reyes had introduced on the property or provide him with any remedy relative thereto. Thus, Reyes was left out in the cold, faced with the prospect of losing not only

the land which he thought he owned, but also of forfeiting the improvements that he painstakingly built with his effort, time and money. We cannot agree with the OSG that the denial by the CA of Reyes’ counterclaim in the reversion case had the effect of completely foreclosing whatever rights Reyes may have over these improvements. We note that the counterclaim was denied because Reyes failed to prove that it was in the nature of a compulsory counterclaim, and he did not pay docket fees thereon, even as the CA found that Reyes “never testified to prove his allegations as regards his counterclaims.” Yet, the records of the reversion case reveal that Reyes adduced ample evidence of the extent of the improvements he introduced and the expenses he incurred therefor. This is reflected in the findings of the CA in the case at bench, and we concur with the appellate court when it said: “But this Court notes that while Reyes was half-hearted in his opposition to the reversion, he instead focused on proving the improvements he has introduced on the land, its extent and his expenses. Despite these proofs, the Decision of April 13, 1992 made no mention nor provision for the improvements on the land. With this legal vacuum, Reyes could not exercise the options allowed the sower and planter in good faith. This thus left him no other alternative but to avail of Paragraph (d) of Section 10 of Rule 39 of the 1997 Rules of Civil Procedure in order to collect or get a return of his investment as allowed to a sower and planter in good faith by the Civil Code.” _______________

24 Evangelista v. Santiago, G.R. No. 157447, April 29, 2005, 457 SCRA 744, 764, citing Heirs of Ambrocio Kionisala v. Heirs of Honorio Dacut, 378 SCRA 206, 214-215 (2002). 449 VOL. 572, NOVEMBER 28, 2008449 Republic vs. Ballocanag

is considerably more than that of the building or trees. In such a case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after the proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof.

Correlatively, the courts in the reversion case overlooked the issue of whether Reyes, vis-à-vis his improvements, is a builder or planter in good faith. In the instant case, the issue assumes full significance, because Articles 44825 and 54626 of the Civil Code grant the builder or planter in good faith full reimbursement of useful improvements and retention of the premises until reimbursement is made. A builder or planter in good faith is one who builds or plants on land with the belief that he is the owner thereof, unaware of any flaw in his title to the land at the time he builds or plants on it.27 On this issue, we are disposed to agree with the CA that Reyes was a planter in good faith. Reyes was of the belief that he was the owner of the subject land; in fact, a TCT over the property was issued in his name. He tilled the land, planted fruit trees thereon, and invested money from 1970. He re_______________ 25 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

26 Art. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain the thing until he has been reimbursed therefor. Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the person who has defeated him in the possession having the option of refunding the amount of the expenses or of paying the increase in value which the thing may have acquired by reason thereof. 27 Florentino v. Supervalue, Inc., G.R. No. 172384, September 12, 2007, 533 SCRA 156, 171, citing Lopez v. Sarabia, 439 SCRA 35, 49 (2004). 450 450SUPREME COURT REPORTS ANNOTATED Republic vs. Ballocanag ceived notice of the Republic’s claim only when the reversion case was filed on May 13, 1987. The trees are now full-grown and fruit-bearing. To order Reyes to simply surrender all of these fruit-bearing trees in favor of the State—because the decision in the reversion case declaring that the land is part of inalienable forest land and belongs to the State is already final and

immutable—would inequitably result in unjust enrichment of the State at the expense of Reyes, a planter in good faith. Nemo cum alterius detrimento locupletari potest.28 This basic doctrine on unjust enrichment simply means that a person shall not be allowed to profit or enrich himself inequitably at another’s expense.29 There is unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience.30 Article 22 of the Civil Code states the rule in this wise: “ART. 22. Every person who, through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.” The requisites for the application of this doctrine are present in the instant case. There is enrichment on the part of the petitioner, as the State would come into possession of—and may technically appropriate—the more than one thousand fruit-bearing trees planted by the private respondent. There is impoverishment on the part of Reyes, because he stands to lose the improvements he had painstakingly _______________ 28 No one shall enrich himself at the expense of another. 29 Almocera v. Ong, G.R. No. 170479, February 18, 2008, 546 SCRA 164, 176-177. 30 Allied Banking Corporation v. Li Sio Wan, G.R. No. 133179, March 27, 2008, 549 SCRA 504, 524, citing Reyes v. Lim, 408 SCRA 560 (2003). 451

VOL. 572, NOVEMBER 28, 2008451 Republic vs. Ballocanag planted and invested in. There is lack of valid cause for the State to acquire these improvements, because, as discussed above, Reyes introduced the improvements in good faith. Thus, the Court of Appeals did not commit any error in ruling that Reyes is entitled to the benefits of Articles 448 and 546 of the Civil Code. Thus, even if we accept the OSG’s submission that Reyes’ entitlement to these benefits is not absolute because he can no longer claim good faith after the filing of the reversion case in 1987, still, there is no gainsaying that prior to that―all the way back to 1970―he had possessed the land and introduced improvements thereon in good faith. At the very least, then, Reyes is entitled to these benefits for the 17 years that he had been a planter in good faith. However, we are mindful of the fact that the subject land is currently covered by Agro-Forestry Farm Lease Agreement (AFFLA) No. 175 issued by the Ministry of (now Department of Environment and) Natural Resources in favor of Atty. Augusto D. Marte, which will expire on December 21, 2011. By the terms of the AFFLA, the lessee shall, among others, do all in his power to suppress fires, cooperate with the Bureau of Forest Development (BFD) in the protection and conservation of the forest growth in the area and undertake all possible measures to insure the protection of watershed and environmental values within the leased area and areas adjacent thereto. This obligation to prevent any damage to the land subject of the lease is consonant with fundamental principles

and state policies set forth in Section 16,31 Article II and Section 4,32 Article XII of the Constitution. _______________ 31 SEC. 16. The State shall protect and advance the right of the people to a balanced and healthful ecology in accord with the rhythm and harmony of nature. 32 SEC. 4. The Congress shall, as soon as possible, determine by law the specific limits of forest lands and national parks, marking clearly their boundaries on the ground. Thereafter, such forest lands and national parks shall be conserved and may not be increased or 452 452SUPREME COURT REPORTS ANNOTATED Republic vs. Ballocanag To allow Reyes to remove the fruit-bearing trees now fullgrown on the subject land, even if he is legally entitled to do so, would be risking substantial damage to the land. It would negate the policy consideration underlying the AFFLA—to protect and preserve the biodiversity and the environment, and to prevent any damage to the land. Further, it would violate the implicit mandate of Article 547 of the Civil Code which provides: “ART. 547. If the useful improvements can be removed without damage to the principal thing, the possessor in good faith may remove them unless the person who recovers the possession exercises the option under paragraph 2 of the preceding article.” In this light, the options that Reyes may exercise under Articles 448 and 546 of the Civil Code have been restricted. It is no

longer feasible to permit him to remove the trees he planted. The only equitable alternative would be to order the Republic to pay Reyes the value of the improvements he introduced on the property. This is only fair because, after all, by the terms of the AFFLA, upon the expiration of the lease or upon its cancellation if there be any violation or breach of its terms, all permanent improvements on the land shall pass to the ownership of the Republic without any obligation on its part to indemnify the lessee. However, the AFFLA is not due to expire until December 21, 2011. In the interim, it is logical to assume that the lessee, Atty. Augusto D. Marte, will derive financial gain from the fruits that the trees planted by Reyes would yield. In fact, Atty. Marte may already have profited therefrom in the past several years. It is, therefore, reasonable to grant the Republic the right of subrogation against the lessee who may have benefited from the improvements. The Republic may, thus, _______________ diminished, except by law. The Congress shall provide, for such period as it may determine, measures to prohibit logging in endangered forests and watershed areas. 453 VOL. 572, NOVEMBER 28, 2008453 Republic vs. Ballocanag demand reimbursement from Atty. Marte for whatever amount it will have to pay Reyes for these improvements. As to the OSG’s insistent invocation of res judicata and the immutability of final judgments, our ruling in Temic

Semiconductors, Inc. Employees Union (TSIEU)-FFW, et al. v. Federation of Free Workers (FFW), et al.33 is instructive: “It is axiomatic that a decision that has acquired finality becomes immutable and unalterable. A final judgment may no longer be modified in any respect, even if the modification is meant to correct erroneous conclusions of fact and law; and whether it be made by the court that rendered it or by the highest court in the land. Any act which violates such principle must immediately be struck down. Indeed, the principle of conclusiveness of prior adjudications is not confined in its operation to the judgments of what are ordinarily known as courts, but it extends to all bodies upon which judicial powers had been conferred. The only exceptions to the rule on the immutability of a final judgment are: (1) the correction of clerical errors; (2) the socalled nunc pro tunc entries which cause no prejudice to any party; (3) void judgments; and (4) whenever circumstances transpire after the finality of the decision rendering its execution unjust and inequitable.” In the exercise of our mandate as a court of justice and equity,34 we rule in favor of Reyes pro hac vice. We reiterate that this Court is not precluded from rectifying errors of judgment if blind and stubborn adherence to the doctrine of immutability of final judgments would involve the sacrifice of justice for technicality.35 Indubitably, to order the reversion of the sub_______________ 33 G.R. No. 160993, May 20, 2008, 554 SCRA 122. (Citations omitted).

34 Chieng v. Santos, G.R. No. 169647, August 31, 2007, 531 SCRA 730, 748, citing National Development Company v. Madrigal Wan Hai Lines Corporation, 458 Phil. 1038, 1055; 412 SCRA 375, 382 (2003). 35 Heirs of Maura So v. Obliosca, G.R. No. 147082, January 28, 2008, 542 SCRA 406, 421-422. 454 454SUPREME COURT REPORTS ANNOTATED Republic vs. Ballocanag ject land without payment of just compensation, in absolute disregard of the rights of Reyes over the improvements which he, in good faith, introduced therein, would not only be unjust and inequitable but cruel as well. WHEREFORE, the instant Petition is DENIED. The Decision dated June 4, 2004 of the Court of Appeals is AFFIRMED with MODIFICATION in that: 1) The Regional Trial Court of Pinamalayan, Oriental Mindoro, Branch 41, is hereby DIRECTED to determine the actual improvements introduced on the subject land, their current value and the amount of the expenses actually spent by private respondent Danilo Reyes for the said improvements thereon from 1970 until May 13, 1987 with utmost dispatch. 2) The Republic, through the Bureau of Forest Development of the Department of Environment and Natural Resources, is DIRECTED to pay private respondent Danilo Reyes the value of such actual improvements he introduced on the subject land as determined by the Regional Trial Court, with the right of subrogation against Atty. Augusto D. Marte, the lessee in Agro-Forestry Farm Lease Agreement No. 175.

No costs. SO ORDERED. [Republic vs. Ballocanag, 572 SCRA 436(2008)]

No. L-57288. April 30, 1984.*FIRST DIVISION. LEONILA SARMIENTO, 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. Property; Price fixed by the court on value of land of petitioner ________________ * FIRST DIVISION. 123 VOL. 129, APRIL 30, 1984 123 Sarmiento vs. Agana and building constructed by private respondent not done with abuse of discretion.—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. Same; The landowner on which a building has been constructed in good faith by another has the option to buy the building or sell his land to the builder, he cannot refuse to exercise either option.—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. Same; Same.—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. (italics ours) PETITION for certiorari to review the decision of the Court of First Instance of Pasay City. The facts are stated in the opinion of the Court. Mercedes M. Respicio for petitioner. Romulo R. Bobadilla for private respondents. MELENCIO-HERRERA. J.: This Petition for Certiorari questions a March 29, 1979 124 124 SUPREME COURT REPORTS ANNOTATED Sarmiento vs. Agana 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 Parañaque, 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 Parañaque (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. Santos, 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 125 VOL. 129, APRIL 30, 1984 125 Sarmiento vs. Agana the Civil Code. SARMIENTO was required, within 60 days, to exercise the option to reimburse ERNESTO and wife the sum of P40,000.00 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:

“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. 126 126 SUPREME COURT REPORTS ANNOTATED Sarmiento vs. Agana 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. “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. (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]).

WHEREFORE, the Petition for Certiorari is hereby ordered dismissed, without pronouncement as to costs. SO ORDERED. Teehankee (Chairman), Plana, Relova, Gutierrez, Jr. and De la Fuente, JJ., concur. 127 VOL. 129, APRIL 30, 1984 127 People vs. Itura Petition dismissed. Notes.—A building, like a warehouse, is always an immovable property under the Civil Code. Separate treatment by the parties of the building from the land in which it stands does not change the immovable character of said building. (Punzalan, Jr. vs. Vda. de Lacsamana, 121 SCRA 331.) Batas 25 did not intent to prevent bona fide sales from owners/lessors who wish to dispose of their property to third persons. Giving preferential right to a tenant over and above a new owner’s need of the premises for his use and that of his family constitutes an impairment of the new owner’s liberty of abode. (Barasi vs. C.A., 125 SCRA 798.) A parcel of land sold to a Chinese citizen which the latter subsequently sold to a Filipino citizen can no longer be recovered by the vendor. (Godinez vs. Fong Pak Luen, 120 SCRA 223.) The essence of the bona fide or good faith lies in honest belief in the validity of one’s right, ignorance of a superior claim, and absence of intention to overreach another. (Negrete vs. CFI of Marinduque, 48 SCRA 113.)

When the party in physical possession of land acknowledges in a public document the ownership thereof in another, it follows that the latter has, as of that time, come to be in constructive possession of said land thru the former. (Viacrusis vs. Court of Appeals, 44 SCRA 176.) ——o0o—— [Sarmiento vs. Agana, 129 SCRA 122(1984)]

No. L-16351. June 30, 1964. CALAPAN LUMBER COMPANY. INC., plaintiff-appellee, vs. COMMUNITY SAWMILL COMPANY, ET AL., defendants-appellants. 347 VOL. 11, JUNE 30, 1964 347 Calapan Lumber Co., Inc. vs. Community Sawmill Co. Municipal corporations; Provincial board has no power to grant the exclusive use of a provincial road to a private company.— Two resolutions adopted by a provincial board granting the exclusive use for twenty years of part of a provincial road to a Iumber company under certain conditions are ultra vires because the board is not authorized by the Revised Administrative Code to pass such resolutions. Consequently, a subsequent resolution by the provincial board revoking said resolutions is in accord with law. Same; Same; Civil Code provisions on right of builder in good faith not applicable to public roads.—The exclusive use of part of a provincial road granted to a lumber company by resolutions of a provincial board, provided it completes the unfinished road, does not convert said road to a private one. The provisions of the Civil Code on the right of a builder in good faith on a private land cannot be invoked and applied and the people living in that part of the province are entitled to use the road. Same; Same; Remedy of builder in good faith of public.—A provincial road cannot be declared private property. For that

reason, a provincial board which had authorized the construction thereof by a private concern may elect between paying the builder the total cost of the construction with legal interest from the date of disbursement of the date of payment, or upon securing the recommendation of the Secretary of Public Works and Communications and authorization from the President to designate such road as toll road, to raise the necessary fund to reimburse the builder of the total cost of construction of the road with legal interest from date of disbursement by said builder to the date of payment by the province. APPEAL from a judgment of the Court of First Instance of Oriental Mindoro, Ramos, J. The facts are stated in the opinion of the Court. Ferdinand E. Marcos for plaintiff-appellee. Salvador H. Laurel and Exequiel S. Consulta for defendants-appellants. PADILLA, J.: This is an action for injunction, prohibition against defendant public officers, compensatory, exemplary and nominal damages, attorney's fees and costs. All the defendants prayed in their respective answers for the dismissal of the second amended complaint, in addi348 348 SUPREME COURT REPORTS ANNOTATED Calapan Lumber Co., Inc. vs. Community Sawmill Co. tion to their counterclaim,

After trial, the Court of First Instance of Oriental Mindoro rendered judgment, the dispositive part of which reads: WHEREFORE, this Court renders judgment: 1. Finding: (a) That the road and bridge in question, known as the BigaCommunal-Goob (from Km. 12.38 to 15.88) was constructed during the period from 1950 to 1952 by the plaintiff at its exclusive expense with the knowledge and consent of the Provincial Board of Oriental Mindoro; (b) That before actual construction of said road and bridge the personnel of the Office of the District Engineer surveyed the lay-out of the road to be constructed, also at the expense of the plaintiff; (c) That before the actual construction of the road in question the plaintiff secured and used road-right-of-way agreements (Exhs. Y, Y-1 to Y-7 'and. Z-AA), executed in favor of the plaintiff by the owners of the several portions of land traversed by said road; (d) That from the completion of the road up to the present the plaintiff has been contributing to the repair and maintenance of the said road such as stones, gravel, sand and lumber at its own expense; (e) That since the completion of the road in question (to) the same has been used by the public without any restriction with the written consent of the plaintiff us embodied in Resolutions Nos. 222 (Exh, A) and 119 (Exh. B), with the exception of logging and lumber concerns who might use the road with the permission of the plaintiff; (f) That Lao Kee (alias Lu Pong), Lee Cok, Tan Hong, Tan Kian, Co Giac, Tan Hong Chian Hian, Tan Tak Tiao, Kiok

Chia and the Community Sawmill Company had used the road and bridge in question sometime before April 6, 1958, until the issuance of the writ of preliminary injunction of June 25, 1953, manifest bad faith'. 2. Declaring: (a) That Resolution No, 186, series of 1953, marked Exh. C, is valid insofar as it repealed Resolution No. 222, series of 1953; marked Exh. "A", and Resolution No. 119. series of 1953, marked Exh. B; (b) That Resolution No. 186, series of 1953, marked Exh. C. insofar as it declared that the road and bridge 349 VOL. 11, JUNE 30, 1964 349 Calapan Lumber Co., Inc. vs. Community Sawmill Co. in question, public is null and void the same being in violation of Sec. 2131 of the Revised Administrative Code; (c) That the road and bridge in question are of private ownership belonging to the plaintiff; (d) That the said defendant Lao Kee (alias Lu Pong), Lee Cok, Tan Hong, Tan Kian, Co Giac, Tan Hong, Chia Hian, Tan Tak Tiao, Kiok Chia and Community Sawmill did not have the right to use the road and bridge in question; 3. Ordering: (a) That the writ of preliminary injunction issued against the Community Sawmill Company be made permanent, perpetually restraining the said defendants Lao Kee (alias Lu Pong), Lee Cok, Tan Hong, Tan Kian, Co Giac, Tan Hong, Chia Hian, Tan Tak Tiao, Kiok Chia and Community Sawmill

Company, their agents, attorneys, or other persons or entities from acting on their behalf; (b) The same defendants named in the immediately preceding paragraph to pay jointly and severally to the plaintiff the sum of P10,000.00 as attorney's fees and to pay the costs; 4. Absolving from the third amended complaint the defendants Marciano Roque, Pablo Lorenzo, Isaias Fernando, Francisco Infantado, Bernabe Jamilla and Cenon C. Laurena; 5. Dismissing all the counterclaims filed by the defendants for lack of sufficient merits. (Civil Case No. R-542) From the judgment thus rendered, the defendants Lao Kee (alias Lu Pong), Lee Cok, Tan Hong, Tan Kian, Co Giac, Chia Hian, Tan Tak Tiao, Kiok Chia, all acting under the name and style of Community Sawmill Company, appealed to this Court. They claim that the trial court committed the following errors: 1. The lower court erred in holding that the road in question is a private road and that, therefore, plaintiff could legally deny its use to herein appellants. 2. The lower court erred in ordering herein appellants to pay plaintiff attorney's fees. 3. The lower court erred in holding that plaintiff can recover expenses 01 litigation under article 2208 of the Civil Code. 4. The lower court erred in not dismissing the complaint and finding for herein appellants on their counterclaim. At the trial, the parties submitted to the Court a stipulation of facts which reads: 350 350 SUPREME COURT REPORTS ANNOTATED Calapan Lumber Co., Inc. vs. Community Sawmill Co.

1. That the parties agree to the existence and authenticity of the following resolutions which were passed by the Provincial Board of Oriental Mindoro, as follows: (a) Resolution No. 222, Series of 1950 (Annex "A" of -the Third Amended Complaint), but not its regularity and validity, which must be proven; (b) Resolution No. 119, Series of 1953 (Annex "B" of the Third Amended Complaint); (c) Resolution No. 186, Series of 1955, revoking Resolutions Nos. 222, Series of 1950 and 119, Series of 1953, of the Provincial Board, granting the Calapan Lumber Company the exclusive right under certain conditions to use the BigaCommunal-Goob road for a period of twenty (20) years, and declaring said road as a toll road. 2. That the parties agree as to the existence and authenticity of the following official communications, indorsements and letters re the Biga-Communal-Goob road: (a) Letter dated March 20, 1953 addressed to the Hon. Executive Secretary, signed by Rodolfo Naguit and Joe Ong, both representatives of the Community Sawmill Company; (b) 1st Indorsement of Assistant Executive Secretary Lucas Madamba, dated March 21, 1953 (Annex "C", Third Amended Complaint); (c) 2nd Indorsement of Governor Infantado dated March 23, 1953; (d) 3rd Indorsement of District Engineer C. C. Luarena dated March 26, 1953; (e) 4th Indorsement of Governor Infantado dated March 28, 1953;

(f) Letter of Rodolfo G, Naguit, representative of the Community Sawmill Company, dated May 4, 1953 and addressed to the Assistant Executive Secretary, Office of .the President; (g) Letter of Atty. Ferdinand E. Marcos, counsel for the plaintiff company addressed to Executive Secretary Marciano Roque, dated May 21, 1953 (Annex "F", Third Amended Complaint); (h) 7th Indorsement of Director of Public Works, Isaias Fernando, dated April 20, 1953 (Annex "D", Third Amended Complaint); (i) 8th Indorsement of Undersecretary Vicente Orosa, dated April 25, 1953; (j) 9th Indorsement of Executive Secretary Marciano Roque 351 VOL. 11, JUNE 80, 1964 351 Calapan Lumber Co., Inc. vs. Community Sawmill Co. dated May 11, 1953 (Annex "E", Third Amended Complaint); (k) 3rd Indorsement of Acting Executive Secretary Marciano Roque, dated July 8, 1953 and the 4th Indorsement of Undersecretary Vicente Orosa, dated July 16, 1958; (l) 1st Indorsement of Acting Executive Secretary Marciano Roque, dated July 17, 1953. Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this Honorable Court, without prejudice to the parties adducing other evidence to prove their case not covered by this stipulation of facts. xxx xxx xxx

Resolution No. 222, adopted 4 December 1950, reads: Whereas, there is at present an unfinished provincial road in the barrio of Viga, of the municipality of Calapan, known as the Viga-Communal-Goob Road, the construction of which could not be undertaken by the province due to insufficiency of funds; Whereas, the Calapan Lumber Co., Inc., through its President, Mr, D. M. Gotauco, in a letter addressed to the Governor of this province has made representations to undertake the construction of said road under certain conditions; and Whereas, the province is willing to accede to the request of the Calapan Lumber Co., Inc. and to give it the sole right for its use, provided that after a period of twenty (20) years, said company shall donate to the province the road it had constructed, provided further that during the said period of 20 years other concerns dealing in logs and/or lumber may use the same road upon permission granted to them by the said Calapan Lumber Co., Inc.; and provided finally that said road is open to all non-logging concerns or individuals during the said period of 20 years. Now, therefore, be it RESOLVED, That the Provincial Board of Oriental Mindoro grants, as hereby is granting, the Calapan Lumber Co., Inc. to undertake the construction of the unfinished provincial road in the barrio of Viga, municipality of Calapan, known as the Viga-Communal-Goob Road, subject to the stipulations stated above; and RESOLVED FURTHER, That copies of this resolution be furnished the District Engineer and the Calapan Lumber Co., Inc., through its President, Mr. D. M. Gotauco, for their information.

xxx xxx xxx Resolution No. 119, adopted 6 April 1968, reads: Whereas, under Resolution No. 222, series of 1950, the 352 352 SUPREME COURT REPORTS ANNOTATED Calapan Lumber Co., Inc. vs. Community Sawmill Co. Provincial Board of Oriental Mindoro under the former administration, granted the Calapan Lumber Co,, Inc. the right to undertake the construction of the unfinished VigaCommunalGoob provincial road the sole right for its use, under the following conditions: (1) That after a period of twenty (20) years, said company shall donate to the province the road it had constructed; (2) That during the said period of 20 years other concerns dealing in logs and/or lumber may use the same road upon permission granted to them by the Calapan Lumber Co.; and (3) That said road is open to all non-logging concerns or individuals during the said period of 20 years. Whereas, according to the records of the Provincial Board the said resolution has not been amended or modified up to the present, and, therefore, the same is still in force and binding as per agreement stipulated therein; Whereas, this Board has received reliable information to the effect that another certain lumber company is attempting to use, or has actually used the same road, by allowing to pass thru it its heavy trucks and tractors without securing any permission f rom the Calapan Lumber Co., Inc., to the detriment and prejudice of the interests of the latter lumber

company which shouldered the cost of its completion in accordance with the rights granted to it by the province; and Whereas, after a careful consideration of the matter this Board is of the opinion that the right of the Calapan Lumber Co., Inc. over the said road as stipulated in the condition set forth in the resolution must be upheld for obvious reasons; Now, therefore, be it RESOLVED by the Provincial Board of Oriental Mindoro to authorize, as it hereby authorizes, the Calapan Lumber Company, Inc., to prohibit the use of the Viga-CommunalGoob provincial road, from point Km. 12.38 up to Km. 15.88 of said road, by any other concern or company dealing in logs and/or lumber, without the permission or consent of the said Calapan Lumber Co., Inc. in accordance with one of the stipulations or conditions agreed upon in Resolution No, 222, series of 1950, of the Provincial Board; and RESOLVED, FURTHER, That the District Engineer and the Calapan Lumber Co., Inc. be furnished with copies of this resolution, for their information. xxx xxx xxx Resolution No. 186, adopted 19 June 1953, reads: REVOKING RESOLUTIONS NOS. 222, SERIES OF 1950, AND 119, SERIES OF 1953, OF THE PROVINCIAL 353 VOL. 11, JUNE 30, 1964 353 Calapan Lumber Co., Inc. vs. Community Sawmill Co. BOARD, GRANTING THE CALAPAN LUMBER COMPANY THE EXCLUSIVE RIGHT UNDER CERTAIN

CONDITIONS TO USE THE VIGA-COMMUNAL-GOOB PROVINCIAL ROAD FOR A PERIOD OF TWENTY (20) YEARS. Whereas, under Resolution No. 222, series of 1950, the Provincial Board of Oriental Mindoro, under the former provincial administration, granted the Calapan Lumber Co., Inc. an authority to undertake the construction of the unfinished Viga-Goob provincial road from Point Km. 12.38 to Km. 15.88, and the exclusive right for its use, under certain conditions; Whereas, on April 6, 1953, this Board passed another resolution (119) maintaining the right of the Calapan Lumber Co., Inc. over the said road under the conditions stipulated in the above-cited resolution No, 222, and forthwith authorized the said company to prohibit the use of the portion of said road constructed at its expense by any other concern or company dealing in logs or lumber without its permission; Whereas, in a 9th Indorsement dated May 11, 1953, the pertinent parts of which are quoted hereunder, the Honorable, the Executive Secretary to whom the case regarding this matter was appealed for decision, and upon the recommendation of the Director of Public Works and with the concurrence of the Undersecretary of Public Works and Communications, ruled that provincial roads are considered as properties for public use and the Provincial Board may not therefore grant the exclusive use thereof to any private individual or entity which would discriminate against or exclude the general public from a reasonable use thereof, and therefore, the resolution in question should be revoked.

In this connection, it should be stated that Provincial roads are properties for public use and the provincial board may not grant the exclusive use thereof to any private individual or entity or enter into a contract or agreement which would tend to discriminate against or exclude the general public from a reasonable use thereof. Resolutions Nos. 222, series of 1950, and 119, series of 1953, of the Provincial Board, granting the Calapan Lumber Company an exclusive right to use the said road for a period of twenty (20) years and to prohibit lumber or logging concerns from using the road in question without the company's permission, should therefore be revoked. In consonance with the policy of the law, and as correctly suggested by the Director of Public Works and the Undersecretary of Public Works and Communications, the portion of the Viga-Communal Road from Km. 12.38 to 15.88, having a length of 3.5 kilometers, should be declared a toll road in order to raise funds for its maintenance and with which to reimburse the Calapan Lumber Company for the 354 354 SUPREME COURT REPORTS ANNOTATED Calapan Lumber Co., Inc. vs. Community Sawmill Co. expenses the latter had incurred in the construction of thisportion of the road. Whereas, in view of the said ruling, this Board has been requested to take immediate action on the matter, to declare the above-said portion of the Viga-Communal-Goob provincial road as a toll road; and,

Whereas, according to an estimate made by the office of the District Engineer the Calapan Lumber Company has spent for the construction of the portion of the road in question having a length of 3.5 kilometers, the amount of P25,000.00 more or less; Now, therefore, be it— RESOLVED, That Resolutions Nos. 222. series of 1950, and 119, series of 1953, of the Provincial Board, which grant the Calapan Lumber Co., Inc., the exclusive right to use the YigaCommunal-Goob provincial road for a period of 20 years, under certain conditions, be, and hereby are, revoked; RESOLVED, FURTHER, That the portion of said VigaCommunal-Goob provincial road, from Point Km. 12.88 up to Km. 15.88 thereof, be and hereby is, declared PROVINCIAL TOLL ROAD, under the provisions of section 2131 of the Revised Administrative Code; RESOLVED, FURTHERMORE, That the following toll rates to be paid by any motor vehicle for the use of the provincial road be, and hereby are, fixed, effective today, June 19, 1953, the proceeds from which shall be used for the maintenance of the said road and the balance thereof for the reimbursement to the said company for the expenses it had incurred in the construction for said portion of the road: For every truck, one way ............................................................. P1.00 For every weapon carrier, one way ............................................................. .60 For every jeepney ............................................................. .30 PROVIDED, however, that the portion of the road declared herein as provincial toll road shall continue to be so up to and

until the amount spent by the Calapan Lumber Company for its construction shall have been covered by reimbursement to said company; and RESOLVED, FINALLY, That copies of this resolution be forwarded to His Excellency, the President of the Philippines, thru the Director of Public Works and the Honorable, the Secretary of Public Works and Communications, Manila. xxx xxx xxx Resolution No. 169, adopted 21 April 1956, revoked Resolution No. 186 in so far as it declared Provincial Toll Road that part of the road invoked in this case. 355 VOL. 11, JUNE 30, 1964 355 Calapan Lumber Co., Inc. vs. Community Sawmill Co. There seems to be no doubt that Resolutions Nos. 222 and 119, adopted by the Provincial Board of Oriental Mindoro quoted above, were ultra vires, because sections 2067 (f) and (g) on powers of the provinces as political bodies corporate; 2102 (g) on powers of the provincial boards; 2106 (f) on powers of the provincial boards to be exercised with the approval of the Department Head; and 2113 (a) on road and bridge fund, of the Revised Administrative Code, do not authorize the Provincial Board of Oriental Mindoro to pass and adopt said resolutions. The contention that the Provincial Board of Oriental Mindoro under section 2106 (g) invoked by the appellee is authorised to pass those resolutions Nos. 222 and 199 quoted above, is untenable because said paragraph of the section authorizes the Provincial Board "to permit, .upon favorable recommendation

by the Secretary of Public Works and Communications, and subject to such conditions as may properly protect the public interests, the construction and maintenance, for private use of railways, conduits, and telephone lines across public thoroughfares, streets, roads, or other public property and in the province: Provided, That such construction and private use shall not prevent or obstruct the public use of such thoroughfares, streets, roads or other public property and that the permit granted shall at all times be subject to revocation by the Secretary of the Interior, if, in the judgment of that official, the public interest requires it." Consequently, Resolution No. 186 revoking the two previous resolutions was in order. The road known as the Viga-Communal-Goob connecting two finished or completed parts of the provincial road, from kilometer 12.38 to 15.88, as laid out by the personnel of the office of the District Engineer was planned or intended to be laid out and constructed by the Provincial Government of Oriental Mindoro to complete said road. The fact that the survey, lay-out and actual construction of the unfinished part of the road were done at the appellee's expense, does not convert said road after construction into a private road, for it does not appear that the parts of the land where the road was laid out and constructed belong to or are owned by the appellee. The evidence 356 356 SUPREME COURT REPORTS ANNOTATED Calapan Lumber Co., Inc. vs. Community Sawmill Co.

shows that the owners of such parts of land ceded their parts of the land owned by them without any consideration because of their desire to have the road completed or to connect the ends of two completed parts of the road. It may be conceded that the appellee built the road in question in good faith; and such being the case, it may be argued that the appellee is entitled to keep or have possession of the road until after it shall have been reimbursed of the expenses it had incurred in constructing and maintaining the road in good condition. The provisions of the Civil Code on the right of a builder in good faith on a private land1Articles 448 and 546, Civil Code. cannot be invoked and applied to the road in question, because public interest is involved and the people living in that part of the province are entitled to use the road. It is true that that part of the Resolution No. 186 above quoted converting the road in question into toll road contravenes section 2131 of the Revised Administrative Code, because in the case of road the recommendation of the Secretary of Public Works and Communications and the authorization of the President of the Philippines had to be secured and such recommendation and authorization had not been obtained. Upon the foregoing considerations, this Court is of the opinion, and so holds, that the road involved in this case cannot be declared private property, and for that reason the Provincial Board of Oriental Mindoro may elect between paying the appellee the total cost of the construction of the road together with lawful interest from the date of actual disbursement by the appellee to the date of payment by the Province of Oriental Mindoro within a reasonable period not to exceed one year from the date this judgment shall become final; or upon

securing the recommendation of the Secretary of Public Works and Communications and authorization of the President of the Philippines to designate such road an toll road, to raise the necessary fund to reimburse, the appellee of the total cost of construction of the road, together with lawful interest from the date of _______________ 1 Articles 448 and 546, Civil Code. 357 VOL. 11, JUNE 80, 1964 357 Olizon vs. Central Bank actual disbursement by the appellee to the date of payment by the Province of Oriental Mindoro, and the latter is ordered to refund the amount paid for tolls by the appellee during the enforcement of Resolution No. 186 which, as above stated, was unauthorized. The judgment appealed from making final the preliminary writ of injunction and ordering the appellants to pay the appellee the sum of P10,000 as attorney's fees, are reversed and set aside. The rest of the judgment appealed from not inconsistent with this opinion is affirmed, without pronouncement as to costs. Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Regala and Makalintal, JJ., concur. Barrera and Dizon, JJ., took no part. Judgment affirmed with modifications. Notes.—The authority of the Secretary of Public Works and Communications to inquire into and decide the question of the public or private character of a river or stream is incidental to the power conferred upon him by Rep. Act No. 2056 to

conduct the necessary investigation and to order the removal of any works which constitute obstructions to navigable rivers or waterways (Borja v. Moreno, et al, L-16487, July 30, 1964). Under Section 12 of Rep. Act 917, the municipal council, not the mayor, shall designate the municipal roads on which the share of the municipality from the highway special fund shall be expended. A municipal mayor who deprives the municipal council of its authority to designate the municipal roads on which the fund would be expended may be guilty of maladministration of office falling under Section 2188 of the Revised Adm. Code (Lumontad, Jr. v. Prov. Governor, et al, L17568, May 30, 1963, 8 SCRA 90). ——oOo—— [Calapan Lumber Co., Inc. vs. Community Sawmill Co., 11 SCRA 346(1964)]

G.R. No. 170923. January 20, 2009.* SULO SA NAYON, INC. and/or PHILIPPINE VILLAGE HOTEL, INC. and JOSE MARCEL E. PANLILIO, petitioners, vs. NAYONG PILIPINO FOUNDATION, respondent. Lease; Ejectment; Unlawful Detainer; The word “vacate” is not a talismanic word that must be employed in all notices to vacate—the tenants must pay rentals which are fixed and which became payable in the past, failing which they must move out.—Petitioners’ argument that the demand letter is “inadequate” because it contained no demand to vacate the leased premises does not persuade. We have ruled that: . . . . The word “vacate” is not a talismanic word that must be employed in all notices. The alternatives in this case are clear cut. The tenants must pay rentals which are fixed and which became payable in the past, failing which they must move out. There can be no other interpretation of the notice given to them. Hence, when the petitioners demanded that either he pays P18,000 in five days or a case of ejectment would be filed against him, he was placed on notice to move out if he does not pay. There was, in effect, a notice or demand to vacate. Same; Builders in Good Faith; Introduction of valuable improvements on the leased premises does not give the lessee the right of retention and reimbursement which rightfully belongs to a builder in good faith—the doctrine is that a lessee is neither a builder in good faith nor in bad faith that would call for the application of Articles 448 and 546 of the Civil Code since his rights are governed by Article 1678.—In the case at bar, petitioners have no adverse claim or title to the land. In fact, as lessees, they recognize that the respondent is the owner of the land. What petitioners insist is that because of the

improvements, which are of substantial value, that they have introduced on the leased premises with the permission of respondent, they should be considered builders in good faith who have the right to retain possession of the property until reimbursement by respondent. We affirm the ruling of the CA that introduction of valuable improvements on the leased premises does not give the petitioners the right of retention and reimbursement which rightfully belongs to a builder in good faith. Otherwise, such a situation would allow the lessee to easily “improve” the lessor out of its property. We reiterate the doctrine that a lessee is neither a builder in good faith nor in bad faith that would call for the application of Articles 448 and 546 of the Civil Code. His rights are governed by Article 1678 of the Civil Code. _______________ * FIRST DIVISION. 656 656SUPREME COURT REPORTS ANNOTATED Sulo sa Nayon Inc. vs. Nayong Pilipino Foundation Same; Same; Contracts; Basic is the doctrine that laws are deemed incorporated in each and every contract—existing laws always form part of any contract.—Petitioners argue that to apply Article 1678 to their case would result to sheer injustice, as it would amount to giving away the hotel and its other structures at virtually bargain prices. They allege that the value of the hotel and its appurtenant facilities amounts to more than two billion pesos, while the monetary claim of respondent against them only amounts to a little more than twenty-six million pesos. Thus, they contend that it is the lease contract

that governs the relationship of the parties, and consequently, the parties may be considered to have impliedly waived the application of Article 1678. We cannot sustain this line of argument by petitioners. Basic is the doctrine that laws are deemed incorporated in each and every contract. Existing laws always form part of any contract. Further, the lease contract in the case at bar shows no special kind of agreement between the parties as to how to proceed in cases of default or breach of the contract. PETITION for review on certiorari of the decision and resolution of the Court of Appeals. The facts are stated in the opinion of the Court. Linderbergh S. Villamil for petitioners. The Government Corporate Counsel for respondent. PUNO, C.J.: On appeal are the Court of Appeals’ (CA’s) October 4, 2005 Decision1 in CA-G.R. SP No. 74631 and December 22, 2005 Resolution,2 reversing the November 29, 2002 Decision3 of the Regional Trial Court (RTC) of Pasay City in Civil Case No. 02-0133. The RTC modified the Decision4 of the Metropolitan Trial Court (MeTC) of Pasay City which ruled against petitioners and ordered them to vacate the premises and pay their arrears. The RTC declared petitioners as builders in good faith and upheld their right to indemnity. The facts are as follows: _______________ 1 Rollo, pp. 43-53. 2 Id., at pp. 55-56. 3 Id., at pp. 144-159. 4 Id., at pp. 138-143.

657 VOL. 576, JANUARY 20, 2009657 Sulo sa Nayon Inc. vs. Nayong Pilipino Foundation Respondent Nayong Pilipino Foundation, a government-owned and controlled corporation, is the owner of a parcel of land in Pasay City, known as the Nayong Pilipino Complex. Petitioner Philippine Village Hotel, Inc. (PVHI), formerly called Sulo sa Nayon, Inc., is a domestic corporation duly organized and existing under Philippine laws. Petitioner Jose Marcel E. Panlilio is its Senior Executive Vice President. On June 1, 1975, respondent leased a portion of the Nayong Pilipino Complex, consisting of 36,289 square meters, to petitioner Sulo sa Nayon, Inc. for the construction and operation of a hotel building, to be known as the Philippine Village Hotel. The lease was for an initial period of 21 years, or until May 1996. It is renewable for a period of 25 years under the same terms and conditions upon due notice in writing to respondent of the intention to renew at least 6 months before its expiration. Thus, on March 7, 1995, petitioners sent respondent a letter notifying the latter of their intention to renew the contract for another 25 years. On July 4, 1995, the parties executed a Voluntary Addendum to the Lease Agreement. The addendum was signed by petitioner Jose Marcel E. Panlilio in his official capacity as Senior Executive Vice President of the PVHI and by Chairman Alberto A. Lim of the Nayong Pilipino Foundation. They agreed to the renewal of the contract for another 25 years, or until 2021. Under the new agreement, petitioner PVHI was bound to pay the monthly rental on a per square meter basis at the rate of P20.00 per

square meter, which shall be subject to an increase of 20% at the end of every 3-year period. At the time of the renewal of the lease contract, the monthly rental amounted to P725,780.00. Beginning January 2001, petitioners defaulted in the payment of their monthly rental. Respondent repeatedly demanded petitioners to pay the arrears and vacate the premises. The last demand letter was sent on March 26, 2001. On September 5, 2001, respondent filed a complaint for unlawful detainer before the MeTC of Pasay City. The complaint was docketed as Civil Case No. 708-01. Respondent computed the arrears of petitioners in the amount of twenty-six million one hundred eighty-three thousand two hundred twenty-five pesos and fourteen centavos (P26,183,225.14), as of July 31, 2001. 658 658SUPREME COURT REPORTS ANNOTATED Sulo sa Nayon Inc. vs. Nayong Pilipino Foundation On February 26, 2002, the MeTC rendered its decision in favor of respondent. It ruled, thus: “. . . . The court is convinced by the evidence that indeed, defendants defaulted in the payment of their rentals. It is basic that the lessee is obliged to pay the price of the lease according to the terms stipulated (Art. 1657, Civil Code). Upon the failure of the lessee to pay the stipulated rentals, the lessor may eject (sic) and treat the lease as rescinded and sue to eject the lessee (C. Vda[.] De Pamintuan v. Tiglao, 53 Phil. 1). For nonpayment of rentals, the lessor may rescind the lease, recover

the back rentals and recover possession of the leased premises. .. xxx . . . . Improvements made by a lessee such as the defendants herein on leased premises are not valid reasons for their retention thereof. The Supreme Court has occasion to address a similar issue in which it ruled that: ‘The fact that petitioners allegedly made repairs on the premises in question is not a reason for them to retain the possession of the premises. There is no provision of law which grants the lessee a right of retention over the leased premises on that ground. Article 448 of the Civil Code, in relation to Article 546, which provides for full reimbursement of useful improvements and retention of the premises until reimbursement is made, applies only to a possessor in good faith, i.e., one who builds on a land in the belief that he is the owner thereof. This right of retention does not apply to a mere lessee, like the petitioners, otherwise, it would always be in his power to ‘improve’ his landlord out of the latter’s property (Jose L. Chua and Co Sio Eng vs. Court of Appeals and Ramon Ibarra, G.R. No. 109840, January 21, 1999).’ Although the Contract of Lease stipulates that the building and all the improvements in the leased premises belong to the defendants herein, such will not defeat the right of the plaintiff to its property as the defendants failed to pay their rentals in violation of the terms of the contract. At most, defendants can only invoke [their] right under Article 1678 of the New Civil Code which grants them the right to be reimbursed one-half of the value of the building upon the termination of the lease, or,

in the alternative, to remove the improvements if the lessor refuses to make reimbursement.” The dispositive portion of the decision reads as follows: “WHEREFORE, premises considered, judgment is hereby rendered in favor of Nayong Pilipino Foundation, and against the defendant Philippine Village Hotel, Inc[.], and all persons claiming rights under it, ordering the latter to: 659 VOL. 576, JANUARY 20, 2009659 Sulo sa Nayon Inc. vs. Nayong Pilipino Foundation 1. VACATE the subject premises and surrender possession thereof to plaintiff; 2. PAY plaintiff its rental arrearages in the sum of TWENTY SIX MILLION ONE HUNDRED EIGHTY THREE THOUSAND TWO HUNDRED TWENTY FIVE PESOS AND 14/100 (P26,183,225.14) incurred as of July 31, 2001; 3. PAY plaintiff the sum of SEVEN HUNDRED TWENTY FIVE THOUSAND SEVEN HUNDRED EIGHTY PESOS (P725,780.00) per month starting from August 2001 and every month thereafter by way of reasonable compensation for the use and occupation of the premises; 4. PAY plaintiff the sum of FIFTY THOUSAND PESOS (P50,000.00) by way of attorney’s fees[; and] 5. PAY the costs of suit. The complaint against defendant Jose Marcel E. Panlilio is hereby dismissed for lack of cause of action. The said defendant’s counterclaim however is likewise dismissed as the complaint does not appear to be frivolous or maliciously instituted.

SO ORDERED.”5 Petitioners appealed to the RTC which modified the ruling of the MeTC. It held that: “. . . it is clear and undisputed that appellants-lessees were expressly required to construct a first-class hotel with complete facilities. The appellants were also unequivocally declared in the Lease Agreement as the owner of the improvements so constructed. They were even explicitly allowed to use the improvements and building as security or collateral on loans and credit accommodations that the Lessee may secure for the purpose of financing the construction of the building and other improvements (Section 2; pars. “A” to “B,” Lease Agreement). Moreover, a time frame was setforth (sic) with respect to the duration of the lease initially for 21 years and renewable for another 25 years in order to enable the appellants-lessees to recoup their huge money investments relative to the construction and maintenance of the improvements. xxx Considering therefore, the elements of permanency of the construction and substantial value of the improvements as well as the undispute[d] own_______________ 5 Id., at pp. 142-143. 660 660SUPREME COURT REPORTS ANNOTATED Sulo sa Nayon Inc. vs. Nayong Pilipino Foundation ership over the land improvements, these, immensely engender the application of Art. 448 of the Civil Code. The only remaining and most crucial issue to be resolved is whether or

not the appellants as builders have acted in good faith in order for Art. 448 in relation to Art. 546 of the Civil Code may apply with respect to their rights over improvements. xxx . . . it is undeniable that the improvement of the hotel building of appellants (sic) PVHI was constructed with the written consent and knowledge of appellee. In fact, it was precisely the primary purpose for which they entered into an agreement. Thus, it could not be denied that appellants were builders in good faith. Accordingly, and pursuant to Article 448 in relation to Art. 546 of the Civil Code, plaintiff-appellee has the sole option or choice, either to appropriate the building, upon payment of proper indemnity consonant to Art. 546 or compel the appellants to purchase the land whereon the building was erected. Until such time that plaintiff-appellee has elected an option or choice, it has no right of removal or demolition against appellants unless after having selected a compulsory sale, appellants fail to pay for the land (Ignacio vs. Hilario, 76 Phil. 605). This, however, is without prejudice from the parties agreeing to adjust their rights in some other way as they may mutually deem fit and proper.” The dispositive portion of the decision of the RTC reads as follows: “WHEREFORE, and in view of the foregoing, judgment is hereby rendered modifying the decision of [the] MTC, Branch 45 of Pasay City rendered on February 26, 2002 as follows: 1. Ordering plaintiff-appellee to submit within thirty (30) days from receipt of a copy of this decision a written manifestation of the option or choice it selected, i.e., to

appropriate the improvements upon payment of proper indemnity or compulsory sale of the land whereon the hotel building of PVHI and related improvements or facilities were erected; 2. Directing the plaintiff-appellee to desist and/or refrain from doing acts in the furtherance or exercise of its rights and demolition against appellants unless and after having selected the option of compulsory sale and appellants failed to pay [and] purchase the land within a reasonable time or at such time as this court will direct; 661 VOL. 576, JANUARY 20, 2009661 Sulo sa Nayon Inc. vs. Nayong Pilipino Foundation 3. Ordering defendants-appellants to pay plaintiff-appellee [their] arrears in rent incurred as of July 31, 2001 in the amount of P26,183,225.14; 4. Ordering defendants-appellants to pay to plaintiff-appellee the unpaid monthly rentals for the use and occupation of the premises pending this appeal from July to November 2002 only at P725,780.00 per month; 5. The fourth and fifth directives in the dispositive portion of the trial court’s decision including that the last paragraph thereof JME Panlilio’s complaint is hereby affirmed; 6. The parties are directed to adjust their respective rights in the interest of justice as they may deem fit and proper if necessary. SO ORDERED.”6 Respondent appealed to the CA which held that the RTC erroneously applied the rules on accession, as found in Articles

448 and 546 of the Civil Code when it held that petitioners were builders in good faith and, thus, have the right to indemnity. The CA held: “By and large, respondents are admittedly mere lessees of the subject premises and as such, cannot validly claim that they are builders in good faith in order to solicit the application of Articles 448 and 546 of the Civil Code in their favor. As it is, it is glaring error on the part of the RTC to apply the aforesaid legal provisions on the supposition that the improvements, which are of substantial value, had been introduced on the leased premises with the permission of the petitioner. To grant the respondents the right of retention and reimbursement as builders in good faith merely because of the valuable and substantial improvements that they introduced to the leased premises plainly contravenes the law and settled jurisprudential doctrines and would, as stated, allow the lessee to easily “improve” the lessor out of its property. . . . . Introduction of valuable improvements on the leased premises does not strip the petitioner of its right to avail of recourses under the law and the lease contract itself in case of breach thereof. Neither does it deprive the petitioner of its right under Article 1678 to exercise its option to acquire the improvements or to let the respondents remove the same.” _______________ 6 Id., at pp. 158-159. 662 662SUPREME COURT REPORTS ANNOTATED Sulo sa Nayon Inc. vs. Nayong Pilipino Foundation Petitioners’ Motion for Reconsideration was denied.

Hence, this appeal.7 Petitioners assign the following errors: I THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN NOT HOLDING THAT PETITIONERS WERE BUILDERS IN GOOD FAITH OVER THE SUBSTANTIAL AND VALUABLE IMPROVEMENTS WHICH THEY HAD INTRODUCED ON THE SUBJECT PROPERTY, THUS COMPELLING THE APPLICATION OF ARTICLE 448 OF THE CIVIL CODE IN RELATION TO ARTICLE 546 OF THE SAME CODE, INSTEAD OF ARTICLE 1678 OF THE CIVIL CODE. II THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS REVERSIBLE ERROR WHEN IT DISREGARDED THE FACT THAT THE LEASE CONTRACT GOVERNS THE RELATIONSHIP OF THE PARTIES AND CONSEQUENTLY THE PARTIES MAY BE CONSIDERED TO HAVE IMPLIEDLY WAIVED THE APPLICATION OF ARTICLE 1678 OF THE CIVIL CODE TO THE INSTANT CASE. III ASSUMING ARGUENDO THAT THE PETITIONERS ARE NOT BUILDERS IN GOOD FAITH, THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR WHEN IT OVERLOOKED THE FACT THAT RESPONDENT ALSO ACTED IN BAD FAITH WHEN IT DID NOT HONOR AND INSTEAD BREACHED THE LEASE CONTRACT BETWEEN THE

PARTIES, THUS BOTH PARTIES ACTED AS IF THEY ARE IN GOOD FAITH. IV TO SANCTION THE APPLICATION OF ARTICLE 1678 OF THE CIVIL CODE INSTEAD OF ARTICLE 448 OF THE CIVIL CODE IN RELATION TO ARTICLE 546 OF THE SAME CODE WOULD NOT ONLY WREAK HAVOC AND CAUSE SUBSTANTIAL INJURY TO THE RIGHTS AND INTERESTS OF PETITIONER PHILIPPINE VILLAGE HOTEL, INC. WHILE RESPONDENT NAYONG PILIPINO FOUNDATION, IN COMPARISON THERETO, WOULD SUFFER ONLY SLIGHT OR INCONSE_______________ 7 Id., at pp. 10-41. 663 VOL. 576, JANUARY 20, 2009663 Sulo sa Nayon Inc. vs. Nayong Pilipino Foundation QUENTIAL INJURY OR LOSS, BUT ALSO WOULD CONSTITUTE UNJUST ENRICHMENT ON THE PART OF RESPONDENT AT GREAT EXPENSE AND GRAVE PREJUDICE OF PETITIONERS. V THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN NOT HOLDING THAT THE COURTS A QUO DID NOT ACQUIRE JURISDICTION OVER THE UNLAWFUL DETAINER CASE FOR NON-COMPLIANCE WITH JURISDICTIONAL REQUIREMENTS DUE TO THE ABSENCE OF A NOTICE TO VACATE UPON PETITIONERS.8

First, we settle the issue of jurisdiction. Petitioners argue that the MeTC did not acquire jurisdiction to hear and decide the ejectment case because they never received any demand from respondent to pay rentals and vacate the premises, since such demand is a jurisdictional requisite. We reiterate the ruling of the MeTC, RTC and CA. Contrary to the claim of petitioners, documentary evidence proved that a demand letter dated March 26, 2001 was sent by respondent through registered mail to petitioners, requesting them “to pay the rental arrears or else it will be constrained to file the appropriate legal action and possess the leased premises.” Further, petitioners’ argument that the demand letter is “inadequate” because it contained no demand to vacate the leased premises does not persuade. We have ruled that: “. . . . The word ‘vacate’ is not a talismanic word that must be employed in all notices. The alternatives in this case are clear cut. The tenants must pay rentals which are fixed and which became payable in the past, failing which they must move out. There can be no other interpretation of the notice given to them. Hence, when the petitioners demanded that either he pays P18,000 in five days or a case of ejectment would be filed against him, he was placed on notice to move out if he does not pay. There was, in effect, a notice or demand to vacate.”9 _______________ 8 Id., at pp. 22-23. 9 MeTC Decision, citing Golden Gate Realty Corporation v. Intermediate Appellate Court, No. L-74289, July 31, 1987, 152 SCRA 684. 664 664SUPREME COURT REPORTS ANNOTATED

Sulo sa Nayon Inc. vs. Nayong Pilipino Foundation In the case at bar, the language of the demand letter is plain and simple: respondent demanded payment of the rental arrears amounting to P26,183,225.14 within ten days from receipt by petitioners, or respondent will be constrained to file an appropriate legal action against petitioners to recover the said amount. The demand letter further stated that respondent will possess the leased premises in case of petitioners’ failure to pay the rental arrears within ten days. Thus, it is clear that the demand letter is intended as a notice to petitioners to pay the rental arrears, and a notice to vacate the premises in case of failure of petitioners to perform their obligation to pay. Second, we resolve the main issue of whether the rules on accession, as found in Articles 448 and 546 of the Civil Code, apply to the instant case. Article 448 and Article 546 provide: “Art. 448. The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in Articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof.

Art. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain the thing until he has been reimbursed therefor. Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the person who has defeated him in the possession having the option of refunding the amount of the expenses or of paying the increase in value which the thing may have acquired by reason thereof.” We uphold the ruling of the CA. The late Senator Arturo M. Tolentino, a leading expert in Civil Law, explains: 665 VOL. 576, JANUARY 20, 2009665 Sulo sa Nayon Inc. vs. Nayong Pilipino Foundation “This article [Article 448] is manifestly intended to apply only to a case where one builds, plants, or sows on land in which he believes himself to have a claim of title,10 and not to lands where the only interest of the builder, planter or sower is that of a holder, such as a tenant.”11 In the case at bar, petitioners have no adverse claim or title to the land. In fact, as lessees, they recognize that the respondent is the owner of the land. What petitioners insist is that because of the improvements, which are of substantial value, that they have introduced on the leased premises with the permission of respondent, they should be considered builders in good faith who have the right to retain possession of the property until reimbursement by respondent. We affirm the ruling of the CA that introduction of valuable improvements on the leased premises does not give the

petitioners the right of retention and reimbursement which rightfully belongs to a builder in good faith. Otherwise, such a situation would allow the lessee to easily “improve” the lessor out of its property. We reiterate the doctrine that a lessee is neither a builder in good faith nor in bad faith12 that would call for the application of Articles 448 and 546 of the Civil Code. His rights are governed by Article 1678 of the Civil Code, which reads: “Art. 1678. If the lessee makes, in good faith, useful improvements which are suitable to the use for which the lease is intended, without altering the form or substance of the property leased, the lessor upon the termination _______________ 10 Tolentino, Arturo M., Commentaries and Jurisprudence on the Civil Code of the Philippines, vol. II, 2004, citing Floreza v. Evangelista, 96 SCRA 130 (1980); Applied to co-owner: Del Campo v. Abesia, No. L-49219, April 15, 1988, 160 SCRA 379. 11 Alburo v. Villanueva, 7 Phil. 277 (1907); De Laureano v. Adil, No. L-43345, July 29, 1976, 72 SCRA 148; Floreza v. Evangelista, No. L-25462, February 21, 1980, 96 SCRA 130; Balucanag v. Francisco, No. L-33422, May 30, 1983, 122 SCRA 498; Southwestern University v. Salvador, No. L45013, May 28, 1979, 90 SCRA 318; Castillo v. Court of Appeals, No. L-48290, September 29, 1983, 124 SCRA 808. 12 Southwestern University v. Salvador, No. L-45013, May 28, 1979, 90 SCRA 318, Concurring Opinion of J. MelencioHerrera, citing Alburo v. Villanueva, 7 Phil. 277 (1907). 666 666SUPREME COURT REPORTS ANNOTATED

Sulo sa Nayon Inc. vs. Nayong Pilipino Foundation of the lease shall pay the lessee one-half of the value of the improvements at that time. Should the lessor refuse to reimburse said amount, the lessee may remove the improvements, even though the principal thing may suffer damage thereby. He shall not, however, cause any more impairment upon the property leased than is necessary. With regard to ornamental expenses, the lessee shall not be entitled to any reimbursement, but he may remove the ornamental objects, provided no damage is caused to the principal thing, and the lessor does not choose to retain them by paying their value at the time the lease is extinguished.” Under Article 1678, the lessor has the option of paying onehalf of the value of the improvements which the lessee made in good faith, which are suitable for the use for which the lease is intended, and which have not altered the form and substance of the land. On the other hand, the lessee may remove the improvements should the lessor refuse to reimburse. Petitioners argue that to apply Article 1678 to their case would result to sheer injustice, as it would amount to giving away the hotel and its other structures at virtually bargain prices. They allege that the value of the hotel and its appurtenant facilities amounts to more than two billion pesos, while the monetary claim of respondent against them only amounts to a little more than twenty-six million pesos. Thus, they contend that it is the lease contract that governs the relationship of the parties, and consequently, the parties may be considered to have impliedly waived the application of Article 1678.

We cannot sustain this line of argument by petitioners. Basic is the doctrine that laws are deemed incorporated in each and every contract. Existing laws always form part of any contract. Further, the lease contract in the case at bar shows no special kind of agreement between the parties as to how to proceed in cases of default or breach of the contract. Petitioners maintain that the lease contract contains a default provision which does not give respondent the right to appropriate the improvements nor evict petitioners in cases of cancellation or termination of the contract due to default or breach of its terms. They cite paragraph 10 of the lease contract, which provides that: 667 VOL. 576, JANUARY 20, 2009667 Sulo sa Nayon Inc. vs. Nayong Pilipino Foundation “10. DEFAULT.—. . . Default shall automatically take place upon the failure of the LESSEE to pay or perform its obligation during the time fixed herein for such obligations without necessity of demand, or, if no time is fixed, after 90 days from the receipt of notice or demand from the LESSOR. . . In case of cancellation or termination of this contract due to the default or breach of its terms, the LESSEE will pay all reasonable attorney’s fees, costs and expenses of litigation that may be incurred by the LESSOR in enforcing its rights under this contract or any of its provisions, as well as all unpaid rents, fees, charges, taxes, assessment and others which the LESSOR may be entitled to.” Petitioners assert that respondent committed a breach of the lease contract when it filed the ejectment suit against them. However, we find nothing in the above quoted provision that

prohibits respondent to proceed the way it did in enforcing its rights as lessor. It can rightfully file for ejectment to evict petitioners, as it did before the court a quo. IN VIEW WHEREOF, petitioners’ appeal is DENIED. The October 4, 2005 Decision of the Court of Appeals in CA-G.R. SP No. 74631 and its December 22, 2005 Resolution are AFFIRMED. Costs against petitioners. SO ORDERED. Carpio, Corona, Azcuna and Leonardo-De Castro, JJ., concur. Petition denied, judgment and resolution affirmed. Notes.—Good faith is an intangible and abstract quality with no technical meaning or statutory definition, and it encompasses, among other things, an honest belief, the absence of malice and the absence of design to defraud or to seek an unconscionable advantage. (Philippine National Bank vs. De Jesus, 411 SCRA 557 [2003]) Article 448 of the Civil Code covers only cases in which the builders, sowers or planters believe themselves to be owners of the land or, at least, to have a claim of title thereto—it does not apply when the interest is that of a mere tenant. (Quevada vs. Court of Appeals, 502 SCRA 233 [2006]) [Sulo sa Nayon Inc. vs. Nayong Pilipino Foundation, 576 SCRA 655(2009)]

No. L-44001. June 10, 1988.*FIRST DIVISION. PAZ MERCADO, CAROLINA S. CHICO, LUCIANA CABRERA, JOAQUIN IGNACIO, ELMER FLORES, AVELINA C. NUCOM, et al., petitioners, vs. HON. COURT OF APPEALS, HON. BENIGNO PUNO, LOLITA C. BULAONG, FLORENTINO AGULTO, SEVERINO SALAYSAY, SUSANA BERNARDINO, et al., respondents. Remedial Law; Judgment; A judgment contrary to the express provisions of a statute is erroneous but it is not void; and if it becomes final and executory, it becomes as binding and effective as any valid judgment.—That the judgment of the Trial Court applied the wrong provision of the law in the resolution of the controversy has ceased to be of any consequence. As already discussed instead of the legal provision governing lessees’ rights over improvements on leased realty, the judgment invoked that relative to the rights of builders in good faith. But the error did not render the judgment void. A judgment contrary to the express provisions of a statute is of course erroneous, but it is not void; and if it becomes final and executory, it becomes as binding and effective as any valid judgment; and though erroneous, will henceforth be treated as valid, and will be enforced in accordance with its terms and dispositions. Same; Same; Appeals; Availability of the right to appeal precludes recourse to the special civil action of certiorari.— The remedy available to the petitioners against such a final judgment, as repeat______________ * FIRST DIVISION. 76

76 SUPREME COURT REPORTS ANNOTATED Mercado vs. Court of Appeals edly stated, was an appeal in accordance with the aforementioned Rule 41 of the Rules of Court. But as observed in an analogous case recently resolved by this Court.—“x x instead of resorting to this ordinary remedy of appeal, x x (the petitioners) availed of the extraordinary remedy of a special civil action of certiorari in the x x (Court of Appeals), under Rule 65 of the Rules of Court. The choice was clearly wrong. The availability of the right of appeal obviously precluded recourse to the special civil action of certiorari. This is axiomatic. It is a proposition made plain by Section 1 of Rule 65 which lays down as a condition for the filing of a certiorari petition that there be ‘no appeal, nor any plain, speedy and adequate remedy in the ordinary course of law.’ ” Same; Same; Same; Same; Instances when certiorari may exceptionally be permitted in lieu of appeal.—In the case at bar, the petitioners lost their right to appeal by failing to avail of it seasonably. To remedy that loss, they have resorted to the extraordinary remedy of certiorari, as a mode of obtaining reversal of the judgment from which they failed to appeal. This cannot be done. The judgment was not in any sense null and void ab initio, incapable of producing any legal effects whatever, which could never become final, and execution of which could be resisted at any time and in any court it was attempted. It was a judgment which might and probably did suffer from some substantial error in procedure or in findings of fact or of law, and could on that account have been reversed or modified on appeal. But since it was not appealed, it became

final and has thus gone beyond the reach of any court to modify in any substantive aspect. The remedy to obtain a reversal or modification of the judgment on the merits is appeal. This is true even if the error, or one of the errors, ascribed to the Court rendering the judgment is its lack of jurisdiction of the subject matter, or the exercise of power in excess thereof, or grave abuse of discretion in the findings of fact or of law set out in its decision. The existence and availability of the right of appeal proscribes a resort to certiorari, one of the requisites for availment of the latter remedy being precisely that “there should be no appeal.” There may to be sure, be instances when certiorari may exceptionally be permitted in lieu of appeal, as when their appeal would be inadequate, slow, insufficient, and will not promptly relieve a party from the injurious effect of the judgment complained of, or to avoid future litigations, none of which situations obtains in the case at bar. And certain it is that the special civil action of certiorari cannot be a substitute for appeal, specially where the right to appeal has been lost through a party’s fault or inexcusable negligence. 77 VOL. 162, JUNE 10, 1988 77 Mercado vs. Court of Appeals Same; Same; Same; Summary Judgment; The summary judgment rendered by respondent judge was not an interlocutory order but a final judgment.—The summary judgment rendered by respondent Judge on October 24, 1975 was not an interlocutory disposition or order but a final judgment within the meaning of Section 2, Rule 41 of the

Rules of Court. By that summary judgment the Court finally disposed of the pending action, leaving nothing more to be done by it with respect to the merits, thus putting an end to the litigation as its level. PETITION to review the decision of the Court of Appeals. The facts are stated in the opinion of the Court. NARVASA, J.: The question presented by this appeal is whether or not the special civil action of certiorari may be properly resorted to by a party aggrieved by a judgment of a Regional Trial Court (or Court of First Instance)—which became final because not appealed within the reglementary period—to bring about its reversal on the ground that the Court had applied the wrong provision of the Civil Code, and had rendered summary judgment at the instance of the defendants without receiving evidence on the issue of damages allegedly suffered by the plaintiffs, thereby denying them due process. The private respondents, hereafter simply referred to as the Bulaong Group, had for many years been individual lessees of stalls in the public market of Baliuag, Bulacan; from 1956 to 1972, to be more precise. The market was destroyed by fire on February 17, 1956; the members of the Bulaong Group constructed new stalls therein at their expense; and they thereafter paid rentals thereon to the Municipality of Baliuag. Sometime in 1972, the members of the group sub-leased their individual stalls to other persons, hereafter simply referred to as the Mercado Group. After the Mercado Group had been in possession of the market stalls for some months, as sub-lessees of the Bulaong Group, the municipal officials of Baliuag cancelled the long standing leases of the Bulaong Group and

declared the persons comprising the Mercado Group as the rightful lessees of the stalls in question, in substitution 78 78 SUPREME COURT REPORTS ANNOTATED Mercado vs. Court of Appeals of the former. The municipal authorities justified the cancellation of the leases of the Bulaong Group by invoking the provisions of Municipal Ordinance No. 14, dated December 14, 1964, which prohibited the sub-leasing of stalls by the lessees thereof, as well as a directive of the Office of the President (contained in a letter of Executive Secretary R. Zamora dated May 29, 1973) requiring enforcement of said Ordinance No. 14. Recognition of the Mercado Group’s rights over the stalls was subsequently manifested in Municipal Ordinance No. 49, approved on July 5, 1973. The members of the Bulaong Group sued. They filed several individual complaints with the Court of First Instance seeking recovery of their stalls from the Mercado Group as well as damages.1Docketed as Civil Cases Numbered 416-B, 417-B, 418-B, 427-B, 431-B, assigned to Br. IV of the CFI, Bulacan. Their theory was anchored on their claimed ownership of the stalls constructed by them at their own expense, and their resulting right, as such owners, to sub-lease the stalls, and necessarily, to recover them from any person withholding possession thereof from them. Answers were seasonably filed in behalf of the defendants, including the Municipality of Baliuag,2The Municipality of Baliuag was made a party in all the cases except Civil Case No. 431-B. after which a pre-trial

was held in the course of which the parties stipulated upon practically all the facts. The Mercado Group thereafter filed motions for summary judgment, asserting that in light of the admissions made at the pre-trial and in the pleadings, no issue remained under genuine controversion. The Bulaong Group filed an opposition which, while generally stating that there were “other material allegations in the amended complaint(s)” upon which proof was needful, actually identified only one issue of fact requiring “formal submission of evidence,” i.e., the claim for actual damages “x x x the exact amount of which shall be proven at the trial.” The Bulaong Group then filed a “Motion to Accept Affidavits and Photographs as Annexes to the Opposition to the Motion for Summary Judgment,” which affidavits and photographs tended to establish the character and value of the improvements they had introduced in the market stalls. As far _____________ 1 Docketed as Civil Cases Numbered 416-B, 417-B, 418-B, 427-B, 431-B, assigned to Br. IV of the CFI, Bulacan. 2 The Municipality of Baliuag was made a party in all the cases except Civil Case No. 431-B. 79 VOL. 162, JUNE 10, 1988 79 Mercado vs. Court of Appeals as the records show, no objection whatever was presented to this motion by the Mercado Group (movants for summary judgment), and the affidavits and photographs were admitted by the Trial Court. Specifically, the Mercado Group never

asked, either in their motion for summary judgment or at any time after having received a copy of the motion to accept affidavits and photographs, etc., that a hearing be scheduled for the reception of evidence on the issue of the Bulaong Group’s claimed actual damages. On October 24, 1975, respondent Judge rendered a summary judgment in all the cases.3Rollo, pp. 37-49. It rejected the claim of the Municipality of Baliuag that it had automatically acquired ownership of the new stalls constructed after the old stalls had been razed by fire, declaring the members of the Bulaong Group to be builders in good faith, entitled to retain possession of the stalls respectively put up by them until and unless indemnified for the value thereof. The decision also declared that the Bulaong and Mercado Groups had executed the subletting agreements with full awareness that they were thereby violating Ordinance No. 14; they were thus in pari delicto, and hence had no cause of action one against the other and no right to recover whatever had been given or demand performance of anything undertaken. The judgment therefore decreed (1) the annulment of the leases between the Municipality and the individuals comprising the Mercado Group (the defendants who had taken over the original leases of the Bulaong Group); and (2) the payment to the individual members of the Bulaong Group (the plaintiffs) of the stated, adjudicated value of the stalls, with interest IF— “x x the Municipality x x would insist in its right rescind or annul its contracts of leases with the said plaintiffs over the lots on which the stalls in question are erected; for this purpose, since the private defendants become immediate beneficiaries to a transfer of possession over the stalls in question, the

Municipality x x may require said private defendants x x to pay the plaintiffs the aforesaid amounts in the event that said private defendants and the Municipality x x should elect to oust the plaintiffs from the stalls in question and from the lots on which said stalls are constructed; however, unless the _____________ 3 Rollo, pp. 37-49. 80 80 SUPREME COURT REPORTS ANNOTATED Mercado vs. Court of Appeals plaintiffs shall have been fully paid of the value of their stalls in the amounts mentioned above, they shall have the right to remain in their respective stalls and in case the private defendants shall refuse to pay for the value of the stalls in this event, the ejectment of the said private defendants from the stalls in question shall be ordered x x.” The Mercado Group and the Municipality filed on November 14, 1975, motions for reconsideration of the summary judgment, notice of which had been served on them on November 3, 1975. These were denied, and notice of the order of denial was received by them on December 18, 1975. On January 7, 1976, the Mercado Group filed a notice of appeal, an appeal bond and a motion for extension of time to file their record on appeal. But by Order dated January 9, 1976, the Trial Court directed inter alia the execution of the judgment, at the instance of the Bulaong Group and despite the opposition of the Mercado Group, adjudging that its decision had become final because the appeal documents had “not been seasonably

filed.” The writ was issued, and the Mercado Group’s motion to quash the same and to re-open the case was denied. The Group went to the Court of Appeals, instituting in that court a special civil action of certiorari and prohibition4Docketed as CA-G.R. No. SP-05002-R. “to annul that portion of the summary judgment x x awarding damages to private respondents (the Bulaong Group), and to restrain the respondent Judge and the Provincial Sheriff of Bulacan from enforcing the same.” That Court rendered judgment on May 14, 1976,5Escolin, J., ponente; Vasquez and Leuterio, JJ., concurring. holding that (1) the summary judgment was properly rendered, respondent Judge (having) merely adhered to the procedure set forth by the x x Rule (34);” and if “he committed error in the appreciation of the probative values of the affidavits and counter-affidavits submitted by the parties, such error is merely one of judgment, and not of jurisdiction;” (2) the Mercado Group had not been denied due process “for failure of respondent Judge to conduct a formal trial x x (to receive) evidence on the question of damages,” since the parties were afforded the right, in connection with the motion for ______________ 4 Docketed as CA-G.R. No. SP-05002-R. 5 Escolin, J., ponente; Vasquez and Leuterio, JJ., concurring. 81 VOL. 162, JUNE 10, 1988 81 Mercado vs. Court of Appeals

summary judgment, to speak and explain their side of the case by means of affidavits and counter-affidavits; and (3) since the Mercado Group had attempted to perfect an appeal from the summary judgment which was however futile because their appeal papers “were filed beyond the reglementary period,” the judgment had become final and certiorari or prohibition could not be availed of as a substitute for the group’s lost appeal. Once again, the Mercado Group moved for reconsideration of an adverse judgment, and once again were rebuffed. The members of the Mercado Group are now before this Court on an appeal by certiorari, this time timely taken, assailing the above rulings of the Court of Appeals. Their appeal must fail for lack of merit. No error can be ascribed to the judgment of the Court of Appeals which is hereby affirmed in toto. Upon the factual findings of the Court of Appeals, by which this court is bound, and taking account of well established precedent from which there is no perceivable reason in the premises to depart, there is no question that the petitioners (the Mercado Group) had failed to perfect an appeal from the summary judgment within the reglementary period fixed by the Rules of Court. According to the Appellate Court— “The summary judgment rendered by respondent Judge, being a final adjudication on the merits of the said cases, could have been appealed by the petitioners. In point of fact, petitioners did attempt to perfect an appeal from said judgment, but the attempt proved futile because their notice of appeal, appeal bond and motion for extension of time to file record on appeal were filed beyond the reglementary period. The record discloses that they received copy of the summary judgment on November 3, 1975; that on November 14, 1975, or after the

lapse of eleven (11) days from receipt of said decision, they filed their motion for reconsideration of said decision; that on December 18, 1975, they received copy of the order denying their motion for reconsideration; and that they did not file their notice of appeal, appeal bond and motion for extension of time until January 7, 1976, or twenty (20) days after receipt of the order denying their motion for reconsideration. The notice of appeal, appeal bond and motion for extension were, therefore, presented one (1) day after the expiration of the 30-day period to perfect an appeal. Thus, respondent Judge correctly disallowed the appeal.” 82 82 SUPREME COURT REPORTS ANNOTATED Mercado vs. Court of Appeals The Appellate Court’s computation of the period is correct, and is in accord with Section 3, Rule 41 of the Rules of Court providing that from the 30-day reglementary period of appeal shall be deducted the “time during which a motion to set aside the judgment or order or for a new trial has been pending.”6Under Sec. 39 to B.P. BLG. 129 (eff. Aug. 14, 1981), the period of appeal has been reduced to 15 days, counted from notice of the final order, resolution, award, judgment or decision appealed from, except in habeas corpus cases, in which the period is set ... Significantly, the petitioners have made no serious effort to explain and excuse the tardiness of their appeal. What they have done and continue to do is to insist that the special civil action of certiorari is in truth the proper remedy because the

judgment is void. The judgment is void, they say, because they were denied due process, as “respondent Judge granted exorbitant damages, without reliable proof, and without giving petitioners the chance to prove their claim that private respondents are not entitled to damages, and conceding that they are, the damages are much lower than that awarded by the respondent Judge.”7Citing Fabie v. Ngo Boo Soo, 84 Phil. 857 and Ibañez, et al. v. North Negros Sugar Co., et al., G.R. No. L-6790, March 28, 1955. According to them, since the matter of damages was clearly a controverted fact, the Court had absolutely no jurisdiction to determine it on mere affidavits. There can be no debate about the proposition that under the law, the Trial Court validly acquired jurisdiction not only over the persons of the parties but also over the subject matter of the actions at bar. The parties composing the Mercado Group cannot dispute this; they recognized the Court’s competence when they filed their answers to the complaints without questioning the Court’s jurisdiction of the subject-matter; indeed neither at that time nor at any other time thereafter did any one of them ever raise the question. Now, jurisdiction, once acquired, is not lost by any error in the exercise thereof that might subsequently be committed by the court. Where there is jurisdiction over the person and the _____________ 6 Under Sec. 39 to B.P. BLG. 129 (eff. Aug. 14, 1981), the period of appeal has been reduced to 15 days, counted from notice of the final order, resolution, award, judgment or decision appealed from, except in habeas corpus cases, in which the period is set at 48 hours from notice, and in appeals in special proceedings and in other cases wherein multiple

appeals are allowed under applicable provisions of the Rules of Court, in which the appeal period has been retained at 30 days. 7 Citing Fabie v. Ngo Boo Soo, 84 Phil. 857 and Ibañez, et al. v. North Negros Sugar Co., et al., G.R. No. L-6790, March 28, 1955. 83 VOL. 162, JUNE 10, 1988 83 Mercado vs. Court of Appeals subject matter, the decision of all other questions arising in the case is but an exercise of that jurisdiction.8Moran, Comments on the Rules, 1979 ed., Vol. 1, p. 51, citing: Herrera v. Barreto, 25 Phil. 245; Gala v. Cui, 25 Phil. 522; De Fiesta v. Llorente, 25 Phil. 554; Mapa v. Weissenhagen, 29 Phil. 18; De la Cruz v. Moir, 36 Phil. 213; SEE also Feria, Civil Proc... And when a court exercises its jurisdiction, an error committed while engaged in that exercise does not deprive it of the jurisdiction being exercised when the error is committed. If it did, every error committed by a court would deprive it of jurisdiction and every erroneous judgment would be a void judgment. This, of course, can not be allowed. The administration of justice would not survive such a rule.9De la Cruz v. Moir, 36 Phil. 213, 219, cited in Feria, op. cit., p. 15. Moreover, any error that the Court may commit in the exercise of its jurisdiction, being merely an error of judgment, is reviewable only by appeal, not by the special civil action of certiorari or prohibition.10Moran, op. cit., citing: Henderson v. Tan, L-03223, Oct. 10, 1950; Palma v. Q & S, Inc., L-20366, May 19, 1966, 17 SCRA 97, 100.

The petitioners do not dispute the propriety of the rendition of a summary judgment by the Court a quo, a remedy that they themselves had in fact asked for. What they challenge is the inclusion in that judgment of an award of damages on the basis merely of affidavits, without actual reception of evidence thereon at a hearing set for the purpose. The challenge is not however justified by the peculiar circumstances of the case at bar. The petitioners, to repeat, were the parties who, as defendants, had moved for summary judgment. They knew or were supposed to know that, as stated by the Rules, their motion would be granted if “the pleadings, depositions, and admissions on file, together with the affidavits, show that, except as to the amount of damages, there is no genuine issue as to any material fact and that x x (they are) entitled to a judgment as a matter of law.”11Sec. 3, Rule 34, Rules of Court; Italics supplied. They knew that the private respondents, as plaintiffs, had in fact opposed their _______________ 8 Moran, Comments on the Rules, 1979 ed., Vol. 1, p. 51, citing: Herrera v. Barreto, 25 Phil. 245; Gala v. Cui, 25 Phil. 522; De Fiesta v. Llorente, 25 Phil. 554; Mapa v. Weissenhagen, 29 Phil. 18; De la Cruz v. Moir, 36 Phil. 213; SEE also Feria, Civil Procedure, 1969 ed., p. 15, citing Herrera v. Barreto, supra, and Castro v. Peña, 80 Phil. 488. 9 De la Cruz v. Moir, 36 Phil. 213, 219, cited in Feria, op. cit., p. 15. 10 Moran, op. cit., citing: Henderson v. Tan, L-03223, Oct. 10, 1950; Palma v. Q & S, Inc., L-20366, May 19, 1966, 17 SCRA 97, 100. 11 Sec. 3, Rule 34, Rules of Court; Italics supplied.

84 84 SUPREME COURT REPORTS ANNOTATED Mercado vs. Court of Appeals motion and had pointed out precisely the need for a hearing on the controverted matter of damages. That they did not join in the move to have a hearing on the issue of damages is an indication that they considered it unnecessary. When the respondents (plaintiffs)—apparently in view of the Court’s and the defendants’ indifference to the notion of having a hearing on the matter of damages, implicitly indicating the belief of the superfluity of a hearing—presented affidavits and depositions to prove the value of the improvements, for which they were seeking reimbursement, the petitioners (defendants) did not ask that the matter be ventilated at a hearing, or submit counteraffidavits, as was their right. They made no response whatever. They were evidently quite confident of obtaining a favorable judgment, and that such an eventuality would preclude the claimed reimbursement or recovery of damages. As it turned out, they were wrong in their prognostication. In any event, even assuming error on the Court’s part in relying on the unopposed affidavits and photographs as basis for an award of damages, it was, as the Appellate Court has opined, not an error of jurisdiction under the circumstances, but one in the exercise of jurisdiction, to correct which the prescribed remedy is appeal. This is not to say that where a Court determines the propriety of a summary judgment—which it may do on the basis of the pleadings, depositions, admissions and affidavits submitted by the parties—and discovers that

there are genuine issues of fact, these genuine issues may nonetheless be adjudicated on the basis of depositions, admissions or affidavits and not of evidence adduced at a formal hearing or trial. This is not the rule.12SEE Gatchalian v. Pavilin, 6 SCRA 508; Jugador v. De Vera, 94 Phil. 704; Vergara v. Suelto, G.R. No. 74766, Dec. 21, 1987; Moore’s Federal Practice, pp. 3184-5; Feria, J., Civil Procedure, 1969 ed., pp. 480-481; Moran, Comments on the Rules, Vol. 2, ... The rule is that it is only the ascertainment of the character of the issues raised in the pleadings—as genuine, or sham or fictitious—which can be done by depositions, admissions, or affidavits; the resolution of such issues as are found to be genuine should be made upon proof proferred at a formal hearing. The peculiar circumstances of the case at bar, already pointed out, operate to ______________ 12 SEE Gatchalian v. Pavilin, 6 SCRA 508; Jugador v. De Vera, 94 Phil. 704; Vergara v. Suelto, G.R. No. 74766, Dec. 21, 1987; Moore’s Federal Practice, pp. 3184-5; Feria, J., Civil Procedure, 1969 ed., pp. 480-481; Moran, Comments on the Rules, Vol. 2, pp. 184-186. 85 VOL. 162, JUNE 10, 1988 85 Mercado vs. Court of Appeals exclude it from the scope of the rule. It is an exception that should however be taken, as affirming and not eroding the rule. The petitioners’ other theory is more tenable, but will not appreciably advance their cause. They suggest that it was a

mistake for the Trial Court to have accorded to the individuals of the Bulaong Group the stalls and builders in good faith in accordance with Article 526 of the Civil Code. They are correct. It was indeed error for the Court to have so ruled. The members of this group were admittedly lessees of space in the public market; they therefore could not, and in truth never did make the claim, that they were owners of any part of the land occupied by the market so that in respect of any new structure put up by them thereon, they could be deemed builders in good faith. To be deemed a builder in good faith, it is essential that a person assert title to the land on which he builds; i.e., that he be a possessor in concept of owner,13ART. 525, Civil Code; Lopez, Inc. v. Phil. Eastern Trading Co., Inc., 98 Phil. 348. and that he be unaware “that there exists in his title or mode of acquisition any flaw which invalidates it.14ART. 526, Civil Code; Granados v. Monton, 86 Phil. 42; Arriola v. Gomez de la Serna, 14 Phil. 627; SEE also Monotoc Realty, Inc. v. C.A., 134 SCRA 329, citing Caram v. Laureta, 103 SCRA 7. It is such a builder in good faith who is given the right to retain the thing, even as against the real owner, until he has been reimbursed in full not only for the necessary expenses but also for useful expenses.15ART. 546, Civil Code; Policarpio v. C.A., 129 SCRA 51; Sarmiento v. Agana, 129 SCRA 122; cf, Queto v. C.A., 122 SCRA 206. On the other hand, unlike the builder in good faith, a lessee who “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,” can only claim payment of “one-half of the value of the improvements” or, “should the lessor refuse to reimburse said amount, x x remove the improvements, even

though the principal thing may suffer damage thereby.”16ART. 1678, Civil Code. But this error does not go to the Trial Court’s jurisdiction. It is an error in the exercise of jurisdiction, which may be cor_____________ 13 ART. 525, Civil Code; Lopez, Inc. v. Phil. Eastern Trading Co., Inc., 98 Phil. 348. 14 ART. 526, Civil Code; Granados v. Monton, 86 Phil. 42; Arriola v. Gomez de la Serna, 14 Phil. 627; SEE also Monotoc Realty, Inc. v. C.A., 134 SCRA 329, citing Caram v. Laureta, 103 SCRA 7. 15 ART. 546, Civil Code; Policarpio v. C.A., 129 SCRA 51; Sarmiento v. Agana, 129 SCRA 122; cf, Queto v. C.A., 122 SCRA 206. 16 ART. 1678, Civil Code. 86 86 SUPREME COURT REPORTS ANNOTATED Mercado vs. Court of Appeals rected by the ordinary recourse of appeal, not by the extraordinary remedy of certiorari. It is an error that in the premises can no longer be set aright. The summary judgment rendered by respondent Judge on October 24, 1975 was not an interlocutory disposition or order but a final judgment within the meaning of Section 2, Rule 41 of the Rules of Court. By that summary judgment the Court finally disposed of the pending action, leaving nothing more to be done by it with respect to the merits, thus putting an end to the litigation as its level.17Destileria Limtuaco & Co., Inc. v.

IAC, et al., G.R. No. 74369, Jan. 29, 1988, citing cases collated in Moran, Comments on the Rules, 1979 ed., Vol. 2, p. 388. The remedy available to the petitioners against such a final judgment, as repeatedly stated, was an appeal in accordance with the aforementioned Rule 41 of the Rules of Court.18The rule was amended on August 14, 1981 by Sec. 39 of the Judiciary Reorganization Act of 1980 (Batas Pambansa Blg. 129), and the Interim Rules promulgated by this Court in implementation of said Act (Secs. 16, 18-20). But as observed in an analogous case recently resolved by this Court.19Destileria Limtuaco & Co., Inc. v. IAC, supra.— “x x instead of resorting to this ordinary remedy of appeal, x x (the petitioners) availed of the extraordinary remedy of a special civil action of certiorari in the x x (Court of Appeals), under Rule 65 of the Rules of Court. The choice was clearly wrong. The availability of the right of appeal obviously precluded recourse to the special civil action of certiorari. This is axiomatic. It is a proposition made plain by Section 1 of Rule 65 which lays down as a condition for the filing of a certiorari petition that there be ‘no appeal, nor any plain, speedy and adequate remedy in the ordinary course of law.’ ” In the case at bar, the petitioners lost their right to appeal by failing to avail of it seasonably. To remedy that loss, they have resorted to the extraordinary remedy of certiorari, as a mode of obtaining reversal of the judgment from which they failed to appeal. This cannot be done. The judgment was not in any sense null and void ab initio, incapable of producing any legal effects whatever, which could never become final, and execu_____________

17 Destileria Limtuaco & Co., Inc. v. IAC, et al., G.R. No. 74369, Jan. 29, 1988, citing cases collated in Moran, Comments on the Rules, 1979 ed., Vol. 2, p. 388. 18 The rule was amended on August 14, 1981 by Sec. 39 of the Judiciary Reorganization Act of 1980 (Batas Pambansa Blg. 129), and the Interim Rules promulgated by this Court in implementation of said Act (Secs. 16, 18-20). 19 Destileria Limtuaco & Co., Inc. v. IAC, supra. 87 VOL. 162, JUNE 10, 1988 87 Mercado vs. Court of Appeals tion of which could be resisted at any time and in any court it was attempted.20SEE Makabingkil v. PHHC, 72 SCRA 326, 343, citing Banco Español-Filipino v. Palanca, 37 Phil. 291; Rosensons, Inc. v. Jimenez, 68 SCRA 24. It was a judgment which might and probably did suffer from some substantial error in procedure or in findings of fact or of law, and could on that account have been reversed or modified on appeal. But since it was not appealed, it became final and has thus gone beyond the reach of any court to modify in any substantive aspect. The remedy to obtain a reversal or modification of the judgment on the merits is appeal. This is true even if the error, or one of the errors, ascribed to the Court rendering the judgment is its lack of jurisdiction of the subject matter, or the exercise of power in excess thereof, or grave abuse of discretion in the findings of fact or of law set out in its decision. The existence and availability of the right of appeal proscribes a resort to certiorari, one of the requisites for

availment of the latter remedy being precisely that “there should be no appeal.”21Sec. 1, Rule 65, Rules of Court. There may to be sure, be instances when certiorari may exceptionally be permitted in lieu of appeal, as when their appeal would be inadequate, slow, insufficient, and will not promptly relieve a party from the injurious effect of the judgment complained of, or to avoid future litigations,22St. Peter Memorial Park, Inc. v. Campos, Jr., 63 SCRA 180, citing Jose v. Zulueta, 2 SCRA 578; Botelho Shipping Corp. v. Leuterio, 8 SCRA 127; People v. Zulueta, 89 Phil. 756; Alfonso v. Yatco, 80 Phil. 407; Ramos v. Central Bank, 41 SCRA 584; SEE also May... none of which situations obtains in the case at bar. And certain it is that the special civil action of certiorari cannot be a substitute for appeal, specially where the right to appeal has been lost through a party’s fault or inexcusable negligence.23De la Cruz v. IAC, 134 SCRA 417; Balagtas Realty Corp. v. Romillo, Jr., 130 SCRA 415; Lobete v. Sundiam, 123 SCRA 95; Velasco v. Segundo, 117 SCRA 573; People v. Villanueva, 110 SCRA 465. That the judgment of the Trial Court applied the wrong pro______________ 20 SEE Makabingkil v. PHHC, 72 SCRA 326, 343, citing Banco Español-Filipino v. Palanca, 37 Phil. 291; Rosensons, Inc. v. Jimenez, 68 SCRA 24. 21 Sec. 1, Rule 65, Rules of Court. 22 St. Peter Memorial Park, Inc. v. Campos, Jr., 63 SCRA 180, citing Jose v. Zulueta, 2 SCRA 578; Botelho Shipping Corp. v. Leuterio, 8 SCRA 127; People v. Zulueta, 89 Phil. 756; Alfonso v. Yatco, 80 Phil. 407; Ramos v. Central Bank, 41 SCRA 584; SEE also Mayol v. Blanco, 61 Phil. 547.

23 De la Cruz v. IAC, 134 SCRA 417; Balagtas Realty Corp. v. Romillo, Jr., 130 SCRA 415; Lobete v. Sundiam, 123 SCRA 95; Velasco v. Segundo, 117 SCRA 573; People v. Villanueva, 110 SCRA 465. 88 88 SUPREME COURT REPORTS ANNOTATED Sanders vs. Veridiano II vision of the law in the resolution of the controversy has ceased to be of any consequence. As already discussed, instead of the legal provision governing lessees’ rights over improvements on leased realty, the judgment invoked that relative to the rights of builders in good faith.24SEE page 7, supra. But the error did not render the judgment void. A judgment contrary to the express provisions of a statute is of course erroneous, but it is not void; and if it becomes final and executory, it becomes as binding and effective as any valid judgment; and though erroneous, will henceforth be treated as valid, and will be enforced in accordance with its terms and dispositions.25Imperial v. Muñoz, L-30787, Aug. 29, 1974, 58 SCRA 678, cited in Moran, op. cit, p. 192. WHEREFORE, the petition is dismissed, with costs against the petitioners. Cruz, Gancayco, Griño-Aquino and Medialdea, JJ., concur. Petition dismissed. Note.—Rule that certiorari cannot be a substitute for appeal, except when the questioned order is an oppressive exercise of judicial authority. (Bautista vs. Sarmiento, 138 SCRA 587.)

——o0o—— [Mercado vs. Court of Appeals, 162 SCRA 75(1988)]

G.R. No. 134651. September 18, 2000.*SECOND DIVISION. SPOUSES VIRGILIO and JOSIE JIMENEZ, petitioners, vs.PAT-RICIA, INC., respondent. Jurisdiction; The rule is settled that a question of jurisdiction may be raised at any time, even on appeal, provided that its application does not result in a mockery of the tenets of fair play.—The rule is settled that a question of jurisdiction may be raised at any time, even on appeal, provided that its application does not result in a mockery of the tenets of fair play. In the instant case, the jurisdictional issue was raised by petitioners for the first time only in the instant Petition for Review. However, it should be noted that they did so only after an adverse decision was rendered by the Court of Appeals. Despite several opportunities in the RTC, which ruled in their favor, and in the Court of Appeals, petitioners never advanced the question of jurisdiction of the MeTC. Additionally, petitioners participated actively in the proceedings before the MeTC and invoked its jurisdiction with the filing of their answer, in seeking affirmative relief from it, in subsequently filing a notice of appeal before the RTC, and later, aPetition for Review with the Court of Appeals. Upon these premises, petitioners cannot now be allowed belatedly to adopt an inconsistent posture by attacking the jurisdiction of the court to which they had submitted themselves voluntarily. Laches now bars them from doing so. Actions; Ejectment; Unlawful Detainer; Pleadings and Practice; A complaint for unlawful detainer is sufficient if it alleges that the withholding of possession or the refusal to vacate is unlawful without necessarily employing the terminology of the law.—Be that as it may, we find no error in

the MeTC assuming jurisdiction over the subject matter. A complaint for unlawful detainer is sufficient if it alleges that the withholding of possession or the refusal to vacate is unlawful without necessarily employing the terminology of the law. As correctly found by the appellate _______________ * SECOND DIVISION. 526 526 SUPREME COURT REPORTS ANNOTATED Jimenez vs. Patricia, Inc. court, to which we agree, the allegations in the complaint sufficiently established a cause of action for unlawful detainer. The complaint clearly stated how entry was effected and how and when dispossession started—petitioners were able to enter the subject premises as sublessees of Puri-sima Salazar who, despite the termination of her lease with respondent, continued to occupy the subject premises without any contract with it; thus, their stay was by tolerance of respondent. Same; Same; Same; Forcible Entry; Prior physical possession is indispensable only in actions for forcible entry but not in unlawful de-tainer.—The fact that the complaint failed to state that respondent was in prior possession of the property before it was unlawfully withheld by petitioner spouses is of no moment. Prior physical possession is indispensable only in actions for forcible entry but not in unlawful detainer. Lease; A sublessee derives his right from the sublessor whose termination of contract with the lessor necessarily also ends the sublease con-tract.—Petitioner spouses, as mere sublessees of Purisima Salazar, derive their right from the sublessor whose

termination of contract with the lessor necessarily also ends the sublease contract. Thus, when the contract of lease of Purisima Salazar with respondent was terminated the contract of sublease of petitioners with the former also necessarily ended and petitioners cannot insist on staying on the premises. Petitioners can invoke no right superior to that of their sublessor. Same; Ejectment; A person who occupies the land of another at the latter’s forbearance or permission without any contract between them is necessarily bound by an implied promise that he will vacate upon demand failing which a summary action for ejectment is the proper remedy against him.—The status of petitioner spouses is akin to that of a lessee or a tenant whose term of lease has expired but whose occupancy has continued by tolerance of the owner. A person who occupies the land of another at the latter’s forbearance or permission without any contract between them is necessarily bound by an implied promise that he will vacate upon demand failing which a summary action for ejectment is the proper remedy against him. The present action being for unlawful detainer, it is well within the exclusive original jurisdiction of the metropolitan trial courts. Same; Same; Appeals; Estoppel; Any issue raised for the first time on appeal and not timely raised in the proceedings in the lower court is barred by estoppel; Sublessees, in an action involving possession of the leased premises, cannot controvert the title of the lessor, or assert any right adverse to the title of the latter.—Petitioners contend that respondent has no 527 VOL.340,SEPTEMBER18,2000 527

Jimenez vs. Patricia, Inc. cause of action against them since, as proved by Transfer Certificate of Title No. T-44247, the property is in the name of the City of Manila and not of respondent PATRICIA. Records however show that this issue has not been raised in the proceedings below, hence, will not be ruled upon by this Court. Any issue raised for the first time on appeal and not timely raised in the proceedings in the lower court is barred by estoppel. Moreover, being mere sublessees of the property in question, petitioners cannot in an action involving possession of the leased premises controvert the title of PATRICIA, or assert any right adverse to its title. It is the Manila City Government, not the Jimenez spouses, that is the proper party to dispute the ownership of PATRICIA. Same; Same; Same; A Motion for Clarificatory Judgment is not in the character of a motion for reconsideration does not toll the reglementary period for filing a petition for review with the Court of Appeals.—The Petition for Review filed by respondent with the Court of Appeals was not prematurely filed. It should be borne in mind that a Motion for Clarificatory Judgment not being in the character of a motion for reconsideration does not toll the reglementary period for filing a petition for review with the Court of Appeals. Its filing will not bar the judgment from attaining finality, nor will its resolution amend the decision to be reviewed. Thus, when respondent filed a Petition for Review before the Court of Appeals, there was already a final judgment that could properly be the subject of a petition for review.

Same; Builders in Good Faith; Lessees, much less, sublessees, are not possessors of builders in good faith over rented land because they know that their occupancy of the premises continues only during the life of the lease, or sublease as the case may be; and, they cannot as a matter of right recover the value of their improvements from the lessor, much less retain the premises until they are reimbursed—their rights are governed by Art. 1678 of the Civil Code.—As to the house built by petitioners on the property, this Court has previously ruled that lessees, much less, sublessees, are not possessors or builders in good faith over rented land because they know that their occupancy of the premises continues only during the life of the lease, or sublease as the case may be; and, they cannot as a matter of right recover the value of their improvements from the lessor, much less retain the premises until they are reimbursed. Instead, their rights are governed by Art. 1678 of the Civil Code which allows reimbursement of lessees up to one-half (1/2) of the value of their improvements if the lessor so elects. SPECIAL CIVIL ACTION in the Supreme Court. Certiorari. 528 528 SUPREME COURT REPORTS ANNOTATED Jimenez vs. Patricia, Inc. The facts are stated in the opinion of the Court. Rico B. Bolongaita for petitioners. Ramon I. Rana for respondent. BELLOSILLO,J.:

The Joint Decision of the Court of Appeals1Decision penned by Associate Justice Angelina Sandoval Gutierrez, and concurred in by Associate Justices Romeo G. Callejo and Omar U. Amin, dated 30 January 1998. (dismissing the petition for review filed by spouses Virgilio and Josie Jimenez in CA-G.R. SP No. 43185 and giving due course to the petition for review filed by Patricia, Inc., in CA-G.R. SP No. 43179), in effect reversing the decision of the Regional Trial Court and reinstating that of the Metropolitan Trial Court, is assailed in the instant petition. Petitioners Virgilio and Josie Jimenez, spouses, are sublessees of a lot and building located at 2853 Juan Luna Street, Tondo, Ma-nila, owned by respondent Patricia, Inc. (PATRICIA for brevity), a domestic corporation duly organized and existing under Philippine laws. The Jimenez spouses subleased the property in 1980 from a certain Purisima Salazar who had been leasing the property from PATRICIA since 1970. Sometime in 1995 Purisima Salazar abandoned the property thus incurring back rentals dating back to January 1992. Hence, by reason of her non-payment of the monthly rentals, her contract of lease with PATRICIA was terminated. On 29 March 1995 PATRICIA sent a letter to the Jimenez spouses informing them of the termination of the lease and demanding that they vacate the premises within fifteen (15) days from notice since they had no existing lease contract with it.2Rollo, p. 49. But the spouses refused to leave. Thus, on 5 May 1995 PATRICIA filed a complaint3Docketed as Civil Case No. 148128, subsequently raffled to MeTC-Br. 3, Manila. for unlawful detainer against the Jimenez spouses alleging, among others, that

________________ 1 Decision penned by Associate Justice Angelina Sandoval Gutierrez, and concurred in by Associate Justices Romeo G. Callejo and Omar U. Amin, dated 30 January 1998. 2 Rollo, p. 49. 3 Docketed as Civil Case No. 148128, subsequently raffled to MeTC-Br. 3, Manila. 529 VOL.340,SEPTEMBER18,2000 529 Jimenez vs. Patricia, Inc. the lessee Purisima Salazar subleased the premises to the Jimenezes; that Purisima Salazar no longer occupied the premises; that this notwithstanding, the Jimenez spouses continued to occupy the premises without any contract with PATRICIA, its owner, hence, their stay was merely being tolerated by the latter; and, that despite demands made upon them, they refused to vacate the premises thereby unlawfully and illegally withholding the property to the damage and prejudice of PATRICIA. In their Answer, the Jimenez spouses claimed that they occupied the premises as sublessees of Purisima Salazar with the knowledge of PATRICIA; that the building originally found on the lot was owned by Purisima Salazar which she sold to them in 1984 with notice and without any objection from PATRICIA; that, when the building was gutted by fire in 1987 they constructed a new house on the lot worth P1,500,000.00 with the knowledge and without any objection from PATRICIA; and, that PATRICIA never collected any

rental for the land but they nevertheless voluntarily paid the amount of P23,537.25 as rent corresponding to the period of September 1979 to 31 December 1991.4Records, pp. 27-32. The MeTC ruled in favor of PATRICIA and ordered the Jimenez spouses to vacate the premises, to pay PATRICIA the sum of P3,000.00 a month as reasonable rental and/or compensation for the use of the premises beginning April 1995 until they finally vacated the premises, and to pay PATRICIA the sum of P5,000.00 as reasonable attorney’s fees, plus costs of suit.5Decision penned by Judge Jose V. Latayan, MeTC-Br. 3, Manila, Civil Case No. 148128-CV, dated 9 October 1996. The Jimenez spouses appealed the MeTC decision to the RTC.6Docketed as Civil Case No. 95-75996, raffled to RTCBr. 44, Manila, presided over by Judge Lolita O. Gal-lang. On 2 January 1997 the RTC modified the decision in favor of the spouses holding that an implied new lease contract existed between the Jimenez spouses and PATRICIA in view of the latter’s acceptance of rentals from the former. Thus the RTC extended the term of the lease between the parties for a period of one (1) year from date of decision, and ordered PATRICIA to reimburse the Jimenez ________________ 4 Records, pp. 27-32. 5 Decision penned by Judge Jose V. Latayan, MeTC-Br. 3, Manila, Civil Case No. 148128-CV, dated 9 October 1996. 6 Docketed as Civil Case No. 95-75996, raffled to RTC-Br. 44, Manila, presided over by Judge Lolita O. Gal-lang. 530 530 SUPREME COURT REPORS ANNOTATED

Jimenez vs. Patricia, Inc. spouses the expenses incurred in the construction of the house built on the property and/or for the Jimenez spouses to remove the improvements thereon.7CA Rollo, pp. 29-32. On 20 January 1997 PATRICIA filed a Motion for Clarificatory Judgment and later added a Supplement to the Motion for Clarificatory Judgment. On 27 January 1997 PATRICIA, without waiting for the resolution of its Motion for Clarificatory Judgment as well as its supplement thereto, filed a Petition for Review of the RTC decision with the Court of Appeals, docketed as CA-G.R. SP No. 43179. On 13 February 1997 the Jimenez spouses filed their own Petition for Review, docketed as CA-G.R. SP No. 43185. Subsequently, this petition was consolidated with PATRICIA’S Petition for Review since it involved the same parties, facts, and issues. The Court of Appeals in due course rendered a Joint Decision dismissing the Petition for Review filed by the Jimenez spouses while giving due course to the petition of PATRICIA. The Court of Appeals held that there was no implied renewal of the lease contract between the parties since, to begin with, there was no lease contract between them; hence, the Jimenez spouses could not have tendered payment of rentals to PATRICIA. Instead, it declared the status of the Jimenez spouses as being analogous to that of a lessee or tenant whose lease has expired but whose occupancy has been continued by mere tolerance of the owner, and hence, bound by an implied promise that he would vacate the premises upon demand. Thus,

the appellate court reversed and set aside the decision of the RTC and reinstated the decision of the MeTC which, among others, ordered the Jimenez spouses to vacate the premises. Petitioners now assail the jurisdiction of the MeTC contending that the failure of the complaint to allege the character of the sub-lease or entry of the Jimenez spouses into the property, whether legal or illegal, automatically classified it into an accion publiciana _______________ 7 CA Rollo, pp. 29-32. 531 VOL.340,SEPTEMBER18,2000 531 Jimenez vs. Patricia, Inc. or reinvindicatoria cognizable by the RTC and not by the MeTC;8Petitioners cited Muñoz v. CA where the Court held that “when the complaint fails to aver facts constitutive of forcible entry and unlawful detainer, as where it does not state how entry was effected or how and when dispossession started, the ac... thus, the action should have been dismissed. The rule is settled that a question of jurisdiction may be raised at any time, even on appeal, provided that its application does not result in a mockery of the tenets of fair play. In the instant case, the jurisdictional issue was raised by petitioners for the first time only in the instant Petition for Review. However, it should be noted that they did so only after an adverse decision was rendered by the Court of Appeals. Despite several opportunities in the RTC, which ruled in their favor, and in the Court of Appeals, petitioners never advanced the question of

jurisdiction of the MeTC. Additionally, petitioners participated actively in the proceedings before the MeTC9Refugia v. Court of Appeals, G.R. No. 118284, 5 July 1996, 258 SCRA 347, citing Rodriguez v. Court of Appeals, No. L-29264, 29 August 1969, 29 SCRA 419; Navoa v. Court of Appeals, G.R. No. 59255, 29 De-cember 1995, 251 SCRA 545. and invoked its jurisdiction with the filing of their answer, in seeking affirmative relief from it, in subsequently filing a notice of appeal before the RTC, and later, a Petition for Review with the Court of Appeals. Upon these premises, petitioners cannot now be allowed belatedly to adopt an inconsistent posture by attacking the jurisdiction of the court to wnich they had submitted themselves voluntarily. Laches now bars them from doing so. Be that as it may, we find no error in the MeTC assuming jurisdiction over the subject matter. A complaint for unlawful detainer is sufficient if it alleges that the withholding of possession or the refusal to vacate is unlawful without necessarily employing the terminology of the law.10Sumulong v. Court of Appeals, G.R. No. 108817, 10 May 1994, 232 SCRA 372; Pangilinan v. Aguilar, No. L-29275, 31 January 1972, 43 SCRA 136. As correctly found by the appellate court, _________________ 8 Petitioners cited Muñoz v. CA where the Court held that “when the complaint fails to aver facts constitutive of forcible entry and unlawful detainer, as where it does not state how entry was effected or how and when dispossession started, the action should be accion publiciana or reinvindicatoria in the Court of First Instance (now, Regional Trial Court),” as basis

for their contention. (G.R. No. 102693, 23 September 1992, 214 SCRA 216). 9 Refugia v. Court of Appeals, G.R. No. 118284, 5 July 1996, 258 SCRA 347, citing Rodriguez v. Court of Appeals, No. L29264, 29 August 1969, 29 SCRA 419; Navoa v. Court of Appeals, G.R. No. 59255, 29 De-cember 1995, 251 SCRA 545. 10 Sumulong v. Court of Appeals, G.R. No. 108817, 10 May 1994, 232 SCRA 372; Pangilinan v. Aguilar, No. L-29275, 31 January 1972, 43 SCRA 136. 532 532 SUPREME COURT REPORTS ANNOTATED Jimenez vs. Patricia, Inc. to which we agree, the allegations in the complaint sufficiently established a cause of action for unlawful detainer. The complaint clearly stated how entry was effected and how and when dispossession started—petitioners were able to enter the subject premises as sublessees of Purisima Salazar who, despite the termination of her lease with respondent, continued to occupy the subject premises without any contract with it; thus, their stay was by tolerance of respondent. The fact that the complaint failed to state that respondent was in prior possession of the property before it was unlawfully withheld by petitioner spouses is of no moment. Prior physical possession is indispensable only in actions for forcible entry but not in unlawful detainer.11Javelosa v. Court of Appeals, G.R. No. 124292, 10 December 1996, 265 SCRA 493. Petitioner spouses, as mere sublessees of Purisima Salazar, derive their right from the sublessor whose termination of

contract with the lessor necessarily also ends the sublease contract. Thus, when the contract of lease of Purisima Salazar with respondent was terminated the contract of sublease of petitioners with the former also necessarily ended and petitioners cannot insist on staying on the premises. Petitioners can invoke no right superior to that of their sublessor.12Duellome v. Gotico, No. L-17846, 29 April 1963, 7 SCRA 841. It is not correct to say that petitioners could not have occupied the property by tolerance of respondent as their entry into the premises was inceptively illegal, the sublease being entered into without the consent of the owner.13Sec.4.Assignment of Lease or Subleasing.—Assignment of lease or subleasing of the whole or any portion of the residential unit, including the acceptance of boarders or bedspacers, without the written consent of the owner/lessor is prohibited (Batas P... Petitioners argue that tolerance is only available in cases where entry was lawful from the start and cannot be asserted where entry was illegal from the start. It appears however that respondent did not expressly and equivocally prohibit the subleasing of the property. Although the attached contracts of lease state that the lessee cannot sublease the prop__________________ 11 Javelosa v. Court of Appeals, G.R. No. 124292, 10 December 1996, 265 SCRA 493. 12 Duellome v. Gotico, No. L-17846, 29 April 1963, 7 SCRA 841. 13 Sec.4.Assignment of Lease or Subleasing.—Assignment of lease or subleasing of the whole or any portion of the residential unit, including the acceptance of boarders or

bedspacers, without the written consent of the owner/lessor is prohibited (Batas Pambansa Blg. 887). 533 VOL.340,SEPTEMBER18,2000 533 Jimenez vs. Patricia, Inc. erty, none of those contracts pertain to the contract of lease between Purisima Salazar and respondent PATRICIA.14Attached Contracts of Lease pertain to those between Patricia, Inc., and Renato Establecida, Patricia, Inc., and Augusto Tortosa, and not Patricia, Inc., and herein petitioners; Rollo, pp. 109-114. In any event, the fact that PATRICIA sent a letter to the Jimenez spouses informing them of the termination of the lease of Purisima Salazar shows that they recognize and acknowledge their stay in the premises as sublessees of Salazar. However, after the termination of the contract of lease of Purisima Salazar with PATRICIA, any right of the Jimenez spouses to stay in the premises, although previously recognized, then and there ended. After the termination of the contract of lease of Salazar the continued stay of the Jimenez spouses thereat was merely by tolerance of PATRICIA and it became unlawful after they ignored the lessor’s demand to leave. The status of petitioner spouses is akin to that of a lessee or a tenant whose term of lease has expired but whose occupancy has continued by tolerance of the owner. A person who occupies the land of another at the latter’s forbearance or permission without any contract between them is necessarily bound by an implied promise that he will vacate upon demand

failing which a summary action for ejectment is the proper remedy against him.15Vda. de Catchuela v. Francisco, No. L31985, 25 June 1980, 98 SCRA 172, citing Calubayan v. Pascual, No. L-22645, 18 September 1967, 21 SCRA 146; Yu v. de Lara, No. L-16084, 30 November 1962, 6 SCRA 785. The present action being for unlawful detainer, it is well within the exclusive original jurisdiction of the metropolitan trial courts. Petitioners contend that respondent has no cause of action against them since, as proved by Transfer Certificate of Title No. T-44247, the property is in the name of the City of Manila and not of respondent PATRICIA. Records however show that this issue has not been raised in the proceedings below, hence, will not be ruled upon by this Court. Any issue raised for the first time on appeal and not timely raised in the proceedings in the lower court is barred by estoppel. Moreover, being mere sublessees of the property in question, petitioners can_________________ 14 Attached Contracts of Lease pertain to those between Patricia, Inc., and Renato Establecida, Patricia, Inc., and Augusto Tortosa, and not Patricia, Inc., and herein petitioners; Rollo, pp. 109-114. 15 Vda. de Catchuela v. Francisco, No. L-31985, 25 June 1980, 98 SCRA 172, citing Calubayan v. Pascual, No. L-22645, 18 September 1967, 21 SCRA 146; Yu v. de Lara, No. L-16084, 30 November 1962, 6 SCRA 785. 534 534 SUPREME COURT REPORTS ANNOTATED

Jimenez vs. Patricia, Inc. not in an action involving possession of the leased premises contro-vert the title of PATRICIA, or assert any right adverse to its title. It is the Manila City Government, not the Jimenez spouses, that is the proper party to dispute the ownership of PATRICIA. Petitioners argue that the Petition for Review of respondent should have been dismissed for being premature in view of the pendency of its Motion for Clarificatory Judgment and Supplement to the Motion for Clarificatory Judgment which remained unresolved by the RTC. They assert that because of the pendency of its motion, there was no final judgment or decision that could properly be the subject of a petition for review before the Court of Appeals. We do not agree. The Petition for Review filed by respondent with the Court of Appeals was not prematurely filed. It should be borne in mind that a Motion for Clarificatory Judgment not being in the character of a motion for reconsideration does not toll the reglementary period for filing a petition for review with the Court of Appeals. Its filing will not bar the judgment from attaining finality, nor will its resolution amend the decision to be reviewed. Thus, when respondent filed a Petition for Review before the Court of Appeals, there was already a final judgment that could properly be the subject of a petition for review. Moreover, under the Rules on Summary Procedure, the decision of the RTC in civil cases governed by this Rule, including forcible entry and unlawful detainer, is immediately executory without prejudice to a further appeal that may be

taken therefrom. The judgment of the RTC being final and executory the filing of the Petition for Review was proper. As to the house built by petitioners on the property, this Court has previously ruled that lessees, much less, sublessees, are not possessors or builders in good faith16Art. 448 of the Civil Code applies only where one builds on land in the belief that he is the owner of the land, but does not apply where one’s interest in the land is that of a lessee under a rental contract; Balucanag v. Francisco, No. L-33422, 30 ... over rented land because they know that their occupancy of the premises continues only during the life of the lease, or sublease as the case may be; and, they cannot as a matter of right recover the value of their improvements _________________ 16 Art. 448 of the Civil Code applies only where one builds on land in the belief that he is the owner of the land, but does not apply where one’s interest in the land is that of a lessee under a rental contract; Balucanag v. Francisco, No. L-33422, 30 May 1983, 122 SCRA 498. 535 VOL.340,SEPTEMBER18,2000 535 Jimenez vs. Patricia, Inc. from the lessor, much less retain the premises until they are reim-bursed.17Gabrito v. Court of Appeals, G.R. No. 77976, 24 November 1988, 167 SCRA 771, citing Vda. de Bacaling v. Laguna, No. L-26694, 18 De-cember 1973, 54 SCRA 243, 250. Instead, their rights are governed by Art. 1678 of the Civil

Code which allows reimbursement of lessees up to one-half (1/2) of the value of their improvements if the lessor so elects: Art.1678.If the lessee makes, in good faith, useful improvements which are suitable to the use for which the lease is intended, without altering the form or substance of the property leased, the lessor upon the termination of the lease shall pay the lessee one-half of the value of the improvements at that time. Should the lessor refuse to reimburse said amount, the lessee may remove the improvements, even though the principal thing may suffer damage thereby. He shall not, however, cause any more impairment upon the property leased than is necessary x x x (New Civil Code). Thus, applying the above rule, petitioners cannot recover full reimbursement of the value spent for the construction of the house, but is limited only to one-half (1/2) of its value at the election of the lessor. However, as PATRICIA has manifested its lack of intention to do so, the Jimenez spouses have no recourse but to remove the house at their own expense. WHEREFORE, the assailed Joint Decision of the Court of Appeals reversing and setting aside the decision of the Regional Trial Court and reinstating the decision of the Metropolitan Trial Court is AFFIRMED, with the MODIFICATION that petitioner spouses Virgilio and Josie Jimenez should also remove the house they have constructed on the lot at their own expense. Thus, petitioner spouses and all persons claiming title under them are ordered: (a) to vacate the premises described in the complaint located at 2853 Juan Luna Street, Tondo, Manila; (b) to remove at their own ex-pense within sixty (60) days from finality of this Decision the house they have constructed thereon; (c) to pay respondent Patricia, Inc., the

sum of P3,000.00 a month as reasonable rental/compensation for the use of the premises beginning April 1995 until they finally __________________ 17 Gabrito v. Court of Appeals, G.R. No. 77976, 24 November 1988, 167 SCRA 771, citing Vda. de Bacaling v. Laguna, No. L-26694, 18 De-cember 1973, 54 SCRA 243, 250. 536 536 SUPREME COURT REPORTS ANNOTATED Jimenez vs. Patricia, Inc. vacate the premises; and, (d) to pay respondent Patricia, Inc., the sum of P5,000.00 as attorney’s fees, plus costs of suit. SO ORDERED. Mendoza, Quisumbing, Buena and De Leon, Jr., JJ., concur. Judgment affirmed with modification. Notes.—It is a well-settled rule in this jurisdiction that the sublessee can invoke no right superior to that of his sublessor. (Heirs of Eugenio Sevilla, Inc. vs. Court of Appeals, 206 SCRA 559 [1992]) The lessor of the property is a stranger in a contract of sublease between the lessee/sublessor and the sublessee. (Rodriguez vs. Project 6 Market Service Cooperative, Inc., 247 SCRA 528 [1995]) ——o0o—— [Jimenez vs. Patricia, Inc., 340 SCRA 525(2000)]

No. L-25462. February 21, 1980.*FIRST DIVISION MARIANO FLOREZA, petitioner, vs. MARIA D. de EVANGELISTA and SERGIO EVANGELISTA, respondents. Civil Law; Builder in good faith, not a case of; Applicability of Art 448 of the Civil Code.—We uphold the Court of Appeals in its conclusion that Article 448 of the Civil Code is inapplicable to the factual milieu herein. Said codal provision applies only when the builder, planter, or sower believes he has the right so to build, plant or sow because he thinks he owns the land or believes himself to have a claim of title. In this case, petitioner makes no pretensions of ownership whatsoever. Same; Same; Rights of a person who made useful improvements on the lot of another before effectivity of the pacto de retro sale of the lot; Rights akin to those of the usufructuary.—Since petitioner cannot be classified as a builder in good faith within the purview of Article 448 of the Civil Code, nor as a vendee a retro, who made useful improvements during the lifetime of the pacto de retro, petitioner has no right to reimbursement of the value of the house which he had erected on the residential lot of the EVANGELISTAS, much less to retention of the premises until he is reimbursed. The rights of petitioner are more akin to those of a usufructuary who, under Article 579 of the Civil Code (Art. 487 of the old Code), may make on the property useful improvements but with no right to be indemnified therefor. He may, however, remove such improvements should it be possible to do so without damage to the property. For if the improvements made by the usufructuary were subject to indemnity, we would have a dangerous and unjust situation in which the usufructuary could dispose of the owner’s funds by

compelling him to pay for improvements which perhaps he would not have made. Same; Damages; Liability for damages for retention of property although redemption thereof had been made.—Having retained the property although a redemption had been made, he should be held liable for damages in the form of rentals for the continued use of the subject residential lot at the rate of P10.00 monthly from January 3, ________________ * FIRST DIVISION 131 VOL. 96, FEBRUARY 21, 1980 131 Floreza vs. Evangelista 1955, and not merely from the date of demand on May 4, 1956, as held by the Court of Appeals, until the house was removed and the property vacated by petitioner or his heirs. PETITION for review on certiorari of the decision of the Court of Appeals. The facts are stated in the opinion of the Court. R. D. Hipolito & B. P. Fabir for petitioner. E. G. Tanjuatco & Associates for respondents. MELENCIO-HERRERA, J.: This is a Petition for Review on Certiorari of the Decision of the Court of Appeals (CA-G.R. No. 23516-R) promulgated on November 4, 1965, entitled “Maria de Evangelista and Sergio Evangelista, (now the respondents) vs. Mariano Floreza (petitioner herein),” reversing the judgment of the Court of First Instance of Rizal rendered on July 17, 1957, and instead ordering petitioner to vacate respondents’ residential lot, to

remove his house at his own expenses and to pay rental from May 5, 1956. Plaintiffs Maria de Evangelista and Sergio Evangelista, who are mother and son, (the EVANGELISTAS, for short) are the owners of a residential lot located at Sumilang St., Tanay, Rizal, with an area of 204.08 sq. ms., assessed at P410.00. In May 1945, the EVANGELISTAS borrowed from FLOREZA the amount of P100.00. On or about November 1945, with the consent of the EVANGELISTAS, FLOREZA occupied the above residential lot and built thereon a house of light materials (barong-barong) without any agreement as to payment for the use of said residential lot owing to the fact that the EVANGELISTAS has then a standing loan of P100.00 in favor of FLOREZA.1Exh. A, p. 1, Record of Exhibits. On the following dates, the EVANGELISTAS again borrowed the indicated amounts: September 16, 1946 - P100.00;2Exh. 9, p. 29, ibid. August 17, 1947 - P200.00;3Exh. 10, p. 30, ibid. January 30, 1949 - P200.00;4Exh. 2, p. 24, ibid. April ________________ 1 Exh. A, p. 1, Record of Exhibits. 2 Exh. 9, p. 29, ibid. 3 Exh. 10, p. 30, ibid. 4 Exh. 2, p. 24, ibid. 132 132 SUPREME COURT REPORTS ANNOTATED Floreza vs. Evangelista 1, 1949 - P140.00,5Exh. 3, p. 25, ibid. or a total of P740.00 including the first loan. The last three items are evidenced by

private documents stating that the residential lot stands as security therefor and that the amounts covered thereunder are payable within six years from date, without mention of interest. The document executed on September 16, 1946 stated specifically that the loan was without interest “walang anumang patubo.” On January 10, 1949, FLOREZA demolished this house of light materials and in its place constructed one of strong materials assessed in his name at P1,410.00 under Tax Declaration No. 4448. FLOREZA paid no rental as before.6Exh. 11, p. 31, ibid. On August 1, 1949, the EVANGELISTAS, for and in consideration of P1,000.00 representing the total outstanding loan of P740.00 plus P260.00 in cash, sold their residential lot to FLOREZA, with a right to repurchase within a period of 6 years from date, or up to August 1, 1955, as evidenced by a notarial document, Exh. B, registered under Act 3344 on December 6, 1949, as Inscription No. 2147.7Pp. 3-4, ibid. On January 2, 1955, or seven months before the expiry of the repurchase period, the EVANGELISTAS paid in full the repurchase price of P1,000.00. On April 25, 1956, the EVANGELISTAS, through their counsel, wrote FLOREZA a letter8Exh. 5, p. 27, ibid. asking him to vacate the premises as they wanted to make use of their residential lot besides the fact that FLOREZA had already been given by them more than one year within which to move his house to another site. On May 4, 1956, the EVANGELISTAS made a formal written demand to vacate, within five days from notice, explaining that they had already fully paid the consideration for the repurchase of the lot.9Exh. 6, p. 28, ibid.

FLOREZA refused to vacate unless he was first reimbursed the value of his house. Hence, the filing of this Complaint on May 18, 1956 by the EVANGELISTAS. ________________ 5 Exh. 3, p. 25, ibid. 6 Exh. 11, p. 31, ibid. 7 Pp. 3-4, ibid. 8 Exh. 5, p. 27, ibid. 9 Exh. 6, p. 28, ibid. 133 VOL. 96, FEBRUARY 21, 1980 133 Floreza vs. Evangelista The EVANGELISTAS prayed that: 1) they be declared the owners of the house of strong materials built by FLOREZA on their residential lot, without payment of indemnity; or, in the alternative to order FLOREZA to remove said house; 2) that FLOREZA pay them the sum of P10.00 per month as the reasonable value for the use and occupation of the same from January 2, 1955 (the date the repurchase price was paid) until FLOREZA removes the house and delivers the lot to them; and 3) to declare the transaction between them and FLOREZA as one of mortgage and not of pacto de retro. In his Answer, FLOREZA admitted the repurchase but controverted by stating that he would execute a deed of repurchase and leave the premises upon payment to him of the reasonable value of the house worth P7,000.00. In a Decision dated July 17, 1957, the Court of First Instance of Rizal opined that the question of whether the transaction

between the parties is one of mortgage or pacto de retro is no longer material as the indebtedness of P1,000.00 of the EVANGELISTAS to FLOREZA had already been fully paid. And, applying Article 448 of the Civil Code,10”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... it rendered a decision dispositively decreeing: “FOR ALL THE FOREGOING CONSIDERATIONS, the Court hereby renders judgment granting the plaintiffs the right to elect, as owners of the land, to purchase the house built on the said lot in question by the defendant for P2,500 or to sell their said land to the defendant for P1,500. In the event that the plaintiffs shall decide ________________ 10”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.”

134 134 SUPREME COURT REPORTS ANNOTATED Floreza vs. Evangelista not to purchase the house in question, the defendant should be allowed to remain in plaintiffs’ premises by paying a monthly rental of P10.00 which is the reasonable value for the use of the same per month as alleged by plaintiffs in their complaint. The Court also orders the defendant to pay a monthly rental of P10.00 for the use of the land in question from May 18, 1956, the date of the commencement of this action. The counterclaim of the defendant is hereby ordered dismissed. Without pronouncement as to costs. “SO ORDERED.”11Amended Record on Appeal, p. 22. Both parties appealed to the Court of Appeals. On November 4, 1965, the Court of Appeals concluded that Article 448 of the Civil Code, supra, was inapplicable; that FLOREZA was not entitled to reimbursement for his house but that he could remove the same at his expense; and accordingly rendered judgment thus: “WHEREFORE, judgment is hereby rendered: (1) adjudging the defendant-appellant Mariano Floreza to vacate plaintiffs’ residential lot described in the complaint and to pay rental of P10.00 a month from May 5, 1956, until he (defendant) shall have vacated the premises; (2) ordering defendant to remove his house from the land in question within 30 days from the time this decision becomes final and executory; (3) ordering the Register of Deeds of Rizal to cancel inscription No. 2147, Page 210, Vol. 36, in the Registration Book under Act 3344 upon payment of his lawful fees; and (4) taxing the costs in

both instances against defendant-appellant Mariano Floreza.”12Decision, pp. 9-10. Hence, this Petition for Review on Certiorari by FLOREZA, seeking a reversal of the aforestated judgment and ascribing the following errors: 1) That the Court of Appeals erred in holding that petitioner Floreza was a builder in bad faith without likewise holding that respondents as owners of the land in dispute, were likewise in bad faith and therefore both parties should in accordance with Art. 453 of the New Civil Code be considered as having acted in good faith. ________________ 11 Amended Record on Appeal, p. 22. 12 Decision, pp. 9-10. 135 VOL. 96, FEBRUARY 21, 1980 135 Floreza vs. Evangelista 2) That the Court of Appeals erred in completely ignoring the issue raised on appeal as to whether or not respondents as owners of the questioned lot, were in bad faith in the sense that they had knowledge of and acquiesced to the construction of the house of petitioner on their lot. 3) That the Court of Appeals erred in not applying Art. 448 of the New Civil Code in the adjudication of the rights of petitioner and respondent. 4) That the Court of Appeals erred in declaring that petitioner is not entitled to reimbursement for the value of his house and that he should instead remove the same at his expense.

5) That the Court of Appeals erred in adjudging petitioner to vacate respondents’ lot in question and to pay rentals commencing from May 5, 1956, until he shall have vacated the premises, notwithstanding that petitioner is entitled under Arts. 448 and 546 of the New Civil Code, to retention without payment of rental while the corresponding indemnity of his house had not been paid. 6) That the Court of Appeals erred in taxing costs against petitioner. 7) That the Court of Appeals erred in not awarding petitioner’s counterclaim. During the pendency of this appeal, petitioner Maria D. de Evangelista died and was ordered substituted by her son, petitioner Sergio, as her legal representative, in a Resolution dated May 14, 1976. On October 20, 1978, the EVANGELISTAS filed a Motion to Dismiss stating that FLOREZA had since died and that his heirs had voluntarily vacated the residential lot in question. The date FLOREZA passed away and the date his heirs had voluntarily vacated the property has not been stated. Required to comment, “petitioner (represented by his heirs)”, through counsel, confirmed his death and the removal of the house and manifested that thereby the question of reimbursement had become moot and academic. He objected to the dismissal of the case, however, on the ground that the issue of rentals still pends. On January 21, 1980, complying with a Resolution of this Court, the EVANGELISTAS clarified that the dismissal they were praying for was not of the entire case but only of this Petition for Review on Certiorari.

136 136 SUPREME COURT REPORTS ANNOTATED Floreza vs. Evangelista We are not in agreement that the question of reimbursement of the value of the improvement erected on the subject property has become moot. Petitioner’s right of retention of subject property until he is reimbursed for the value of his house, as he had demanded, is inextricably linked with the question of rentals. For if petitioner has the right to indemnity, he has the right of retention and no rentals need be paid. Conversely, if no right of retention exists, damages in the form of rentals for the continued use and occupation of the property should be allowed. We uphold the Court of Appeals in its conclusion that Article 448 of the Civil Code is inapplicable to the factual milieu herein. Said codal provision applies only when the builder, planter, or sower believes he had the right so to build, plant or sow because he thinks he owns the land or believes himself to have a claim of title.13Alburo vs. Villanueva, 7 Phil. 277 (1907): Quemuel vs. Olaes, 1 SCRA 1159 (1961); Racaza vs. Susana Realty, Inc., 18 SCRA 1172 (1966). In this case, petitioner makes no pretensions of ownership whatsoever. Petitioner concedes that he was a builder in bad faith but maintains that the EVANGEUSTAS should also be held in bad faith, so that both of them being in bad faith, Article 453 of the Civil Code14”ART. 453. If there was bad faith, not only on the part of the person who built, planted or sowed on the land of another, but also on the part of the owner of such land, the rights of one and the other shall be the same as though both had

acted in go... should apply. By the same token, however, that Article 448 of the same Code is not applicable, neither is Article 453 under the ambiance of this case. Would petitioner, as vendee a retro, then be entitled to the rights granted in Article 1616 of the Civil Code (Art. 1518 of the old Code)? To quote: “Art. 1616. The vendor cannot avail himself of the right of repurchase without returning to the vendee the price of the sale, and in addition: ________________ 13 Alburo vs. Villanueva, 7 Phil. 277 (1907): Quemuel vs. Olaes, 1 SCRA 1159 (1961); Racaza vs. Susana Realty, Inc., 18 SCRA 1172 (1966). 14 ”ART. 453. If there was bad faith, not only on the part of the person who built, planted or sowed on the land of another, but also on the part of the owner of such land, the rights of one and the other shall be the same as though both had acted in good faith. “It is understood that there is bad faith on the part of the landowner whenever the act was done with his knowledge and without opposition on his part.” 137 VOL. 96, FEBRUARY 21, 1980 137 Floreza vs. Evangelista (1) The expenses of the contract, and any other legitimate payments made by reason of the sale; (2) The necessary and useful expenses made on the thing sold.” The question again calls for a negative answer. It should be noted that petitioner did not construct his house as a vendee a

retro. The house had already been constructed as far back as 1949 (1945 for the house of light materials) even before the pacto de retro sale in 1949. Petitioner incurred no useful expense, therefore, after that sale. The house was already there at the tolerance of the EVANGELISTAS in consideration of the several loans extended to them. Since petitioner cannot be classified as a builder in good faith within the purview of Article 448 of the Civil Code, nor as a vendee a retro, who made useful improvements during the lifetime of the pacto de retro, petitioner has no right to reimbursement of the value of the house which he had erected on the residential lot of the EVANGELISTAS, much less to retention of the premises until he is reimbursed. The rights of petitioner are more akin to those of a usufructuary who, under Article 579 of the Civil Code (Art 487 of the old Code), may make on the property useful improvements but with no right to be indemnified therefor. He may, however, remove such improvements should it be possible to do so without damage to the property: For if the improvements made by the usufructuary were subject to indemnity, we would have a dangerous and unjust situation in which the usufructuary could dispose of the owner’s funds by compelling him to pay for improvements which perhaps he would not have made.15Tolentino, Civil Code, citing Castan 237, citing de Diego Vol. II, pp. 315-316, 1972 ed. We come now to the issue of rentals. It is clear that from the date that the redemption price had been paid by the EVANGELISTAS on January 2, 1955, petitioner’s right to the use of the residential lot without charge had ceased. Having retained the property although a redemption had been made, he should be held liable for damages in the form of rentals for the

continued use of the subject residential lot16Cho Chun Chac vs. Garcia, 47 Phil. 530 (1925). at the ________________ 15 Tolentino, Civil Code, citing Castan 237, citing de Diego Vol. II, pp. 315-316, 1972 ed. 16 Cho Chun Chac vs. Garcia, 47 Phil. 530 (1925). 138 138 SUPREME COURT REPORTS ANNOTATED Floreza vs. Evangelista rate of P10.00 monthly from January 3, 1955, and not merely from the date of demand on May 4, 1956, as held by the Court of Appeals, until the house was removed and the property vacated by petitioner or his heirs. WHEREFORE, the judgment appealed from is hereby affirmed, with the modification that payment of rentals by the heirs of Mariano Floreza, who are hereby ordered substituted for him, shall commence on January 3, 1955 until the date that the residential lot in question was vacated. Costs against petitioner. SO ORDERED. Teehankee (Chairman), Makasiar, Fernandez, Guerrero, and De Castro, JJ., concur. Judgment affirmed. Notes.—Improvements on a parcel of land which fall under Article 415 of the New Civil Code are immovable property insofar as third persons are concerned and the mortgage con stituted thereon must be susceptible of registration as a real estate mortgage. (Tolentino vs. Baltazar, 1 SCRA 822).

Pursuant to the right of retention granted to possessors in good faith by Article 546 of the Civil Code, which is applicable to builders in good faith (Art. 448), the latter may be ordered to vacate the land upon payment by the landowner of indemnity for improvements. (People vs. Repato, 6 SCRA 207). Where a house stands on a rented land belonging to another person, it may be the subject-matter of a chattel mortgage as person or movable property if so stipulated in the document of mortgage, and in an action by the mortgage for foreclosure, the validity of the chattel mortgage cannot be assailed by one of the parties to the contract of mortgage. (Navarro vs. Pineda, 9 SCRA 631). Article 167 of the Civil Code on disposition of the fruits of property redeemed applies only when the parties failed to provide a sharing arrangement thereon. (Budlong vs. Pondoc, 79 SCRA 24). 139 VOL. 96, FEBRUARY 21, 1980 139 Sto. Domingo vs. De los Angeles A vendee a retro has a right to share in the harvest of palay planted when said vendee was still owner of the land. (Almeda, vs. Daluro, 79 SCRA 327). It is not always necessary for owner of real property to wait after expiration of 12 months before he may maintain a forcible entry suit in the nature of accion publiciana in the Court of First Instance. (Banayos vs. Susana Realty, Inc., 71 SCRA 557). Article 593 of the Civil Code in its second paragraph grants to the possessor, who was deprived of the possession of his real

property through forcible entry, the right to secure from an inferior court in the action for forcible entry a writ of preliminary mandatory injunction to restore him in his possession. (Laureano vs. Adil, 72 SCRA 148). The damages contemplated in Section 8 of Rule 70 refer to the reasonable compensation for the use and occupation of the property which is generally measured by its fair rental value. (Laureano vs. Adil, 72 SCRA 148). Trial court should give reasonable time for defendant to make deposit to stay execution pending appeal of ejectment case. (Sanchez vs. Zosa, 68 SCRA 171). ——o0o—— [Floreza vs. Evangelista, 96 SCRA 130(1980)]

G.R. No. 115814. May 26, 1995.*FIRST DIVISION. PEDRO P. PECSON, petitioner, vs. COURT OF APPEALS, SPOUSES JUAN NUGUID and ERLINDA NUGUID, respondents. Property; Ownership; Builder in Good Faith; Art. 448 of the Civil Code does not apply to a case where the owner of the land is the builder, sower, or planter who then later loses ownership of the land by sale or donation.—By its clear language, Article 448 refers to a land whose ownership is claimed by two or more parties, one of whom has built some works, or sown or planted something. The building, sowing or planting may have been made in good faith or in bad faith. The rule on good faith laid down in Article 526 of the Civil Code shall be applied in determining whether a builder, sower or planter had acted in good faith. Article 448 does not apply to a case where the owner of the land is the builder, sower, or planter who then later loses ownership of the land by sale or donation. Same; Same; Same; The provision of Art. 448 on indemnity may be applied by analogy to a case where one loses the ownership of the land on which he earlier built an apartment.— Elsewise stated, where the true owner himself is the builder of works on his own land, the issue of good faith or bad faith is entirely irrelevant. Thus in strict point of law, Article 448 is not apposite to the case at bar. Nevertheless, we believe that the provision therein on indemnity may be applied by analogy considering that the primary intent of Article 448 is to avoid a state of forced co-ownership and that the parties, including the two courts below, in the main agree that Articles 448 and 546 of the Civil Code are applicable and indemnity for the

improvements may be paid although they differ as to the basis of the indemnity. _______________ * FIRST DIVISION. 408 408 SUPREME COURT REPORTS ANNOTATED Pecson vs. Court of Appeals Same; Same; Same; Equity; Unjust Enrichment; It is the current market value of the improvements which should be made the basis of reimbursement to the builder in good faith.— The objective of Article 546 of the Civil Code is to administer justice between the parties involved. In this regard, this Court had long ago stated in Rivera vs. Roman Catholic Archbishop of Manila that the said provision was formulated in trying to adjust the rights of the owner and possessor in good faith of a piece of land, to administer complete justice to both of them in such a way as neither one nor the other may enrich himself of that which does not belong to him. Guided by this precept, it is therefore the current market value of the improvements which should be made the basis of reimbursement. A contrary ruling would unjustly enrich the private respondents who would otherwise be allowed to acquire a highly valued incomeyielding four-unit apartment building for a measly amount. Consequently, the parties should therefore be allowed to adduce evidence on the present market value of the apartment building upon which the trial court should base its finding as to the amount of reimbursement to be paid by the landowner.

Same; Same; Same; Same; The right to retain the improvements while the corresponding indemnity is not paid implies the tenancy or possession in fact of the land on which it is built, planted or sown and retention of ownership of the improvements and, necessarily, the income therefrom.—The trial court also erred in ordering the petitioner to pay monthly rentals equal to the aggregate rentals paid by the lessees of the apartment building. Since the private respondents have opted to appropriate the apartment building, the petitioner is thus entitled to the possession and enjoyment of the apartment building, until he is paid the proper indemnity, as well as of the portion of the lot where the building has been constructed. This is so because the right to retain the improvements while the corresponding indemnity is not paid implies the tenancy or possession in fact of the land on which it is built, planted or sown. The petitioner not having been so paid, he was entitled to retain ownership of the building and, necessarily, the income therefrom. PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. Barbers, Molina & Tamargo for petitioner. Benjamin C. Reyes for private respondents. 409 VOL. 244, MAY 26, 1995 409 Pecson vs. Court of Appeals DAVIDE, JR., J.:

This petition for review on certiorari seeks to set aside the decision1Annex “A” of Petition; Rollo, 12-21. Per Associate Justice Artemon D. Luna, with the concurrence of Associate Justices Manuel C. Herrera and Ruben T. Reyes. of the Court of Appeals in CA-G.R. SP No. 32679 affirming in part the order2Id., 40-42. Per Judge Pedro T. Santiago. of the Regional Trial Court (RTC) of Quezon City, Branch 101, in Civil Case No. Q-41470. The factual and procedural antecedents of this case as gathered from the record are as follows: Petitioner Pedro P. Pecson was the owner of a commercial lot located in Kamias Street, Quezon City, on which he built a fourdoor two-storey apartment building. For his failure to pay realty taxes amounting to twelve thousand pesos (P12,000.00), the lot was sold at public auction by the City Treasurer of Quezon City to Mamerto Nepomuceno who in turn sold it on 12 October 1983 to the private respondents, the spouses Juan Nuguid and Erlinda Tan-Nuguid, for one hundred three thousand pesos (P103,000.00). The petitioner challenged the validity of the auction sale in Civil Case No. Q-41470 before the RTC of Quezon City. In its decision of 8 February 1989, the RTC dismissed the complaint, but as to the private respondents’ claim that the sale included the apartment building, it held that the issue concerning it was “not a subject of the . . . litigation.” In resolving the private respondents’ motion to reconsider this issue, the trial court held that there was no legal basis for the contention that the apartment building was included in the sale.3Rollo, 34. Both parties then appealed the decision to the Court of Appeals. The case was docketed as CA-G.R. CV No. 2931. In

its decision of 30 April 1992,4Annex “A” of the Petition in CA-G.R. SP No. 32679; Id., 31-39. Per Associate Justice Lorna S. Lombos-De la Fuente, with the concurrence of Associate Justices Eduardo R. Bengzon and Quirino D. Abad Santos, Jr. the Court of Appeals affirmed in toto the assailed decision. It also agreed with the trial court that the apartment building was not included in the auction sale of the _______________ 1 Annex “A” of Petition; Rollo, 12-21. Per Associate Justice Artemon D. Luna, with the concurrence of Associate Justices Manuel C. Herrera and Ruben T. Reyes. 2 Id., 40-42. Per Judge Pedro T. Santiago. 3 Rollo, 34. 4 Annex “A” of the Petition in CA-G.R. SP No. 32679; Id., 3139. Per Associate Justice Lorna S. Lombos-De la Fuente, with the concurrence of Associate Justices Eduardo R. Bengzon and Quirino D. Abad Santos, Jr. 410 SUPREME COURT REPORTS ANNOTATED 410 Pecson vs. Court of Appeals commercial lot. Thus: Indeed, examining the record we are fully convinced that it was only the land—without the apartment building—which was sold at the auction sale, for plaintiff’s failure to pay the taxes due thereon . Thus, in the Certificate of Sale of Delinquent Property To Purchaser (Exh. K, p. 352, Record) the property subject of the auction sale at which Mamerto Nepomuceno was the purchaser is referred to as Lot No. 21-A, Block No. K-34,

at Kamias, Barangay Piñahan, with an area of 256.3 sq.m., with no mention whatsoever, of the building thereon. The same description of the subject property appears in the Final Notice To Exercise The Right of Redemption (over subject property) dated September 14, 1981 (Exh. L, p. 353, Record) and in the Final Bill of Sale over the same property dated April 19, 1982 (Exh. P, p. 357, Record). Needless to say, as it was only the land without any building which Nepomuceno had acquired at the auction sale, it was also only that land without any building which he could have legally sold to the Nuguids. Verily, in the Deed of Absolute Sale of Registered Land executed by Mamerto Nepomuceno in favor of the Nuguids on October 25, 1983 (Exh. U, p. 366, Record) it clearly appears that the property subject of the sale for P103,000.00 was only the parcel of land, Lot 21-A, Blk. K-34 containing an area of 256.3 sq. meters, without any mention of any improvement, much less any building thereon. (emphases supplied) The petition to review the said decision was subsequently denied by this Court.5Memorandum For Petitioners, 2; Rollo, 70. Entry of judgment was made on 23 June 1993.6Rollo, 70. On November 1993, the private respondents filed with the trial court a motion for delivery of possession of the lot and the apartment building, citing Article 546 of the Civil Code.7It provides:ART. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain the thing until he has been reimbursed therefor.Useful expenses shall be refunded only to the possessor in good faith with the sa... Acting ______________ 5 Memorandum For Petitioners, 2; Rollo, 70.

6 Rollo, 70. 7 It provides: ART. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain the thing until he has been reimbursed therefor. Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the person who has defeated him in the possession having the option of refunding the amount of the expenses or of paying the increase in value which the thing may have acquired by reason thereof. 411 VOL. 244, MAY 26, 1995 411 Pecson vs. Court of Appeals thereon, the trial court issued on 15 November 1993 the challenged order8Annex “B” of Petition; Rollo, 40-42. which reads as follows: Submitted for resolution before this Court is an uncontroverted [sic] for the Delivery of Possession filed by defendants Erlinda Tan, Juan Nuguid, et al. considering that despite personal service of the Order for plaintiff to file within (5) days his opposition to said motion, he did not file any. In support of defendant’s motion, movant cites the law in point as Article 546 of the Civil Code . . . Movant agrees to comply with the provisions of the law considering that plaintiff is a builder in good faith and he has in fact, opted to pay the cost of the construction spent by plaintiff. From the complaint itself the plaintiff stated that the construction cost of the apartment is much more than the lot,

which apartment he constructed at a cost of P53,000.00 in 1965 (par. 8 complaint). This amount of P53,000.00 is what the movant is supposed to pay under the law before a writ of possession placing him in possession of both the lot and apartment would be issued. However, the complaint alleges in paragraph 9 that three doors of the apartment are being leased. This is further confirmed by the affidavit of the movant presented in support of the motion that said three doors are being leased at a rental of P7,000.00 a month each. The movant further alleges in his said affidavit that the present commercial value of the lot is P10,000.00 per square meter or P2,500,000.00 and the reasonable rental value of said lot is no less than P21,000.00 per month. The decision having become final as per Entry of Judgment dated June 23, 1993 and from this date on, being the uncontested owner of the property, the rents should be paid to him instead of the plaintiff collecting them. From June 23, 1993, the rents collected by plaintiff amounting to more than P53,000.00 from tenants should be offset from the rents due to the lot which according to movant’s affidavit is more than P21,000.00 a month. WHEREFORE, finding merit in the Motion, the Court hereby grants the following prayer that: 1. The movant shall reimburse plaintiff the construction cost of P53,000.00. 2. The payment of P53,000.00 as reimbursement for the construction cost, movant Juan Nuguid is hereby entitled to immediate issuance of a writ of possession over the lot and _______________ 8 Annex “B” of Petition; Rollo, 40-42.

412 412 SUPREME COURT REPORTS ANNOTATED Pecson vs. Court of Appeals improvements thereon. 3. The movant having been declared as the uncontested owner of the lot in question as per Entry of Judgment of the Supreme Court dated June 23, 1993, the plaintiff should pay rent to the movant of no less than P21,000.00 per month from said date as this is the very same amount paid monthly by the tenants occupying the lot. 4. The amount of P53,000.00 due from the movant is hereby offset against the amount of rents collected by the plaintiff from June 23, 1993, to September 23, 1993.” SO ORDERED. The petitioner moved for the reconsideration of the order but it was not acted upon by the trial court. Instead, on 18 November 1993, it issued a writ of possession directing the deputy sheriff “to place said movant Juan Nuguid in possession of subject property located at No. 79 Kamias Road, Quezon City, with all the improvements thereon and to eject therefrom all occupants therein, their agents, assignees, heirs and representatives.”9Rollo, 17-18. The petitioner then filed with the Court of Appeals a special civil action for certiorari and prohibition assailing the order of 15 November 1993, which was docketed as CA-G.R. SP No. 32679.10Annex “B” of Petition; Id., 22-30. In its decision of 7 June 1994, the Court of Appeals affirmed in part the order of the trial court citing Article 448 of the Civil Code. In disposing of the issues, it stated:

As earlier pointed out, private respondent opted to appropriate the improvement introduced by petitioner on the subject lot, giving rise to the right of petitioner to be reimbursed of the cost of constructing said apartment building, in accordance with Article 546 of the . . . Civil Code, and of the right to retain the improvements until he is reimbursed of the cost of the improvements, because, basically, the right to retain the improvement while the corresponding indemnity is not paid implies the tenancy or possession in fact of the land on which they are built . . . . [2 TOLENTINO, CIVIL CODE OF THE PHILIPPINES. (1992) p. 112]. With the facts extant and the settled principle as guides, we agree with petitioner that respondent judge erred in ordering that “the movant having been declared as the uncontested owner of the lot in _______________ 9 Rollo, 17-18. 10 Annex “B” of Petition; Id., 22-30. 413 VOL. 244, MAY 26, 1995 413 Pecson vs. Court of Appeals question as per Entry of Judgment of the Supreme Court dated June 23, 1993, the plaintiff should pay rent to the movant of no less than P21,000 per month from said date as this is the very same amount paid monthly by the tenants occupying the lot.” We, however, agree with the finding of respondent judge that the amount of P53,000.00 earlier admitted as the cost of constructing the apartment building can be offset from the amount of rents collected by petitioner from June 23, 1993 up

to September 23, 1993 which was fixed at P7,000.00 per month for each of the three doors. Our underlying reason is that during the period of retention, petitioner as such possessor and receiving the fruits from the property, is obliged to account for such fruits, so that the amount thereof may be deducted from the amount of indemnity to be paid to him by the owner of the land, in line with Mendoza vs. De Guzman, 52 Phil. 164 . . . . The Court of Appeals then ruled as follows: WHEREFORE, while it appears that private respondents have not yet indemnified petitioner with the cost of the improvements, since Annex I shows that the Deputy Sheriff has enforced the Writ of Possession and the premises have been turned over to the possession of private respondents, the quest of petitioner that he be restored in possession of the premises is rendered moot and academic, although it is but fair and just that private respondents pay petitioner the construction cost of P53,000.00; and that petitioner be ordered to account for any and all fruits of the improvements received by him starting on June 23, 1993, with the amount of P53,000.00 to be offset therefrom. IT IS SO ORDERED.11Rollo, 19-21. Aggrieved by the Court of Appeals’ decision, the petitioner filed the instant petition. The parties agree that the petitioner was a builder in good faith of the apartment building on the theory that he constructed it at the time when he was still the owner of the lot, and that the key issue in this case is the application of Articles 448 and 546 of the Civil Code.

The trial court and the Court of Appeals, as well as the parties, concerned themselves with the application of Articles 448 and 546 of the Civil Code. These articles read as follows: _______________ 11 Rollo, 19-21. 414 414 SUPREME COURT REPORTS ANNOTATED Pecson vs. Court of Appeals 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. (361a) *** ART. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain the thing until he has been reimbursed therefor. Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the person who has defeated him in the possession having the option of refunding

the amount of the expenses or of paying the increase in value which the thing may have acquired by reason thereof. (453a) By its clear language, Article 448 refers to a land whose ownership is claimed by two or more parties, one of whom has built some works, or sown or planted something. The building, sowing or planting may have been made in good faith or in bad faith. The rule on good faith laid down in Article 526 of the Civil Code shall be applied in determining whether a builder, sower or planter had acted in good faith.12ARTURO M. TOLENTINO, Commentaries and Jurisprudence on the Civil Code of the Philippines, vol. II, 1983 ed., 103. Article 448 does not apply to a case where the owner of the land is the builder, sower, or planter who then later loses ownership of the land by sale or donation. This Court said so in Coleongco vs. Regalado:1392 Phil. 387, 395 [1952]. See EDGARDO L. PARAS, Civil Code of the Philippines Annotated, vol. Two, Eleventh ed. [1984], 192. Article 361 of the old Civil Code is not applicable in this case, for Regalado constructed the house on his own land before he sold said land to Coleongco. Article 361 applies only in cases where a person constructs a building on the land of another in good or in bad faith, as the _______________ 12 ARTURO M. TOLENTINO, Commentaries and Jurisprudence on the Civil Code of the Philippines, vol. II, 1983 ed., 103. 13 92 Phil. 387, 395 [1952]. See EDGARDO L. PARAS, Civil Code of the Philippines Annotated, vol. Two, Eleventh ed. [1984], 192.

415 VOL. 244, MAY 26, 1995 415 Pecson vs. Court of Appeals case may be. It does not apply to a case where a person constructs a building on his own land, for then there can be no question as to good or bad faith on the part of the builder. Elsewise stated, where the true owner himself is the builder of works on his own land, the issue of good faith or bad faith is entirely irrelevant. Thus in strict point of law, Article 448 is not apposite to the case at bar. Nevertheless, we believe that the provision therein on indemnity may be applied by analogy considering that the primary intent of Article 448 is to avoid a state of forced coownership and that the parties, including the two courts below, in the main agree that Articles 448 and 546 of the Civil Code are applicable and indemnity for the improvements may be paid although they differ as to the basis of the indemnity. Article 546 does not specifically state how the value of the useful improvements should be determined. The respondent court and the private respondents espouse the belief that the cost of construction of the apartment building in 1965, and not its current market value, is sufficient reimbursement for necessary and useful improvements made by the petitioner. This position is, however, not in consonance with previous rulings of this Court in similar cases. In Javier vs. Concepcion, Jr.,1494 SCRA 212 [1979]. this Court pegged the value of the useful improvements consisting of various fruits, bamboos, a house and camarin made of strong material based on the market value of the said improvements. In Sarmiento vs.

Agana,15129 SCRA 122 [1984]. despite the finding that the useful improvement, a residential house, was built in 1967 at a cost of between eight thousand pesos (P8,000.00) to ten thousand pesos (P10,000.00), the landowner was ordered to reimburse the builder in the amount of forty thousand pesos (P40,000.00), the value of the house at the time of the trial. In the same way, the landowner was required to pay the “present value” of the house, a useful improvement, in the case of De Guzman vs. De la Fuente ,1655 Phil. 501 [1930]. cited by the petitioner. _______________ 14 94 SCRA 212 [1979]. 15 129 SCRA 122 [1984]. 16 55 Phil. 501 [1930]. 416 416 SUPREME COURT REPORTS ANNOTATED Pecson vs. Court of Appeals The objective of Article 546 of the Civil Code is to administer justice between the parties involved. In this regard, this Court had long ago stated in Rivera vs. Roman Catholic Archbishop of Manila1740 Phil. 717 [1920]. that the said provision was formulated in trying to adjust the rights of the owner and possessor in good faith of a piece of land, to administer complete justice to both of them in such a way as neither one nor the other may enrich himself of that which does not belong to him. Guided by this precept, it is therefore the current market value of the improvements which should be made the basis of reimbursement. A contrary ruling would unjustly

enrich the private respondents who would otherwise be allowed to acquire a highly valued income-yielding four-unit apartment building for a measly amount. Consequently, the parties should therefore be allowed to adduce evidence on the present market value of the apartment building upon which the trial court should base its finding as to the amount of reimbursement to be paid by the landowner. The trial court also erred in ordering the petitioner to pay monthly rentals equal to the aggregate rentals paid by the lessees of the apartment building. Since the private respondents have opted to appropriate the apartment building, the petitioner is thus entitled to the possession and enjoyment of the apartment building, until he is paid the proper indemnity, as well as of the portion of the lot where the building has been constructed. This is so because the right to retain the improvements while the corresponding indemnity is not paid implies the tenancy or possession in fact of the land on which it is built, planted or sown.18TOLENTINO, op. cit., 104. The petitioner not having been so paid, he was entitled to retain ownership of the building and, necessarily, the income therefrom. It follows, too, that the Court of Appeals erred not only in upholding the trial court’s determination of the indemnity, but also in ordering the petitioner to account for the rentals of the apartment building from 23 June 1993 to 23 September 1993. WHEREFORE, the decision of the Court of Appeals in CAG.R. SP No. 32679 and the Order of 15 November 1993 of the _______________ 17 40 Phil. 717 [1920]. 18 TOLENTINO, op. cit., 104.

417 VOL. 244, MAY 26, 1995 417 Pecson vs. Court of Appeals Regional Trial Court, Branch 101, Quezon City in Civil Case No. Q-41470 are hereby SET ASIDE. The case is hereby remanded to the trial court for it to determine the current market value of the apartment building on the lot. For this purpose, the parties shall be allowed to adduce evidence on the current market value of the apartment building. The value so determined shall be forthwith paid by the private respondents to the petitioner otherwise the petitioner shall be restored to the possession of the apartment building until payment of the required indemnity. No costs. SO ORDERED. Padilla (Chairman), Bellosillo and Kapunan, JJ., concur. Quiason, J., On official leave. Judgment set aside, case remanded to trial court for determination of current market value of apartment building. Notes.—The best proof of ownership of a piece of land is the certificate of title. (Heirs of George Bofill vs. Court of Appeals, 237 SCRA 451 [1994]) Possession is transferred to the vendee by virtue of the notarized deed of conveyance. (Ong Ching Po vs. Court of Appeals, 239 SCRA 341 [1994]) ———o0o——— [Pecson vs. Court of Appeals, 244 SCRA 407(1995)]

G.R. No. 165907. July 27, 2009.* SPS. DOMINADOR R. NARVAEZ and LILIA W. NARVAEZ, petitioners, vs. SPS. ROSE OGAS ALCISO and ANTONIO ALCISO, respondents. Obligations and Contracts; Stipulation Pour Autrui; Requisites.—In Limitless Potentials, Inc. v. Quilala (463 SCRA 586 [2005]), the Court laid down the requisites of a stipulation pour autrui: (1) there is a stipulation in favor of a third person; (2) the stipulation is a part, not the whole, of the contract; (3) the contracting parties clearly and deliberately conferred a favor to the third person—the favor is not an incidental benefit; (4) the favor is unconditional and uncompensated; (5) the third person communicated his or her acceptance of the favor before its revocation; and (6) the contracting parties do not represent, or are not authorized by, the third party. Appeals; Questions of Law; Questions of Fact; Words and Phrases; Once the issue invites a review of the evidence, the question is one of fact.—A petition for review on certiorari under Rule 45 of the Rules of Court should include only questions of law—questions of fact are not reviewable. A question of law exists when the doubt centers on what the law is on a certain set of facts, while a question of fact exists when the doubt centers on the truth or falsity of the alleged facts. There is a question of law if the issue raised is capable of being resolved without need of reviewing the probative value of the evidence. Once the issue invites a review of the evidence, the question is one of fact. Same; Factual findings of the trial court are binding on the Supreme Court; Exceptions.—The exceptions to the rule that

the factual findings of the trial court are binding on the Court are (1) when there is grave abuse of discretion; (2) when the findings are grounded on speculations; (3) when the inference made is manifestly mistaken; (4) when the judgment of the Court of Appeals is based on a misapprehension of facts; (5) when the factual findings are conflicting; (6) when the Court of Appeals went beyond the issues of the case and its findings are contrary to the admissions of the parties; (7) _______________ * FIRST DIVISION. 61 VOL. 594, JULY 27, 200961 Narvaez vs. Alciso when the Court of Appeals overlooked undisputed facts which, if properly considered, would justify a different conclusion; (8) when the findings of the Court of Appeals are contrary to those of the trial court; (9) when the facts set forth by the petitioners are not disputed by the respondents; and (10) when the findings of the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on record. The Spouses Narvaez did not show that the instant case falls under any of the exceptions. Same; Assignment of Errors; Pleadings and Practice; Only errors specifically assigned and properly argued in the appellant’s brief will be considered, except jurisdictional and clerical errors.—The rule is that only errors specifically assigned and properly argued in the appellant’s brief will be considered, except jurisdictional and clerical errors. However, the Court is clothed with ample authority to review matters not

assigned as errors if their consideration is necessary in arriving at a just decision. Sales; Builders in Good Faith; Article 448 of the Civil Code is inapplicable in cases involving contracts of sale with right of repurchase—it is inapplicable when the owner of the land is the builder, sower, or planter; Where the true owner himself is the builder of the works on his own land, the issue of good faith or bad faith is entirely irrelevant.—Article 448 is inapplicable in cases involving contracts of sale with right of repurchase—it is inapplicable when the owner of the land is the builder, sower, or planter. In Pecson v. Court of Appeals (244 SCRA 407 [1995]), the Court held that: Article 448 does not apply to a case where the owner of the land is the builder, sower, or planter who then later loses ownership of the land by sale or donation. This Court said so in Coleongco v. Regalado: Article 361 of the old Civil Code is not applicable in this case, for Regalado constructed the house on his own land before he sold said land to Coleongco. Article 361 applies only in cases where a person constructs a building on the land of another in good or in bad faith, as the case may be. It does not apply to a case where a person constructs a building on his own land, for then there can be no question as to good or bad faith on the part of the builder. Elsewise stated, where the true owner himself is the builder of the works on his own land, the issue of good faith or bad faith is entirely irrelevant. 62 62SUPREME COURT REPORTS ANNOTATED Narvaez vs. Alciso

Same; The right of repurchase may be exercised only by the vendor in whom the right is recognized by contract or by any person to whom the right may have been transferred”; In a sale with right of repurchase, the applicable provisions are Articles 1606 and 1616 of the Civil Code, not Article 448.—As the Court of Appeals correctly observed, the terms of the 14 August 1981 Deed of Sale of Realty show that Bate and the Spouses Narvaez entered into a sale with right of repurchase, where Bate transferred his right of repurchase to Alciso. The Deed states that, “The SELLER (Bate) carries over the manifested intent of the original SELLER of the property (Alciso) to buy back the same at a price under such conditions as the present BUYERS (Spouses Narvaez) may impose.” Article 1601 of the Civil Code states that, “Conventional redemption shall take place when the vendor reserves the right to repurchase the thing sold, with the obligation to comply with the provisions of Article 1616 and other stipulations which may have been agreed upon.” In Gallar v. Husain (20 SCRA 186 [1967]), the Court held that “the right of repurchase may be exercised only by the vendor in whom the right is recognized by contract or by any person to whom the right may have been transferred.” In a sale with right of repurchase, the applicable provisions are Articles 1606 and 1616 of the Civil Code, not Article 448. PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. E.P. Mallari & Associates and Emilio L. Gayo for petitioners. George Erwin M. Garcia and Marciano T. Inso for respondents.

CARPIO, J.: The Case This is a petition1 for review on certiorari under Rule 45 of the Rules of Court. The petition challenges the 29 October _______________ 1 Rollo, pp. 7-30. 63 VOL. 594, JULY 27, 200963 Narvaez vs. Alciso 2004 Decision2 of the Court of Appeals in CA-G.R. CV No. 63757. The Court of Appeals affirmed with modification the 6 April 1998 Decision3 of the Regional Trial Court (RTC), Judicial Region 1, Branch 8, La Trinidad, Benguet, in Civil Case No. 84-CV-0094. The Facts Larry A. Ogas (Ogas) owned a 1,329-square meter parcel of land situated in Pico, La Trinidad, Benguet. The property was covered by Transfer Certificate of Title (TCT) No. T-1068, and a portion was subject to a 30-year lease agreement4 with Esso Standard Eastern, Inc. Ogas sold the property to his daughter Rose O. Alciso (Alciso). TCT No. T-1068 was cancelled and TCT No. T-124225 was issued in the name of Alciso. On 25 August 1979, Alciso entered into a Deed of Sale with Right to Repurchase,6 selling the property to Jaime Sansano (Sansano) for P10,000. Alciso later repurchased the property from Sansano and, on 28 March 1980, she entered into another Deed of Absolute Sale,7 this time selling the property to Celso S. Bate (Bate) for P50,000. The Deed stated that:

“The SELLER warrants that her title to and ownership of the property herein conveyed are free from all liens and encumbrances except those as appear on the face of the title, specifically, that lease over the said property in favor of ESSO STANDARD EASTERN, INC., the rights over which as a lessor the SELLER likewise hereby transfers in full to the buyer.”8 _______________ 2 Id., at pp. 32-43. Penned by Associate Justice Rosalinda Asuncion-Vicente, with Associate Justices Eugenio S. Labitoria and Bienvenido L. Reyes, concurring. 3 CA Rollo, pp. 29-47. Penned by Judge Angel V. Colet. 4 Rollo, pp. 54-55. 5 Records, pp. 10-11. 6 Rollo, pp. 56-57. 7 Id., at pp. 58-60. 8 Id., at p. 59. 64 64SUPREME COURT REPORTS ANNOTATED Narvaez vs. Alciso TCT No. T-12422 was cancelled and TCT No. T-160669 was issued in the name of Bate. On 14 August 1981, Bate entered into a Deed of Sale of Realty,10 selling the property to the spouses Dominador R. Narvaez and Lilia W. Narvaez (Spouses Narvaez) for P80,000. TCT No. T-16066 was cancelled and TCT No. T-1652811 was issued in the name of the Spouses Narvaez. In 1982, the Spouses Narvaez built a commercial building on the property amounting to P300,000.

Alciso demanded that a stipulation be included in the 14 August 1981 Deed of Sale of Realty allowing her to repurchase the property from the Spouses Narvaez. In compliance with Alciso’s demand, the Deed stated that, “The SELLER (Bate) carries over the manifested intent of the original SELLER of the property (Alciso) to buy back the same at a price under such conditions as the present BUYERS (Spouses Narvaez) may impose.” The Spouses Narvaez furnished Alciso with a copy of the Deed. Alciso alleged that she informed the Spouses Narvaez that she wanted to repurchase the property. The Spouses Narvaez demanded P300,000, but Alciso was willing to pay only P150,000. Alciso and the Spouses Narvaez failed to reach an agreement on the repurchase price. In a Complaint12 dated 15 June 1984 and filed with the RTC, Alciso prayed that (1) the 25 August 1979 Deed of Sale with Right to Repurchase, the 28 March 1980 Deed of Absolute Sale, and the 14 August 1981 Deed of Sale of Realty be annulled; (2) the Register of Deeds be ordered to cancel TCT Nos. T-16066 and T-16528; (3) the Spouses Narvaez be ordered to reconvey the property; and (4) Sansano, Bate, and the Spouses Narvaez be ordered to pay damages, attorney’s fees and expenses of litigation. Alciso claimed that the inten_______________ 9 Id., at p. 63. 10 Id., at pp. 64-67. 11 Id., at p. 62. 12 Id., at pp. 44-51. 65 VOL. 594, JULY 27, 200965

Narvaez vs. Alciso tion of the parties was to enter into a contract of real estate mortgage and not a contract of sale with right of repurchase. She stated that: “[C]ontrary to the clear intention and agreement of the parties, particularly the plaintiffs herein, defendant JAIME SANSANO, taking advantage of the good faith and financial predicament and difficulties of plaintiffs at the time, caused to be prepared and induced with insidous [sic] words and machinations, prevailed upon plaintiff to sign a contract denominated as “Sale With Right to Repurchase,” instead of Deed of Real Estate Mortgage as was the clear intention and agreement of the parties. xxxx Defendant JAIME SANSANO caused to be prepared a contract denominated as DEED OF ABSOLUTE SALE, covering the lot in question, contrary to the clear intention and understanding of plaintiff who was inveigled into signing said contract under the impression that what she was executing was a real estate mortgage.”13 The RTC’s Ruling In its 6 April 1998 Decision, the RTC held that (1) the 25 August 1979 Deed of Sale with Right to Repurchase became functus officio when Alciso repurchased the property; (2) the action to annul the 28 March 1980 Deed of Absolute Sale had prescribed; (3) Alciso had no legal personality to annul the 14 August 1981 Deed of Sale of Realty; (4) the 14 August 1981 Deed of Sale of Realty contained a stipulation pour autrui in favor of Alciso — Alciso could repurchase the property; (5)

Alciso communicated to the Spouses Narvaez her acceptance of the favor contained in the stipulation pour autrui; (6) the repurchase price was P80,000; (7) Alciso could either appropriate the commercial building after payment of the indemnity equivalent to one-half of its market value when constructed or sell the land to the Spouses Narvaez; and (8) Al_______________ 13 Id., at pp. 45-47. 66 66SUPREME COURT REPORTS ANNOTATED Narvaez vs. Alciso ciso was entitled to P100,000 attorney’s fees and P20,000 nominal damages. The Spouses Narvaez appealed to the Court of Appeals. In their Appellants Brief14 dated 21 November 2000, the Spouses Narvaez claimed that (1) the 14 August 1981 Deed of Sale of Realty did not contain a stipulation pour autrui — not all requisites were present; (2) the RTC erred in setting the repurchase price at P80,000; (3) they were purchasers for value and in good faith; and (4) they were builders in good faith. The Court of Appeals’ Ruling In its 29 October 2004 Decision, the Court of Appeals held that (1) the 14 August 1981 Deed of Sale of Realty contained a stipulation pour autrui; (2) Alciso accepted the favor contained in the stipulation pour autrui; (3) the RTC erred in setting the repurchase price at P80,000; (4) the 14 August 1981 Deed of Sale of Realty involved a contract of sale with right of repurchase and not real estate mortgage; (5) the Spouses Narvaez were builders in good faith; and (6) Alciso could

either appropriate the commercial building after payment of the indemnity or oblige the Spouses Narvaez to pay the price of the land, unless the price was considerably more than that of the building. The Court of Appeals remanded the case to the RTC for determination of the property’s reasonable repurchase price. The Issue The Spouses Narvaez elevated the case to the Court. In their Petition dated 15 December 2004, the Spouses Narvaez claimed that Alciso did not communicate her acceptance of the favor contained in the stipulation pour autrui; thus, she could not repurchase the property. _______________ 14 CA Rollo, pp. 95-140. 67 VOL. 594, JULY 27, 200967 Narvaez vs. Alciso The Court’s Ruling The petition is unmeritorious. Article 1311, paragraph 2, of the Civil Code states the rule on stipulations pour autrui: “If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person.” In Limitless Potentials, Inc. v. Quilala,15 the Court laid down the requisites of a stipulation pour autrui: (1) there is a

stipulation in favor of a third person; (2) the stipulation is a part, not the whole, of the contract; (3) the contracting parties clearly and deliberately conferred a favor to the third person — the favor is not an incidental benefit; (4) the favor is unconditional and uncompensated; (5) the third person communicated his or her acceptance of the favor before its revocation; and (6) the contracting parties do not represent, or are not authorized by, the third party. All the requisites are present in the instant case: (1) there is a stipulation in favor of Alciso; (2) the stipulation is a part, not the whole, of the contract; (3) Bate and the Spouses Narvaez clearly and deliberately conferred a favor to Alciso; (4) the favor is unconditional and uncompensated; (5) Alciso communicated her acceptance of the favor before its revocation — she demanded that a stipulation be included in the 14 August 1981 Deed of Sale of Realty allowing her to repurchase the property from the Spouses Narvaez, and she informed the Spouses Narvaez that she wanted to repurchase the property; and (6) Bate and the Spouses Narvaez did not represent, and were not authorized by, Alciso. _______________ 15 G.R. Nos. 157391, 160749 and 160816, 15 July 2005, 463 SCRA 586, 605. 68 68SUPREME COURT REPORTS ANNOTATED Narvaez vs. Alciso The Spouses Narvaez claim that Alciso did not communicate her acceptance of the favor. They state that:

“A perusal of the provision of the Deed of Sale of Realty between Celso Bate and the spouses Dominador R. Narvaez and Lilia W. Narvaez (Annex “B”) which clearly provides that “the third person” (Rose O. Alciso) must have communicated her acceptance to the obligors (spouses Dominador R. Narvaez and Lilia W. Narvaez) before its revocation was not complied with. The acceptance is at best by mere inference. xxxx Petitioner Narvaez clearly stated that while the contract (Deed of Sale of Realty, Annex “D”) contained an [sic] stipulation in favor of a third person (Rose O. Alciso), she did not demand its fulfillment and communicate her acceptance to the obligors before its revocation. xxxx We maintain that the stipulation aforequoted is not a stipulation pour autrui. Let the following be emphasized: 1. While the contract contained a stipulation in favor of a third person (Rose Alciso) she did not demand its fulfillment and she never communicated her acceptance to the obligors (Spouses Narvaez) before its revocation (Uy Tam vs. Leonard, 30 Phil. 471; Coquia vs. Fieldmen’s Insurance Co., Inc., 26 SCRA 178) 2. Granting arguendo that the stipulation is a pour autrui yet in the three meetings Rose Alciso had with Mrs. Narvaez she never demanded fulfillment of the alleged stipulation pour autrui and, what is worse, she did not communicate her acceptance to the obligors before it is revoked.”16 A petition for review on certiorari under Rule 45 of the Rules of Court should include only questions of law — questions of fact are not reviewable. A question of law exists when the

doubt centers on what the law is on a certain set of facts, while a question of fact exists when the doubt centers on the truth or falsity of the alleged facts. There is a question of law _______________ 16 Rollo, pp. 19, 22, and 25. 69 VOL. 594, JULY 27, 200969 Narvaez vs. Alciso if the issue raised is capable of being resolved without need of reviewing the probative value of the evidence. Once the issue invites a review of the evidence, the question is one of fact.17 Whether Alciso communicated to the Spouses Narvaez her acceptance of the favor contained in the stipulation pour autrui is a question of fact. It is not reviewable. The factual findings of the trial court, especially when affirmed by the Court of Appeals, are binding on the Court.18 In its 6 April 1998 Decision, the RTC found that Alciso communicated to the Spouses Narvaez her acceptance of the favor contained in the stipulation pour autrui. The RTC stated that: “Rose Alciso communicated her acceptance of such favorable stipulation when she went to see defendant Lillia [sic] Narvaez in their house. Under the foregoing circumstances, there is no question that plaintiff Rose Alciso can maintain her instant action for the enforcement and/or fulfillment of the aforestated stipulation in her favor to by [sic] back the property in question.”19 (Emphasis supplied) In Florentino v. Encarnacion, Sr.,20 the Court held that the acceptance may be made at any time before the favorable

stipulation is revoked and that the acceptance may be in any form — it does not have to be formal or express but may be implied. During the trial, Alciso testified that she informed the Spouses Narvaez that she wanted to repurchase the property: q What was your proposal to Mrs. Narvaez by way of settlement? _______________ 17 Pagsibigan v. People, G.R. No. 163868, 4 June 2009, 588 SCRA 249. 18 Id. 19 CA Rollo, pp. 41-42. 20 169 Phil. 195, 205; 79 SCRA 192, 203 (1977). 70 70SUPREME COURT REPORTS ANNOTATED Narvaez vs. Alciso a I tried to go to her and asked her if I could redeem the property and Mrs. Narvaez told me why not, you could redeem the property but not our price. xxxx q Now, when you went back to her, what if any did you propose to her or tell her, Madam witness? a I just asked for the redemption for the property, sir and she just told me wa [sic] the price that I could only redeem the property. q Three Hundred thousand pesos? a Yes, sir. q Did you make any counter proposal? a Yes, for the third time I want [sic] back again your Honor...21

The exceptions to the rule that the factual findings of the trial court are binding on the Court are (1) when there is grave abuse of discretion; (2) when the findings are grounded on speculations; (3) when the inference made is manifestly mistaken; (4) when the judgment of the Court of Appeals is based on a misapprehension of facts; (5) when the factual findings are conflicting; (6) when the Court of Appeals went beyond the issues of the case and its findings are contrary to the admissions of the parties; (7) when the Court of Appeals overlooked undisputed facts which, if properly considered, would justify a different conclusion; (8) when the findings of the Court of Appeals are contrary to those of the trial court; (9) when the facts set forth by the petitioners are not disputed by the respondents; and (10) when the findings of the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on record.22 The Spouses Narvaez did not show that the instant case falls under any of the exceptions. _______________ 21 TSN, 4 March 1988, pp. 10-12. 22 Ilagan-Mendoza v. Court of Appeals, G.R. No. 171374, 8 April 2008, 550 SCRA 635, 647. 71 VOL. 594, JULY 27, 200971 Narvaez vs. Alciso In its 29 October 2004 Decision, the Court of Appeals held that Bate and the Spouses Narvaez entered into a sale with right of repurchase and that, applying Article 448 of the Civil Code, Alciso could either appropriate the commercial building after

payment of the indemnity or oblige the Spouses Narvaez to pay the price of the land, unless the price was considerably more than that of the building. Article 448 states: “Art. 448. The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to appro-priate 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 the 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 of Appeals stated that: “[T]he contract between defendants-appellants Bate and Narvaez spouses is a contract of sale with a stipulation granting plaintiffs-appellees the right to repurchase the property at a reasonable price. Being the absolute owners of the property in question, defendants-appellants Narvaez spouses have the undisputed right to use, enjoy and build thereon. Having built the improvement on the land they own and registered in their names, they are likened to builders in good faith and their rights over the improvement shall be governed by Article 448 of the Civil Code which 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 72 72SUPREME COURT REPORTS ANNOTATED Narvaez vs. Alciso value is considerably more than that of the building or tress. 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. Applying said Article, plaintiffs-appellees, after repurchasing the land, will have the following options: (1) to appropriate for themselves the building upon payment of its value to defendants-appellants Narvaez spouses; OR (2) to compel the defendants-appellants Narvaez spouses to buy the land, unless the value of thereof [sic] be considerably more than that of the building, in which case, said spouses may lease the land instead. The parties shall agree upon the terms of the lease and in case of disagreement, the courts shall fix the terms thereof.”23 The Court disagrees. The rule is that only errors specifically assigned and properly argued in the appellant’s brief will be considered, except jurisdictional and clerical errors.24 However, the Court is clothed with ample authority to review matters not assigned as

errors if their consideration is necessary in arriving at a just decision.25 Article 448 is inapplicable in cases involving contracts of sale with right of repurchase — it is inapplicable when the owner of the land is the builder, sower, or planter. In Pecson v. Court of Appeals,26 the Court held that: _______________ 23 Rollo, pp. 40-41. 24 Solid Homes, Inc. v. Court of Appeals, 341 Phil. 261, 278; 275 scra 267, 282 (1997). 25 Poliand Industrial Limited v. National Development Company, G.R. No. 143866, 22 August 2005, 467 SCRA 500, 532-533. 26 314 Phil. 313, 322-323; 244 SCRA 407, 414-415 (1995). 73 VOL. 594, JULY 27, 200973 Narvaez vs. Alciso “Article 448 does not apply to a case where the owner of the land is the builder, sower, or planter who then later loses ownership of the land by sale or donation. This Court said so in Coleongco v. Regalado: Article 361 of the old Civil Code is not applicable in this case, for Regalado constructed the house on his own land before he sold said land to Coleongco. Article 361 applies only in cases where a person constructs a building on the land of another in good or in bad faith, as the case may be. It does not apply to a case where a person constructs a building on his own land, for then there can be no question as to good or bad faith on the part of the builder.

Elsewise stated, where the true owner himself is the builder of the works on his own land, the issue of good faith or bad faith is entirely irrelevant.” (Emphasis supplied) Article 448 is inapplicable in the present case because the Spouses Narvaez built the commercial building on the land that they own. Besides, to compel them to buy the land, which they own, would be absurd. As the Court of Appeals correctly observed, the terms of the 14 August 1981 Deed of Sale of Realty show that Bate and the Spouses Narvaez entered into a sale with right of repurchase, where Bate transferred his right of repurchase to Alciso. The Deed states that, “The SELLER (Bate) carries over the manifested intent of the original SELLER of the property (Alciso) to buy back the same at a price under such conditions as the present BUYERS (Spouses Narvaez) may impose.” Article 1601 of the Civil Code states that, “Conventional redemption shall take place when the vendor reserves the right to repurchase the thing sold, with the obligation to comply with the provisions of Article 1616 and other stipulations which may have been agreed upon.” In Gallar v. Husain,27 the Court held that “the right of repurchase may be exercised only by the _______________ 27 126 Phil. 606, 611; 20 SCRA 186, 191 (1967). 74 74SUPREME COURT REPORTS ANNOTATED Narvaez vs. Alciso vendor in whom the right is recognized by contract or by any person to whom the right may have been transferred.”

In a sale with right of repurchase, the applicable provisions are Articles 1606 and 1616 of the Civil Code, not Article 448. Articles 1606 and 1616 state: “Art. 1606. The right referred to in Article 1601, in the absence of an express agreement, shall last four years from the date of the contract. Should there be an agreement, the period cannot exceed ten years. However, the vendor may still exercise the right to repurchase within thirty days from the time final judgment was rendered in a civil action on the basis that the contract was a true sale with right to repurchase. Art. 1616. The vendor cannot avail himself of the right of repurchase without returning to the vendee the price of the sale, and in addition: (1) The expenses of the contract, and any other legitimate payments made by reason of the sale; (2) The necessary and useful expenses made on the thing sold.” Under Article 1616, Alciso may exercise her right of redemption by paying the Spouses Narvaez (1) the price of the sale, (2) the expenses of the contract, (3) legitimate payments made by reason of the sale, and (4) the necessary and useful expenses made on the thing sold. In the present case, the cost of the building constitutes a useful expense. Useful expenses include improvements which augment the value of the land.28 Under the first paragraph of Article 1606, Alciso had four years from 14 August 1981 to repurchase the property since there was no express agreement as to the period when the right can be exercised. Tender of payment of the repurchase

_______________ 28 Spouses Macasaet v. Spouses Macasaet, 482 Phil. 853, 873; 439 SCRA 625, 645 (2004). 75 VOL. 594, JULY 27, 200975 Narvaez vs. Alciso price is necessary in the exercise of the right of redemption. Tender of payment is the seller’s manifestation of his or her desire to repurchase the property with the offer of immediate performance.29 Alciso’s intimation to the Spouses Narvaez that she wanted to repurchase the property was insufficient. To have effectively exercised her right of repurchase, Alciso should have tendered payment. In Lee v. Court of Appeals,30 the Court held that: “The rule that tender of payment of the repurchase price is necessary to exercise the right of redemption finds support in civil law. Article 1616 of the Civil Code of the Philippines x x x furnishes the guide, to wit: “The vendor cannot avail himself of the right of repurchase without returning to the vendee the price of the sale...” Thus, in the case of Angao vs. Clavano, 17 Phil. 152, it was held that “it is not sufficient for the vendor to intimate or to state to the vendee that the former desires to redeem the thing sold, but he must immediately thereupon offer to repay the price...” Likewise, in several other cases decided by the Supreme Court (Fructo vs. Fuentes, 15 Phil. 362; Retes vs. Suelto, 20 Phil. 394; Rosales vs. Reyes, et al., 25 Phil. 495; Canuto vs. Mariano, 37 Phil. 840; De la Cruz, et al. vs. Resurreccion, et al., 98 Phil. 975; and other cases) where the

right to repurchase was held to have been properly exercised, there was a definite finding of tender of payment having been made by the vendor.” (Emphasis supplied) Nevertheless, under the third paragraph of Article 1606, Alciso has 30 days from the finality of this Decision to exercise her right of repurchase. In Laserna v. Javier,31 the Court held that: _______________ 29 Legaspi v. Court of Appeals, 226 Phil. 24, 29; 142 SCRA 82, 88 (1986). 30 160-A Phil. 820, 829; 68 SCRA 196, 204 (1975). 31 110 Phil. 172, 175 (1960). 76 76SUPREME COURT REPORTS ANNOTATED Narvaez vs. Alciso “The new Civil Code in Article 1606, thereof gives the vendors a retro “the right to repurchase within thirty days from the time final judgment was rendered in a civil action, on the basis that the contract was a true sale with the right to repurchase.” This provision has been construed to mean that “after the courts have decided by a final or executory judgment that the contract was a pacto de retro and not a mortgage, the vendor (whose claim as mortgagor had definitely been rejected) may still have the privilege of repurchasing within 30 days.” (Perez, et al. vs. Zulueta, 106 Phil. 264.)” The third paragraph of Article 1606 allows sellers, who considered the transaction they entered into as mortgage, to repurchase the property within 30 days from the time they are bound by the judgment finding the transaction to be one of sale with right of repurchase.

WHEREFORE, the Court DENIES the petition. The Court AFFIRMS the 29 October 2004 Decision of the Court of Appeals in CA-G.R. CV No. 63757 with MODIFICATION. Respondent Rose O. Alciso may exercise her right of redemption by paying the petitioners Spouses Dominador R. Narvaez and Lilia W. Narvaez (1) the price of the sale, (2) the expenses of the contract, (3) legitimate payments made by reason of the sale, and (4) the necessary and useful expenses made on the subject property. The Court DIRECTS the Regional Trial Court, Judicial Region 1, Branch 8, La Trinidad, Benguet, to determine the amounts of the expenses of the contract, the legitimate expenses made by reason of the sale, and the necessary and useful expenses made on the subject property. After such determination, respondent Rose O. Alciso shall have 30 days to pay the amounts to petitioners Spouses Dominador R. Narvaez and Lilia W. Narvaez. SO ORDERED. Puno (C.J., Chairperson), Corona, Leonardo-De Castro and Bersamin, JJ., concur. Petition denied, judgment affirmed with modification. [Narvaez vs. Alciso, 594 SCRA 60(2009)]

No. L-35648. February 27,1987.*EN BANC. PERSHING TAN QUETO, petitioner, vs. COURT OF APPEALS, JUAN POMBUENA and RESTITUTA TACALINAR GUANGCO DE POMBUENA, respondents. Remedial Law; Evidence; Lower courts' finding of facts conclusive upon the Supreme Court, exceptions.—The finding by both the Court of First Instance and the Court of Appeals that the disputed lot is paraphernal and that TAN QUETO is a builder in bad faith were regarded by US in Our assailed decision as findings of facts and thus ordinarily conclusive on Us. Assuming they are factual findings, still if they are erroneous inferences from certain facts, they can not bind this Court. Civil Law; Property; Donation; Oral donation of an immovable property to be valid must be made in a public instrument as provided for in the Civil Code—The oral donation of the lot cannot be a valid donation intervivos because it was not executed in a public instrument (Art. 7497 Civil Code), nor as a valid donation mortis causa for the formalities of a will were not complied with. The allegation that the transfer was a conveyance to RESTITUTA of her hereditary share in the estate of her mother (or parents) cannot be sustained for the contractual transmission of future inheritance is generally prohibited. Same; Same; Tradition as a mode of acquiring ownership.— The fact is ownership was acquired by both JUAN and RESTITUTA by tradition (delivery) as a consequence of the contract of sale (See Art. 712, Civil Code) with P50.00 (then a considerable amount) as the cause or consideration of the transaction. The lot is therefore conjugal, having been acquired

by the spouses thru onerous title (the money used being presumably conjugal, there being no proof that RESTITUTA had paraphernal funds of her own). Same; Same; Possession; Concept of possessor or builder in good or bad faith presupposes ownership in another.— However, as already previously intimated, TAN QUETO having bartered his own lot and small house with the questioned lot with JUAN (who has been adverted to by a court decision and by the OCT a conjugal owner) may be said to be the OWNER-POSSESSOR of the lot. Certainly he is not _______________ * EN BANC. 55 VOL. 148, FEBRUARY 27, 1987 55 Pershing Tan Queto vs. Court of Appeals merely a possessor or builder in good faith (this phrase presupposes ownership in another); much less is he a builder in bad faith, He is a builder-possessor (jus possidendi) because he is the OWNER himself. Please note that the Chapter on Possession {jus possessionis, not jus possidendi) in the Civil Code refers to a possessor other than the owner. Please note further that the difference between a builder (or possessor) in good faith and one in bad faith is that the former is NOT AWARE of the defect or flaw in his title or mode of acquisition while the latter is AWARE of such defect or flaw (Art. 526, Civil Code). But in either case there is a flaw or defect In the case of TAN QUETO there is no such flaw or defect because it is he himself (not somebody else) who is the owner of the property.

PETITION to review the decision of the Court of Appeals. The facts are stated in the resolution of the Court. RESOLUTION PARAS, J.: This is a Motion for Reconsideration of the decision dated May 16,1983 of this Court**Affirming the Decision of the Court of Appeals in G.R. No. 39492-R penned by Justice Ramon C. Fernandez concurred in by Justices Hermogenes Concepcion, Jr. and Cecilia Muñoz Palma which affirmed the Decision of the Trial Judge Geronimo R. Marave. in the above-entitled case, asking f or the reversal of said decision on the following grounds: 1. Decision erred in disregarding the fact that Lot No. 304-B was registered in the name of the husband, Juan Pombuena, as per OCT No. 0-1160 issued pursuant to the November 22,1938 Decision (Exh. 3) of the Cadastral Court in Cadastral Case No. 12, G.L.R.O. Cad. Rec. No. 1638, and that petitioner had the right to rely on said OCT; 2. The Decision erred in misinterpreting the admission in the Answer of petitioner to the complaint in the unlawful detainer Case No. 448 (City Court of Ozamiz City) as his admission that Lot 304-B is the paraphernal property of the wife, Restituta Tacalinar; 3. The Decision erred in reforming the Contract of Sale (Exh. B) of Lot 304-B from Basilides Tacalinar (mother) to the respondent, Restituta Tacalinar Guangco de Pombuena, from a sale to a con _______________ ** Affirming the Decision of the Court of Appeals in G.R. No. 39492-R penned by Justice Ramon C. Fernandez concurred in

by Justices Hermogenes Concepcion, Jr. and Cecilia Muñoz Palma which affirmed the Decision of the Trial Judge Geronimo R. Marave. 56 56 SUPREME COURT REPORTS ANNOTATED Pershing Tan Queto vs. Court of Appeals veyance of the share of the wife Restituta Tacalinar (daughter) in the future hereditary estate of her parents; 4. The Decision erred in over-looking that the barter agreement is an onerous contract of exchange, whereby private respondents-spouses received valuable consideration, concessions and other benefits therefor and in concluding that 'the barter agreement has no effect;' 5. The Decision erred in disregarding the fact that petitioner constructed his concrete building on Lot No. 304-B in good faith relying OCT No. 0-1160, after the dismissal of the ejectment case and only after the execution of said barter agreement; 6. The Decision erred in confusing the conclusion of law that petitioner is a builder in bad faith with a finding of fact The rule is that questions of law are reviewable on appeal or by certiorari. Moreover, the rule on finding of fact is subject to well-settled exceptions. (pp. 257-258, Rollo) It will be recalled that the undisputed relevant facts indicate: (1) that Restituta Tagalinar Guangco de Pombuena (RESTITUTA, for short) received the questioned lot (no. 304B), of the Cadastre Survey of the Municipality of Centro, Misamis Occidental, either as a purported donation or by way

of purchase on (February 11,1927) (with P50.00) as the alleged consideration thereof; (2) that the transaction took place during her mother's lifetime, her father having pre-deceased the mother; (3) that the donation or sale was consummated while RESTITUTA was already married to her husband Juan Pombuena (JUAN, for short); (4) that on January 22, 1935, JUAN filed for himself and his supposed co-owner RESTITUTA an application for a Torrens Title over the land; (5) that under date of November 22, 1938 a decision was promulgated in G.L.R.C. No. 1638 (Cadastral Case No. 12) pronouncing JUAN ('married to RESTITUTA') as the owner of the land; (6) that on September 22,1949 a contract of lease over the lot was entered into between Pershing Tan Queto (TAN QUETO, for short, the herein petitioner) and RESTITUTA (with the consent of her husband JUAN) for a period of ten (10) years; (7) that on December 27, 1960 RESTITUTA sued TAN 57 VOL. 148, FEBRUARY 27, 1987 57 Pershing Tan Queto vs. Court of Appeals QUETO for unlawful detainer (the lease contract having expired) bef ore the Municipal Court of Ozamis City; (8) that as a consequence of the cadastral case, an Original Certificate of Title (Exh. 10) was issued in JUAN's name ("married to RESTITUTA") on April 22,1962;

(9) that the unlawful detainer case was won by the spouses in the Municipal Court; but on appeal in the Court of First Instance, the entire case was DISMISSED because of an understanding (barter) whereby TAN QUETO became the owner of the disputed lot, and the spouses RESTITUTA and JUAN in turn became the owners of a parcel of land (with the house constructed thereon) previously owned (that is, before the barter) by TAN QUETO; (10) that after the barter agreement dated October 10, 1962 between JUAN and TAN QUETO, the latter constructed (See p. 257, Rollo, Vol. II) on the disputed land a concrete building, without any objection on the part of RESTITUTA; (11) that later, RESTITUTA sued both JUAN and TAN QUETO for reconveyance of the title over the registered but disputed lot, for annulment of the barter, and for recovery of the land with damages. The two principal issues are clearly the following: (1) Is the questioned lot paraphernal or conjugal? (2) In having constructed the building on the lot, should TAN QUETO be regarded as a builder in good faith (and hence entitled to reimbursement) or a builder in bad faith (with no right to reimbursement)? The finding by both the Court of First Instance and the Court of Appeals that the disputed lot is paraphernal and that TAN QUETO is a builder in bad faith were regarded by Us in Our assailed decision as findings of facts and thus ordinarily conclusive on Us. Assuming they are factual findings, still if they are erroneous inferences from certain facts, they cannot bind this Court.

A second hard look at the circumstances of the case has constrained Us to rule as follows: (1) The land is conjugal, not paraphernal. How was ownership transferred, if at all, from her mother to RESTITUTA? The oral donation of the lot cannot be a valid donation inter58 58 SUPREME COURT REPORTS ANNOTATED Pershing Tan Queto vs. Court of Appeals vivos because it was not executed in a public instrument (Art. 749, Civil Code), nor as a valid donation mortis causa for the formalities of a will were not complied with. The allegation that the transfer was a conveyance to RESTITUTA of her hereditary share in the estate of her mother (or parents) cannot be sustained for the contractual transmission of future inheritance is generally prohibited. The fact is ownership was acquired by both JUAN and RESTITUTA by tradition (delivery) as a consequence of the contract of sale (See Art. 712, Civil Code) with P50.00 (then a considerable amount) as the cause or consideration of the transaction. The lot is therefore conjugal, having been acquired by the spouses thru onerous title (the money used being presumably conjugal, there being no proof that RESTITUTA had paraphernal funds of her own). The contention that the sale was fictitious or simulated (and therefore void) is bankrupt. Firstly, there was a valid consideration therefor. Secondly, assuming that there had indeed been a simulation, the parties thereto cannot use said simulation to prejudice a stranger to said strategem (like petitioner herein).

One nagging question has been posed. But did not TAN QUETO admit in his Answer that RESTITUTA was the owner of the lot. This is not so. He admitted RESTITUTA was "an owner" (not the owner) of the lot, and this is true, for she was a co-owner (with JUAN, and therefore "an owner." Surely, there is no admission of RESTITUTA's exclusive ownership. And yet this is the basis of the trial court's conclusion that the lot was indeed paraphernal (2) Was Tan Queto a possessor and builder in good faith or in bad faith? Even assuming that despite registration of the lot as conjugal, Tan Queto nursed the belief that the lot was actually RESTITUTA's (making him in bad faith), still RESTITUTA's failure to prohibit him from building despite her knowledge that construction was actually being done, makes her also in bad faith. The net resultant of mutual bad faith would entitle TAN QUETO to the rights of a builder in good faith (Art. 448, Civil Code), ergo, reimbursement should be given him if RESTITUTA decides to appropriate the building for herself 59 VOL. 148, FEBRUARY 27, 1987 59 Pershing Tan Queto vs. Court of Appeals (Art. 448, Civil Code). However, as already previously intimated, TAN QUETO having bartered his own lot and small house with the questioned lot with JUAN (who has been adverted to by a court decision and by the OCT a conjugal owner) may be said to be the OWNER-POSSESSOR of the lot. Certainly he is not

merely a possessor or builder in good faith (this phrase presupposes ownership in another); much less is he a builder in bad faith. He is a builder-possessor (jus possidendi) because he is the OWNER himself. Please note that the Chapter on Possession (jus possessionis, not jus possidendi) in the Civil Code refers to a possessor other than the owner, Please note further that the difference between a builder (or possessor) in good faith and one in bad faith is that the former is NOT AWARE of the def ect or flaw in his title or mode of acquisition while the latter is AWARE of such defect or flaw (Art. 526, Civil Code). But in either case there is a flaw or defect, In the case of TAN QUETO there is no such flaw or defect because it is he himself (not somebody else) who is the owner of the property. WHEREFORE, Our decision promulgated on May 16,1983 is hereby SET ASIDE, and a new one is hereby rendered declaring the questioned lot together with the building thereon, as TAN QUETO's exclusive property. No costs. SO ORDERED. Teehankee, C.J., Yap, Fernan, Narvasa, Alampay, Cruz, Feliciano, Gancayco, Bidin and Sarmiento, JJ., concur. Melencio-Herrera, J., I vote to uphold the Decision of May 16,1983 and to deny reconsideration. Gutierrez, Jr., J., I reiterate my vote in the decision sought to be reconsidered & dissent herein. Padilla, J., no part. (Atty. Ambrosio Padilla counsel for the petitioner is related to me.) Cortes, J., no part. I was not in the Supreme Court when this was taken up. Decision set aside.

60 60 SUPREME COURT REPORTS ANNOTATED People vs. Veloso Notes.—This is the kind of delivery contemplated in article 1462, when it provides that the thing shall be understood as delivered when it is placed in the control and possession of the vendee. The delivery from hand to hand, as well as the realization of the purchaser of those material acts known as "taking possession" with respect to immovables, in the presence and with the consent of the vendor, can mean no more than the placing of the thing in the control and possession of the vendee. Thus, where the vendee placed the things in the warehouse of the vendee, leaving them entirely under the latter's control, or where logs were placed along a vessel of the vendee, as stipulated in the contract, and they were thus placed under the control of the vendee, whose employees attempted to load equipment, there was sufficient delivery, there being no necessity of showing actual acceptance by the vendee. (Tolentino: Commentaries and Jurisprudence on the Civil Code of the Philippines, pp. 425-426.) ——o0o—— [Pershing Tan Queto vs. Court of Appeals, 148 SCRA 54(1987)]

G.R. No. 100866. July 14, 1992.*THIRD DIVISION. REBECCA BOYER-ROXAS and GUILLERMO ROXAS, petitioners, vs. HON. COURT OF APPEALS and HEIRS OF EUGENIA V. ROXAS, INC., respondents. Remedial Law; Attorneys; A party is not bound by the actions of his counsel in case the gross negligence of the counsel resulted in the client’s deprivation of his property without due process of law.—The well-settled doctrine is that the client is bound by the mistakes of his lawyer. (Aguila vs. Court of First Instance of Batangas, Branch I, 160 SCRA 352 [1988]; See also Vivero v. Santos, et al., 98 Phil. 500 [1956]; Isaac v. Mendoza, 89 Phil. 279 [1951]; Montes v. Court of First Instance of Tayabas, 48 Phil. 640 [1926]; People v. Manzanilla, 43 Phil. 167 [1922]; United States vs. Dungca, 27 Phil. 274 [1914]; and United States v. Umali, 15 Phil. 33 [1910]) This rule, however, has its exceptions. Thus, in several cases, we ruled that the party is not bound by the actions of his counsel in case the gross negligence of the counsel resulted in the client’s deprivation of his property without due process of law. Corporation Law; Respondent corporation has a juridical personality of its own separate from the members composing it.—The respondent is a bona fide corporation. As such, it has a juridical personality of its own separate from the members composing it. Same; Same; Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members.—“xxx Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. While shares of stock constitute

personal property, they do not represent property of the corporation. The corporation has prop________________ *THIRD DIVISION. 471 VOL. 211,JULY14,1992 471 Boyer-Roxas vs. Court of Appeals erty of its own which consists chiefly of real estate (Nelson v. Owen, 113 Ala., 372, 21 So. 75; Morrow v. Gould, 145 Iowa 1, 123 N.W. 743). A share of stock only typifies an aliquot part of the corporation’s property, or the right to share in its proceeds to that extent when distributed according to law and equity (Hall & Faley v. Alabama Terminal, 173 Ala., 398, 56 So. 235), but its holder is not the owner of any part of the capital of the corporation (Bradley v. Bauder, 36 Ohio St., 28). Nor is he entitled to the possession of any definite portion of its property or assets (Gottfried v. Miller, 104 U.S., 521; Jones v. Davis, 35 Ohio St., 474). The stockholder is not a co-owner or tenant in common of the corporate property. Same; Same; Same; An officer’s power as an agent of the corporation must be sought from the statute, charter, the bylaws or in a delegation of authority to such officer, from the acts of the board of directors, formally expressed or implied from a habit or custom of doing business.—Again, we must emphasize that the respondent corporation has a distinct personality separate from its members. The corporation transacts its business only through its officers or agents. (Western Agro Industrial Corporation v. Court of Appeals, supra) Whatever authority these officers or agents may have is

derived from the board of directors or other governing body unless conferred by the charter of the corporation. An officer’s power as an agent of the corporation must be sought from the statute, charter, the by-laws or in a delegation of authority to such officer, from the acts of the board of directors, formally expressed or implied from a habit or custom of doing business. Same; Doctrine of piercing the veil of corporate fiction; The separate personality of the corporation may be disregarded only when the corporation is used as a cloak or cover for fraud or illegality or to work injustice or where necessary to achieve equity or when necessary for the protection of the creditors.— The petitioners’ suggestion that the veil of the corporate fiction should be pierced is untenable. The separate personality of the corporation may be disregarded only when the corporation is used “as a cloak or cover for fraud or illegality, or to work injustice, or where necessary to achieve equity or when necessary for the protection of the creditors.” (Sulo ng Bayan, Inc. v. Araneta, Inc., 72 SCRA 347 [1976] cited in Tan Boon Bee & Co., Inc., v. Jarencio, supra and Western Agro Industrial Corporation v. Court of Appeals, supra) The circumstances in the present cases do not fall under any of the enumerated categories. 472 472 SUPREME COURT REPORTS ANNOTATED Boyer-Roxas vs. Court of Appeals PETITION to review the decision and resolution of the Court of Appeals. The facts are stated in the opinion of the Court.

Oscar Z. Benares for petitioners. Benito P. Fabie for private respondent. GUTIERREZ, JR., J.: This is a petition to review the decision and resolution of the Court of Appeals in CA-G.R. No. 14530 affirming the earlier decision of the Regional Trial Court of Laguna, Branch 37, at Calamba, in the consolidated RTC Civil Case No. 802-84-C and 803-84-C entitled “Heirs of Eugenia V. Roxas, Inc. v. Rebecca Boyer-Roxas” and Heirs of Eugenia V. Roxas, Inc. v. Guillermo Roxas,” the dispositive portion of which reads: “IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and against the defendants, by ordering as it is hereby ordered that: 1) In RTC Civil Case No. 802-84-C: Rebecca Boyer-Roxas and all persons claiming under her to: a) Immediately vacate the residential house near the Balugbugan pool located inside the premises of the Hidden Valley Springs Resort at Limao, Calauan, Laguna; b) Pay the plaintiff the amount of P300.00 per month from September 10, 1983, for her occupancy of the residential house until the same is vacated; c) Remove the unfinished building erected on the land of the plaintiff within ninety (90) days from receipt of this decision; d) Pay the plaintiff the amount of P100.00 per month from September 10, 1983, until the said unfinished building is removed from the land of the plaintiff; and e) Pay the costs. 2) In RTC Civil Case No. 803-84-C: Guillermo Roxas and all persons claiming under him to:

a) Immediately vacate the residential house near the tennis court located within the premises of the Hidden Valley Springs Resort at Limao, Calauan, Laguna; b) Pay the plaintiff the amount of P300.00 per month from 473 VOL. 211,JULY14,1992 473 Boyer-Roxas vs. Court of Appeals September 10, 1983, for his occupancy of the said residential house until the same is vacated; and c) Pay the costs.” (Rollo, p. 36) In two (2) separate complaints for recovery of possession filed with the Regional Trial Court of Laguna against petitioners Rebecca Boyer-Roxas and Guillermo Roxas respectively, respondent corporation, Heirs of Eugenia V. Roxas, Inc., prayed for the ejectment of the petitioners from buildings inside the Hidden Valley Springs Resort located at Limao, Calauan, Laguna allegedly owned by the respondent corporation. In the case of petitioner Rebecca Boyer-Roxas (Civil Case No. 802-84-C), the respondent corporation alleged that Rebecca is in possession of two (2) houses, one of which is still under construction, built at the expense of the respondent corporation; and that her occupancy on the two (2) houses was only upon the tolerance of the respondent corporation. In the case of petitioner Guillermo Roxas (Civil Case No. 80384-C), the respondent corporation alleged that Guillermo occupies a house which was built at the expense of the former during the time when Guillermo’s father, Eriberto Roxas, was

still living and was the general manager of the respondent corporation; that the house was originally intended as a recreation hall but was converted for the residential use of Guillermo; and that Guillermo’s possession over the house and lot was only upon the tolerance of the respondent corporation. In both cases, the respondent corporation alleged that the petitioners never paid rentals for the use of the buildings and the lots and that they ignored the demand letters for them to vacate the buildings. In their separate answers, the petitioners traversed the allegations in the complaint by stating that they are heirs of Eugenia V. Roxas and therefore, co-owners of the Hidden Valley Springs Resort; and as co-owners of the property, they have the right to stay within its premises. The cases were consolidated and tried jointly. At the pre-trial, the parties limited the issues as follows: “1) whether plaintiff is entitled to recover the questioned premises; 474 474 SUPREME COURT REPORTS ANNOTATED Boyer-Roxas vs. Court of Appeals 2) whether plaintiff is entitled to reasonable rental for occupancy of the premises in question; 3) whether the defendant is legally authorized to pierce the veil of corporate fiction and interpose the same as a defense in an accion publiciana; 4) whether the defendants are truly builders in good faith, entitled to occupy the questioned premises;

5) whether plaintiff is entitled to damages and reasonable compensation for the use of the questioned premises; 6) whether the defendants are entitled to their counterclaim to recover moral and exemplary damages as well as attorney’s fees in the two cases; 7) whether the presence and occupancy by the defendants on the premises in questioned (sic) hampers, deters or impairs plaintiff’s operation of Hidden Valley Springs Resort; and 8) whether or not a unilateral and sudden withdrawal of plaintiff’s tolerance allowing defendants’ occupancy of the premises in questioned (sic) is unjust enrichment.” (Original Records, 486) Upon motion of the plaintiff respondent corporation, Presiding Judge Francisco Ma. Guerrero of Branch 34 issued an Order dated April 25, 1986 inhibiting himself from further trying the case. The cases were re-raffled to Branch 37 presided by Judge Odilon Bautista. Judge Bautista continued the hearing of the cases. For failure of the petitioners (defendants below) and their counsel to attend the October 22, 1986 hearing despite notice, and upon motion of the respondent corporation, the court issued on the same day, October 22, 1986, an Order considering the cases submitted for decision. At this stage of the proceedings, the petitioners had not yet presented their evidence while the respondent corporation had completed the presentation of its evidence. The evidence of the respondent corporation upon which the lower court based its decision is as follows:

“To support the complaints, the plaintiff offered the testimonies of Maria Milagros Roxas and that of Victoria Roxas Villarta as well as Exhibits ‘A’ to ‘M-3.’ The evidence of the plaintiff established the following: that the plaintiff, Heirs of Eugenia V. Roxas, Incorporated, was incorporated on December 4, 1962 (Exh. ‘C’) with the primary purpose of engaging 475 VOL. 211,JULY14,1992 475 Boyer-Roxas vs. Court of Appeals in agriculture to develop the properties inherited from Eugenia V. Roxas and that of Eufrocino Roxas; that the Articles of Incorporation of the plaintiff, in 1971, was amended to allow it to engage in the resort business (Exh. ‘C-1’); that the incorporators as original members of the board of directors of the plaintiff were all members of the same family, with Eufrocino Roxas having the biggest share; that accordingly, the plaintiff put up a resort known as Hidden Valley Springs Resort on a portion of its land located at Bo. Limao, Calauan, Laguna, and covered by TCT No. 32639 (Exhs. ‘A’ and ‘A-1’); that improvements were introduced in the resort by the plaintiff and among them were cottages, houses or buildings, swimming pools, tennis court, restaurant and open pavilions; that the house near the Balugbugan Pool (Exh. ‘B-1’) being occupied by Rebecca B. Roxas was originally intended as staff house but later used as the residence of Eriberto Roxas, deceased husband of the defendant Rebecca Boyer-Roxas and father of Guillermo Roxas; that this house presently being occupied by Rebecca B.

Roxas was built from corporate funds; that the construction of the unfinished house (Exh. ‘B-2’) was started by the defendant Rebecca Boyer-Roxas and her husband Eriberto Roxas; that the third building (Exh. ‘B-3’) presently being occupied by Guillermo Roxas was originally intended as a recreation hall but later converted as a residential house; that this house was built also from corporate funds; that the said house occupied by Guillermo Roxas when it was being built had nipa roofing but was later changed to galvanized iron sheets; that at the beginning, it had no partition downstairs and the second floor was an open space; that the conversion from a recreation hall to a residential house was with the knowledge of Eufrocino Roxas and was not objected to by any of the Board of Directors of the plaintiff; that most of the materials used in converting the building into a residential house came from the materials left by Coppola, a film producer, who filmed the movie ‘Apocalypse Now’; that Coppola left the materials as part of his payment for rents of the rooms that he occupied in the resort; that after the said recreation hall was converted into a residential house, defendant Guillermo Roxas moved in and occupied the same together with his family sometime in 1977 or 1978; that during the time Eufrocino Roxas was still alive, Eriberto Roxas was the general manager of the corporation and there was seldom any board meeting; that Eufrocino Roxas together with Eri-berto Roxas were (sic) the ones who were running the corporation; that during this time, Eriberto Roxas was the restaurant and wine concessionaire of the resort; that after the death of Eufrocino Roxas, Eriberto Roxas continued as the general manager until his death in 1980; that after the death of Eriberto Roxas in 1980, the defendants Rebecca B.

Roxas and Guillermo Roxas, committed acts that impeded the plain476 476 SUPREME COURT REPORTS ANNOTATED Boyer-Roxas vs. Court of Appeals tiff’s expansion and normal operation of the resort; that the plaintiff could not even use its own pavilions, kitchen and other facilities because of the acts of the defendants which led to the filing of criminal cases in court; that cases were even filed before the Ministry of Tourism, Bureau of Domestic Trade and the Office of the President by the parties herein; that the defendants violated the resolution and orders of the Ministry of Tourism dated July 28, 1983, August 3, 1983 and November 26, 1984 (Exhs. ‘G,’ ‘H’ and ‘H-1’) which ordered them or the corporation they represent to desist from and to turn over immediately to the plaintiff the management and operation of the restaurant and wine outlets of the said resort (Exh. ‘G-1’); that the defendants also violated the decision of the Bureau of Domestic Trade dated October 23, 1983 (Exh. ‘C’); that on August 27, 1983, because of the acts of the defendants, the Board of Directors of the plaintiff adopted Resolution No. 8312 series of 1983 (Exh. ‘F’) authorizing the ejectment of the defendants from the premises occupied by them; that on September 1, 1983, demand letters were sent to Rebecca BoyerRoxas and Guillermo Roxas (Exhs. ‘D’ and ‘D-1’) demanding that they vacate the respective premises they occupy; and that the dispute between the plaintiff and the defendants was brought before the barangay level and the same

was not settled (Exhs. ‘E’ and ‘E-1’).” (Original Records, pp. 454-456) The petitioners appealed the decision to the Court of Appeals. However, as stated earlier, the appellate court affirmed the lower court’s decision. The petitioners’ motion for reconsideration was likewise denied. Hence, this petition. In a resolution dated February 5, 1992, we gave due course to the petition. The petitioners now contend: I Respondent Court erred when it refused to pierce the veil of corporate fiction over private respondent and maintain the petitioners in their possession and/or occupancy of the subject premises considering that petitioners are owners of aliquot part of the properties of private respondent. Besides, private respondent itself discarded the mantle of corporate fiction by acts and/or omissions of its board of directors and/or stockholders. II The respondent Court erred in not holding that petitioners were in fact denied due process or their day in court brought about by the gross negligence of their former counsel. 477 VOL. 211,JULY14,1992 477 Boyer-Roxas vs. Court of Appeals III The respondent Court misapplied the law when it ordered petitioner Rebecca Boyer-Roxas to remove the unfinished building in RTC Case No. 802-84-C, when the trial court

opined that she spent her own funds for the construction thereof. (CA Rollo, pp. 17-18) Were the petitioners denied due process of law in the lower court? After the cases were re-raffled to the sala of Presiding Judge Odilon Bautista of Branch 37 the following events transpired: On July 3, 1986, the lower court issued an Order setting the hearing of the cases on July 21, 1986. Petitioner Rebecca V. Roxas received a copy of the Order on July 15, 1986, while petitioner Guillermo Roxas received his copy on July 18, 1986. Atty. Conrado Manicad, the petitioners’ counsel received another copy of the Order on July 11, 1986. (Original Records, p. 260) On motion of the respondent corporation’s counsel, the lower court issued an Order dated July 15, 1986 cancelling the July 21, 1986 hearing and resetting the hearing to August 11, 1986. (Original records, 262-263) Three separate copies of the order were sent and received by the petitioners and their counsel. (Original Records, pp. 268, 269, 271) A motion to cancel and re-schedule the August 11, 1986 hearing filed by the respondent corporation’s counsel was denied in an Order dated August 8, 1986. Again separate copies of the Order were sent and received by the petitioners and their counsel. (Original Records, pp. 276-279) At the hearing held on August 11, 1986, only Atty. Benito P. Fabie, counsel for the respondent corporation appeared. Neither the petitioners nor their counsel appeared despite the notice of hearing. The lower court then issued an Order on the same date, to wit: “O R D E R

When these cases were called for continuation of trial, Atty. Benito P. Fabie appeared before this Court, however, the defendants and their lawyer despite receipt of the Order setting the case for hearing today failed to appear. On Motion of Atty. Fabie, further cross examination of witness Victoria Vallarta is hereby considered as having been waived. 478 478 SUPREME COURT REPORTS ANNOTATED Boyer-Roxas vs. Court of Appeals The plaintiff is hereby given twenty (20) days from today within which to submit formal offer of evidence and defendants are also given ten (10) days from receipt of such formal offer of evidence to file their objection thereto. In the meantime, hearing in these cases is set to September 29, 1986 at 10:00 o’clock in the morning.” (Original Records, p. 286) Copies of the Order were sent and received by the petitioners and their counsel on the following dates—Rebecca BoyerRoxas on August 20, 1986, Guillermo Roxas on August 26, 1986, and Atty. Conrado Manicad on September 19, 1986. (Original Records, pp. 288-290) On September 1, 1986, the respondent corporation filed its “Formal Offer of Evidence.” In an Order dated September 29, 1986, the lower court issued an Order admitting exhibits “A” to “M-3” submitted by the respondent corporation in its “Formal Offer of Evidence x x x there being no objection x x x.” (Original Records, p. 418) Copies of this Order were sent and received by the petitioners and their counsel on the following

dates: Rebecca Boyer-Roxas on October 9, 1986; Guillermo Roxas on October 9, 1986 and Atty. Conrado Manicad on October 4, 1986 (Original Records, pp. 420, 421, 428). The scheduled hearing on September 29, 1986 did not push through as the petitioners and their counsel were not present prompting Atty. Benito Fabie, the respondent corporation’s counsel to move that the cases be submitted for decision. The lower court denied the motion and set the cases for hearing on October 22, 1986. However, in its Order dated September 29, 1986, the court warned that in the event the petitioners and their counsel failed to appear on the next scheduled hearing, the court shall consider the cases submitted for decision based on the evidence on record. (Original Records, p. 429, 430 and 431) Separate copies of this Order were sent and received by the petitioners and their counsel on the following dates: Rebecca Boyer-Roxas on October 9, 1986, Guillermo Roxas on October 9, 1986; and Atty. Conrado Manicad on October 1, 1986. (Original Records, pp. 429-430) Despite notice, the petitioners and their counsel again failed to attend the scheduled October 22, 1986 hearing. Atty. Fabie 479 VOL. 211,JULY14,1992 479 Boyer-Roxas vs. Court of Appeals representing the respondent corporation was present. Hence, in its Order dated October 22, 1986, on motion of Atty. Fabie and pursuant to the order dated September 29, 1986, the Court considered the cases submitted for decision. (Original Records,

p. 436) On November 14, 1986, the respondent corporation, filed a “Manifestation,” stating that “x x x it is submitting without further argument its ‘Opposition to the Motion for Reconsideration’ for the consideration of the Honorable Court in resolving subject incident.” (Original Records, p. 442) On December 16, 1986, the lower court issued an Order, to wit: “O R D E R Considering that the Court up to this date has not received any Motion for Reconsideration filed by the defendants in the above-entitled cases, the Court cannot act on the Opposition to Motion for Reconsideration filed by the plaintiff and received by the Court on November 14, 1986.” (Original Records, p. 446) On January 15, 1987, the lower court rendered the questioned decision in the two (2) cases. (Original Records, pp. 453-459) On January 20, 1987, Atty. Conrado Manicad, the petitioners’ counsel filed an Ex-Parte Manifestation and attached thereto, a motion for reconsideration of the October 22, 1986 Order submitting the cases for decision. He prayed that the Order be set aside and the cases be re-opened for reception of evidence for the petitioners. He averred that: 1) within the reglementary period he prepared the motion for reconsideration and among other documents, the draft was sent to his law office thru his messenger; after signing the final copies, he caused the service of a copy to the respondent corporation’s counsel with the instruction that the copy of the Court be filed; however, there was a miscommunication between his secretary and messenger in that the secretary mailed the copy for the respondent

corporation’s counsel and placed the rest in an envelope for the messenger to file the same in court but the messenger thought that it was the secretary who would file it; it 480 480 SUPREME COURT REPORTS ANNOTATED Boyer-Roxas vs. Court of Appeals was only later on when it was discovered that the copy for the Court has not yet been filed and that such failure to file the motion for reconsideration was due to excusable neglect and/or accident. The motion for reconsideration contained the following allegations: that on the date set for hearing (October 22, 1986), he was on his way to Calamba to attend the hearing but his car suffered transmission breakdown; and that despite efforts to repair said transmission, the car remained inoperative resulting in his absence at the said hearing. (Original Records, pp. 460-469) On February 3, 1987, Atty. Manicad filed a motion for reconsideration of the January 15, 1987 decision. He explained that he had to file the motion because the receiving clerk refused to admit the motion for reconsideration attached to the ex-parte manifestation because there was no proof of service to the other party. Included in the motion for reconsideration was a notice of hearing of the motion on February 3, 1987. (Original Records, p. 476-A) On February 4, 1987, the respondent corporation through its counsel filed a Manifestation and Motion manifesting that they received the copy of the motion for reconsideration only today

(February 4, 1987), hence they prayed for the postponement of the hearing. (Original Records, pp. 478-479) On the same day, February 4, 1987, the lower court issued an Order setting the hearing on February 13, 1987 on the ground that it received the motion for reconsideration late. Copies of this Order were sent separately to the petitioners and their counsel. The records show that Atty. Manicad received his copy on February 11, 1987. As regards the petitioners, the records reveal that Rebecca Boyer-Roxas did not receive her copy while as regards Guillermo Roxas, somebody signed for him but did not indicate when the copy was received. (Original Records, pp. 481-483) At the scheduled February 13, 1987 hearing, the counsels for the parties were present. However, the hearing was reset for March 6, 1987 in order to allow the respondent corporation to file its opposition to the motion for reconsideration. (Order dated February 13, 1987, Original Records, p. 486) Copies of the Order were sent and received by the petitioners and their counsel on the following dates: Rebecca Boyer-Roxas on Febru481 VOL. 211,JULY14,1992 481 Boyer-Roxas vs. Court of Appeals ary 23, 1987; Guillermo Roxas on February 23, 1987 and Atty. Manicad on February 19, 1987. (Original Records, pp. 487, 489-490) The records are not clear as to whether or not the scheduled hearing on March 6, 1987 was held. Nevertheless, the records

reveal that on March 13, 1987, the lower court issued an Order denying the motion for reconsideration. The well-settled doctrine is that the client is bound by the mistakes of his lawyer. (Aguila v. Court of First Instance of Batangas, Branch I, 160 SCRA 352 [1988]; See also Vivero v. Santos, et al., 98 Phil. 500 [1956]; Isaac v. Mendoza, 89 Phil. 279 [1951]; Montes v. Court of First Instance of Tayabas, 48 Phil. 640 [1926]; People vs. Manzanilla, 43 Phil. 167 [1922]; United States v. Dungca, 27 Phil. 274 [1914]; and United States v. Umali, 15 Phil. 33 [1910]) This rule, however, has its exceptions. Thus, in several cases, we ruled that the party is not bound by the actions of his counsel in case the gross negligence of the counsel resulted in the client’s deprivation of his property without due process of law. In the case of Legarda v. Court of Appeals (195 SCRA 418 [1991]), we said: “In People’s Homesite & Housing Corp. v. Tiongco and Escasa (12 SCRA 471 [1964]), this Court ruled as follows: ‘Procedural technicality should not be made a bar to the vindication of a legitimate grievance. When such technicality deserts from being an aid to justice, the courts are justified in excepting from its operation a particular case. Where there was something fishy and suspicious about the actuations of the former counsel of petitioners in the case at bar, in that he did not give any significance at all to the processes of the court, which has proven prejudicial to the rights of said clients, under a lame and flimsy explanation that the court’s processes just escaped his attention, it is held that said lawyer deprived his clients of their day in court, thus entitling said clients to petition for relief from judgment despite the lapse of the

reglementary period for filing said period for filing said petition.’ “In Escudero v. Judge Dulay (158 SCRA 69 [1988]), this Court, in holding that the counsel’s blunder in procedure is an exception to the rule that the client is bound by the mistakes of counsel, made the following disquisition: 482 482 SUPREME COURT REPORTS ANNOTATED Boyer-Roxas vs. Court of Appeals ‘Petitioners contend, through their new counsel, that the judgment rendered against them by the respondent court was null and void, because they were therein deprived of their day in court and divested of their property without due process of law, through the gross ignorance, mistake and negligence of their previous counsel. They acknowledge that, while as a rule, clients are bound by the mistake of their counsel, the rule should not be applied automatically to their case, as their trial counsel’s blunder in procedure and gross ignorance of existing jurisprudence changed their cause of action and violated their substantial rights. ‘We are impressed with petitioner’s contentions. xxx ‘While this Court is cognizant of the rule that, generally, a client will suffer consequences of the negligence, mistake or lack of competence of his counsel, in the interest of justice and equity, exceptions may be made to such rule, in accordance with the facts and circumstances of each case. Adherence to the

general rule would, in the instant case, result in the outright deprivation of their property through a technicality.’ “In its questioned decision dated November 19, 1989 the Court of Appeals found, in no uncertain terms, the negligence of the then counsel for petitioners when he failed to file the proper motion to dismiss or to draw a compromise agreement if it was true that they agreed on a settlement of the case; or in simply filing an answer; and that after having been furnished a copy of the decision by the court he failed to appeal therefrom or to file a petition for relief from the order declaring petitioners in default. In all these instances the appellate court found said counsel negligent but his acts were held to bind his client, petitioners herein, nevertheless. The Court disagrees and finds that the negligence of counsel in this case appears to be so gross and inexcusable. This was compounded by the fact, that after petitioner gave said counsel another chance to make up for his omissions by asking him to file a petition for annulment of the judgment in the appellate court, again counsel abandoned the case of petitioner in that after he received a copy of the adverse judgment of the appellate court, he did not do anything to save the situation or inform his client of the judgment. He allowed the judgment to lapse and become final. Such reckless and gross negligence should not be allowed to bind the petitioner. Petitioner was thereby effectively deprived of her day in court.” (at pp. 426427) 483 VOL. 211,JULY14,1992 483 Boyer-Roxas vs. Court of Appeals

The herein petitioners, however, are not similarly situated as the parties mentioned in the abovecited cases. We cannot rule that they, too, were victims of the gross negligence of their counsel. The petitioners are to be blamed for the October 22, 1986 order issued by the lower court submitting the cases for decision. They received notices of the scheduled hearings and yet they did not do anything. More specifically, the parties received notice of the Order dated September 29, 1986 with the warning that if they fail to attend the October 22, 1986 hearing, the cases would be submitted for decision based on the evidence on record. Earlier, at the scheduled hearing on September 29, 1986, the counsel for the respondent corporation moved that the cases be submitted for decision for failure of the petitioners and their counsel to attend despite notice. The lower court denied the motion and gave the petitioners and their counsel another chance by rescheduling the October 22, 1986 hearing. Indeed, the petitioners knew all along that their counsel was not attending the scheduled hearings. They did not take steps to change their counsel or make him attend to their cases until it was too late. On the contrary, they continued to retain the services of Atty. Manicad knowing fully well his lapses vis-avis their cases. They, therefore, cannot raise the alleged gross negligence of their counsel resulting in their denial of due process to warrant the reversal of the lower court’s decision. In a similar case, Aguila v. Court of First Instance of Batangas, Branch 1 (supra), we ruled: “In the instant case, the petitioner should have noticed the succession of errors committed by his counsel and taken

appropriate steps for his replacement before it was altogether too late. He did not. On the contrary, he continued to retain his counsel through the series of proceedings that all resulted in the rejection of his cause, obviously through such counsel’s ‘ineptitude’ and, let it be added, the clients’ forbearance. The petitioner’s reverses should have cautioned him that his lawyer was mishandling his case and moved him to seek the help of other counsel, which he did in the end but rather tardily. Now petitioner wants us to nullify all of the antecedent proceedings and recognize his earlier claims to the disputed property on the justification that his counsel was grossly inept. Such a reason is hardly plausible as the petitioner’s new counsel should know. Other484 484 SUPREME COURT REPORTS ANNOTATED Boyer-Roxas vs. Court of Appeals wise, all a defeated party would have to do to salvage his case is claim neglect or mistake on the part of his counsel as a ground for reversing the adverse judgment. There would be no end to litigation if these were allowed as every shortcoming of counsel could be the subject of challenge by his client through another counsel who, if he is also found wanting, would likewise be disowned by the same client through another counsel, and so on ad infinitum. This would render court proceedings indefinite, tentative and subject to reopening at any time by the mere subterfuge of replacing counsel.” (at pp. 357-358) We now discuss the merits of the cases.

In the first assignment of error, the petitioners maintain that their possession of the questioned properties must be respected in view of their ownership of an aliquot portion of all the properties of the respondent corporation being stockholders thereof. They propose that the veil of corporate fiction be pierced, considering the circumstances under which the respondent corporation was formed. Originally, the questioned properties belonged to Eugenia V. Roxas. After her death, the heirs of Eugenia V. Roxas, among them the petitioners herein, decided to form a corporation— Heirs of Eugenia V. Roxas, Incorporated (private respondent herein) with the inherited properties as capital of the corporation. The corporation was incorporated on December 4, 1962 with the primary purpose of engaging in agriculture to develop the inherited properties. The Articles of Incorporation of the respondent corporation were amended in 1971 to allow it to engage in the resort business. Accordingly, the corporation put up a resort known as Hidden Valley Springs Resort where the questioned properties are located. These facts, however, do not justify the position taken by the petitioners. The respondent is a bona fide corporation. As such, it has a juridical personality of its own separate from the members composing it. (Western Agro Industrial Corporation v. Court of Appeals, 188 SCRA 709 [1990]; Tan Boon Bee & Co., Inc. v. Jarencio, 163 SCRA 205 [1988]; Yutivo Sons Hardware Company v. Court of Tax Appeals, 1 SCRA 160 [1961]; Emilio Cano Enterprises, Inc. v. Court of Industrial Relations, 13 SCRA 290 [1965]) There is no dispute that title over the

questioned land where the Hidden Valley Springs Resort is located is registered 485 VOL. 211,JULY14,1992 485 Boyer-Roxas vs. Court of Appeals in the name of the corporation. The records also show that the staff house being occupied by petitioner Rebecca Boyer-Roxas and the recreation hall which was later on converted into a residential house occupied by petitioner Guillermo Roxas are owned by the respondent corporation. Regarding properties owned by a corporation, we stated in the case of Stockholders of F. Guanzon and Sons, Inc. v. Register of Deeds of Manila, (6 SCRA 373 [1962]): xxx xxx xxx “x x x Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. While shares of stock constitute personal property, they do not represent property of the corporation. The corporation has property of its own which consists chiefly of real estate (Nelson v. Owen, 113 Ala., 372, 21 So. 75; Morrow v. Gould, 145 Iowa 1, 123 N.W. 743). A share of stock only typifies an aliquot part of the corporation’s property, or the right to share in its proceeds to that extent when distributed according to law and equity (Hall & Faley v. Alabama Terminal, 173 Ala., 398, 56 So. 235), but its holder is not the owner of any part of the capital of the corporation (Bradley v. Bauder, 36 Ohio St., 28). Nor is he entitled to the possession of any definite portion of its property or assets (Gottfried v. Miller, 104 U.S., 521; Jones v.

Davis, 35 Ohio St., 474). The stock-holder is not a co-owner or tenant in common of the corporate property (Harton v. Johnston, 166 Ala., 317, 51 So., 992).” (at pp. 375-376) The petitioners point out that their occupancy of the staff house which was later used as the residence of Eriberto Roxas, husband of petitioner Rebecca Boyer-Roxas and the recreation hall which was converted into a residential house were with the blessings of Eufrocino Roxas, the deceased husband of Eugenia V. Roxas, who was the majority and controlling stockholder of the corporation. In his lifetime, Eufrocino Roxas together with Eriberto Roxas, the husband of petitioner Rebecca Boyer-Roxas, and the father of petitioner Guillermo Roxas managed the corporation. The Board of Directors did not object to such an arrangement. The petitioners argue that “x x x the authority thus given by Eufrocino Roxas for the conversion of the recreation hall into a residential house can no longer be questioned by the stockholders of the private respondent and/or its board of 486 486 SUPREME COURT REPORTS ANNOTATED Boyer-Roxas vs. Court of Appeals directors for they impliedly but no less explicitly delegated such authority to said Eufrocino Roxas.” (Rollo, p. 12) Again, we must emphasize that the respondent corporation has a distinct personality separate from its members. The corporation transacts its business only through its officers or agents. (Western Agro Industrial Corporation v. Court of Appeals, supra) Whatever authority these officers or agents

may have is derived from the board of directors or other governing body unless conferred by the charter of the corporation. An officer’s power as an agent of the corporation must be sought from the statute, charter, the by-laws or in a delegation of authority to such officer, from the acts of the board of directors, formally expressed or implied from a habit or custom of doing business. (Vicente v. Geraldez, 52 SCRA 210 [1973]) In the present case, the record shows that Eufrocino V. Roxas who then controlled the management of the corporation, being the majority stockholder, consented to the petitioners’ stay within the questioned properties. Specifically, Eufrocino Roxas gave his consent to the conversion of the recreation hall to a residential house, now occupied by petitioner Guillermo Roxas. The Board of Directors did not object to the actions of Eufrocino Roxas. The petitioners were allowed to stay within the questioned properties until August 27, 1983, when the Board of Directors approved a Resolution ejecting the petitioners, to wit: “R E S O L U T I O N No. 83-12 RESOLVED, That Rebecca B. Roxas and Guillermo Roxas, and all persons claiming under them, be ejected from their occupancy of the Hidden Valley Springs compound on which their houses have been constructed and/or are being constructed only on tolerance of the Corporation and without any contract therefor, in order to give way to the Corporation’s expansion and improvement program and obviate prejudice to the operation of the Hidden Valley Springs Resort by their continued interference.

RESOLVED, Further that the services of Atty. Benito P. Fabie be engaged and that he be authorized as he is hereby authorized to effect the ejectment, including the filing of the corresponding suits, if necessary to do so.” (Original Records, p. 327) 487 VOL. 211,JULY14,1992 487 Boyer-Roxas vs. Court of Appeals We find nothing irregular in the adoption of the Resolution by the Board of Directors. The petitioners’ stay within the questioned properties was merely by tolerance of the respondent corporation in deference to the wishes of Eufrocino Roxas, who during his lifetime, controlled and managed the corporation. Eufrocino Roxas’ actions could not have bound the corporation forever. The petitioners have not cited any provision of the corporation by-laws or any resolution or act of the Board of Directors which authorized Eufrocino Roxas to allow them to stay within the company premises forever. We rule that in the absence of any existing contract between the petitioners and the respondent corporation, the corporation may elect to eject the petitioners at any time it wishes for the benefit and interest of the respondent corporation. The petitioners’ suggestion that the veil of the corporate fiction should be pierced is untenable. The separate personality of the corporation may be disregarded only when the corporation is used “as a cloak or cover for fraud or illegality, or to work injustice, or where necessary to achieve equity or when necessary for the protection of the creditors.” (Sulo ng Bayan,

Inc. v. Araneta, Inc., 72 SCRA 347 [1976] cited in Tan Boon Bee & Co., Inc., v. Jarencio, supra and Western Agro Industrial Corporation v. Court of Appeals, supra) The circumstances in the present cases do not fall under any of the enumerated categories. In the third assignment of error, the petitioners insist that as regards the unfinished building, Rebecca Boyer-Roxas is a builder in good faith. The construction of the unfinished building started when Eriberto Roxas, husband of Rebecca Boyer-Roxas, was still alive and was the general manager of the respondent corporation. The couple used their own funds to finance the construction of the building. The Board of Directors of the corporation, however, did not object to the construction. They allowed the construction to continue despite the fact that it was within the property of the corporation. Under these circumstances, we agree with the petitioners that the provision of Article 453 of the Civil Code should have been applied by the lower courts. Article 453 of the Civil Code provides: 488 488 SUPREME COURT REPORTS ANNOTATED Boyer-Roxas vs. Court of Appeals “If there was bad faith, not only on the part of the person who built, planted or sown on the land of another but also on the part of the owner of such land, the rights of one and the other shall be the same as though both had acted in good faith.”

In such a case, the provisions of Article 448 of the Civil Code govern the relationship between petitioner Rebecca BoyerRoxas and the respondent corporation, to wit: “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 buildings 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.” WHEREFORE, the present petition is partly GRANTED. The questioned decision of the Court of Appeals affirming the decision of the Regional Trial Court of Laguna, Branch 37, in RTC Civil Case No. 802-84-C is MODIFIED in that subparagraphs (c) and (d) of Paragraph 1 of the dispositive portion of the decision are deleted. In their stead, the petitioner Rebecca Boyer-Roxas and the respondent corporation are ordered to follow the provisions of Article 448 of the Civil Code as regards the questioned unfinished building in RTC Civil Case No. 802-84-C. The questioned decision is affirmed in all other respects. SO ORDERED. Feliciano, Bidin, Davide, Jr. and Romero, JJ., concur. Petition partly granted.

Note.—Litigants are bound by acts of their counsel, except in case of bad faith on the part of the latter (Eden vs. Ministry of Labor and Employment, 182 SCRA 840). ——o0o—— [Boyer-Roxas vs. Court of Appeals, 211 SCRA 470(1992)]

No. L-28021. December 15, 1977.*SECOND DIVISION. JULIAN SANTULAN, substituted by his children named PATROCINIO, ADORACION, ARTURO, CONSTANCIA, and PEPITA, all surnamed SANTULAN, and minor grandchildren, JOCELYN, ROSAURO and ROBERTO, all surnamed SANTULAN, assisted by their guardian ad litem, PATROCINIO SANTULAN, petitioners-appellants, vs. THE EXECUTIVE SECRETARY, THE SECRETARY OF AGRICULTURE AND NATURAL RESOURCES, THE DIRECTOR OF LANDS, and ANTONIO LUSIN, substituted by his Heirs named TEODOSIA BALANZA (widow) and Children LEOPOLDO, ARMANDO, ALFONSO, EMILIANO, MAGDALENA, ERLINDA and ESTRELLA (ESTER), all surnamed LUSIN, and Heirs of CAROLINA LUSIN-LUCERO named MANOLITO LUCERO and MARIO LUCERO, respondents-appellees. Foreshore lands; Law of Waters; Fishpond; “Riparian” as used in Lands Administrative Order No. 7-1 dated April 30, 1936 and No. 8-3 dated April 20, 1936 is used in the broad sense as to cover “littoral owners”.—Paragraph 32 quoted above is a substantial copy of _______________ * SECOND DIVISION. 549 VOL. 80, DECEMBER 15, 1977 549 Santulan vs. The Executive Secretary paragraph 4 of Lands Administrative Order No. 8-3 dated April 20, 1936, which was promulgated by the Secretary of Agriculture and Natural Resources upon the recommendation

of the Director of Lands for issuance of temporary permits of occupation and use of agricultural lands of the public domain. The word “riparian” in paragraphs 32 and 4 of the department regulations is used in a broad sense as referring to any property having a water frontage. Strictly speaking, “riparian” refers to rivers. A riparian owner is a person who owns land situated on the bank of a river. But in paragraphs 32 and 4, the term “riparian owner” embraces not only the owners of lands on the banks of rivers but also the littoral owners, meaning the owners of lands bordering the shore of the sea or lake or other tidal waters. The littoral is the coastal region including both the land along the coast and the water near the coast or the shore zone between the high and low watermarks. Therefore, on the basis of paragraphs 32 and 4 of said administrative regulations, Santulan or his heirs should be allowed to lease or occupy the said foreshore land. Same; Same; Same; Section 64 of the 1919 Public Land Act is not different from section 67 of the 1936 Public Land Law (C.A. No. 141).—The Executive Secretary noted that under section 64 of Act No. 2874 sealed bidding was the general rule of procedure in determining an award of a lease of foreshore land and that the applicant is entitled to equal the bid of the highest bidder. On the other hand, under section 67 (of the present Public Land Act, C.A. 141), oral bidding is the general rule. x x x The Executive Secretary concluded that, because the preferential right of the applicant to lease foreshore land was immaterial under section 67 of the present Public Land Law, paragraph 32 of Lands Administrative Order No. 7-1, which gives such preference, had become “idle and useless”. The conclusion is wrong because it is based on the erroneous

hypothesis that section 64 of the 1919 Public Land Act is different from section 67 of the 1936 Public Land Law. They are not different. The truth is that Section 64 was amended by Act No. 3517 which took effect on February 4, 1929 (24 Public Laws 416). Section 64, as amended, is substantially the same as section 67 of the 1936 Public Land Law. That fact was overlooked by the Executive Secretary. Hence, his conclusion, that paragraph 32 of Lands Administrative Order No. 7-1 was repealed or rendered obsolete by section 67 of the present Public Land Law, is wrong because its premise is wrong. x x x Paragraph 32 is still in force and is good under the existing Public Land Law. Same; Same; Same; The littoral owner of registered land abutting upon the foreshore land has the preferential right to lease the foreshore land.—This case is governed by the precedent established in 550 550 SUPREME COURT REPORTS ANNOTATED Santulan vs. The Executive Secretary the case of Gonzalo Monzon (an administrative case decided by the Office of the President), which, as already noted, is similar to this case since the foreshore land involved in the Monzon case is adjacent to the foreshore land involved in this case. In the Monzon cases, the Office of the President, applying the oft-cited paragraph 32 of Lands Administrative Order No. 7-1 held that Monzon, the littoral owner of the registered land abutting upon the foreshore land, has the preferential right to lease the foreshore land.

Same; Same; Same; The principal reason for giving riparian or littoral owner preferential right to lease foreshore land is that accretion compensates the riparian owner for the diminution which his land suffers by reason of destructive forces of water. This is also in consonance with the Spanish Law of Waters of 1866.—That rule in paragraph 32 is in consonance with article 4 of the Spanish Law of Waters of 1866 which provides that, while lands added to the shores by accretions and alluvial deposits caused by the action of the sea form part of the public domain, such lands, “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 coast guard service”, shall be declared by the Government “to be the property of the owners of the estates adjacent thereto and as increment thereof”. x x x The reason for that preferential right is the same as the justification for giving accretions to the riparian owner, which is that accretion compensates the riparian owner for the diminutions which his land suffers by reason of the destructive forces of the waters. So, in the base of littoral lands, he who loses by the encroachments of the sea should gain by its recession. That preferential right is (also) recognized in American jurisprudence x x x. Same; Same; Same; Foreshore lease application pending award is not covered by Presidential ban on the grant of foreshore leases all along Manila Bay, towards Cavite and Bataan.—It may be mentioned that the Director of Lands stated in his manifestation of October 26, 1977 that Lands Administrative Orders Nos. 7-1 and 8-3 are still in force and have not been superseded by any later regulations and that the directive of the President of the Philippines to the Director of Lands dated May

24, 1966, stopping the grant of foreshore leases all along Manila Bay, towards Cavite and Bataan, has not rendered the instant case moot and academic “because the foreshore lease application involved is pending award”. 551 VOL. 80, DECEMBER 15, 1977 551 Santulan vs. The Executive Secretary APPEAL from an order of the Court of First Instance of Cavite. Jimenez, J. The facts are stated in the opinion of the Court. Isidoro Crisostomo for appellants Heirs of Julian Santulan. Romulo C. Felizmeña for appellees Heirs of Antonio Lusin. Solicitor General Arturo A. Alafriz, Assistant Solicitor General Esmeraldo Umali and Solicitor Conrado T. Limcaoco for The Executive Secretary, etc. AQUINO, J.: This case is about the lease of a parcel of foreshore land of the public domain with an area of about four and one-half hectares located at Barrio Kaiñgin, Kawit, Cavite abutting on Bacoor Bay and the Ankaw Creek. It is a protracted controversy that has been pending for more than thirty years between the rival claimants, Julian Santulan and Antonio Lusin, who have been succeeded by their heirs. Santulan claimed that that foreshore land was an extension of his land, Lot No. 986 of the Kawit cadastre, with an area of 17,301 square meters, registered in his name in 1937 under Original Certificate of Title No. 6 which was issued by virtue of a free patent. The northern boundary of Lot No. 986 is

Bacoor (Manila) Bay (Exh. A). The said foreshore land was allegedly formed by soil deposits accumulated by the alluvial action of the sea. On December 5, 1942 Santulan caused the said land to be surveyed. The survey plan was approved by the Director of Lands in 1944 (Exh. B). On December 29, 1942 Santulan, pursuant to Lands Administrative Order No. 7-1, filed an application, F.L.A. No. V-562, to lease for five years for agricultural purposes an area of 36,120 square meters of the said foreshore land (Exh. F). On that same date, December 29, 1942, Santulan, pursuant to Act No. 3077 and Lands Administrative Order No. 8-3, filed with the Bureau of Lands an application for a revocable permit to occupy the said land. He indicated therein that he would use the land for “capiz beds and oyster beds, the planting of bakawan and pagatpat and later to be developed into a fishpond” (Exh. G). Seven years later, or on December 22, 1949, Santulan filed with the Bureau of Fisheries an application for an ordinary fishpond permit or lease of the said foreshore land (Special Use Permit, Fp. A. No. 5114, Exh. H). At the instance of the Director of Fisheries, the Director of 552 552 SUPREME COURT REPORTS ANNOTATED Santulan vs. The Executive Secretary Forestry investigated the condition of the said foreshore land. The latter in his first indorsement dated June 19, 1950 found that it was swampy “and not an improved fishpond as alleged

by Antonio Lusin” and that it is within the disposable areas for agricultural purposes under the jurisdiction of the Bureau of Lands (Exh. L-1). The chief of the division of commercial fisheries sent a letter to Lusin dated April 28, 1950 apprising him that he was reported to have illegally entered the area covered by Santulan’s fishpond permit application and directing him to refrain from introducing improvements, with the warning that court proceedings would be taken against him (Exh. J). On January 12, 1951 an attorney, acting for the Director of Lands wrote the following letter to Lusin advising him to vacate the disputed land and maintain the status quo: “Mr. Antonio Lusin Caingin, Kawit, Cavite “S i r: “We have been informed that the area which is presently controverted by and between you and Julian Santulan, under the applications noted above, was recently entered by you and some companions and that you are destroying the dikes and other improvements previously constructed thereon by said Julian Santulan. “If this information is true, and inasmuch as you are aware that the controversy is still pending final adjudgment in this Office, it is desired that you take proper advice and leave the area and its existing improvements in status quo in order to avoid possible confusion of rights which may delay the final disposition of the area in question. “You are advised further that the acts imputed to you may make you liable to prosecution and punishment under the law; and that whatever improvements you may make for yourself in

the premises will not legally accrue to your benefit, nor will they serve as basis for a claim to preferential rights.” (Paragraphing supplied, Exh. J-1). Santulan declared the said foreshore land in his name for tax purposes. Tax Declaration No. 2923, which took effect in 1948 and which cancelled Tax Declaration No. 13816 also in Santulan’s name, shows that the land was assessed at P460. He paid the realty taxes due on the said land for the years 1945-46, 1948-55 and 1957-60 (Exh. C, D and E, et seq.). On the other hand, Antonio Lusin in 1942 and 1945 (he died in 1962) filed with the Bureau of Lands applications for a revocable 553 VOL. 80, DECEMBER 15, 1977 553 Santulan vs. The Executive Secretary permit and lease of a foreshore land, respectively, for the purpose of producing salt on the said land. He claimed that he had been in the continuous and exclusive possession of the land since 1920, when it was still under water, and that he had used it as a site of his fish corrals. He allegedly converted two hectares of the said land into a fishpond. The entire area was enclosed with mud dikes and provided with a concrete sluice gate and another sluice gate made of wood On the northern part of the land bordering the bay were bamboo stakes placed at close intervals to serve as water breakers to protect the mud dikes from being washed away by the action of the sea. Lusin introduced the alleged improvements from 1951 to 1953.

The 1942 foreshore lease applications of Santulan and Lusin gave rise to Bureau of Lands Conflict-No. 8 (N). The Director of Lands in his decision in that case dated February 1, 1951 found that the disputed land is foreshore land covered and uncovered by the flow and ebb of the ordinary tides; that it is an extension of Santulan’s Lot No. 986 and it was formerly a part of the sea; that Santulan was the first to enter the land and to make dikes thereon, and that Lusin entered the land later and made dikes also (Exh. K made a part hereof for reference as Annex A). The Director ruled that the disputed foreshore land was subject “to riparian rights which may be invoked by Santulan as owner of the upland in accordance with section 32 of Lands Administrative Order No. 7-1” (Exh. K). Hence, the Director rejected Lusin’s application for a foreshore lease and for a revocable permit and gave due course to Santulan’s foreshore lease application. Lusin filed a motion for reconsideration. The Director in his order of October 19, 1951 denied that motion. He found that Lusin was a possessor in bad faith; that it is not true that Lusin had improved and possessed the said foreshore land for twenty years; that the disputed area is covered by water, two to three feet deep during ordinary tides and is exposed land after the ebb of the tides, and that Lusin’s alleged possession and improvements could not nullify Santulan’s preferential right to lease the land by reason of his riparian rights. The Director ordered Lusin to vacate the land within sixty days from notice (Exh. L made a part hereof for reference as Annex B). Lusin appealed to the Acting Secretary of Agriculture and Natural Resources who in his decision of October 13, 1952

dismissed the appeal and affirmed the Director’s 1951 decision (Exh. 554 554 SUPREME COURT REPORTS ANNOTATED Santulan vs. The Executive Secretary M made a part hereof for reference as Annex C). Lusin’s motion for reconsideration was denied in the Secretary’s order of February 28, 1953 (Exh. N made a part hereof for reference as Annex D). Lusin asked for a reinvestigation of the case. His request was granted. The Department ordered a reinvestigation on May 12, 1953. After receipt of the report of reinvestigation, the Undersecretary of Agriculture and Natural Resources, by authority of the Secretary, in his order of December 14, 1954, reaffirmed the rejection of Lusin’s revocable permit and foreshore lease applications but ordered Santulan to reimburse to Lusin the appraised value of his improvements (Exh. O made a part hereof for reference as Annex E). Lusin appealed to the President of the Philippines after his motion for reconsideration was denied in the Undersecretary’s order of May 19, 1955 (Exh. OO made a part hereof for reference as Annex F). Executive Secretary Juan C. Pajo, by authority of the President, held in his decision of April 10, 1958 that section 32 of Lands Administrative Order No. 7-1 (promulgated by the Secretary of Agriculture and Natural Resources on April 30, 1936 pursuant to Acts Nos. 2874 and 3038) was “rendered obsolete” by

section 67 of the Public Land Law which took effect on December 1, 1936 (Exh. P made a part hereof for reference as Annex G). On the basis of the foregoing ruling and since the record is silent as to whether or not the land in question has been declared by the President as not necessary for the public service and as open to disposition (Sec 61, Public Land Law), the Executive Secretary sustained Lusin’s appeal and reversed the orders of the Director of Lands and the Secretary of Agriculture and Natural Resources in favor of Santulan. Secretary Pajo decided the case in the alternative as follows: “On the assumption that the land in question has been declared open for disposition and is not necessary for the public service, this Office directs that an oral bidding for the leasing thereof to interested parties pursuant to the provisions of Section 67 of Commonwealth Act No. 141 be conducted and the contract of lease awarded to the highest bidder. Whoever shall be the highest bidder, if other than the appellant, shall be required to pay to the appellant the appraised value of the improvements introduced by him on the land to be determined by that Department. 555 VOL. 80, DECEMBER 15, 1977 555 Santulan vs. The Executive Secretary “If the land in question has not been so declared, this Office directs that a revocable permit under Section 68 of Commonwealth Act No. 141 be issued to the appellant requiring him to pay permit fees since the year 1951.

“Accordingly, the orders and decisions of that Department and the Bureau of Lands are hereby revoked.” Santulan’s case was distinguished from that of Gonzalo Monzon whose Lot No. 987 adjoins Santulan’s Lot No. 986. Executive Secretary Fred Ruiz Castro (now Chief Justice) in his decision of May 10, 1954 upheld the preferential right of Monzon to lease the foreshore land north of his lot, which foreshore land is adjacent to the foreshore land now in dispute in this case (Exh. Q made a part hereof for reference as Annex H). Santulan’s motion for reconsideration was denied in the letter of the Acting Executive Secretary dated August 20, 1959 (Exh. W). On October 22, 1959 Santulan filed in the Court of First Instance of Cavite a petition for certiorari wherein he alleged that the Executive Secretary committed a grave abuse of discretion in misinterpreting certain provisions of Act No. 2874, Commonwealth Act No. 141, and Lands Administrative Order No. 7-1. In the lower court the parties agreed that the case involves only a question of law. On August 18, 1961 the lower court dismissed the petition and affirmed the Executive Secretary’s decision. Santulan appealed to the Court of Appeals which in its resolution of July 21, 1967 elevated the record to this Court on the ground that Santulan in his brief raised only the legal questions of whether the Public Land Law repealed section 32 of Lands Administrative Order No. 7-1 and whether the Executive Secretary’s decision is “legally sound and correct” (CA-G. R. No. 30708-R).

It should be emphasized that, as found by the investigators of the Bureau of Lands, Santulan was the prior possessor of the foreshore land in question. He had it surveyed in 1942. The survey plan (Psu-115357) was approved by the Director of Lands in 1944. Santulan paid the realty taxes on that land. It should further be underscored that the regulations give him a preferential right to lease the land as a riparian owner. Lands Administrative Order No. 7-1 dated April 30, 1936, which was issued by the Secretary of Agriculture and Natural Resources upon the recommendation of the Director of Lands for the disposition of alienable lands of the public domain, provides: 556 556 SUPREME COURT REPORTS ANNOTATED Santulan vs. The Executive Secretary “32. Preference of Riparian Owner.—The owner of the property adjoining foreshore lands, marshy lands or lands covered with water bordering upon shores or banks of navigable lakes or rivers, shall be given preference to apply for such lands adjoining his property as may not be needed for the public service, subject to the laws and regulations governing lands of this nature, provided that he applies therefor within sixty (60) days, from the date he receives a communication from the Director of Lands advising him of his preferential right.” Paragraph 32 quoted above is a substantial copy of paragraph 4 of Lands Administrative Order No. 8-3 dated April 20, 1936, which was promulgated by the Secretary of Agriculture and Natural Resources upon the recommendation of the Director of

Lands for issuance of temporary permits of occupation and use of agricultural lands of the public domain. The word “riparian” in paragraphs 32 and 4 of the departmental regulations is used in a broad sense as referring to any property having a water frontage (Shepard’s Point Land Co. vs. Atlantic Hotel, 44 S. E. 39, 45, 132 N. C. 517, 65 C. J. S. 143, note 84). Strictly speaking, “riparian” refers to rivers. A riparian owner is a person who owns land situated on the bank of a river. But in paragraphs 32 and 4, the term “riparian owner” embraces not only the owners of lands on the banks of rivers but also the littoral owners, meaning the owners of lands bordering the shore of the sea or lake or other tidal waters. The littoral is the coastal region including both the land along the coast and the water near the coast or the shore zone between the high and low watermarks. Therefore, on the basis of paragraphs 32 and 4 of the said administrative regulations, Santulan or his heirs should be allowed to leased or occupy the said foreshore land. But the Executive Secretary ruled that paragraph 32 was rendered obsolete by Commonwealth Act No. 141 or, as held by the trial court, Lands Administrative Order No. 7-1 was repealed by the Public Land Law. Is that conclusion correct? We hold that it is wrong. It is true that Lands Administrative Orders Nos. 7-1 and 8-3 were issued when the 1919 Public Land Act was in force or before the present Public Land Law took effect on December 1, 1936. But that circumstance would not necessarily mean that the said departmental regulations are not good under the 1936 Public Land Law.

557 VOL. 80, DECEMBER 15, 1977 557 Santulan vs. The Executive Secretary In rationalizing the alleged repeal of paragraph 32, the Executive Secretary cited the following provisions of Act No. 2874, the 1919 Public Land Act (15 Public Land Laws 24): “SEC. 64. The lease or sale shall be adjudicated to the highest bidder; and if there is no bidder besides the applicant, it shall be adjudicated to him. The provisions of section twenty-seven of this Act shall be applied wherever applicable. If all or part of the lots remain unleased or unsold, the Director of Lands shall from time to time announce in the Official Gazette or otherwise the lease or sale of those lots, if necessary.” (Section 27 refers to sealed bidding). The Executive Secretary held that the above-quoted section 64 was repealed by the following provisions of Commonwealth Act No. 141 which took effect on December 1, 1936: ‘SEC. 67. The lease or sale shall be made through oral bidding; and adjudication shall be made to the highest bidder. However, where an applicant has made improvements on the land by virtue of a permit issued to him by competent authority, the sale or lease shall be made by sealed bidding as prescribed in section twenty-six of this Act, the provisions of which shall be applied wherever applicable. If all or part of the lots remain unleased or unsold, the Director of Lands shall from time to time announce in the Official Gazette, or in any other newspapers of general circulation, the lease or sale of those lots, if necessary.” (Sation 26, like section 27 of Act No. 2874, refers to sealed bidding).

The Executive Secretary noted that under section 64 of Act No. 2874 sealed bidding was the general rule of procedure in determining an award of a lease of foreshore land and that the applicant is entitled to equal the bid of the highest bidder. On the other hand, under section 67, oral bidding is the general rule. Hence, the Executive Secretary assumed that, while under section 64 of the 1919 old Public Land Act, the fact that the applicant has a preferential right to lease foreshore land was a crucial factor, it is unimportant under section 67 of the 1936 Public Land Law because in oral bidding the applicant is not entitled to equal the bid of the highest bidder. The Executive Secretary concluded that, because the preferential right of the applicant to lease foreshore land was immaterial under section 67 of the present Public Land Law, paragraph 32 of Lands Administrative Order No. 7-1, which gives such preference, had 558 558 SUPREME COURT REPORTS ANNOTATED Santulan vs. The Executive Secretary become “idle and useless”. That conclusion is wrong because it is based on the erroneous hypothesis that section 64 of the 1919 Public Land Act is different from section 67 of the 1936 Public Land Law. They are not different. The truth is that section 64 was amended by Act No. 3517 which took effect on February 4, 1929 (24 Public Laws 416). Section 64, as thus amended, is substantially the same as section 61 of the 1936 Public Land Law.

That fact was overlooked by the Executive Secretary. Hence, his conclusion, that paragraph 32 of Lands Administrative Order No. 7-1 was repealed or rendered obsolete by section 67 of the present Public Land Law, is wrong because its premise is wrong. In other words, paragraph 32 of Lands Administrative Order No. 7-1, issued on April 30, 1936, was promulgated under section 64 of the old Public Land Law, as amended. And since the amended section 64 was substantially reproduced in section 67 of the present Public Land Law, it is glaringly incorrect to say that section 67 rendered obsolete the said paragraph 32. Paragraph 32 is still in force and is good under the existing Public Land Law. The foregoing discussion reveals that the Executive Secretary’s rationalization of the alleged repeal of paragraph 32 of Lands Administrative Order No. 7-1 (identical to paragraph 4 of Lands Administrative Order No. 8-3) is not only deficient in clarity and cogency but is predicated on the false assumption that section 64 of the 1919 Public Land Act is different from section 67 of the present Public Land Law. Consequently, the aforementioned decision of Executive Secretary Juan C. Pajo under review has to be set aside. This case is governed by the precedent established in the case of Gonzalo Monzon, which, as already noted, is similar to this case since me foreshore land involved in the Monzon case is adjacent to the foreshore land involved in this case. In the Monzon case, the Office of the President, applying the oft-cited paragraph 32 of Lands Administrative Order No. 7-1 held that Monzon, the littoral owner of the registered land

abutting upon the foreshore land, has the preferential right to lease the foreshore land. The location of the lots of Santulan and Monzon and the foreshore lands abutting thereon is shown in the following sketch based on the plan, Psu-115357 (Exh. B): 559 VOL. 80, DECEMBER 15, 1977 559 Santulan vs. The Executive Secretary Considering that the foreshore land abutting upon Santulan’s lot is in the same situation as the foreshore land abutting upon Monzon’s lot, there is no reason why Santulan should not enjoy, with respect to the disputed foreshore land, the rights given to Monzon over theforeshore land adjacent tohis lot Now, then, is there any justification for giving to the littoral owner the preferential right to lease the foreshore land abutting on his land? That rule in paragraph 32 is in consonance with article 4 of the Spanish Law of Waters of 1866 which provides that, while lands added to the shores by accretions and alluvial deposits caused by the action of the sea form part of the public domain, such lands, “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 coast guard service”, shall be declared by the Government “to be the property of the owners of the 560

560 SUPREME COURT REPORTS ANNOTATED Santulan vs. The Executive Secretary estates adjacent thereto and as increment thereof” (cited in Ignacio vs. Director of Lands, 108 Phil. 335, 338). In other words, article 4 recognizes the preferential right of the littoral owner (riparian according to paragraph 32) to the foreshore land formed by accretions or alluvial deposits due to the action of the sea (Ker & Co. vs. Cauden, 6 Phil. 732, 736, 223 U. S. 268, 56 L. Ed. 432, 435; Jover vs. Insular Government, 10 Phil. 522, 40 Phil. 1094, 1100, 221 U. S. 623, 55 L. Ed. 884). The reason for that preferential right is the same as the justification for giving accretions to the riparian owner, which is that accretion compensates the riparian owner for the diminutions which his land suffers by reason of the destructive force of the waters (Cortes vs. City of Manila, 10 Phil. 567). So, in the case of littoral lands, he who loses by the encroachments of the sea should gain by its recession (Banks vs. Ogden, 2 Wall. 57, 67, 17 L Ed. 818, 821). That preferential right is recognized in American jurisprudence where the rule is that the owner of the land adjacent to navigable waters has certain riparian or littoral rights of a proprietary nature not possessed by the general public which rights are incident to the ownership of the banks or the uplands: riparian as respects the waters of a river and littoral as to sea waters or the waters of a lake (65 C. J. S. 143-145). It may be mentioned that the Director of Lands stated in his manifestation of October 26, 1977 that Lands Administrative Orders Nos. 7-1 and 8-3 are still in force and have not been

superseded by any later regulations and that the directive of the President of the Philippines to the Director of Lands dated May 24, 1966, stopping the grant of foreshore leases all along Manila Bay, towards Cavite and Bataan, has not rendered the instant case moot and academic “because the foreshore lease application involved is pending award.” In view of the foregoing considerations, the trial court’s decision and the decision of the Executive Secretary dated April 10, 1958 are reversed and set aside and the order of the Undersecretary of Agriculture and Natural Resources dated December 14, 1954 and the orders of the Director of Lands dated February 1 and October 19, 1951 are affirmed. The lease application of Julian Santulan mentioned in the order of February 1, 1951 should be recorded in the names of his heirs 561 VOL. 80, DECEMBER 15, 1977 561 Santulan vs. The Executive Secretary and the obligation to make reimbursement mentioned in the dispositive part of the Undersecretary’s order should now devolve upon the heirs of Santulan. The reimbursement should be made to th heirs of the late Antonio Lusin. The obligation to vacate the disputed land, as required in the Director’s order of October 19, 1951 devolves upon the heirs of Lusin. Costs in both instances against respondent heirs of Lusin. (As amended by Resolution of February 17, 1977. SO ORDERED.

Barredo (Actg. Chairman), Antonio, Concepcion Jr. and Guerrero, JJ., concur. Guerrero, J., was designated to sit in the Second Division. Fernando and Santos, JJ., are on leave. Decisions of the trial court and Executive Secretary reversed and set aside and orders of the Undersecretary and Director of Lands affirmed. Annexes to Opinion in L-28021, Julian Santulan vs. Executive Secretary, et al. F. L. A. No. V-562, R. P. A. (New). Julian Santulan, Applicant & Contestant vs. F. L. A. (New), R. P. A. (New), B. L. Conflict No. 8 (N) Psu-115357, Kawit, Cavite. Julian Santulan, Applicant-Appellee vs. Antonio Lusin, Applicant-Appellant, D.A.N.R. Case No. 625, Psu-115357, Kawit, Cavite. Annex A—Order of Director of Lands dated February 1, 1951. Annex B—Order of Director of Lands dated October 19, 1951. Annex C—Decision of Acting Secretary of Agriculture and Natural Resources dated October 13, 1952. Annex D—Order of Secretary of Agriculture and Natural Resources dated February 28, 1953. Annex E—Order of Undersecretary of Agriculture and Natural Resources dated December 14, 1954. Annex F—Order of Undersecretary of Agriculture and Natural 562 562 SUPREME COURT REPORTS ANNOTATED Santulan vs. The Executive Secretary Resources dated May 19, 1955.

Annex G—Decision of Executive Secretary Juan C. Pajo dated April 10, 1958. Annex H—Decision of Executive Secretary Fred Ruiz Castro dated May 10, 1954 in Emiliano del Rosario vs. Gonzalo Monzon. —•— ANNEX A ORDER Julian Santolan, who owns Lot No. 986 of the Kawit Cadastre, under a free patent grant with Original Certificate of Title No. 6 issued to him on June 9, 1937, claims preferential rights to all the areas extending seaward from the said lot. He caused the said areas to be surveyed for him in 1942, and the survey plan thereof was approved in 1944, as may be seen in the Survey Plan Psu-115357 of this Office which is reproduced in the sketch drawn on the back of the last page hereof. Except the portion marked “A” in the sketch, he made a foreshore lease application and a revocable permit application for these areas in 1942 to devote the areas applied for to fishpond purposes. Presently, he now includes the portion “A” in his applications herein mentioned to be devoted to the same purposes,—in fact, he now intends to utilize the entire area comprised in his Survey Psu-115357 for fishery purposes and has filed therefor with the Bureau of Fisheries fishpond permit application No. 5114. Upon this claim he contests the revocable permit (new) application and the foreshore lease (new) application for the portion of these areas marked “X” in the sketch which were filed by Antonio Lusin in 1942 and 1945, respectively, for saltproducing purposes.

Lot No. 986 of the Kawit Cadastre, mentioned above as owned by Julian Santolan, appears to be bounded on the north by the Bacoor Bay. It is evident therefore that the areas now comprised in Santolan’s Survey Psu-115357 were formerly parts of the bay, and that presently they exist as a result of the recession of the waters of the sea. Investigation disclosed that these areas are now foreshore lands,—covered and uncovered by the flow and ebb of the ordinary tides. Santolan was found to have entered the areas first and made dikes. Lusin was found to have entered lately and made dikes also. None of them, however, has obtained from this Office 563 VOL. 80, DECEMBER 15, 1977 563 Santulan vs. The Executive Secretary any permit of occupancy and use, and their applications are not yet approved. On the basis alone of actual occupancy or introduction of improvements neither of the parties here may claim preferential rights, for under the law and regulations, it is only such occupancy and introduction of improvements as are made upon the authority of an official permit issued by this Office which could serve as a reason for holding a sealed bidding in a public auction of the right to lease at which the permittee is given the preferred right to equal the highest bid that might be put by any other party. This is the rule prescribed by Section 67 of Commonwealth Act No. 141 (the Public Land Act). It appears, however, that the areas,—portions “A”, “X” and the parts extending up to the Bacoor Bay now, as may be seen in the

sketch,—which are comprised by Santolan’s Survey Plan Psu115357, are immediately adjoining Lot No. 986, which is his private property, and are extensions of the said lot to the sea. The areas, being foreshore lands, are therefore subject to riparian rights which may be invoked by Santolan as owner of the upland in accordance with Section 32 of Lands Administrative Order No. 7-1 which provides the following: “Sec. 32. The owner of the property adjoining foreshore lands, marshy lands, or lands covered with water bordering upon the shores or banks of navigable lakes or rivers, shall be given preference to apply for such lands adjoining his property as may not be needed for the public service, subject to the laws and regulations governing lands of this nature, provided that he applies therefor within 60 days from the date he receives a communication from the Director of Lands advising him of his preferential right” As Julian Santolan is interested in utilizing the entire area covered by his Survey Psu-115357 over which he is fully entitled to exercise his riparian rights, the above-noted foreshore lease (new) application and revocable (new) application of Antonio Lusin, both covering the portion marked “X” in the sketch, are hereby rejected. The lease application of Santolan, shall be recorded as Foreshore Lease Application No. 562 and given due course for the whole area (including portion “A”) shown in the said sketch. SO ORDERED. Manila, Philippines, February 1, 1951. JOSE P. DANS Director of Lands

564 564 SUPREME COURT REPORTS ANNOTATED Santulan vs. The Executive Secretary ANNEX B ORDER Counsel for respondent Antonio Lusin has filed in due time a motion for the reconsideration of our Order of February 1, 1951, which resolved this case in favor of contestant Julian Santolan, praying that the said order be set aside and the case, reopened for purposes of a formal hearing for the submission of evidence. Substantially stated, respondent Lusin claims that he is entitled to preference because he has been in possession of the premises for a period of over twenty years, placing stakes and planting aquatic trees for the raising and cultivation of shell fish and sea shells, besides constructing dikes for ponding fish and making salt beds,—all these works undertaken by him being the cause for the gradual filling of the area and its conversion into a productive state. He contends that the areas under question had been formed thru “artificial accretion” caused by his own labor and, consequently, he has the right of pre-emption. There is no question, however, that the areas under question are parts of the foreshore. Under Section 61 of Commonwealth Act No. 141 (Public Land Act), they are disposable to private parties by lease only and not otherwise; and under Section 67 of the same Act, the lease shall be made thru oral bidding, the adjudication to be made to the highest bidder. There is no question also that the areas under question extend to the sea from Lot No. 986 of the Kawit Cadastre, which is

actually owned by respondent Santolan under Original Certificate of Title No. 6 of the land records of Cavite. Undoubtedly, respondent has riparian rights to the foreshore in question which he can invoke against contestant Lusin under the provisions of Section 32 of Lands Administrative Order No. 7-1, quoted in toto in the order sought to be reconsidered. Records show that the areas under question are also involved in the Fishpond Application No. 5114 of Julian Santolan with the Bureau of Fisheries which is also contested by Antonio. It appears that upon request of the Director of Fisheries to the Bureau of Forestry for certification as to the availability of the areas for fishery purposes, the latter made investigation, inquiring at the same time into the claim of Antonio Lusin, made formally in writing, that he has improved the areas into a fishpond and has been in 565 VOL. 80, DECEMBER 15, 1977 565 Santulan vs. The Executive Secretary occupation thereof for more than 20 years. The Bureau of Forestry made the findings that those areas are within the disposable areas for agricultural purposes under the jurisdiction of the Bureau of Lands; and that they are swampy lands, formerly under sea water of the Bacoor Bay, “and not an improved fishpond as alleged by Antonio Lusin”. These findings were transmitted to the Director of Fisheries under first indorsement dated June 19, 1950. Our own investigating officer, reporting on this case on January 25, 1951, stated the following: “On December 15,

1950, when I conducted the first ocular inspection of the premises in the presence of both parties, the only visible improvements found thereon are the newly-constructed dikes made thereon by Julian Santolan, a few bacauan and ape-ape trees of about two to three years old, bamboo stakes placed thereon at intervals, and a small old hut located at almost the middle of the land in question. All these improvements were claimed to have been introduced by Julian Santolan. Antonio Lusin, however, claimed that those bamboo stakes found therein were his.” It is evident from the findings of both the inspecting officer of the Bureau of Forestry and our own investigating officer that the areas under question are foreshore lands, and that they have not been really improved and possessed by respondent Lusin for over twenty years as he alleged. The improvements found therein have been recently made, and they are not of such nature and extent as would have changed the character of the areas as foreshore. In fact, according to the investigating officer, the areas have been seen by him on different occasions, and he found that the same, as well as the neighboring areas in the same belt, were covered by tidal waters of from 2 to 3 feet deep during ordinary rise of the tides, and uncovered by the tides at ebb. There is, therefore, no reason for changing our disposition in our order of February 1, 1951. It is not necessary to re-open the case to receive evidence on respondent’s allegation that he has been in possession of the premises for over 20 years and has gradually improved them because, aside from the fact that the allegation is belied by the physical condition of the premises, whatever evidence may be gathered on that allegation could

not change the nature of the areas as foreshore, nor would it avoid the rights of contestant as riparian owner. The presence of the respondent in the premises has not been authorized by competent authorities, and his introduction of improvements thereon was not done with proper permit of 566 566 SUPREME COURT REPORTS ANNOTATED Santulan vs. The Executive Secretary temporary occupancy and use such as is prescribed in our administrative practice. The circumstances under which he made improvements cannot justify his claim for a preferred right under Section 67 of the Public Land Act; on the contrary, he stands to forfeit the improvements to the Government for, as reported by our investigating officer, he entered the premises and commenced making the improvements after contestant Santolan himself has already made improvements, and after he has been warned on December 15, 1950 by the investigating officer not to continue working, which warning was confirmed by us in our letter to him of January 12, 1951. His bad faith is quite evident, and he cannot avail of his presence in the premises now to demand the issuance to him of a provisional or revocable permit of temporary occupancy and use under our rules and regulations in order to legalize his entry and give validity to his improvements. The right to demand issuance of such a permit is concomittant to the right of contestant Santolan to be a preferred applicant by virtue of his riparian right recognized in Section 32 of Lands Administrative Order No. 7-1 cited hereinabove.

IN VIEW HEREOF, the instant motion for reconsideration and reinvestigation of respondent Antonio Lusin is hereby denied, and he shall vacate the premises within 60 days from receipt of notice hereof. SO ORDERED. Manila, Philippines, October 19, 1951. JOSE P. DANS Director of Lands —•— ANNEX C DECISION The order of the Director of Lands dated February 1, 1951, rejected Foreshore Lease Application (New) and Revocable Permit Application (New) of Antonio Lusin and gave due course to the Foreshore Lease Application No. 562 of Julian Santolan. Antonio Lusin claims that the order is against fact and the law. He 567 VOL. 80, DECEMBER 15, 1977 567 Santulan vs. The Executive Secretary presented three (3) motions for reconsideration: one on October 19, 1951; the other on December 12, 1951; and the last on April 9, 1952. Said motions were all denied. Hence, the present appeal. The subject of contention is the strip of land having an area of 4-1/2 hectares from Lot No. 986 of the Kawit Cadastre No. 203 to the waters of Bacoor Bay. Lot No. 986 is covered by Original Certificate of Title No. 6 issued to Julian Santolan on

June 9, 1937. Santolan’s titled property is bounded on the north by Bacoor Bay. On December 5, 1942, Santolan filed his foreclosure lease application for the entire tract intervening between his property and Bacoor Bay. So he caused Psu-115357 to be executed and same was approved in 1944 by the Director of Lands. On November 26, 1945, Antonio Lusin applied for permit for an area of 4.5 hectares for salt bed purposes. The area for which permi was asked, is covered by his F.L.A. (New) filed on November 17, 1945, the boundaries of which are as follows: NE—V. del Rosario and E. del Rosario SE—Julian Santolan SW—Ankaw River NW—Bacoor Bay The two applications of Santolan and Lusin cover the same area. Julian Santolan duly protested in 1946 against Lusin’s application. The question to be decided in this appeal is: Which of the two applicants, Julian Santolan or Antonio Lusin, has right of preference to the land in controversy? By virtue of the fact that he is a riparian owner, Julian Santolan has the right of preference pursuant to the provisions of Section 32 of Administrative Order No. 7-1, which reads as follows: “Sec. 32. The owner of the property adjoining foreshore lands, marshy lands, or lands covered with water bordering upon the shores or banks of navigable lakes or rivers, shall be given preference to apply for such lands adjoining his property as may not be needed for the public service, subject to the laws and regulations governing lands of this nature, provided that he applies therefor within sixty (60) days from the date he

receives a communication from the Director of Lands advising him of his preferential right.” It is true that appellant Lusin introduced improvements on the land in question, but that fact does not give him preferential right thereto, not only because he had not acquired any permit from the 568 568 SUPREME COURT REPORTS ANNOTATED Santulan vs. The Executive Secretary Bureau of Lands before doing so, but also because his entry on the premises was duly protested by Santolan. IN VIEW OF ALL THE FOREGOING, and finding that the order of the Director of Lands on February 1, 1951, is in accordance with the facts of record and the provisions of the law on the matter, the herein appeal from said order should be, as hereby it is, dismissed. SO ORDERED. Manila, Philippines, October 13, 1952. JOSE S. CAMUS Acting Secretary of Agriculture and Natural Resources —•— ANNEX D ORDER This is a motion filed by Antonio Lusin, thru counsel, for the reconsideration of the decision of this Office dated October 13, 1952, dismissing his appeal from the decision of the Director of Lands under date of February 1, 1951.

In support of the said motion for reconsideration, Lusin substantially alleges that he has been improving the land in question since 1920, spending for such improvements no less than P20,000.00, and for that reason, he should be given the preferential right to acquire the said land. To reinforce his allegation, movant cites the case of Rosalia Vida Vda. de Tirona vs. Magdaleno Tragico TA-G.R. No. 9050, decided by the Court of Appeals on June 30, 1943, wherein it was held that because Tragico has constructed fishpond on a portion of the land in question by means of the improvements he has introduced thereon and has possessed the land for sufficient time to acquire the land by right of prescription, he was awarded the land in dispute. We have found this allegation of movant to be far from the truth It is the finding of the investigating officer who made an investigation of this case that it is Julian Santolan and not movant Lusin who has been actually occupying the land in question and 569 VOL. 80, DECEMBER 15, 1977 569 Santulan vs. The Executive Secretary introducing improvements thereon. The pertinent portion of his report reads as follows: “On December 16, 1950, when I conducted the first ocular inspection of the premises in the presence of both parties, the only visible improvements found thereon were the newly constructed dikes made thereon by Julian Santolan, a few bacauan and ape-ape trees of about two to three years old,

bamboo stakes placed thereon at intervals and a small old hut located at almost the middle of the land in question. All these improvements were claimed to have been introduced thereon by Julian Santolan. Antonio Lusin, however, claimed that the bamboo stakes found thereon were his.” Moreover, according to the further findings of the said investigating officer, the land in question falls under the category of foreshore land. That portion of his report referring to this finding is hereby quoted as follows: “It may not be amiss to state in this connection that I have, on different occasions, the opportunity to inspect the land subject hereof on both high and low tides. During ordinary low tide, the whole area, and further seaward, is entirely exposed to the surface while during ordinary high tide, it is wholly covered with tidal water with an approximate depth of two to three feet. The land in question in its entirety is marshy covered and uncovered by the ebb and flow of tidal water.” As the land is a foresnore land, the same is susceptible to the riparian right of the owner of the adjoining land. According to Section 32 of Lands Administrative Order No. 7-1, the owner of the property adjoining foreshore land, shall be given preference to apply for such land adjoining his property as may not be needed for the public service. Inasmuch as the land in question adjoins Lot No. 980, Kawit Cadastre, which is a private property of Julian Santolan, said Julian Santolan shall have the preference right to apply therefor over and above any other applicant. It may be mentioned, in this-connection, that the said case of Rosalia Vida Vda. de Tirona vs. Magdaleno Tragico who had possessed and improved the land claimed by him, it is Santolan and not movant Lusin who has been actually

occupying and improving the land subject of the present controversy. WHEREFORE, the instant motion for reconsideration filed by Antonio Lusin, as well as his request for reinvestigation of this case, 570 570 SUPREME COURT REPORTS ANNOTATED Santulan vs. The Executive Secretary should be, as hereby it is, denied. SO ORDERED. Manila, Philippines, February 28, 1953. FERNANDO LOPEZ Secretary of Agriculture and Natural Resources —•— ANNEX E ORDER On October 13, 1952, this Office rendered a decision in connection with the above-entitled case, the dispositive portion of which reads as follows: “In view of all the foregoing and finding that the order of the Director of Lands on February 1, 1951, is in accordance with the facts of record and the provisions of law on the matter, the herein appeal from the said order should be, as hereby it is dismissed.” From the said decision Antonio Lusin filed a motion for reconsideration which was denied as per order of this Office dated February 28, 1953. Still not satisfied with the

aforementioned order, Lusin again filed a second motion for reconsideration predicating his motion on the following grounds: 1. That he (Lusin) is in actual possession of the land in question since 1920; 2. That said area is an agricultural land actually devoted to fishpond and, therefore, is not a foreshore land; 3. That even granting without admitting that Santolan is a riparian owner, Santolan had lost his riparian right thereto in view of the continuous possession by Lusin of the area since 1920; and 4. That in the investigation relied upon by the Director of Lands in his decision and confirmed by this Office, the movant herein was not given opportunity to be heard because the said investigation was never completed, and as a result, the conclusions of the investigator thereat were one sided. 571 VOL. 80, DECEMBER 15, 1977 571 Santulan vs. The Executive Secretary Adhering to its policy of giving party litigants the outmost opportunity to present their respective sides of the case, this Office ordered a reinvestigation of the case to determine whether or not the allegations of Antonio Lusin are true. From the said reinvestigation, the facts of this case may be stated as follows: The disputed area is a strip of land containing an approximate area of 4-1/2 hectares located at the Barrio of Kaingin, Municipality of Kawit, Province of Cavite. It is bounded on the

North by Bacoor Bay, on the East by the property occupied by Vicente del Rosario and E. del Rosario, on the South by Lot No. 896 of Kawit Cadastre No. 203; and on the West by Ankaw River. Lot 986, mentioned above as the boundary of the area in question on the South, is owned and possessed by Julian Santolan, his ownership thereof being evidenced by a free patent grant with Original Certificate of Title No. 6 issued on June 9, 1937. The only issue to be resolved in this case is whether or not Julian Santolan, as riparian owner, is entitled to the preference provided for in Section 32, Lands Administrative Order No. 7-1, which reads as follows: “32. Preference of Riparian Owner.—The owner of the property adjoining foreshore lands, marshy lands, or lands covered with water bordering upon the shores or banks of navigable lakes or rivers, shall be given preference to apply or such lands adjoining his property as may not be needed for the public service, subject to the laws and regulations governing lands of this nature, provided that he applies therefor within sixty (60) days from the date he receives a communication from the Director of Lands advising him of his preferential right.” During the reinvestigation of this case by a representative of this Office, it was disclosed that Antonio Lusin is the actual occupant of the area in question—his present possession thereof dating back as of 1951. During his occupation, Lusin has introduced considerable improvements in the area investing his life savings therein. Today, a portion of approximately two hectares of the said area is a complete fishpond surrounded with dikes. A concrete gate was constructed on the western side of the fishpond in 1951. Water breakers were constructed

around the dikes to protect them from the action of the waves. The remaining portion of the area in question is fenced with bamboo stakes. On the other hand, it is apparent that the area in question is an extension of Lot 986 to the sea and that its present existence is the 572 572 SUPREME COURT REPORTS ANNOTATED Santulan vs. The Executive Secretary result of the continuous recession of the water of the sea. There is no doubt that the area in question is a foreshore, it being situated along the shore lying between medium high and low water marks and is covered and uncovered by the flow and ebb of ordinary tide. Both parties claim prior possession of the disputed area, Santolan’s claim dating way back in 1907, the year he claims said area was donated to him by his father-in-law, while Lusin alleges that he was already in possession of the same since 1920. The evidence presented by both parties during the reinvestigation were so diametrically opposed with each other that they only create doubts as to the veracity of the respective claims of said parties. From the testimonies of witnesses for both sides, there could be gathered sufficient grounds to believe that prior to 1942, neither party possessed the area to the exclusion of the other. Rather, there are good reasons to believe that both parties fished in the premises jointly and/or simultaneously without claiming the property exclusively for themselves because then the area was covered with water

which at that time was still deep. It was only in 1942 that Julian Santolan took positive steps to claim the property by filing a foreshore lease and a revocable permit application for said area with the intention of converting the same into a fishpond. Santolan caused said area to be surveyed in 1942, the survey plan thereof was approved in 1944 as may be seen in survey Plan Psu-115357 of the Bureau of Lands. Since 1942, Santolan exercised dominion over the property although Lusin occasionally entered the premises with a similar intention of claiming the area for himself. In January of 1951 Lusin entered the area in question and wrested the possession thereof from Santolan. Since then up to the present, Lusin is in continuous possession of the same notwithstanding the vigorous opposition of Santolan. Lusin alleges that the area in question does not fall within the purview of the above quoted Section 32 of Lands Administrative Order No. 7-1 on the theory that the lands enumerated in said provision, whether foreshore lands, marshy lands, or lands covered with water, must be bordering upon the shores or banks of navigable lakes or rivers. And it is argued that since the area in question is bordering the shores of Manila Bay, which is neither a lake nor a river, the owner of the adjoining property is not entitled to the preferential right accorded by said Lands Administrative Order. 573 VOL. 80, DECEMBER 15, 1977 573 Santulan vs. The Executive Secretary

We cannot agree with this contention. This Office is of the opinion and so holds that the said provision of Lands Administrative Order No. 7-1, Section 32 speaks of the following kinds of lands, distinct and separate from one another: (1) Foreshore lands (2) Marshy lands, or (3) Land covered with water bordering upon the shores of navigable lakes or rivers. The phrase “bordering upon the shores of navigable lakes or river” in said provision modifies only the third classification, that is, “lands covered with water”, for if the law intends that said phrase should modify the three types of land enumerated above, then the punctuation mark, comma, should not have been placed before the alternative “or” but instead between the words “water” and “bordering”, making said provision to appear as follows: “The owner of the property adjoining foreshore lands, marshy lands or lands covered with water, bordering upon the shores or banks of navigable lakes or rivers x x x”. The use of the alternative “or” instead of the conjunction “and” shows the intention of the law in segregating foreshore lands from marshy lands and those two from lands covered with water bordering upon shores of navigable lakes or rivers. It is also alleged that even granting that Santolan was entitled to the preferential rights accorded to a riparian owner, said right has prescribed on the ground that Lusin has been in continuous possession of the said area since 1920. This allegation was not duly proven during the reinvestigation. While Lusin claims possession of the disputed area since 1920,

on the other hand. Santolan claims that he possessed the same since 1907 when it was donated to him by his father-in-law. As we have already stated, it is the finding of this Office that prior to 1942, neither party possessed the premises exclusively. It was only in 1942 when Santolan took positive steps to claim the area for himself. There are even evidence on record that Santolan paid the land taxes for the area in 1936. In 1951, Lusin effected his entry to the area up to the present. It may be recalled, however, that these actuations of Lusin had been the subject of a criminal complaint filed by Santolan before the Justice of the Peace Court of Kawit, Cavite, wherein Lusin was acquitted on the ground that his guilt was not proven beyond reasonable doubt. 574 574 SUPREME COURT REPORTS ANNOTATED Santulan vs. The Executive Secretary Needless to say, proof beyond reasonable doubt is absolutely necessary before conviction in criminal cases could be had. On the other hand, preponderance of evidence is sufficient to prove a matter of fact in civil and/or administrative cases. The preponderance of evidence adduced at the reinvestigation of this case conducted by a representative of this Office, shows that the present occupation of Lusin of the area in question was effected by force, although there are good reasons to believe that such force was employed by Lusin to assert what he believed was his right over the property in question. From the foregoing facts and circumstances, it is therefore, apparent that the area in question is a foreshore land, and

Santolan, being the riparian owner, is entitled to the preferential rights accorded by the provision of Section 32 of Lands Administrative Order No. 7-1. Considering, however, the fact that during the reinvestigation of this case, it was disclosed that Antonio Lusin had introduced considerable improvements in the premises and had invested his life savings therefor, and considering further that if Santolan were the one who converted the area into a fishpond, as he intends to do, he would have incurred the same expenses as was incurred by Lusin in the premises in question, it is the belief of this Office that justice would be fully served if Santolan be required to reimburse Lusin of the value of the improvements now existing in the area as may be appraised by the Committee on Appraisal of the Bureau of Lands. WHEREFORE, the above-noted foreshore lease (New) application and revocable permit (New) application of Antonio Lusin should remain, as hereby it is, REJECTED; and Foreshore Lease Application No. V-65 of Julian Santolan given due course, PROVIDED, he reimburses Antonio Lusin of the appraised value of the improvements now existing in the area within sixty (60) days after notification of said appraisal. The Director of Lands is hereby directed to instruct the Committee on Appraisal concerned to make the necessary appraisal of the value of the improvements now existing in the area in question within thirty (30) days from receipt of this order and to notify Julian Santolan of the result of said appraisal. In the event that Julian Santolan fails to reimburse Antonio Lusin of the appraisal value of the said improvements within the period specified in this order, he shall lose his preferential

rights over the area and Antonio Lusin will be allowed to file an appropriate 575 VOL. 80, DECEMBER 15, 1977 575 Santulan vs. The Executive Secretary public land application therefor. SO ORDERED. Manila, Philippines, December 14, 1954. By Authority of the Secretary: JAIME M. FERRER Undersecretary of Agriculture and Natural Resources —•— ANNEX F ORDER On December 14, 1954, this Office issued an order in connection with the above-entitled case wherein the rejection of the foreshore lease application and revocable permit (both new) of Antonio Lusin was upheld and Foreshore Lease Application No. V-62 of Julian Santolan given due course provided he reimburses Antonio Lusin of the appraised value of the improvements now existing in the area within sixty (60) days after notification of said appraisal. From said order, both parties to this conflict filed separate motions seeking reconsideration of the same. Santolan premised his motion on the theory that as far as that portion of the order which requires him to reimburse Lusin of the appraised value of the improvements within sixty (60) days

after notification of said appraisal is concerned, same is contrary to the provisions of Commonwealth Act No. 141 and of the New Civil Code. Santolan argues that the best procedure that should have been followed in the disposition of this case was for the Government to forfeit all the improvements introduced by Lusin in the area in question in its (Government’s) favor and then let Santolan pay to the Government the appraised value of said improvements within ten (10) years after notification of said appraisal. He further argues that the “law does not authorize the Secretary of Agriculture and Natural Resources to dispose of the proceeds of the sale of the improvement to any person whomsoever”, and “certainly the 576 576 SUPREME COURT REPORTS ANNOTATED Santulan vs. The Executive Secretary Secretary does not claim the prerogative of disbursing government funds without authority of law.” In the first place, the order sought to be reconsidered does not contemplate any sale from which proceeds could be disposed of by the Secretary “to any person whomsoever”. In the second place, in the issuance of the order sought to be reconsidered, this Office has taken into consideration the provisions of Commonwealth Act No. 141 and those of the Civil Code cited by movant Santolan with respect to the forfeiture in favor of the government of the improvements found in the areas covered by rejected applications. However, this Office is also

fully aware of that cardinal principle that “no man shall enrich himself at the expense of another” During the reinvestigation of this case by a representative of this Office, it was found that Lusin was the actual occupant of the disputed area since 1951. During his occupation, Lusin has introduced considerable improvements in the area, investing his life savings therein. At the time of inspection, approximately two (2) hectares of the said area was a veritable fishpond complete with dikes and water breakers, and the remaining portion was surrounded with bamboo stakes. While this Office found Lusin’s occupation as having effected by force, this Office also believes that such force was employed by Lusin only to enforce what he believed was his right over the property in question. This being the case, justice and equity demands that Lusin should be compensated of the improvements introduced by him in the area in question by whomsoever shall enjoy the fruits of his (Lusin’s) toil. Julian Santolan, being the person who shall benefit from said improvements, it is only fair and just that he should reimburse Lusin of the value of said improvements, especially considering that the said area adjudicated to Santolan is already a producing fishpond. Antonio Lusin, on the other hand, contends that the order sought to be reconsidered is contrary to the facts of the case and to the law applicable thereto. Lusin assigns the following errors as having been allegedly committed by this Office: (1) In holding that the possession of Lusin dated only as of 1951;

(2) In holding that the possession of Lusin was effected through force; 577 VOL. 80, DECEMBER 15, 1977 577 Santulan vs. The Executive Secretary (3) In holding that Section 32 of Lands Administrative Order No. 7-1 is applicable in the instant case; (4) In not holding that the preferential rights of Julian Santolan, granting that he has any, has already prescribed; and (5) In giving due course to the foreshore lease application of Santolan for the entire area in question. With respect to the first two assignments of errors, a review of the records of this case shows that the findings of this Office are in accordance with the facts of the case as deduced from the reinvestigation of this conflict, and as supported by previous records of this case. This Office, therefore, finds no sufficient ground to disturb its findings of facts. Anent the next two assignments of errors, which are mere reiteration of movant’s allegation in his previous memorandum, and which were thoroughly passed upon by this Office, it is believed that discussing them further is no longer necessary since after another close examination of the case, this Office finds its disposition in this particular respect well justified and in accordance with the law and regulations applicable thereto. Now coming to the last allegation, Lusin contends that the foreshore lease application of Julian Santolan, if given due course, should not cover the entire area in question. Movant

Lusin advances the theory that since the reason behind the law in granting preferential rights to riparian owners is to compensate for whatever loss said riparian owner may suffer from the actions of the water, said riparian owner cannot stand to lose more than what he owns, and therefore, since Santolan’s property, which adjoins the area in question, is only two (2) hectares, Santolan can never lose more than two hectares. Section 32 of Lands Administrative Order No. 7-1, the particular point of law involved, ‘provides as follows: “32. Preference of Riparian Owner.—The owner of the property adjoining foreshore lands, marshy lands, or lands covered with water bordering upon the shores or banks of navigable lakes or rivers, shall be given preference to apply for such lands, adjoining his property as may not be needed for the public service, subject to the laws and regulations governing lands of this nature, provided that he applied therefor within sixty (60) days from the date he receives a communication from the Director of Lands advising him of his preferential right.” 578 578 SUPREME COURT REPORTS ANNOTATED Santulan vs. The Executive Secretary The above-quoted provision of the Lands Administrative Order does not impose any restriction or limitation with respect to the extent of the area to which a riparian owner is preferred as long as said area is not needed for public service. The said order, being clear on this point, this Office has no other alternative

but to interpret said regulation in the meaning it clearly conveys. IN VIEW OF ALL THE FOREGOING CONSIDERATIONS, the instant motion for reconsideration filed respectively by the conflicting parties herein, should be, as hereby they are, denied. SO ORDERED. Manila, Philippines, May 19, 1955. By authority of the Secretary: JAIME N. FERRER Undersecretary of Agriculture and Natural Resources —•— ANNEX G 4th Indorsement Manila, April 10, 1958 Respectfully returned to the Secretary of Agriculture and Natural Resources, Manila. This is with reference to the appeal by Antonio Lusin from the order of that Department in DANR Case No. 625 (Julian Santolan vs. Antonio Lusin) dated May 19, 1955, whereby his motion for reconsideration of the order of that office of December 14, 1954, rejecting his foreshore lease application for the disputed land but awarding to him the right of reimbursement for the improvements he had introduced thereon and giving due course to appellee’s application therefor, was denied. The land in question is a foreshore land of about 4-1/2 hectares located along Bacoor Bay in barrio Kaingin, Kawit, Cavite. A preferential right to lease it is claimed by the appellant on the

ground that he has been in the continuous and exclusive possession thereof since 1920, when said land was still under water and used as 579 VOL. 80, DECEMBER 15, 1977 579 Santulan vs. The Executive Secretary a site of his fish corals. On the other hand, it is alleged by the appellee that the disputed lot is an extension of his property into the sea, as he is the owner of Lot No. 986 which, according to its technical description, borders Bacoor Bay on the North; that the present foreshore land was formed by soil deposits brought by the action of the sea; and that he has the right of preference to apply for the land in question in accordance with Section 32 of Lands Administrative Order No. 7-1. Upon the foregoing facts, the Director of Lands in an order dated February 1, 1951, rejected the appellant’s foreshore lease application and forfeited the improvements he had introduced thereon in favor of the appellee. From this order, Lusin appealed to the Secretary of Agriculture and Natural Resources after his three motions for reconsideration had been denied. On October 13, 1952, the Secretary dismissed his appeal. Thereafter, the appellant moved for a reconsideration of the Secretary’s decision but his motion was denied on February 28, 1953. He then filed another motion requesting a formal reinvestigation of the case. The motion was granted and that Department ordered a reinvestigation of the case on May 12, 1953.

In the reinvestigation of the case, the following facts were established: That Lusin had converted two (2) hectares of the area in dispute into a veritable fishpond; and that the entire area in question was enclosed with dikes and provided with two (2) sluice gates, one of which was made of concrete and the other of lumber; that on the northern part of the disputed land bordering Bacoor Bay were bamboo poles placed at close intervals serving as water breakers to protect the mud dikes from being washed away by the action of the sea; that all of these improvements were introduced by Lusin in 1951 up to the time of the reinvestigation; that the disputed land was, as it still is, bounded on the South by Lot No. 986 of Julian Santulan; that said land was formed by soil deposits brought by the action of the sea; that in December 1942, Santulan caused the survey of the land, and the survey plan was approved by the Director of Lands in 1944; that on December 29, 1942, Santulan filed a foreshore lease application covering an area of 36,120 square meters of the land in dispute; that the filing of Santulan’s foreshore lease application resulted in the investigation of the case in March 1943, involving the parties herein; and that said investigation was not finally terminated for unknown reasons. 580 580 SUPREME COURT REPORTS ANNOTATED Santulan vs. The Executive Secretary After receiving and considering the report of the reinvestigation, that office on December 14, 1954, issued an order modifying its previous stand by giving the appellant the

right to reimbursement for the improvements he had introduced on the disputed lot, the dispositive part of which reads: “Wherefore, the above noted foreshore lease (New) application and revocable permit (New) application of Antonio Lusin should remain, as hereby it is, REJECTED; and Foreshore Lease application No. V-62 of Julian Santulan given due course, PROVIDED, he reimburse Antonio Lusin of the appraised value of the improvements now existing in the area within sixty (60) days after notification of said appraisal. “x x x “In the event that Julian Santulan fails to reimburse Antonio Lusin of the appraised value of the said improvements within the period specified in this order, he shall lose his preferential rights over the area and Antonio Lusin will be allowed to file an appropriate public land application therefor”. The appellant moved for a reconsideration of the foregoing order but his motion was denied on May 19, 1955. Dissatisfied, he appealed to this Office, averring that the Department erred in finding the following: That the possession of Antonio Lusin of the land in question began only in 1951; that since 1942, Julian Santulan had been exercising dominion over the property in question; that the area in question is apparently an extension of lot No. 986 into the sea and that its present existence was the result of the continuous recession of the sea; that the possession of Antonio Lusin over the property in question was effected through force; that Section 32, Lands Administrative Order No. 7-1, is applicable to the instant case; and that the preferential rights of Julian Santulan, granting he has any, has not prescribed. He contends further that the

Department erred in rejecting his foreshore lease application and in giving due course to that of the appellee. The main issue presented by the parties to be resolved in this controversy is, which of them has a better right to lease the foreshore land under consideration? For a clear resolution of the question, it is necessary to look into the legal provisions governing the administration and disposition of foreshore lands. As correctly held by that Department and the Bureau of Lands, the 581 VOL. 80, DECEMBER 15, 1977 581 Santulan vs. The Executive Secretary administration and disposition of foreshore lands are governed by Chapter IX, Title III of Commonwealth Act No. 141, (Secs. 58 and 59), otherwise known as the Public Land Act. Section 61 of said law provides that foreshore lands 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 and Natural Resources, shall declare that the same are not necessary for the public service and are open to disposition. The procedure for the award of a lease of foreshore lands is found in Section 67 of the same law which provides, as a general rule, that the award of the right to lease a foreshore land shall be determined by oral bidding, except where improvements were introduced theron by reason of a permit issued by competent authority, in which case the award thereof shall be determined by sealed bidding pursuant to the

provisions of section 26, whereby the permittee is granted the right to equal the highest bidder. Noteworthy is the fact that both parties herein claim to have been in prior possession of the land in controversy than the other. Not one of them, however, was granted a permit by competent authority to occupy and use the land and introduce improvements thereon. Since not one of them was granted such a permit, the fact that one or the other had been in prior possession of the premises in question is immaterial, as will be seen hereafter, in the determination of the instant controversy. Neither is the alleged finding that one of the parties herein entered the premises and introduced improvements thereon in bad faith material to the resolution of the case. It is likewise significant to note that while the Bureau held that none of the parties herein was entitled to a preferential right to lease the land in question “on the basis alone of actual occupancy or introduction of improvements,” it ruled that the appellee, Julian Santulan, by reason of the fact that he was, as he still is, a riparian owner of the disputed area, had a preferential right to apply for a lease therefor, citing Section 32 of Lands Administrative Order No. 7-1, which reads: “Sec. 32. The owner of the property adjoining foreshore lands, marshy lands, or lands covered with water bordering upon the shore’s or banks of navigable lakes or rivers, shall be given preference to apply for such lands adjoining his property as may not be needed for the public service, subject to the laws and regulations governing lands of this nature, provided that he applies therefor within 60 days 582

582 SUPREME COURT REPORTS ANNOTATED Santulan vs. The Executive Secretary from the date he receives a communication from the Director of Lands advising him of his preferential right.” In this appeal, the appellant reiterates his contention before that Department that the foregoing is not applicable to the instant case “because the property in question borders upon the shores or banks of the Manila Bay and not upon navigable lakes or rivers.” The fallacy of the argument is too obvious to require any discussion since the provision expressly speaks of foreshore lands. At any rate, this Office finds that Section 32 of Lands Administrative Order No. 7-1 has been rendered obsolete by Commonwealth Act No. 141. Lands Administrative Order No. 7-1, dated April 30, 1936, but made effective on January 1, 1936, was promulgated before the passage of Commonwealth Act No. 141. Its provisions which have not been altered, modified or amended, particularly Section 32 thereof, were promulgated pursuant to the existing public land law at the time of its promulgation, namely, Act No. 2874. A perusal of Section 32 of Lands Administrative Order No. 7-1 will show that while it speaks of a preferential right to apply for a foreshore land, it does not specify the mode of application, i.e., whether by sale, lease, homestead, permit, etc, contemplated by it. Nevertheless, it is clear under Act No. 2874 that a foreshore land may be the subject only of a lease (Sec 58), or of a revocable permit to occupy and use it (Sec 65). Seemingly therefore Section 32 of Lands Administrative Order No. 7-1 contemplates an application for a lease of foreshore land or a revocable permit to use or occupy it.

However, Section 1 of said order provides, among other things, the following: “x x Those rules and regulations shall not apply to applications for temporary occupation or provisional use of said lands and property which shall be governed by the provisions of Section 1844 of the Administrative Code, as amended, by Acts Nos. 3077 and 3852, Lands Administrative Order No. 8 and other regulations promulgated thereunder.” Since Lands Administrative Order No. 7-1 expressly exempts from its operation temporary permits for the use and occupation of public lands, the conclusion is inescapable that Section 32 thereof contemplates an application for a lease under Section 58 of Act No. 2874 only and does not include a revocable permit application under Section 65 of said Act. The procedure for the award of the right to lease a foreshore land under Act No. 2874 is found in Section 64 thereof, which reads: 583 VOL. 80, DECEMBER 15, 1977 583 Santulan vs. The Executive Secretary “Sec. 64. The lease or sale shall be adjudicated to the highest bidder; and if there is no bidder besides the applicant, it shall be adjudicated to him. The provisions of Section twenty-seven of this Act shall be applied wherever applicable, x x” Section 67 of Commonwealth Act No. 141, repealing the foregoing provisions, provides: “Sec. 67. The lease or sale shall be made through oral bidding; and adjudication shall be made to the highest bidder. However,

where an has made improvements on the land by virtue of a permit issued to him by competent authority, the sale or lease shall be made by sealed bidding as prescribed in section twenty-six of this Act, “the provisions of which shall be applied wherever applicable. x x” (Italics supplied). While Section 64 of Act No. 2874 makes a reference to Section 27 of the same Act, Section 67 of Commonwealth Act No. 141 also makes a reference to Section 26 of the latter law, Section 26 of Commonwealth Act No. 141 is practically a reproduction of Section 27 of Act No. 2874 and prescribes the manner or procedure of determining an award through sealed bidding in the sale of a public land. Under its provision, an applicant is given the option or right to equal the highest bidder. Section 67 of Commonwealth Act No. 141 differs, however, from Section 64 of Act No. 2874 in that while the latter provides that “section twenty-seven of this Act shall be applied wherever applicable,” making sealed bidding the general rule of procedure in determining an award of a lease of foreshore land, the former provides the contrary, as under its provisions sealed bidding is not the general rule of procedure in the determination of lease awards of foreshore lands but may be resorted to only when the conditions specified therein are present. Since Section 64 of Act No. 2874 provides that Section 27 thereof should be applied wherever applicable in determining an award of a lease of foreshore land, the mere fact that the land is covered by a lease application therefor warrants the holding of a sealed bidding for its disposition, whereby the applicant therefor should be granted the option or right to equal the highest bid. In such a legal setup, the question of preference

in the right to apply for a lease of foreshore land became a necessary consequence, as one need only apply to be entitled to the right to equal the highest bid; hence, the applicability of Section 32 of Lands Administrative Order No. 7-1. 584 584 SUPREME COURT REPORTS ANNOTATED Santulan vs. The Executive Secretary On the other hand, under Section 67 of Commonwealth Act No. 141, a foreshore land may be leased, as a general rule, by oral bidding only. In such a case, the award of the foreshore lease shall always be made to the highest bidder, notwithstanding the fact that one among the bidders is an applicant, as no one in an oral bidding is entitled to equal the highest bid, unlike in the case of a sealed bidding either under Section 27 of Act No. 2874 or under Section 26 of Commonwealth Act No. 141. Since the award of a foreshore lease shall be given to the highest bidder in an oral bidding, the necessity of determining who among several interested parties has a preferential right to apply for the land has been obviated under the present law, because the mere fact that one is an applicant does not entitle him to equal the highest bid, rendering the provisions of Section 32 of Lands Administrative Order No. 7-1 idle and useless. Parenthetically, it may be stated that the appellee brought to the attention of this Office its previous decision in DANR Case No. 694 (Del Rosario vs. Monzon), where the facts involved therein are more or less similar to those in the present controversy. While this Office in that case relied on Section 32

of Lands Administrative Order No. 7-1 in resolving the appeal therein, it did not touch on the question of whether or not said provision is still enforceable, as the same was not squarely placed in issue. For this reason, the ruling in that case can not be availed of as a precedent in the adjudication of the one under consideration. In the instant case the parties are vying for the preferential right to apply for a lease of the disputed land, as if by the mere fact of application the land should be disposed of by sealed bidding, whereby the recognized applicant therefor should be given the right accorded to applicants under Section 26 of Commonwealth Act No. 141. The only instance under Section 67 of Commonwealth Act No. 141 when a foreshore land may be leased through sealed bidding is when the conditions specified therein—namely, (a) that improvements had been introduced on the land and (b) that said improvements were introduced thereon by reason of a permit issued by competent authority—are present, in which case the permittee shall be granted the right to equal the highest bid. In the absence of these conditions, the land should be leased through oral bidding only and, as stated earlier, the question of preference in the right to apply therefor is immaterial. 585 VOL. 80, DECEMBER 15, 1977 585 Santulan vs. The Executive Secretary As the conditions specified in Section 61 of Commonwealth Act No. 141 are not present in the instant case, the land in question can be leased only through oral bidding, if it can be

disposed of under the provisions of Section 61 of said Act, which requires as a condition sine qua non in the lease of foreshore lands that the same have been declared by the President not necessary for the public service and are open for disposition. Without such a declaration, a foreshore land may only be occupied and used by private persons for lawful purposes upon the issuance of a revocable permit therefor under Section 68 of Commonwealth Act No. 141. Since the record is silent as to whether or not the land under consideration has been so declared, this Office is constrained to render two alternative resolutions of the instant case. On the assumption that the land in question has been declared open for disposition and is not necessary for the public service, this Office directs that an oral bidding for the leasing thereof to interested parties pursuant to the provisions of Section 67 of Commonwealth Act No. 141 be conducted and the contract of lease awarded to the highest bidder. Whoever shall be the highest bidder, if other than the appellant, shall be required to pay to the appellant the appraised value of the improvements introduced by him on the land to be determined by that Department. If the land in question has not been so declared, this Office directs that a revocable permit under Section 68 of Commonwealth Act No. 141 be issued to the appellant requiring him to pay permit fees since the year 1951. Accordingly, the orders and decisions of that Department and the Bureau of Lands are hereby revoked. The record of the case is returned herewith. By authority of the President: (SGD) JUAN C. PAJO

Executive Secretary —•— 586 586 SUPREME COURT REPORTS ANNOTATED Santulan vs. The Executive Secretary ANNEX H 5th Indorsement Manila, May 10, 1954 Respectfully returned to the Honorable, the Secretary of Agriculture and Natural Resources, Manila. In his decision of February 4, 1952, the Director of Lands amended the miscellaneous sales application of Emiliano del Rosario by excluding therefrom portion “B” and adjudicating the same to Gonzalo Monzon under his foreshore lease application. On appeal by Del Rosario, the decision of the Director of Lands was affirmed by the Secretary of Agriculture and Natural Resources on February 6, 1953. Del Rosario now appeals to this Office. The question presented for determination is, which of the parties has a better right to the area in question? It appears that the area in dispute, portion “B”, is a foreshore land, an extension of portion “A”, which lies immediately adjacent to lot No. 987, private property of Monzon. The record shows that Monzon and his predecessor in interest have been in possession of said area since before the war, using it as site for their oyster and “kapis” beds and for their fish corral. It was only in 1951 that Del Rosario through stealth occupied a portion of the area in question, building earthen dikes

preparatory to converting the land into a fishpond. His entry upon the area was duly protested by Monzon with the Bureau of Lands and the Bureau of Fisheries, both of which advised Del Rosario to vacate the premises and to refrain from introducing further improvements thereon. Upon the facts and circumstances narrated above, and pursuant to Section 32 of Lands Administrative Order No. 7-1, which gives to the owner of the property adjoining foreshore lands the preferential right to apply therefor under the provisions of the Public Land Act it is evident that Monzon has a better right than Pel Rosario to the area in dispute which, as stated above, is a foreshore land. In view of the foregoing, the decision appealed from is hereby affirmed. The record of the case is returned herewith. By authority of the President: (SGD.) FRED RUIZ CASTRO Executive Secretary 587 VOL. 80, DECEMBER 20, 1977 587 Perol vs. Lupisan, Jr. Notes.—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. (Insular Government vs. Aldecoa and Company, 19 Phil. 505). Lands formed by the action of the sea belong to the public domain. (Monteverde vs. Director of Lands, 93 Phil. 134; Lanzar vs. Director of Lands, 78 SCRA 135). The reversion of land of the public domain acquired in violation of the Public Land Act is not automatic. The State must have to take action for reversion and until then the land remains as private property. (Gayos vs. Gayos, 61 SCRA 146; Francisco vs. Rodriguez, 61 SCRA 212; Republic vs. De la Cruz, 61 SCRA 221). The law lodges the power of executive control, administration, disposition and alienation of public lands with the Director of Lands subject, of course, to the control of the Secretary of Agriculture and Natural Resources. (Dajunos vs. Tandayag, 40 SCRA 449). ——o0o—— [Santulan vs. The Executive Secretary, 80 SCRA 548(1977)]

G.R. No. 92161. March 18, 1991.*THIRD DIVISION. SIMPLICIO BINALAY, PONCIANO GANNABAN, NICANOR MACUTAY, DOMINGO ROSALES, GREGORIO ARGONZA, EUSTAQUIO BAUA, FLORENTINO ROSALES, TEODORO MABBORANG, PATRICIO MABBORANG and FULGENCIO MORA, petitioners, vs. GUILLERMO MANALO and COURT OF APPEALS, respondents. Property; Ownership; Respondent Manalo did not acquire private ownership of the bed of the eastern branch of the river even if the same was included in the deeds of sale executed in his favor, because it constituted property of public dominion.— Now, then, pursuant to Article 420 of the Civil Code, respondent Manalo did not acquire private ownership of the bed of the eastern branch of the river even if it was included in the deeds of absolute sale executed by Gregorio Taguba and Faustina Taccad in his favor. These vendors could not have validly sold land that constituted property of public dominion. x x x Although Article 420 speaks only of rivers and banks, “rivers” is a composite term which includes: (1) the running waters, (2) the bed, and (3) the banks. _______________ * THIRD DIVISION. 375 VOL. 195, MARCH 18, 1991 375 Binalay vs. Manalo Same; Same; Same; Accretion; Accretion, as a mode of acquiring ownership, requires the concurrence of three (3) requisites: (a) that the deposition of soil be gradual and

imperceptible; (b) that it be the result of the action of the waters of the river; and (c) that the land where accretion takes place is adjacent to the banks of rivers.—We turn next to the issue of accretion. After examining the records of the case, the Court considers that there was no evidence to prove that Lot 821 is an increment to Lot 307 and the bed of the eastern branch of the river. Accretion as a mode of acquiring property under Article 457 of the Civil Code requires the concurrence of three (3) requisites: (a) that the deposition of soil or sediment be gradual and imperceptible; (b) that it be the result of the action of the waters of the river (or sea); and (c) that the land where accretion takes place is adjacent to the banks of rivers (or the sea coast). The Court notes that the parcels of land bought by respondent Manalo border on the eastern branch of the Cagayan River. Any accretion formed by this eastern branch which respondent Manalo may claim must be deposited on or attached to Lot 307. As it is, the claimed accretion (Lot 821) lies on the bank of the river not adjacent to Lot 307 but directly opposite Lot 307 across the river. Same; Same; Same; Same; A sudden and forceful action like that of flooding is not the alluvial process contemplated under Art. 457 of the Civil Code.—Assuming (arguendo only) that the Cagayan River referred to in the Deeds of Sale transferring ownership of the land to respondent Manalo is the western branch, the decision of the Court of Appeals and of the trial court are bare of factual findings to the effect that the land purchased by respondent Manalo received alluvium from the action of the river in a slow and gradual manner. On the contrary, the decision of the lower court made mention of several floods that caused the land to reappear making it

susceptible to cultivation. A sudden and forceful action like that of flooding is hardly the alluvial process contemplated under Article 457 of the Civil Code. It is the slow and hardly perceptible accumulation of soil deposits that the law grants to the riparian owner. Same; Same; Quieting of Title; Under Art. 477 of the Civil Code, the plaintiff in an action for quieting of title must at least have equitable title to or interest in the real property which is the subject matter of the action.—If respondent Manalo had proved prior possession, it was limited physically to Lot 307 and the depressed portion or the eastern river bed. The testimony of Dominga Malana who was a tenant for Justina Taccad did not indicate that she was also cultivating Lot 821. In fact, the complaints for forcible entry lodged before the Municipal Trial Court of Tumauini, Isabela pertained only to Lot 307 376 376 SUPREME COURT REPORTS ANNOTATED Binalay vs. Manalo and the depressed portion or river bed and not to Lot 821. In the same manner, the tax declarations presented by petitioners conflict with those of respondent Manalo. Under Article 477 of the Civil Code, the plaintiff in an action for quieting of title must at least have equitable title to or interest in the real property which is the subject matter of the action. The evidence of record on this point is less than satisfactory and the Court feels compelled to refrain from determining the ownership and possession of Lot 821, adjudging neither petitioners nor respondent Manalo as owner(s) thereof.

PETITION to review the decision and resolution of the Court of Appeals. The facts are stated in the opinion of the Court. Josefin De Alban Law Office for petitioners. FELICIANO, J.: The late Judge Taccad originally owned a parcel of land situated in Tumauini, Isabela having an estimated area of twenty (20) hectares. The western portion of this land bordering on the Cagayan River has an elevation lower than that of the eastern portion which borders on the national road. Through the years, the western portion would periodically go under the waters of the Cagayan River as those waters swelled with the coming of the rains. The submerged portion, however, would reappear during the dry season from January to August. It would remain under water for the rest of the year, that is, from September to December during the rainy season. The ownership of the landholding eventually moved from one person to another. On 9 May 1959, respondent Guillermo Manalo acquired 8.65 hectares thereof from Faustina Taccad, daughter of Judge Juan Taccad. The land sold was described in the Deed of Absolute Sale1Records, p. 123. as follows: “x x x a parcel of agricultural land in Balug, Tumauini, Isabela, containing an area of 8.6500 hectares, more or less; bounded on the North by Francisco Forto; on the East by National Road; on South by Julian Tumolva; and on the West by Cagayan River; declared for _______________ 1 Records, p. 123. 377

VOL. 195, MARCH 18, 1991 377 Binalay vs. Manalo taxation under Tax Declaration No. 12681 in the name of Faustina Taccad, and assessed at P750.00. x x x” Later in 1964, respondent Manalo purchased another 1.80 hectares from Gregorio Taguba who had earlier acquired the same from Judge Juan Taccad. The second purchase brought the total acquisition of respondent Manalo to 10.45 hectares. The second piece of property was more particularly described as follows: “x x x a piece of agricultural land consisting of tobacco land, and containing an area of 18,000 square meters, more or less, bounded on the North by Balug Creek; on the South, by Faustina Taccad (now Guillermo R. Manalo); on the East, by a Provincial Road; and on the West, by Cagayan River assessed at P440.00, as tax Declaration No. 3152. x x x”2Id., p. 120. During the cadastral survey conducted at Balug, Tumauini, Isabela on 21 October 1969, the two (2) parcels of land belonging to respondent Manalo were surveyed and consolidated into one lot, designated as Lot No. 307, Pls-964. Lot 307 which contains 4.6489 hectares includes: (a) the whole of the 1.80 hectares acquired from Gregorio Taguba; and (b) 2.8489 hectares out of the 8.65 hectares purchased from Faustina Taccad. As the survey was conducted on a rainy month, a portion of the land bought from Faustina Taccad then under water was left unsurveyed and was not included in Lot 307. The Sketch Plan3Id., p. 209. submitted during the trial of this case and which was identified by respondent Manalo shows

that the Cagayan River running from south to north, forks at a certain point to form two (2) branches—the western and the eastern branches—and then unites at the other end, further north, to form a narrow strip of land. The eastern branch of the river cuts through the land of respondent Manalo and is inundated with water only during the rainy season. The bed of the eastern branch is the submerged or the unsurveyed portion of the land belonging to respondent Manalo. For about eight (8) months of _______________ 2 Id., p. 120. 3 Id., p. 209. 378 378 SUPREME COURT REPORTS ANNOTATED Binalay vs. Manalo the year when the level of water at the point where the Cagayan River forks is at its ordinary depth, river water does not flow into the eastern branch. While this condition persists, the eastern bed is dry and is susceptible to cultivation. Considering that water flowed through the eastern branch of the Cagayan River when the cadastral survey was conducted, the elongated strip of land formed by the western and the eastern branches of the Cagayan River looked very much like an island. This strip of land was surveyed on 12 December 1969.4Id., p. 210. It was found to have a total area of 22.7209 hectares and was designated as Lot 821 and Lot 822. The area of Lot 822 is 10.8122 hectares while Lot 821 has an area of 11.9087 hectares. Lot 821 is located directly opposite Lot 307

and is separated from the latter only by the eastern branch of the Cagayan River during the rainy season and, during the dry season, by the exposed, dry river bed, being a portion of the land bought from Faustina Taccad. Respondent Manalo claims that Lot 821 also belongs to him by way of accretion to the submerged portion of the property to which it is adjacent. Petitioners who are in possession of Lot 821, upon the other hand, insist that they own Lot 821. They occupy the outer edges of Lot 821 along the river banks, i.e., the fertile portions on which they plant tobacco and other agricultural products. They also cultivate the western strip of the unsurveyed portion during summer.5Exhibits “1-C.” “1-D” and “1-E” for the Prosecution. Records, p. 209. This situation compelled respondent Manalo to file a case for forcible entry against petitioners on 20 May 1969. The case was dismissed by the Municipal Court of Tumauini, Isabela for failure of both parties to appear. On 15 December 1972, respondent Manalo again filed a case for forcible entry against petitioners. The latter case was similarly dismissed for lack of jurisdiction by the Municipal Court of Tumauini, Isabela. On 24 July 1974, respondent Manalo filed a complaint6Records, pp. 1-6. before the then Court of First Instance of Isabela, Branch 3 for quiet_______________ 4 Id., p. 210. 5 Exhibits “1-C.” “1-D” and “1-E” for the Prosecution. Records, p. 209. 6 Records, pp. 1-6. 379

VOL. 195, MARCH 18, 1991 379 Binalay vs. Manalo ing of title, possession and damages against petitioners. He alleged ownership of the two (2) parcels of land he bought separately from Faustina Taccad and Gregorio Taguba for which reason he prayed that judgment be entered ordering petitioners to vacate the western strip of the unsurveyed portion. Respondent Manalo likewise prayed that judgment be entered declaring him as owner of Lot 821 on which he had laid his claim during the survey. Petitioners filed their answer denying the material allegations of the complaint. The case was then set for trial for failure of the parties to reach an amicable agreement or to enter into a stipulation of facts.7Id., p. 24. On 10 November 1982, the trial court rendered a decision with the following dispositive portion: “WHEREFORE, in the light of the foregoing premises, the Court renders judgment against the defendants and in favor of the plaintiff and orders: 1. That plaintiff, Guillermo Manalo, is declared the lawful owner of the land in question, Lot No. 821, Pls-964 of Tumauini Cadastre, and which is more particularly described in paragraph 2-b of the Complaint; 2. That the defendants are hereby ordered to vacate the premises of the land in question, Lot No. 821, Pls-964 of Tumauini Cadastre, and which is more particularly described in paragraph 2-b of the Complaint; 3. That the defendants are being restrained from entering the premises of the land in question, Lot No. 821, Pls-964 of

Tumauini Cadastre, and which is more particularly described in paragraph 2-b of the Complaint; and 4. That there is no pronouncement as to attorney’s fees and costs. SO ORDERED.”8Court of First Instance Decision, p. 40; Rollo, p. 98. Petitioners appealed to the Court of Appeals which, however, affirmed the decision of the trial court. They filed a motion for reconsideration, without success. While petitioners insist that Lot 821 is part of an island surrounded by the two (2) branches of the Cagayan River, the _______________ 7 Id., p. 24. 8 Court of First Instance Decision, p. 40; Rollo, p. 98. 380 380 SUPREME COURT REPORTS ANNOTATED Binalay vs. Manalo Court of Appeals found otherwise. The Court of Appeals concurred with the finding of the trial court that Lot 821 cannot be considered separate and distinct from Lot 307 since the eastern branch of the Cagayan River substantially dries up for the most part of the year such that when this happens, Lot 821 becomes physically (i.e., by land) connected with the dried up bed owned by respondent Manalo. Both courts below in effect rejected the assertion of petitioners that the depression on the earth’s surface which separates Lot 307 and Lot 821 is, during part of the year, the bed of the eastern branch of the Cagayan River.

It is a familiar rule that the findings of facts of the trial court are entitled to great respect, and that they carry even more weight when affirmed by the Court of Appeals.9Go Ong vs. Court of Appeals, 154 SCRA 270 (1987). This is in recognition of the peculiar advantage on the part of the trial court of being able to observe first-hand the deportment of the witnesses while testifying. Jurisprudence is likewise settled that the Court of Appeals is the final arbiter of questions of fact.10Sese vs. Intermediate Appellate Court, 152 SCRA 585 (1987). But whether a conclusion drawn from such findings of facts is correct, is a question of law cognizable by this Court.11Pilar Development Corporation vs. Intermediate Appellate Court, 146 SCRA 215 (1986). In the instant case, the conclusion reached by both courts below apparently collides with their findings that periodically at the onset of and during the rainy season, river water flows through the eastern bed of the Cagayan River. The trial court held: “The Court believes that the land in controversy is of the nature and character of alluvion (Accretion), for it appears that during the dry season, the body of water separating the same land in controversy (Lot No. 821, Pls-964) and the two (2) parcels of land which the plaintiff purchased from Gregorio Taguba and Justina Taccad Cayaba becomes a marshy land and is only six (6) inches deep and twelve (12) meters in width at its widest in the northern tip (Exhs. ‘W’, ‘W-1’, ‘W-2’, ‘W-3’ and ‘W-4’). It has been held by our Supreme Court that ‘the owner of the riparian land which receives the gradual deposits of alluvion, does not have to make an express act of possession. The law does

_______________ 9 Go Ong vs. Court of Appeals, 154 SCRA 270 (1987). 10 Sese vs. Intermediate Appellate Court, 152 SCRA 585 (1987). 11 Pilar Development Corporation vs. Intermediate Appellate Court, 146 SCRA 215 (1986). 381 VOL. 195, MARCH 18, 1991 381 Binalay vs. Manalo not require it, and the deposit created by the current of the water becomes manifest’ (Roxas vs. Tuazon, 6 Phil. 408).”12Court of First Instance Decision, p. 39; Rollo, p. 97. The Court of Apppeals adhered substantially to the conclusion reached by the trial court, thus: “As found by the trial court, the disputed property is not an island in the strict sense of the word since the eastern portion of the said property claimed by appellants to be part of the Cagayan River dries up during summer. Admittedly, it is the action of the heavy rains which comes during rainy season especially from September to November which increases the water level of the Cagayan river. As the river becomes swollen due to heavy rains, the lower portion of the said strip of land located at its southernmost point would be inundated with water. This is where the water of the Cagayan river gains its entry. Consequently, if the water level is high the whole strip of land would be under water.” In Government of the Philippine Islands vs. Colegio de San Jose, it was held that—

‘According to the foregoing definition of the words “ordinary” and “extra-ordinary,” the highest depth of the waters of Laguna de Bay during the dry season is the ordinary one, and the highest depth they attain during the extra-ordinary one (sic); inasmuch as the former is the one which is regular, common, natural, which occurs always or most of the time during the year, while the latter is uncommon, transcends the general rule, order and measure, and goes beyond that which is the ordinary depth. If according to the definition given by Article 74 of the Law of Waters quoted above, the natural bed or basin of the lakes is the ground covered by their waters when at their highest ordinary depth, the natural bed or basin of Laguna de Bay is the ground covered by its waters when at their highest depth during the dry season, that is up to the northeastern boundary of the two parcels of land in question.’ We find the foregoing ruling to be analogous to the case at bar. The highest ordinary level of the waters of the Cagayan River is that attained during the dry season which is confined only on the west side of Lot [821] and Lot [822]. This is the natural Cagayan river itself. The _______________ 12 Court of First Instance Decision, p. 39; Rollo, p. 97. 382 382 SUPREME COURT REPORTS ANNOTATED Binalay vs. Manalo small residual of water between Lot [821] and 307 is part of the small stream already in existence when the whole of the late Judge Juan Taccad’s property was still susceptible to

cultivation and uneroded.”13Court of Appeals Decision, pp. 56; citation omitted. The Court is unable to agree with the Court of Appeals that Government of the Philippine Islands vs. Colegio de San Jose1453 Phil. 423. (1929). is applicable to the present case. That case involved Laguna de Bay; since Laguna de Bay is a lake, the Court applied the legal provisions governing the ownership and use of lakes and their beds and shores, in order to determine the character and ownership of the disputed property. Specifically, the Court applied the definition of the natural bed or basin of lakes found in Article 74 of the Law of Waters of 3 August 1866. Upon the other hand, what is involved in the instant case is the eastern bed of the Cagayan River. We believe and so hold that Article 70 of the Law of Waters of 3 August 1866 is the law applicable to the case at bar: “Art. 70. The natural bed or channel of a creek or river is the ground covered by its waters during the highest floods”. (Italics supplied) We note that Article 70 defines the natural bed or channel of a creek or river as the ground covered by its waters during the highest floods. The highest floods in the eastern branch of the Cagayan River occur with the annual coming of the rains as the river waters in their onward course cover the entire depressed portion. Though the eastern bed substantially dries up for the most part of the year (i.e., from January to August), we cannot ignore the periodical swelling of the waters (i.e., from September to December) causing the eastern bed to be covered with flowing river waters.

The conclusion of this Court that the depressed portion is a river bed rests upon evidence of record. Firstly, respondent Manalo admitted in open court that the entire area he bought from Gregorio Taguba was included in Lot 307.15TSN, 7 October 1975, pp. 4-6. If the 1.80 _______________ 13 Court of Appeals Decision, pp. 5-6; citation omitted. 14 53 Phil. 423. (1929). 15 TSN, 7 October 1975, pp. 4-6. 383 VOL. 195, MARCH 18, 1991 383 Binalay vs. Manalo hectares purchased from Gregorio Taguba was included in Lot 307, then the Cagayan River referred to as the western boundary in the Deed of Sale transferring the land from Gregorio Taguba to respondent Manalo as well as the Deed of Sale signed by Faustina Taccad, must refer to the dried up bed (during the dry months) or the eastern branch of the river (during the rainy months). In the Sketch Plan attached to the records of the case, Lot 307 is separated from the western branch of the Cagayan River by a large tract of land which includes not only Lot 821 but also what this Court characterizes as the eastern branch of the Cagayan River. Secondly, the pictures identified by respondent Manalo during his direct examination depict the depressed portion as a river bed. The pictures, marked as Exhibits “W” to “W-4”, were taken in July 1973 or at a time when the eastern bed becomes visible.16TSN, 13 October 1975, pp. 9-10. Thus, Exhibit “W-

2” which according to respondent Manalo was taken facing the east and Exhibit “W-3” which was taken facing the west both show that the visible, dried up portion has a markedly lower elevation than Lot 307 and Lot 821. It has dike-like slopes on both sides connecting it to Lot 307 and Lot 821 that are vertical upward and very prominent. This topographic feature is compatible with the fact that a huge volume of water passes through the eastern bed regularly during the rainy season. In addition, petitioner Ponciano Gannaban testified that one had to go down what he called a “cliff” from the surveyed portion of the land of respondent Manalo to the depressed portion. The cliff, as related by petitioner Gannaban, has a height of eight (8) meters.17TSN, 3 November 1976, p. 3. The records do not show when the Cagayan River began to carve its eastern channel on the surface of the earth. However, Exhibit “E”18Records, p. 122. for the prosecution which was the Declaration of Real Property standing in the name of Faustina Taccad indicates that the eastern bed already existed even before the sale to respondent Manalo. The words “old bed” enclosed in parentheses—perhaps written to make legitimate the claim of private ownership over the submerged portion—is an implied _______________ 16 TSN, 13 October 1975, pp. 9-10. 17 TSN, 3 November 1976, p. 3. 18 Records, p. 122. 384 384 SUPREME COURT REPORTS ANNOTATED Binalay vs. Manalo

admission of the existence of the river bed. In the Declaration of Real Property made by respondent Manalo, the depressed portion assumed the name Rio Muerte de Cagayan. Indeed, the steep dike-like slopes on either side of the eastern bed could have been formed only after a prolonged period of time. Now, then, pursuant to Article 420 of the Civil Code, respondent Manalo did not acquire private ownership of the bed of the eastern branch of the river even if it was included in the deeds of absolute sale executed by Gregorio Taguba and Faustina Taccad in his favor. These vendors could not have validly sold land that constituted property of public dominion. Article 420 of the Civil Code states: “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.” (Italics supplied) Although Article 420 speaks only of rivers and banks, “rivers” is a composite term which includes: (1) the running waters, (2) the bed, and (3) the banks.19Hilario vs. City of Manila, 126 Phil. 128 (1967). Manresa, in commenting upon Article 339 of the Spanish Civil Code of 1889 from which Article 420 of the Philippine Civil Code was taken, stressed the public ownership of river beds: “La naturaleza especial de los rios, en punto a su disfrute general, hace que sea necesario considerar en su relacion de dominio algo mas que sus aguas corrientes. En efecto, en todo

rio es preciso distinguir: 1. esta agua corriente; 2. el alveo o cauce, y 3. las riberas. Ahora bien: son estas dos ultimas cosas siempre de dominio publico, como las aguas? “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 aquellos tres elementos que integran el rio. Por otra parte, en cuanto a los alveos o cauces tenemos la declaracion del art. 407, num. 1, donde dice: son de dominio publico ... los rios y sus cauces naturales; declaracion que _______________ 19 Hilario vs. City of Manila, 126 Phil. 128 (1967). 385 VOL. 195, MARCH 18, 1991 385 Binalay vs. Manalo con lo que dispone el art. 34 de la ley de [Aguas], segun el cual, son de dominio publico: 1. los alveos o cauces de los arroyos que no se hallen comprendidos en el art. 33, y 2. los alveos o cauces naturales de los rios en la extension que cubran sus aguas en las mayores crecidas ordinarias.”203 Manresa, Comentarios al Codigo Civil Español (6a ed., 1934), p. 75. (Italics supplied) The claim of ownership of respondent Manalo over the submerged portion is bereft of basis even if it were alleged and proved that the Cagayan River first began to encroach on his property after the purchase from Gregorio Taguba and Faustina Taccad. Article 462 of the Civil Code would then apply divesting, by operation of law, respondent Manalo of private

ownership over the new river bed. The intrusion of the eastern branch of the Cagayan River into his landholding obviously prejudiced respondent Manalo but this is a common occurrence since estates bordering on rivers are exposed to floods and other evils produced by the destructive force of the waters. That loss is compensated by, inter alia, the right of accretion acknowledged by Article 457 of the Civil Code.21Cortes vs. City of Manila, 10 Phil. 567 (1908). See also Article 461, Civil Code. It so happened that instead of increasing the size of Lot 307, the eastern branch of the Cagayan River had carved a channel on it. We turn next to the issue of accretion. After examining the records of the case, the Court considers that there was no evidence to prove that Lot 821 is an increment to Lot 307 and the bed of the eastern branch of the river. Accretion as a mode of acquiring property under Article 457 of the Civil Code requires the concurrence of three (3) requisites: (a) that the deposition of soil or sediment be gradual and imperceptible; (b) that it be the result of the action of the waters of the river (or sea); and (c) that the land where accretion takes place is adjacent to the banks of rivers (or the sea coast).22Republic vs. Court of Appeals, 132 SCRA 514 (1984). The Court notes that the parcels of land bought by respondent Manalo border on the eastern branch of the Cagayan River. Any accretion formed by this eastern branch which respondent Manalo may claim must be deposited _______________ 20 3 Manresa, Comentarios al Codigo Civil Español (6a ed., 1934), p. 75.

21 Cortes vs. City of Manila, 10 Phil. 567 (1908). See also Article 461, Civil Code. 22 Republic vs. Court of Appeals, 132 SCRA 514 (1984). 386 386 SUPREME COURT REPORTS ANNOTATED Binalay vs. Manalo on or attached to Lot 307. As it is, the claimed accretion (Lot 821) lies on the bank of the river not adjacent to Lot 307 but directly opposite Lot 307 across the river. Assuming (arguendo only) that the Cagayan River referred to in the Deeds of Sale transferring ownership of the land to respondent Manalo is the western branch, the decision of the Court of Appeals and of the trial court are bare of factual findings to the effect that the land purchased by respondent Manalo received alluvium from the action of the river in a slow and gradual manner. On the contrary, the decision of the lower court made mention of several floods that caused the land to reappear making it susceptible to cultivation. A sudden and forceful action like that of flooding is hardly the alluvial process contemplated under Article 457 of the Civil Code. It is the slow and hardly perceptible accumulation of soil deposits that the law grants to the riparian owner. Besides, it is important to note that Lot 821 has an area of 11.91 hectares. Lot 821 is the northern portion of the strip of land having a total area of 22.72 hectares. We find it difficult to suppose that such a sizable area as Lot 821 resulted from slow accretion to another lot of almost equal size. The total landholding purchased by respondent Manalo is 10.45 hectares

(8.65 hectares from Faustina Taccad and 1.80 hectares from Gregorio Taguba in 1959 and 1964, respectively), in fact even smaller than Lot 821 which he claims by way of accretion. The cadastral survey showing that Lot 821 has an area of 11.91 hectares was conducted in 1969. If respondent Manalo’s contention were accepted, it would mean that in a span of only ten (10) years, he had more than doubled his landholding by what the Court of Appeals and the trial court considered as accretion. As already noted, there are steep vertical dike-like slopes separating the depressed portion or river bed and Lot 821 and Lot 307. This topography of the land, among other things, precludes a reasonable conclusion that Lot 821 is an increment to the depressed portion by reason of the slow and constant action of the waters of either the western or the eastern branches of the Cagayan River. We turn finally to the issue of ownership of Lot 821. Respondent Manalo’s claim over Lot 821 rests on accretion coupled with alleged prior possession. He alleged that the parcels of 387 VOL. 195, MARCH 18, 1991 387 Binalay vs. Manalo land he bought separately from Gregorio Taguba and Faustina Taccad were formerly owned by Judge Juan Taccad who was in possession thereof through his (Judge Taccad’s) tenants. When ownership was transferred to him, respondent Manalo took over the cultivation of the property and had it declared for taxation purposes in his name. When petitioners forcibly

entered into his property, he twice instituted the appropriate action before the Municipal Trial Court of Tumauini, Isabela. Against respondent Manalo’s allegation of prior possession, petitioners presented tax declarations standing in their respective names. They claimed lawful, peaceful and adverse possession of Lot 821 since 1955. If respondent Manalo had proved prior possession, it was limited physically to Lot 307 and the depressed portion or the eastern river bed. The testimony of Dominga Malana who was a tenant for Justina Taccad did not indicate that she was also cultivating Lot 821. In fact, the complaints for forcible entry lodged before the Municipal Trial Court of Tumauini, Isabela pertained only to Lot 307 and the depressed portion or river bed and not to Lot 821. In the same manner, the tax declarations presented by petitioners conflict with those of respondent Manalo. Under Article 477 of the Civil Code, the plaintiff in an action for quieting of title must at least have equitable title to or interest in the real property which is the subject matter of the action. The evidence of record on this point is less than satisfactory and the Court feels compelled to refrain from determining the ownership and possession of Lot 821, adjudging neither petitioners nor respondent Manalo as owner(s) thereof. WHEREFORE, the Decision and Resolution of the Court of Appeals in C.A.-G.R. CV No. 04892 are hereby SET ASIDE. Respondent Manalo is hereby declared the owner of Lot 307. The regularly submerged portion or the eastern bed of the Cagayan River is hereby DECLARED to be property of public dominion. The ownership of Lot 821 shall be determined in an

appropriate action that may be instituted by the interested parties inter se. No pronouncement as to costs. SO ORDERED. Fernan (C.J., Chairman), Gutierrez, Jr., Bidin and Davide, Jr., JJ., concur. 388 388 SUPREME COURT REPORTS ANNOTATED People vs. Sucro Decision and resolution set aside. Note.—For accretion or alluvion to form part of registered land of riparian owner, the gradual alluvial deposits made by human intervention are excluded. (Republic vs. Court of Appeals, 132 SCRA 514.) ——o0o—— [Binalay vs. Manalo, 195 SCRA 374(1991)]

No. L-43105. August 31, 1984.*SECOND DIVISION. REPUBLIC OF THE PHILIPPINES (Director of Lands), petitioner, vs. THE HON. COURT OF APPEALS (SECOND DIVISION) AND SANTOS DEL RIO, respondents. No. L-43190. August 31, 1984.*SECOND DIVISION. AURORA BAUTISTA, OLIMPIO LARIOS, FELICIDAD DE LA CRUZ, ELPIDIO LARIOS, LUCITA BANDA, BENITO SANTAYANA, FRUCTUOSA BANHAO, LUCIO VELASCO, GREGORIO DATOY, FELIMON GUTIERREZ, ET AL., petitioners, vs. THE HON. COURT OF APPEALS AND SANTOS DEL RIO, respondents. Public Lands; Land Registration Act; Extent of lake bed under the Law of Waters of 1866.—The extent of a lake bed is defined in Art. 74 of the Law of Waters of 1866, as follows: “The natural bed or basin of lakes, ponds, or pools, is the ground covered by their waters when at their highest ordinary depth.” (Italics supplied) Same; Same; Words and Phrases; “Highest ordinary depth” of lake bed defined.—The phrase “highest ordinary depth” in the above definition has been interpreted in the case of Government of P.I. vs. Colegio de San Jose to be the highest depth of the waters of Laguna de Bay during the dry season, such depth being the “regular, common, natural, which occurs always or most of the time during the year.” The foregoing interpretation was the focal point in the Court of Appeals decision sought to be reviewed. We see no reason to disturb the same. Same; Same; Laguna de Bay is a lake and that part around it which becomes covered with water four to five months a year, not due to tidal action, but due to rains cannot be considered as

part of the bed or basin of Laguna de Bay nor as a foreshore land; Property not being so, land at bar is registerable under the LRA.—Laguna de Bay is a lake. While the waters of a lake are also subject to the same gravitational forces that cause the formation of tides in seas and oceans, this phenomenon is not a regular daily occurrence in the case _______________ * SECOND DIVISION. 533 VOL. 131, AUGUST 31, 1984 533 Republic vs. Court of Appeals of lakes. Thus, the alternation of high tides and low tides, which is an ordinary occurrence, could hardly account for the rise in the water level of the Laguna de Bay as observed four to five months a year during the rainy season. Rather, it is the rains which bring about the inundation of a portion of the land in question. Since the rise in the water level which causes the submersion of the land occurs during a shorter period (four to five months a year) than the level of the water at which the land is completely dry, the latter should be considered as the “highest ordinary depth” of Laguna de Bay. Therefore, the land sought to be registered is not part of the bed or basin of Laguna de Bay. Neither can it be considered as foreshore land. Same; Same; Same.—As aptly found by the Court a quo, the submersion in water of a portion of the land in question is due to the rains “falling directly on or flowing into Laguna de Bay from different sources.” Since the inundation of a portion of the land is not due to “flux and reflux of tides” it cannot be considered a foreshore land within the meaning of the

authorities cited by petitioner Director of Lands. The land sought to be registered not being part of the bed or basin of Laguna de Bay, nor a foreshore land as claimed by the Director of Lands, it is not a public land and therefore capable of registration as private property provided that the applicant proves that he has a registerable title. This brings us to the second issue which is whether or not applicant-private respondent has register able title to the land. Land Registration Act; Torrens System is not a means for land acquisition, but only for registration of title over land.—The purpose of land registration under the Torrens System is not the acquisition of lands but only the registration of title which applicant already possesses over the land. Registration under the Torrens Law was never intended as a means of acquiring ownership. Applicant in this case asserts ownership over the parcel of land he seeks to register and traces the roots of his title to a public instrument of sale (Exh. G) in favor of his father from whom he inherited said land. In addition to this muniment of title, he presents tax declarations (Exhs. F, G, H, I) covering the land since 1918 and also tax receipts (Exhs. J, J1, J-2, J-3, J-4, K, K-1, K-2, K-3) dating back to 1948. Same; Evidence; Tax declarations are strong evidence of ownership of land acquired by prescription when accompanied by proof of actual possession.—While it is true that by themselves tax receipts and declarations of ownership for taxation purposes are not incon534 534 SUPREME COURT REPORTS ANNOTATED Republic vs. Court of Appeals

trovertible evidence of ownership, they become strong evidence of ownership acquired by prescription when accompanied by proof of actual possession of the property. The then Court of Appeals found applicant by himself and through his father before him, has been in open, continuous, public, peaceful, exclusive and adverse possession of the disputed land for more than thirty (30) years, counted from April 19, 1909, when the land was acquired from a third person by purchase. Same; Public Land; Ordinary prescription for real property last 10 years. Petitioners also have fulfilled all the requirements for acquisition of a public land even if it be assumed that land at bar is a public land.—The record does not show any circumstance of note sufficient enough to overthrow said findings of facts which is binding upon Us. Since applicant has possessed the subject parcel in the concept of owner with just title and in good faith, his possession need only last for ten years in order for ordinary acquisitive prescription to set in. Applicant has more than satisfied this legal requirement. And even if the land sought to be registered is public land as claimed by the petitioners still, applicant would be entitled to a judicial confirmation of his imperfect title, since he has also satisfied the requirements of the Public Land Act (Commonwealth Act No. 141 as amended by Republic Act No. 1942). Public Lands; Private persons cannot reclaim land from public waters without prior permission by the government and, even if reclamation is authorized, acquisition thereof for ownership is not automatic.—The claim of private oppositors, petitioners in G.R. No. L-43190, that they have reclaimed the land from the waters of Laguna de Bay and that they have possessed the

same for more than twenty (20) years does not improve their position. In the first place, private persons cannot, by themselves reclaim land from water bodies belonging to the public domain without proper permission from government authorities. And even if such reclamation had been authorized, the reclaimed land does not automatically belong to the party reclaiming the same as they may still be subject to the terms of the authority earlier granted. Private oppositors-petitioners failed to show proper authority for the alleged reclamation, therefore, their claimed title to the litigated parcel must fall. Same; Evidence; Leases; Prescription; Tenants cannot acquire tenanted land by prescription.—In the second place, their alleged possession can never ripen into ownership. Only possession acquired 535 VOL. 131, AUGUST 31, 1984 535 Republic vs. Court of Appeals and enjoyed in the concept of owner can serve as the root of a title acquired by prescription. As correctly found by the appellate court, the private oppositors-petitioners entered into possession of the land with the permission of, and as tenants of, the applicant del Rio. The fact that some of them at one time or another did not pay rent cannot be considered in their favor. Their use of the land and their non-payment of rents thereon were merely tolerated by applicant and these could not have affected the character of the latter’s possession which has already ripened into ownership at the time of the filing of this application for registration.

PETITIONS for review of the decision of the Court of Appeals. The facts are stated in the opinion of the Court. Bonifacio, Perez & Concepcion for petitioners. The Solicitor General for respondent Appellate Court. Eduardo Cagandahan for respondent Santos del Rio. CUEVAS, J.: These two1One filed by the Director of Lands which is G.R. No. L-43105; and another one filed by Oppositors Bautista, et al. under G.R. No. L-43190. Petitions for Review of the same decision of the defunct Court of Appeals2In CA-G.R. No. 47044-R entitled Santos del Rio, applicant-appellant vs. Director of Lands, et al., oppositors-appellees. have been consolidated in this single decision, having arisen from one and the same Land Registration Case (LRC Case No. N-283, Laguna), and presenting as they do issues which may be resolved jointly by this Court. The questioned decision of the Court of Appeals set aside the judgment of the trial court and ordered the registration of the land in favor of applicant, now private respondent, Santos del Rio. Petitioner Director of Lands in G.R. No. L-43105 claims that the land sought to be registered is part of the public domain and therefore not registerable. Petitioners private oppositors in G.R. No. L-43190, on the other hand, allege that they reclaimed the land by dumping duck egg shells _______________ 1 One filed by the Director of Lands which is G.R. No. L43105; and another one filed by Oppositors Bautista, et al. under G.R. No. L-43190.

2 In CA-G.R. No. 47044-R entitled Santos del Rio, applicantappellant vs. Director of Lands, et al., oppositors-appellees. 536 536 SUPREME COURT REPORTS ANNOTATED Republic vs. Court of Appeals thereon, and that they have been in possession of the same for more than twenty (20) years. The lot subject matter of this land registration case, with an area of 17,311 square meters, is situated near the shore of Laguna de Bay, about twenty (20) meters therefrom (Exh. D),3Exhibit D—Plan Psu 220952. in Barrio Pinagbayanan, Pila, Laguna. It was purchased by Benedicto del Rio from Angel Pili on April 19, 1909. The Deed of Sale evidencing said purchase is duly recorded with the Registry of Deeds of Sta. Cruz, Laguna. The land was declared for tax purposes beginning the year 1918, and the realty taxes thereon had been paid since 1948. When Benedicto del Rio died in 1957, his heirs extrajudicially partitioned his estate and the subject parcel passed on to his son, Santos del Rio, as the latter’s share in the inheritance. Santos del Rio, herein applicant-private respondent, filed his application for registration of said parcel on May 9, 1966. The application was opposed by the Director of Lands and by private oppositors, petitioners in G.R. No. L-43190. Sometime before 1966, private oppositors obtained permission from Santos del Rio to construct duck houses on the land in question. Although there was no definite commitment as to rentals, some of them had made voluntary payments to private

respondent. In violation of the original agreement, private oppositors constructed residential houses on the land which prompted private respondent to file an ejectment suit against the former in 1966.4For unknown reasons, the records failed to disclose the status of said ejectment case. Meanwhile, during the latter part of 1965 and in 1966, private oppositors had simultaneously filed their respective sales applications with the Bureau of Lands, and in 1966, they opposed Santos del Rio’s application for registration. The Court of First Instance of Laguna dismissed the application for registration. Applicant appealed and obtained a favorable judgment from the Court of Appeals. The Director of Lands and the private oppositors filed their respective Petitions for Review of said decision. _______________ 3 Exhibit D—Plan Psu 220952. 4 For unknown reasons, the records failed to disclose the status of said ejectment case. 537 VOL. 131, AUGUST 31, 1984 537 Republic vs. Court of Appeals The two consolidated petitions raise substantially the same issues, to wit: 1) whether or not the parcel of land in question is public land; and 2) whether or not applicant-private respondent has registerable title to the land. Property, which includes parcels of land found in Philippine territory, is either of public dominion or of private ownership.5

Public lands, or those of public dominion, have been described as those which, under existing legislation are not the subject of private ownership, and are reserved for public purposes.6 The New Civil Code enumerates properties of public dominion in Articles 420 and 502 thereof. Article 420 provides: “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.” Article 502 adds to the above enumeration, the following: “(1) Rivers and their natural beds; (2) Continuous or intermittent waters of springs and brooks running in their natural beds and the beds themselves; (3) Waters rising continuously or intermittently on lands of public dominion; (4) Lakes and lagoons formed by Nature on public lands and their beds; xxx xxx x x x” (Italics supplied) _______________ 5 Article 419, New Civil Code. 6 Montano vs. Insular Govt., 12 Phil. 572, 579. 538 538 SUPREME COURT REPORTS ANNOTATED Republic vs. Court of Appeals

The Director of Lands would like Us to believe that since a portion of the land sought to be registered is covered with water four to five months a year, the same is part of the lake bed of Laguna de Bay, or is at least, a foreshore land, which brings it within the enumeration in Art. 502 of the New Civil Code quoted above and therefore it cannot be the subject of registration. The extent of a lake bed is defined in Art. 74 of the Law of Waters of 1866, as follows: “The natural bed or basin of lakes, ponds, or pools, is the ground covered by their waters when at their highest ordinary depth.” (Italics supplied) The phrase “highest ordinary depth” in the above definition has been interpreted in the case of Government of P.I. vs. Colegio de San Jose753 Phil. 423 (1929). to be the highest depth of the waters of Laguna de Bay during the dry season, such depth being the “regular, common, natural, which occurs always or most of the time during the year.” The foregoing interpretation was the focal point in the Court of Appeals decision sought to be reviewed. We see no reason to disturb the same. Laguna de Bay is a lake,8Ibid., p. 426. While the waters of a lake are also subject to the same gravitational forces that cause the formation of tides9Encyclopedia Britanica, Vol. 21; p. 1126. in seas and oceans, this phenomenon is not a regular daily occurrence in the case of lakes.10CA-G.R. No. 47044-R, p. 6, citing Enciclopedia Juridica Española. Vol. XXL. Thus, the alternation of high tides and low tides, which is an ordinary occurrence, could hardly account for the rise in the water level of the Laguna de Bay as observed four to five months a year

during the rainy season. Rather, it is the rains which bring about the inundation of a portion of the land in question. Since the rise in the water level which causes the submersion of the land occurs during a shorter period (four to five months a year) than the level of the water at which the land is completely dry, the latter _______________ 7 53 Phil. 423 (1929). 8 Ibid., p. 426. 9 Encyclopedia Britanica, Vol. 21; p. 1126. 10 CA-G.R. No. 47044-R, p. 6, citing Enciclopedia Juridica Española. Vol. XXL. 539 VOL. 131, AUGUST 31, 1984 539 Republic vs. Court of Appeals should be considered as the “highest ordinary depth” of Laguna de Bay. Therefore, the land sought to be registered is not part of the bed or basin of Laguna de Bay. Neither can it be considered as foreshore land. The Brief for the Petitioner Director of Lands cites an accurate definition of a foreshore land, to wit: “. . . that part of (the land) which is between high and low water and left dry by the flux and reflux of the tides x x x”11Petitioner’s Brief, p. 10, citing 1 Bouvier’s Law Dictionary, 3rd Revision, p. 1278. “The strip of land that lies between the high and low water marks and that is alternately wet and dry according to the flow of the tide.”12Ibid, citing 17 Words and Phrases, p. 312.

As aptly found by the Court a quo, the submersion in water of a portion of the land in question is due to the rains “falling directly on or flowing into Laguna de Bay from different sources.”13Court of Appeals Decision, CA-G.R. No. 47044-R, p. 7. Since the inundation of a portion of the land is not due to “flux and reflux of tides” it cannot be considered a foreshore land within the meaning of the authorities cited by petitioner Director of Lands. The land sought to be registered not being part of the bed or basin of Laguna de Bay, nor a foreshore land as claimed by the Director of Lands, it is not a public land and therefore capable of registration as private property provided that the applicant proves that he has a registerable title. This brings us to the second issue, which is whether or not applicant-private respondent has registerable title to the land. The purpose of land registration under the Torrens System is not the acquisition of lands but only the registration of title which applicant already possesses over the land.14Roxas vs. Enriquez, 29 Phil. 54. Registration under the Torrens Law was never intended as a means of acquiring ownership. Applicant in this case asserts ownership over the parcel of land he seeks to register and traces the roots of his title to a public instrument of sale (Exh. G) in favor of his _______________ 11 Petitioner’s Brief, p. 10, citing 1 Bouvier’s Law Dictionary, 3rd Revision, p. 1278. 12 Ibid, citing 17 Words and Phrases, p. 312. 13 Court of Appeals Decision, CA-G.R. No. 47044-R, p. 7. 14 Roxas vs. Enriquez, 29 Phil. 54. 540

540 SUPREME COURT REPORTS ANNOTATED Republic vs. Court of Appeals father from whom he inherited said land. In addition to this muniment of title, he presents tax declarations (Exhs. F, G, H, I) covering the land since 1918 and also tax receipts (Exhs. J, J1, J-2, J-3, J-4, K, K-1, K-2, K-3) dating back to 1948. While it is true that by themselves tax receipts and declarations of ownership for taxation purposes are not incontrovertible evidence of ownership,15Evangelista vs. Tabayuyong, 7 Phil. 607. they become strong evidence of ownership acquired by prescription when accompanied by proof of actual possession of the property.16Viernes vs. Agpaoa, 41 Phil. 286. The then Court of Appeals found applicant by himself and through his father before him, has been in open, continuous, public, peaceful, exclusive and adverse possession of the disputed land for more than thirty (30) years, counted from April 19, 1909, when the land was acquired from a third person by purchase.17Court of Appeals Decision, CA-G.R. No. 47044-R, p. 12. The record does not show any circumstance of note sufficient enough to overthrow said findings of facts which is binding upon Us. Since applicant has possessed the subject parcel in the concept of owner with just title and in good faith, his possession need only last for ten years in order for ordinary acquisitive prescription to set in.18Art. 1117, New Civil Code. Applicant has more than satisfied this legal requirement. And even if the land sought to be registered is public land as claimed by the petitioners still, applicant would be entitled to a judicial confirmation of his imperfect title, since he has also satisfied the requirements of the Public Land Act

(Commonwealth Act No. 141 as amended by Republic Act No. 1942). Sec. 48 of said Act enumerates as among the persons entitled to judicial confirmation of imperfect title, the following: “(a) x x x (b) Those who, by themselves or through their predecessors-ininterest, have been in the open, continuous, exclusive, and notorious possession and occupation of agricultural lands of the public domain, under bona fide claim of ownership, for at least thirty years immediately preceding the filing of the application for confirmation of title x x x” _______________ 15 Evangelista vs. Tabayuyong, 7 Phil. 607. 16 Viernes vs. Agpaoa, 41 Phil. 286. 17 Court of Appeals Decision, CA-G.R. No. 47044-R, p. 12. 18 Art. 1117, New Civil Code. 541 VOL. 131, AUGUST 31, 1984 541 Republic vs. Court of Appeals The claim of private oppositors, petitioners in G.R. No. L43190, that they have reclaimed the land from the waters of Laguna de Bay and that they have possessed the same for more than twenty (20) years does not improve their position. In the first place, private persons cannot, by themselves reclaim land from water bodies belonging to the public domain without proper permission from government authorities.19Article 18, Law of Waters of 1866. And even if such reclamation had been authorized, the reclaimed land does not automatically belong to

the party reclaiming the same as they may still be subject to the terms of the authority earlier granted.20Article 5, Law of Water of 1866. Private oppositors-petitioners failed to show proper authority for the alleged reclamation, therefore, their claimed title to the litigated parcel must fall. In the second place, their alleged possession can never ripen into ownership. Only possession acquired and enjoyed in the concept of owner can serve as the root of a title acquired by prescription.21Article 540, New Civil Code. As correctly found by the appellate court, the private oppositors-petitioners entered into possession of the land with the permission of, and as tenants of, the applicant del Rio. The fact that some of them at one time or another did not pay rent cannot be considered in their favor. Their use of the land and their non-payment of rents thereon were merely tolerated by applicant and these could not have affected the character of the latter’s possession22Article 537, New Civil Code. which has already ripened into ownership at the time of the filing of this application for registration. The applicant private-respondent having satisfactorily established his registerable title over the parcel of land described in his application, he is clearly entitled to the registration in his favor of said land. IN VIEW OF THE FOREGOING, the judgment appealed from is hereby AFFIRMED and the registration in favor of applicant private respondent of the land described in his application is hereby ordered. _______________ 19 Article 18, Law of Waters of 1866. 20 Article 5, Law of Water of 1866.

21 Article 540, New Civil Code. 22 Article 537, New Civil Code. 542 542 SUPREME COURT REPORTS ANNOTATED Barbas vs. Victorias Milling Co., Inc. Costs against private petitioners. SO ORDERED. Concepcion, Jr., Guerrero, Abad Santos and Escolin, JJ., concur. Makasiar, J., (Chairman), on leave. Aquino, J., no part. Judgment affirmed. Notes.—A Torrens Title concludes all controversy over ownership of land covered by a final decree of registration, and title by adverse possession cannot be acquired against the registered owner. (J.M. Tuason & Co., Inc. vs. Vibat, 8 SCRA 54.) In the case of public land, the property is not considered registered, until the final act or the entry in the registration book of the registry of deeds has been accomplished. (De la Merced vs. Court of Appeals, 5 SCRA 240.) ——o0o—— [Republic vs. Court of Appeals, 131 SCRA 532(1984)]

JULIANA ZAPATA, applicant-appellee, vs. DIRECTOR OF LANDS, opponent-appellant. Property; Accretion due to the effect of water current; Right of riparian owner not necessarily affected by the erection of fish traps in the creek.—Where the accreted land had been formed gradually due to the effect of the water current of the creek, the riparian owner may invoke the benefit of the provisions of article 457 of the Civil Code to support his claim of title thereto. The fact that the fish traps set up in the creek might have slowed down its current, and might have brought about or caused the accretion, will not affect his ownership, in the absence 336 336 SUPREME COURT REPORTS ANNOTATED Zapata vs. Director of Lands of evidence, to show that the setting up or erection of the fish traps was expressly intended to cause or bring about the accretion. APPEAL from a judgment of the Court of First Instance of Pampanga. The facts are stated in the opinion of the Court. Abel de Ocera for applicant-appellee. Solicitor General for opponent-appellant. PADILLA, J.: It appears that Juliana Zapata owns two parcels of land situated in the municipality of Santo Tomas, province of Pampanga, adjoining a non-navigable and non-floatable river called the Candalaga Creek. The two parcels are designated as Lot No. 25 and the northern part of Lot No. 16 of the Cadastral Survey of

San Fernando, Pampanga.1In 1915 the municipality of Santo Tomas formed part of San Fernando, Pampanga and in 1952 was separated therefrom. The first lot contains a superficial area of 6,592 square meters and is registered in her name, as shown by transfer certificate of title No. 12907 issued by the Register of Deeds in and for the province of Pampanga (Exhibit A). Her ownership or title to a part of Lot No. 16 was confirmed by a decree entered on 21 November 1955 by the Court of First Instance of Pampanga ordering that the “remaining portion of Lot No. 16 with an area of 474 square meters” be registered “in the name of Juliana Zapata” [(Exhibit A-1]; Cad. case No. 1, G.L. R.O. Cad. Record No. 137). In 1915, when the cadastral survey of San Fernando was begun, the width of the Candalaga Creek adjoining the two parcels of land owned by Juliana Zapata was about 90 or to 100 meters. At present, the width is 15 meters, because soil had been accumulated by the water current of the river on the banks of Lot No. 25 and of that part of Lot No. 16 owned by Juliana Zapata. The accreted land is delimited in plan Psu-140515 and designated as Lots 1, 2 and 3, the first containing an area of 6,260 square meters, the second, 449 and the third, 2,238 (Exhibit B) and described in the technical descriptions (Exhibit C). _______________ 1 In 1915 the municipality of Santo Tomas formed part of San Fernando, Pampanga and in 1952 was separated therefrom. 337 VOL. 6, OCTOBER 30, 1962 337 Zapata vs. Director of Lands

In a verified petition filed on 16 June 1956 in the Court of First Instance of Pampanga, Juliana Zapata claims that the aforesaid three lots belong to her by accretion, as provided for in article 457 of the Civil Code, and prays that the same be registered in her name under the Land Registration Act (Land Reg. Case No. N-273, L. R. C. rec. No. 1167). On 19 October 1956 on her motion the court entered an order of general default against all persons except the Director of Lands. On 24 October 1956 the Director of Lands objected to the petition and prayed that the registration of the three lots in the name of Juliana Zapata be denied and that they be declared to form part of the public domain. After trial, on 26 December 1956 the court rendered judgment, as follows: WHEREFORE, the Court, overruling the opposition of the Director of Lands, and confirming the order of general default herein entered, and the applicant’s title to the aforesaid Lots Nos. 1, 2 and 3, referred to in plan Psu-140515, aforecited, hereby orders that the same be registered in the name of Juliana Zapata, the herein applicant x x x. Once this decision becomes final, let the corresponding decree issue. The Court of Appeals certified to this Court the appeal taken by the Director of Lands because only questions of law are involved. The appellant contends that article 457 of the Civil Code providing 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.

cannot apply and does not support the appellee’s claim that the accretion or deposit of alluvial soil, which is delimited in plan Psu-140515 and designated as Lots 1, 2 and 3, belongs to her as riparian owner, because such accretion “was not due to the natural effect of the current but was artificially induced on account of the erection of the fish traps on the creek.” The contention cannot be sustained. The appellant does not dispute that the accreted land delimited in plan Psu-140515 and designated as Lots 1, 2 and 3 adjoining Lot No. 25 and that part of Lot No. 16, both owned by the appellee, had been formed gradually 338 338 SUPREME COURT REPORTS ANNOTATED Garchitorena vs. Panganiban due to the effect of the water current of the Candalaga Creek, but claims that the accretion was artificially brought about by the setting up of fish traps, such as salag net, bunuan (Bamboo trap), sabat (cutting of channels) and fencing that the fishermen had built in the stream. True, those fish traps might have slowed down the current of the Candalaga Creek and might have brought about or caused the accretion, but as there is no evidence to show that the setting up or erection of the fish traps was expressly intended or designed to cause or bring about the accretion, the appellee may still invoke the benefit of the provisions of Article 457 of the Civil Code to support her claim of title thereto. Moreover, the fishermen who since 1894 used to set up fish traps in the creek (p. 7, t.s.n.), later on secured permit from the Government that auctioned off the right or

license to set up fish traps in the creek (p. 6, t.s.n.), and the setting up of such fish traps stopped or was discontinued even before 1926 (p. 7, t.s.n.), all go to show that the alluvial accretion was not entirely due to the setting up of such fish traps. The decree appealed from is affirmed, without pronouncement as to costs. Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Paredes, Dizon, Regala and Makalintal, JJ., concur. Reyes, J.B.L. and Barrera, JJ., took no part. Decree affirmed. Note.—The riparian owner need not make an express act of possession, the accession being automatically owned by him the moment there is soil deposited as an effect of the current of the waters (See Cortez v. City of Manila, 10 Phil. 567; Roxas v. Tuason, 9 Phil. 408). However, in order that said alluvial property may be entitled to the protection of imprescriptibility, it must be registered under the Torrens System (Grande, et al. v. Court of Ap-peals, et al., L-17652, June 30, 1962). _______________ [Zapata vs. Director of Lands, 6 SCRA 335(1962)]

G.R. No. 68166. February 12, 1997.*FIRST DIVISION. HEIRS OF EMILIANO NAVARRO, petitioner, vs. INTERMEDIATE APPELLATE COURT & HEIRS OF SINFOROSO PASCUAL, respondents. Civil Law; Property; Accretion; Essential Requisites to Acquire Property by Accretion under Article 457; Accretion Distinguished from Alluvium.—Accretion as a mode of acquiring property under said Article 457, requires the concurrence of the following requisites: (1) that the accumulation of soil or sediment be gradual and imperceptible; (2) that it be the result of the action of the waters of the river; and (3) that the land where the accretion takes place is adjacent to the bank of the river. Accretion is the process whereby the soil is deposited, while alluvium is the soil deposited on the estate fronting the river bank; the owner of such estate is called the riparian owner. Riparian owners are, strictly speaking, distinct from littoral owners, the latter being owners of lands bordering the shore of the sea or lake or other tidal waters. The alluvium, by mandate of Article 457 of the Civil Code, is automatically owned by the riparian owner from the moment the soil deposit can be seen but is not automatically registered property, hence, subject to acquisition through prescription by third persons. Same; Same; Same; The disputed land is an accretion not on a river bank but on a sea bank.—The disputed land, thus, is an accretion not on a river bank but on a sea bank, or on what used to be the foreshore of Manila Bay which adjoined petitioners’ own tract of land on the northern side. As such, the applicable law is not Article 457 of the Civil Code but Article 4 of the Spanish Law of Waters of 1866.

Same; Same; Same; Laguna de Bay is a lake the accretion on which, by the mandate of Article 84 of the Spanish Law of Waters of 1866, belongs to the owner of the land contiguous thereto.—In the cases of Government of the P.I. v. Colegio de San Jose, Republic v. Court of Appeals, Republic v. Alagad, and Meneses v. Court of Appeals, we categorically ruled that Laguna de Bay is a lake the accre____________________________ * FIRST DIVISION. 75 VOL. 268, FEBRUARY 12, 1997 75 Heirs of Emiliano Navarro vs. Intermediate Appellate Court tion on which, by the mandate of Article 84 of the Spanish Law of Waters of 1866, belongs to the owner of the land contiguous thereto. Same; Same; Same; As part of the public domain, the disputed land is intended for public uses, and so long as the land in litigation belongs to the national domain and is reserved for public uses, it is not capable of being appropriated by any private person except through express authorization granted in due form by a competent authority.—The instant controversy, however, brings a situation calling for the application of Article 4 of the Spanish Law of Waters of 1866, the disputed land being an accretion on the foreshore of Manila Bay which is, for all legal purposes, considered a sea. Article 4 of the Spanish Law of Waters of August 3, 1866 provides as follows: “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 coast-guard service, the Government shall declare them to be the property of the owners of the estates adjacent thereto and as increment thereof.” In the light of the aforecited vintage but still valid law, unequivocal is the public nature of the disputed land in this controversy, the same being an accretion on a sea bank which, for all legal purposes, the foreshore of Manila Bay is. As part of the public domain, the herein disputed land is intended for public uses, and “so long as the land in litigation belongs to the national domain and is reserved for public uses, it is not capable of being appropriated by any private person, except through express authorization granted in due form by a competent authority.” Only the executive and possibly the legislative departments have the right and the power to make the declaration that the lands so gained by action of the sea is no longer necessary for purposes of public utility or for the cause of establishment of special industries or for coast guard services. Petitioners utterly fail to show that either the executive or legislative department has already declared the disputed land as qualified, under Article 4 of the Spanish Law of Waters of 1866, to be the property of petitioners as owners of the estates adjacent thereto. PETITION for review of a decision and the resolutions of the then Intermediate Appellate Court. The facts are stated in the opinion of the Court. 76 76 SUPREME COURT REPORTS ANNOTATED Heirs of Emiliano Navarro vs. Intermediate Appellate Court

Yolanda Quisumbing-Javellana & Associates for petitioner. Joracio R. Viola, Sr. for private respondents. HERMOSISIMA, JR., J.: Unique is the legal question visited upon the claim of an applicant in a Land Registration case by oppositors thereto, the Government and a Government lessee, involving as it does ownership of land formed by alluvium. The applicant owns the property immediately adjoining the land sought to be registered. His registered property is bounded on the east by the Talisay River, on the west by the Bulacan River, and on the north by the Manila Bay. The Talisay River and the Bulacan River flow down towards the Manila Bay and act as boundaries of the applicant’s registered land on the east and on the west. The land sought to be registered was formed at the northern tip of the applicant’s land. Applicant’s registered property is bounded on the north by the Manila Bay. The issue: May the land sought to be registered be deemed an accretion in the sense that it naturally accrues in favor of the riparian owner or should the land be considered as foreshore land? Before us is a petition for review of: (1) the decision1In CA G.R. No. 59044-R, dated November 29, 1978, penned by Associate Justice Porfirio V. Sison and concurred in by Associate Justices Nestor B. Alampay, Jorge R. Coquia, and Rafael C. Climaco, with Associate Justice Mariano Serrano, dissenting; Rollo, pp. ... and (2) two subsequent resolutions2Resolution (on the First Motion for Reconsideration) dated November 21, 1980, penned by

Associate Justice Porfirio V. Sison and concurred in by Associate Justices B.S. de la Fuente, Nestor B. Alampay, Jorge R. Coquia, and Elias B. Asuncion; Rollo, pp. 68-6... of the Intermediate Appellate ____________________________ 1 In CA G.R. No. 59044-R, dated November 29, 1978, penned by Associate Justice Porfirio V. Sison and concurred in by Associate Justices Nestor B. Alampay, Jorge R. Coquia, and Rafael C. Climaco, with Associate Justice Mariano Serrano, dissenting; Rollo, pp. 39-54. 2 Resolution (on the First Motion for Reconsideration) dated November 21, 1980, penned by Associate Justice Porfirio V. Sison and concurred in by Associate Justices B.S. de la Fuente, Nestor B. Alampay, Jorge R. Coquia, and Elias B. Asuncion; Rollo, pp. 68-69; and Resolution (on the Second Motion for Reconsideration) dated March 28, 1982, penned by Associate Justice Porfirio V. Sison and 77 VOL. 268, FEBRUARY 12, 1997 77 Heirs of Emiliano Navarro vs. Intermediate Appellate Court Court3Fourth Civil Cases Division. (now the Court of Appeals) in Land Registration Case No. N-84,4L.R.C. Case No. 18607. the application over which was filed by private respondents’ predecessor-in-interest, Sinforoso Pascual, now deceased, before the Court of First Instance5Branch 1. (now the Regional Trial Court) of Balanga, Bataan. There is no dispute as to the following facts:

On October 3, 1946, Sinforoso Pascual, now deceased, filed an application for foreshore lease covering a tract of foreshore land in Sibocon, Balanga, Bataan, having an area of approximately seventeen (17) hectares. This application was denied on January 15, 1953. So was his motion for reconsideration. Subsequently, petitioners’ predecessor-in-interest, also now deceased, Emiliano Navarro, filed a fishpond application with the Bureau of Fisheries covering twenty five (25) hectares of foreshore land also in Sibocon, Balanga, Bataan. Initially, such application was denied by the Director of Fisheries on the ground that the property formed part of the public domain. Upon motion for reconsideration, the Director of Fisheries, on May 27, 1958, gave due course to his application but only to the extent of seven (7) hectares of the property as may be certified by the Bureau of Forestry as suitable for fishpond purposes. The Municipal Council of Balanga, Bataan, had opposed Emiliano Navarro’s application. Aggrieved by the decision of the Director of Fisheries, it appealed to the Secretary of Natural Resources who, however, affirmed the grant. The then Executive Secretary, acting in behalf of the President of the Philippines, similarly affirmed the grant. On the other hand, sometime in the early part of 1960, Sinforoso Pascual filed an application to register and confirm his title to a parcel of land, situated in Sibocon, Balanga, Bataan, ____________________________

concurred in by Associate Justices B.S. de la Fuente, Nestor B. Alampay, Elias B. Asuncion, and Hugo E. Gutierrez, Jr., Rollo, pp. 90-91. 3 Fourth Civil Cases Division. 4 L.R.C. Case No. 18607. 5 Branch 1. 78 78 SUPREME COURT REPORTS ANNOTATED Heirs of Emiliano Navarro vs. Intermediate Appellate Court described in Plan Psu-175181 and said to have an area of 146,611 square meters. Pascual claimed that this land is an accretion to his property, situated in Barrio Puerto Rivas, Balanga, Bataan, and covered by Original Certificate of Title No. 6830. It is bounded on the eastern side by the Talisay River, on the western side by the Bulacan River, and on the northern side by the Manila Bay. The Talisay River as well as the Bulacan River flow downstream and meet at the Manila Bay thereby depositing sand and silt on Pascual’s property resulting in an accretion thereon. Sinforoso Pascual claimed the accretion as the riparian owner. On March 25, 1960, the Director of Lands, represented by the Assistant Solicitor General, filed an opposition thereto stating that neither Pascual nor his predecessors-in-interest possessed sufficient title to the subject property, the same being a portion of the public domain and, therefore, it belongs to the Republic of the Philippines. The Director of Forestry, through the Provincial Fiscal, similarly opposed Pascual’s application for the same reason as that advanced by the Director of Lands.

Later on, however, the Director of Lands withdrew his opposition. The Director of Forestry became the sole oppositor. On June 2, 1960, the court a quo issued an order of general default excepting the Director of Lands and the Director of Forestry. Upon motion of Emiliano Navarro, however, the order of general default was lifted and, on February 13, 1961, Navarro thereupon filed an opposition to Pascual’s application. Navarro claimed that the land sought to be registered has always been part of the public domain, it being a part of the foreshore of Manila Bay; that he was a lessee and in possession of a part of the subject property by virtue of a fishpond permit issued by the Bureau of Fisheries and confirmed by the Office of the President; and that he had already converted the area covered by the lease into a fishpond. During the pendency of the land registration case, that is, on November 6, 1960, Sinforoso Pascual filed a complaint for ejectment against Emiliano Navarro, one Marcelo Lopez and 79 VOL. 268, FEBRUARY 12, 1997 79 Heirs of Emiliano Navarro vs. Intermediate Appellate Court their privies, alleged by Pascual to have unlawfully claimed and possessed, through stealth, force and strategy, a portion of the subject property covered by Plan Psu-175181. The defendants in the case were alleged to have built a provisional dike thereon: thus they have thereby deprived Pascual of the premises sought to be registered. This, notwithstanding repeated demands for defendants to vacate the property.

The case was decided adversely against Pascual. Thus, Pascual appealed to the Court of First Instance (now Regional Trial Court) of Balanga, Bataan, the appeal having been docketed as Civil Case No. 2873. Because of the similarity of the parties and the subject matter, the appealed case for ejectment was consolidated with the land registration case and was jointly tried by the court a quo. During the pendency of the trial of the consolidated cases, Emiliano Navarro died on November 1, 1961 and was substituted by his heirs, the herein petitioners. Subsequently, on August 26, 1962, Pascual died and was substituted by his heirs, the herein private respondents. On November 10, 1975, the court a quo rendered judgment finding the subject property to be foreshore land and, being a part of the public domain, it cannot be the subject of land registration proceedings. The decision’s dispositive portion reads: “WHEREFORE, judgment is rendered: (1) Dismissing plaintiff [private respondent] Sinforoso Pascual’s complaint for ejectment in Civil Case No. 2873; (2) Denying the application of Sinforoso Pascual for land registration over the land in question; and (3) Directing said Sinforoso Pascual, through his heirs, as plaintiff in Civil Case No. 2873 and as applicant in Land Registration Case No. N-84 to pay costs in both instances.”6Decision in CA G.R. No. 59044 dated November 29, 1978, pp. 2-3; Rollo, pp. 40-41. ____________________________ 6 Decision in CA G.R. No. 59044 dated November 29, 1978, pp. 2-3; Rollo, pp. 40-41.

80 80 SUPREME COURT REPORTS ANNOTATED Heirs of Emiliano Navarro vs. Intermediate Appellate Court The heirs of Pascual appealed and, before the respondent appellate court, assigned the following errors: “1. The lower court erred in not finding the land in question as an accretion by the action of the Talisay and Bulacan Rivers to the land admittedly owned by applicants-appellants [private respondents]. 2. The lower court erred in holding that the land in question is foreshore land. 3. The lower court erred in not ordering the registration of the land in controversy in favor of applicants-appellants [private respondents]. 4. The lower court erred in not finding that the applicantsappellants [private respondents] are entitled to eject the oppositor-appellee [petitioners].”7Id., p. 3; Rollo, p. 41. On appeal, the respondent court reversed the findings of the court a quo and granted the petition for registration of the subject property but excluding therefrom fifty (50) meters from corner 2 towards corner 1; and fifty meters (50) meters from corner 5 towards corner 6 of the Psu-175181. The respondent appellate court explained the reversal in this wise: “The paramount issue to be resolved in this appeal as set forth by the parties in their respective briefs is—whether or not the land sought to be registered is accretion or foreshore land, or, whether or not said land was formed by the action of the two

rivers of Talisay and Bulacan or by the action of the Manila Bay. If formed by the action of the Talisay and Bulacan rivers, the subject land is accretion but if formed by the action of the Manila Bay then it is foreshore land. xxx It is undisputed that applicants-appellants [private respondents] owned the land immediately adjoining the land sought to be registered. Their property which is covered by OCT No. 6830 is bounded on the east by the Talisay River, on the west by the Bulacan River, and on the north by the Manila Bay. The Talisay and Bulacan rivers come from inland flowing downstream towards the ____________________________ 7 Id., p. 3; Rollo, p. 41. 81 VOL. 268, FEBRUARY 12, 1997 81 Heirs of Emiliano Navarro vs. Intermediate Appellate Court Manila Bay. In other words, between the Talisay River and the Bulacan River is the property of applicants with both rivers acting as the boundary to said land and the flow of both rivers meeting and emptying into the Manila Bay. The subject land was formed at the tip or apex of appellants’ [private respondents’] land adding thereto the land now sought to be registered. This makes this case quite unique because while it is undisputed that the subject land is immediately attached to appellants’ [private respondents’] land and forms the tip thereof, at the same time, said land immediately faces the

Manila Bay which is part of the sea. We can understand therefore the confusion this case might have caused the lower court, faced as it was with the uneasy problem of deciding whether or not the subject land was formed by the action of the two rivers or by the action of the sea. Since the subject land is found at the shore of the Manila Bay facing appellants’ [private respondents’] land, it would be quite easy to conclude that it is foreshore and therefore part of the patrimonial property of the State as the lower court did in fact rule x x x. xxx It is however undisputed that appellants’ [private respondents’] land lies between these two rivers and it is precisely appellants’ [private respondents’] land which acts as a barricade preventing these two rivers to meet. Thus, since the flow of the two rivers is downwards to the Manila Bay the sediments of sand and silt are deposited at their mouths. It is, therefore, difficult to see how the Manila Bay could have been the cause of the deposit thereat for in the natural course of things, the waves of the sea eat the land on the shore, as they suge [sic] inland. It would not therefore add anything to the land but instead subtract from it due to the action of the waves and the wind. It is then more logical to believe that the two rivers flowing towards the bay emptied their cargo of sand, silt and clay at their mouths, thus causing appellants’ [private respondents’] land to accumulate therein. However, our distinguished colleage [sic], Mr. Justice Serrano, do [sic] not seem to accept this theory and stated that the subject land arose only when x x x Pascual planted ‘palapat’ and ‘bakawan’ trees thereat to serve as a boundary or strainer. But we do not see how this act of planting trees by Pascual

would explain how the land mass came into being. Much less will it prove that the same came from the sea. Following Mr. Justice Serrano’s argument that it were the few trees that acted as strainers or blocks, then the land that 82 82 SUPREME COURT REPORTS ANNOTATED Heirs of Emiliano Navarro vs. Intermediate Appellate Court grew would have stopped at the place where the said trees were planted. But this is not so because the land mass went far beyond the boundary, or where the trees were planted. On the other hand, the picture-exhibits of appellants [private respondents] clearly show that the land that accumulated beyond the so-called boundary, as well as the entire area being applied for is dry land, above sea level, and bearing innumerable trees x x x The existence of vegetation on the land could only confirm that the soil thereat came from inland rather than from the sea, for what could the sea bring to the shore but sand, pebbles, stones, rocks, and corrals? On the other hand, the two rivers would be bringing soil on their downward flow which they brought along from the eroded mountains, the lands along their path, and dumped them all on the northern portion of appellants’ [private respondents’] land. In view of the foregoing, we have to deviate from the lower court’s finding. While it is true that the subject land is found at the shore of the Manila Bay fronting appellants’ [private respondents’] land, said land is not foreshore but an accretion from the action of the Talisay and Bulacan rivers. In fact, this is exactly what the

Bureau of Lands found out, as shown in the following report of the Acting Provincial Officer, Jesus M. Orozco, to wit: ‘Upon ocular inspection of the land subject of this registration made on June 11, 1960, it was found out that the said land is x x x sandwitched [sic] by two big rivers x x x These two rivers bring down considerable amount of soil and sediments during floods every year thus raising the soil of the land adjoining the private property of the applicant [private respondents]. About four-fifth [sic] of the area applied for is now dry land whereon are planted palapat trees thickly growing thereon. It is the natural action of these two rivers that has caused the formation of said land x x x subject of this registration case. It has been formed, therefore, by accretion. And having been formed by accretion, the said land may be considered the private property of the riparian owner who is the applicant herein [private respondents] x x x. In view of the above, the opposition hereto filed by the government should be withdrawn, except for the portion recommended by the land investigator in his report dated May 2, 1960, to be excluded and considered foreshore. x x x’ Because of this report, no less than the Solicitor General representing the Bureau of Lands withdrew his opposition dated March 25, 1960, and limited ‘the same to the northern portion of the land 83 VOL. 268, FEBRUARY 12, 1997 83 Heirs of Emiliano Navarro vs. Intermediate Appellate Court

applied for, compromising a strip 50 meters wide along the Manila Bay, which should be declared public land as part of the foreshore’ x x x.”8Id., pp. 3-6; Rollo, pp. 41-44. Pursuant to the aforecited decision, the respondent appellate court ordered the issuance of the corresponding decree of registration in the name of private respondents and the reversion to private respondents of the possession of the portion of the subject property included in Navarro’s fishpond permit. On December 20, 1978, petitioners filed a motion for reconsideration of the aforecited decision. The Director of Forestry also moved for the reconsideration of the same decision. Both motions were opposed by private respondents on January 27, 1979. On November 21, 1980, respondent appellate court promulgated a resolution denying the motion for reconsideration filed by the Director of Forestry. It, however, modified its decision, to read, viz: “(3). Ordering private oppositors Heirs of Emiliano Navarro to vacate that portion included in their fishpond permit covered by Plan Psu-175181 and hand over possession of said portion to applicants-appellants, if the said portion is not within the strip of land fifty (50) meters wide along Manila Bay on the northern portion of the land subject of the registration proceedings and which area is more particularly referred to as fifty (50) meters from corner 2 towards corner 1; and fifty (50) meters from corner 5 towards corner 6 of Plan Psu-175181.” x x x9Resolution in CA-G.R. No. 59044-R dated November 21, 1980, p. 1; Rollo, p. 68.

On December 15, 1980, we granted the Solicitor General, acting as counsel for the Director of Forestry, an extension of time within which to file in this court, a petition for review of the decision dated November 29, 1978 of the respondent appellate court and of the aforecited resolution dated November 21, 1980. ____________________________ 8 Id., pp. 3-6; Rollo, pp. 41-44. 9 Resolution in CA-G.R. No. 59044-R dated November 21, 1980, p. 1; Rollo, p. 68. 84 84 SUPREME COURT REPORTS ANNOTATED Heirs of Emiliano Navarro vs. Intermediate Appellate Court Thereafter, the Solicitor General, in behalf of the Director of Forestry, filed a petition for review entitled, “The Director of Forestry vs. The Court of Appeals.”10Docketed as G.R. No. 55584. We, however, denied the same in a minute resolution dated July 20, 1981, such petition having been prematurely filed at a time when the Court of Appeals was yet to resolve petitioners’ pending motion to set aside the resolution dated November 21, 1980. On October 9, 1981, respondent appellate court denied petitioners’ motion for reconsideration of the decision dated November 29, 1978. On October 17, 1981, respondent appellate court made an entry of judgment stating that the decision dated November 29, 1978 had become final and executory as against herein petitioners as oppositors in L.R.C. Case No. N-84 and Civil Case No. 2873

of the Court of First Instance (now the Regional Trial Court) of Balanga, Bataan. On October 26, 1981, a second motion for reconsideration of the decision dated November 29, 1978 was filed by petitioners’ new counsel. On March 26, 1982, respondent appellate court issued a resolution granting petitioners’ request for leave to file a second motion for reconsideration. On July 13, 1984, after hearing, respondent appellate court denied petitioners’ second motion for reconsideration on the ground that the same was filed out of time, citing Rule 52, Section 1 of the Rules of Court which provides that a motion for reconsideration shall be made ex-parte and filed within fifteen (15) days from the notice of the final order or judgment. Hence this petition where the respondent appellate court is imputed to have palpably erred in appreciating the facts of the case and to have gravely misapplied statutory and case law relating to accretion, specifically, Article 457 of the Civil Code. We find no merit in the petition. ____________________________ 10 Docketed as G.R. No. 55584. 85 VOL. 268, FEBRUARY 12, 1997 85 Heirs of Emiliano Navarro vs. Intermediate Appellate Court The disputed property was brought forth by both the withdrawal of the waters of Manila Bay and the accretion formed on the exposed foreshore land by the action of the sea

which brought soil and sand sediments in turn trapped by the palapat and bakawan trees planted thereon by petitioner Sulpicio Pascual in 1948 Anchoring their claim of ownership on Article 457 of the Civil Code, petitioners vigorously argue that the disputed 14-hectare land is an accretion caused by the joint action of the Talisay and Bulacan Rivers which run their course on the eastern and western boundaries, respectively, of petitioners’ own tract of land. Accretion as a mode of acquiring property under said Article 457, requires the concurrence of the following requisites: (1) that the accumulation of soil or sediment be gradual and imperceptible; (2) that it be the result of the action of the waters of the river; and (3) that the land where the accretion takes place is adjacent to the bank of the river.11Desamparado Vda. de Nazareno and Leticia Nazareno Tapia v. Court of Appeals, et al., G.R. No. 98045, June 26, 1996; Meneses v. Court of Appeals, 246 SCRA 374 [1995]; Reynante v. Court of Appeals, 207 SCRA 794, 799 [1992]; Binalay v. Manalo, 195 SCRA 374, 3... Accretion is the process whereby the soil is deposited, while alluvium is the soil deposited on the estate fronting the river bank;12Paras, Edgardo, Civil Code of the Philippines, Vol. 3, 1984 Edition, p. 211. the owner of such estate is called the riparian owner. Riparian owners are, strictly speaking, distinct from littoral owners, the latter being owners of lands bordering the shore of the sea or lake or other tidal waters.13Santulan v. The Executive Secretary, 80 SCRA 548, 556 [1977]. The alluvium, by mandate of Article 457 of the Civil Code, is automatically owned by the ____________________________

11 Desamparado Vda. de Nazareno and Leticia Nazareno Tapia v. Court of Appeals, et al., G.R. No. 98045, June 26, 1996; Meneses v. Court of Appeals, 246 SCRA 374 [1995]; Reynante v. Court of Appeals, 207 SCRA 794, 799 [1992]; Binalay v. Manalo, 195 SCRA 374, 385 [1991]. 12 Paras, Edgardo, Civil Code of the Philippines, Vol. 3, 1984 Edition, p. 211. 13 Santulan v. The Executive Secretary, 80 SCRA 548, 556 [1977]. 86 86 SUPREME COURT REPORTS ANNOTATED Heirs of Emiliano Navarro vs. Intermediate Appellate Court riparian owner from the moment the soil deposit can be seen14Paras, supra, at p. 212, citing Cortez v. City of Manila, 10 Phil. 567; Roxas v. Tuason, 9 Phil. 408; 3 Manresa 236. but is not automatically registered property, hence, subject to acquisition through prescription by third persons.15Id., at p. 216, citing Grande, et al. v. Court of Appeals, L-17652, June 30, 1962. Petitioners’ claim of ownership over the disputed property under the principle of accretion, is misplaced. First, the title of petitioners’ own tract of land reveals its northeastern boundary to be Manila Bay. Petitioners’ land, therefore, used to adjoin, border or front the Manila Bay and not any of the two rivers whose torrential action, petitioners insist, is to account for the accretion on their land. In fact, one of the petitioners, Sulpicio Pascual, testified in open court that the waves of Manila Bay used to hit the disputed land being

part of the bay’s foreshore but, after he had planted palapat and bakawan trees thereon in 1948, the land began to rise.16The pertinent portion of Sulpicio Pascual’s testimony is as follows: “Q: Is that portion contiguous to Manila Bay? A: Near but not contiguous. Q: During the high tide is that portion reached by water? A: Before 1948. Q: Before y... Moreover, there is no dispute as to the location of: (a) the disputed land; (b) petitioners’ own tract of land; (c) the Manila Bay; and, (d) the Talisay and Bulacan Rivers. ____________________________ 14 Paras, supra, at p. 212, citing Cortez v. City of Manila, 10 Phil. 567; Roxas v. Tuason, 9 Phil. 408; 3 Manresa 236. 15 Id., at p. 216, citing Grande, et al. v. Court of Appeals, L17652, June 30, 1962. 16 The pertinent portion of Sulpicio Pascual’s testimony is as follows: “Q: Is that portion contiguous to Manila Bay? A: Near but not contiguous. Q: During the high tide is that portion reached by water? A: Before 1948. Q: Before you introduced palapat and bakawan in that area? A: Yes, sir. Q: It was only after you have planted palapat and bakawan x x x when the sea water no longer reaches that area? A: I only planted few trees in 1948 to serve as boundary and as marker. x x x Q: Was it only in 1948 that you observed that portion was becoming higher? A: At the beginning of 1948 I noticed that the land was getting higher.” (TSN, June 11, 1969, pp. 9-11).

87 VOL. 268, FEBRUARY 12, 1997 87 Heirs of Emiliano Navarro vs. Intermediate Appellate Court Petitioners’ own land lies between the Talisay and Bulacan Rivers; in front of their land on the northern side lies now the disputed land where before 1948, there lay the Manila Bay. If the accretion were to be attributed to the action of either or both of the Talisay and Bulacan Rivers, the alluvium should have been deposited on either or both of the eastern and western boundaries of petitioners’ own tract of land, not on the northern portion thereof which is adjacent to the Manila Bay. Clearly lacking, thus, is the third requisite of accretion, which is, that the alluvium is deposited on the portion of claimant’s land which is adjacent to the river bank. Second, there is no dispute as to the fact that petitioners’ own tract of land adjoins the Manila Bay. Manila Bay is obviously not a river, and jurisprudence is already settled as to what kind of body of water the Manila Bay is. It is to be remembered that we held that: “Appellant next contends that x x x Manila Bay cannot be considered as a sea. We find said contention untenable. A bay is 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.”17Ignacio v. Director of Lands and Valeriano, 108 Phil. 336, 338 [1960].

The disputed land, thus, is an accretion not on a river bank but on a sea bank, or on what used to be the foreshore of Manila Bay which adjoined petitioners’ own tract of land on the northern side. As such, the applicable law is not Article 457 of the Civil Code but Article 4 of the Spanish Law of Waters of 1866. The process by which the disputed land was formed, is not difficult to discern from the facts of the case. As the trial court correctly observed: ____________________________ 17 Ignacio v. Director of Lands and Valeriano, 108 Phil. 336, 338 [1960]. 88 88 SUPREME COURT REPORTS ANNOTATED Heirs of Emiliano Navarro vs. Intermediate Appellate Court “A perusal of the survey plan x x x of the land subject matter of these cases shows that on the eastern side, the property is bounded by Talisay River, on the western side by Bulacan River, on the southern side by Lot 1436 and on the northern side by Manila Bay. It is not correct to state that the Talisay and Bulacan Rivers meet at a certain portion because the two rivers both flow towards Manila Bay. The Talisay River is straight while the Bulacan River is a little bit meandering and there is no portion where the two rivers meet before they end up at Manila Bay. The land which is adjacent to the property belonging to Pascual cannot be considered an accretion [caused by the action of the two rivers].

Applicant Pascual x x x has not presented proofs to convince the Court that the land he has applied for registration is the result of the settling down on his registered land of soil, earth or other deposits so as to be rightfully be considered as an accretion [caused by the action of the two rivers]. Said Art. 457 finds no applicability where the accretion must have been caused by action of the bay.”18Petition, pp. 6-7; Rollo, pp. 122-123. The conclusion formed by the trial court on the basis of the aforegoing observation is that the disputed land is part of the foreshore of Manila Bay and therefore, part of the public domain. The respondent appellate court, however, perceived the fact that petitioners’ own land lies between the Talisay and Bulacan Rivers, to be basis to conclude that the disputed land must be an accretion formed by the action of the two rivers because petitioners’ own land acted as a barricade preventing the two rivers to meet and that the current of the two rivers carried sediments of sand and silt downwards to the Manila Bay which accumulated somehow to a 14-hectare land. These conclusions, however, are fatally incongruous in the light of the one undisputed critical fact: the accretion was deposited, not on either the eastern or western portion of petitioners’ land where a river each runs, but on the northern portion of petitioners’ land which adjoins the Manila Bay. Worse, such conclusions are further eroded of their practical logic and consonance with natural experience in the light of Sulpicio Pascual’s admission as to having planted palapat and bakawan trees on the north____________________________ 18 Petition, pp. 6-7; Rollo, pp. 122-123.

89 VOL. 268, FEBRUARY 12, 1997 89 Heirs of Emiliano Navarro vs. Intermediate Appellate Court ern boundary of their own land. In amplification of this, plainly more reasonable and valid are Justice Mariano Serrano’s observations in his dissenting opinion when he stated that: “As appellants’ (titled) land x x x acts as a barricade that prevents the two rivers to meet, and considering the wide expanse of the boundary between said land and the Manila Bay, measuring some 593.00 meters x x x it is believed rather farfetched for the land in question to have been formed through ‘sediments of sand and salt [sic] . . . deposited at their [rivers’] mouths.’ Moreover, if ‘since the flow of the two rivers is downwards to the Manila Bay the sediments of sand and silt are deposited at their mouths,’ why then would the alleged cargo of sand, silt and clay accumulate at the northern portion of appellants’ titled land facing Manila Bay instead of merely at the mouths and banks of these two rivers? That being the case, the accretion formed at said portion of appellants’ titled [land] was not caused by the current of the two rivers but by the action of the sea (Manila Bay) into which the rivers empty. The conclusion x x x is not supported by any reference to the evidence which, on the contrary, shows that the disputed land was formed by the action of the sea. Thus, no less than Sulpicio Pascual, one of the heirs of the original applicant, testified on cross-examination that the land in dispute was part of the shore and it was only in 1948 that he noticed that the land was

beginning to get higher after he had planted trees thereon in 1948. x x x x x x it is established that before 1948 sea water from the Manila Bay at high tide could reach as far as the dike of appellants’ fishpond within their titled property, which dike now separates this titled property from the land in question. Even in 1948 when appellants had already planted palapat and bakawan trees in the land involved, inasmuch as these trees were yet small, the waves of the sea could still reach the dike. This must be so because in x x x the survey plan of the titled property approved in 1918, said titled land was bounded on the north by Manila Bay. So Manila Bay was adjacent to it on the north. It was only after the planting of the aforesaid trees in 1948 that the land in question began to rise or to get higher in elevation. The trees planted by appellants in 1948 became a sort of strainer of the sea water and at the same time a kind of block to the strained sediments from being carried back to the sea by the very waves that brought them to the former shore at the end of the dike, which must have caused the shoreline to recede and dry up eventu90 90 SUPREME COURT REPORTS ANNOTATED Heirs of Emiliano Navarro vs. Intermediate Appellate Court ally raising the former shore leading to the formation of the land in question.”19Dissenting Opinion of Associate Justice Mariano Serrano; Rollo, pp. 48-51.

In other words, the combined and interactive effect of the planting of palapat and bakawan trees, the withdrawal of the waters of Manila Bay eventually resulting in the drying up of its former foreshore, and the regular torrential action of the waters of Manila Bay, is the formation of the disputed land on the northern boundary of petitioners’ own tract of land. The disputed property is an accretion on a sea bank, Manila Bay being an inlet or an arm of the sea; as such, the disputed property is, under Article 4 of the Spanish Law of Waters of 1866, part of the public domain At the outset, there is a need to distinguish between Manila Bay and Laguna de Bay. While we held in the case of Ignacio v. Director of Lands and Valeriano 20108 Phil. 335 [1960]. that Manila Bay is considered a sea for purposes of determining which law on accretion is to be applied in multifarious situations, we have ruled differently insofar as accretions on lands adjoining the Laguna de Bay are concerned. In the cases of Government of the P.I. v. Colegio de San Jose,2153 Phil. 423 [1929]. Republic v. Court of Appeals,22131 SCRA 532 [1984]. Republic v. Alagad,23169 SCRA 455 [1989]. and Meneses v. Court of Appeals,24246 SCRA 162 [1995]. we categorically ruled that Laguna de Bay is a lake the accretion on which, by the mandate of Article 84 of the Spanish Law of Waters of 1866, belongs to the owner of the land contiguous thereto. ____________________________ 19 Dissenting Opinion of Associate Justice Mariano Serrano; Rollo, pp. 48-51. 20 108 Phil. 335 [1960].

21 53 Phil. 423 [1929]. 22 131 SCRA 532 [1984]. 23 169 SCRA 455 [1989]. 24 246 SCRA 162 [1995]. 91 VOL. 268, FEBRUARY 12, 1997 91 Heirs of Emiliano Navarro vs. Intermediate Appellate Court The instant controversy, however, brings a situation calling for the application of Article 4 of the Spanish Law of Waters of 1866, the disputed land being an accretion on the foreshore of Manila Bay which is, for all legal purposes, considered a sea. Article 4 of the Spanish Law of Waters of August 3, 1866 provides as follows: “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 coast-guard service, the Government shall declare them to be the property of the owners of the estates adjacent thereto and as increment thereof.” In the light of the aforecited vintage but still valid law, unequivocal is the public nature of the disputed land in this controversy, the same being an accretion on a sea bank which, for all legal purposes, the foreshore of Manila Bay is. As part of the public domain, the herein disputed land is intended for public uses, and “so long as the land in litigation belongs to the national domain and is reserved for public uses, it is not

capable of being appropriated by any private person, except through express authorization granted in due form by a competent authority.”25Insular Government v. Aldecoa & Co., 19 Phil. 505, 517 [1911]. Only the executive and possibly the legislative departments have the right and the power to make the declaration that the lands so gained by action of the sea is no longer necessary for purposes of public utility or for the cause of establishment of special industries or for coast guard services.26Joven y Monteverde, et al. v. The Director of Lands, 93 Phil. 134, 136-137 [1953]. Petitioners utterly fail to show that either the executive or legislative department has already declared the disputed land as qualified, under Article 4 of the Spanish Law ____________________________ 25 Insular Government v. Aldecoa & Co., 19 Phil. 505, 517 [1911]. 26 Joven y Monteverde, et al. v. The Director of Lands, 93 Phil. 134, 136-137 [1953]. 92 92 SUPREME COURT REPORTS ANNOTATED Heirs of Emiliano Navarro vs. Intermediate Appellate Court of Waters of 1866, to be the property of petitioners as owners of the estates adjacent thereto. WHEREFORE, the instant Petition for Review is hereby DENIED and DISMISSED. Costs against petitioners. SO ORDERED. Padilla (Chairman), Bellosillo and Kapunan, JJ., concur.

Vitug, J., I concur; the amendatory provisions of the Water Code (P.D. 1067) did not affect Article 4 of the Spanish Law of Waters of 1866. Petition denied and dismissed. Note.—The requisites for the acquisition of property through accretion are: (a) that the deposition of soil or sediment be gradual and imperceptible; (b) that it be the result of the action of the waters of the river (or sea); and (c) that the land where accretion takes place is adjacent to the banks of rivers (or the sea coast). (Meneses vs. Court of Appeals, 246 SCRA 162 [1995]) ——o0o—— [Heirs of Emiliano Navarro vs. Intermediate Appellate Court, 268 SCRA 74(1997)]

G.R. No. 98045. June 26, 1996.*SECOND DIVISION. 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. Public Lands; Property; Accretion; Requisites of Accretion.— In the case of Meneses v. CA, this Court held that accretion, as a mode of acquiring property under Art. 457 of the Civil Code, requires the concurrence of these requisites: (1) that the deposition of soil or sediment be gradual and imperceptible; (2) that it be the result of the action of the waters of the river (or sea); and (3) that the land where accretion takes place is adjacent to the banks of rivers (or the sea coast). These are called the rules on alluvion which if present in __________________ * SECOND DIVISION. 590 590 SUPREME COURT REPORTS ANNOTATED Vda. de Nazareno vs. Court of Appeals 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. Same; Same; Same; Words and Phrases; Claimants, not having met the first and second requirements of the rules on alluvion, cannot claim the rights of riparian owner.—In Hilario v. City of Manila, this Court held that the word “current” indicates the

participation of the body of water in the ebb and flow of waters due 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. Administrative Law; When findings of administrative agencies are accorded not only respect but finality.—This Court has often enough held that findings of administrative agencies which have acquired expertise because their jurisdiction is confined to specific matters are generally accorded not only respect but even finality. Again, when said factual findings are affirmed by the Court of Appeals, the same are conclusive on the parties and not reviewable by this Court. Public Lands; Property; Accretion; The requirement that the deposit should be due to the effect of the current of the river is indispensable.—In Republic v. CA, this Court ruled that the requirement that the deposit should be due to the effect of the current of the river is indispensable. This excludes from Art. 457 of the Civil Code all deposits caused by human intervention. Putting it differently, alluvion must be the exclusive work of nature. Thus, in Tiongco v. Director of Lands, et al., where the land was not formed solely by the natural effect of the water current of the river bordering said land but is also the consequence of the direct and deliberate intervention of man, it was deemed a man-made accretion and, as such, part of the public domain. Same; Same; Same; The dumping of boulders, soil and other filling materials into the creek and river bounding the land, the same would still be 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. Even if this Court were to take into consideration petitioners’ submission that the accretion site was the result of the late Antonio Nazareno’s 591 VOL. 257, JUNE 26, 1996 591 Vda. de Nazareno vs. Court of Appeals labor consisting in the dumping of boulders, soil and other filling materials into the Balacanas Creek and Cagayan River bounding his land, the same would still be part of the public domain. Same; Same; Same; Jurisdiction; When Bureau of Lands and Office of the Secretary of Agriculture and Natural Resources have jurisdiction over the land.—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. Administrative Law; Exhaustion of Administrative Remedies; When administrative remedies have been exhausted.— 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-InCharge of the Bureau of Lands. The decision being appealed from was the decision of respondent Hilario who was the Regional Director of the Bureau of Lands. Said decision was made “for and by authority of the Director of Lands.” It would be incongruous to appeal the decision of the Regional Director

of the Bureau of Lands acting for the Director of the Bureau of Lands to an Officer-In-Charge of the Bureau of Lands. Same; Same; When the Undersecretary of Agriculture and Natural Resources may modify, adopt, or set aside the orders or decisions of Director 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, 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 592 592 SUPREME COURT REPORTS ANNOTATED Vda. de Nazareno vs. Court of Appeals jurisdiction under Sections 3, 4 and 5 of Commonwealth Act No. 141. Public Lands; Property; Accretion; Jurisdiction; When Director of Lands has jurisdiction over the land.—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.” Same; Same; When the execution of the order was issued not arbitrarily and capricious.—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. Same; Same; When Director of Lands is authorized to exercise executive control of public domain.—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. 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.

Same; Same; When Director of Lands acts within his jurisdiction in disposing public lands.—In the case of Calibo v. Ballesteros, this Court held that where, in the disposition of public lands, the Director of Lands bases his decision on the evidence thus presented, he clearly acts within his jurisdiction, and if he errs in appraising the evidence, the error is one of judgment, but not an act of grave abuse of discretion annullable by certiorari. Thus, except for 593 VOL. 257, JUNE 26, 1996 593 Vda. de Nazareno vs. Court of Appeals 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. PETITION for review of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. Manolo L. Tagarda, Sr. for petitioners. Arturo R. Legaspi for private respondents. ROMERO, J.: Petitioners Desamparado Vda. de Nazareno and Leticia Nazareno Tapia challenge the decision of the Court of Appeals which affirmed the dismissal of petitioners’ complaint by the Regional Trial Court of Misamis Oriental, Branch 22. The complaint was for annulment of the verification, report and recommendation, decision and order of the Bureau of Lands regarding a parcel of public land. The only issue involved in this petition is whether or not petitioners exhausted administrative remedies before having recourse to the courts.

The subject of this controversy is a parcel of land situated in Telegrapo, Puntod, Cagayan de Oro City. Said land was formed as a result of sawdust dumped into the dried-up Balacanas Creek and along the banks of the Cagayan river. Sometime in 1979, private respondents Jose Salasalan and Leo Rabaya leased the subject lots on which their houses stood from one Antonio Nazareno, petitioners’ predecessor-ininterest. 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 execu594 594 SUPREME COURT REPORTS ANNOTATED Vda. de Nazareno vs. Court of Appeals tory. 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 Csd106-00571 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

595 VOL. 257, JUNE 26, 1996 595 Vda. de Nazareno vs. Court of Appeals 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.1Decision in CA-G.R. No. 22927 penned by Justice Segundino Chua, pp. 55-56, Rollo. 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 _________________ 1 Decision in CA-G.R. No. 22927 penned by Justice Segundino Chua, pp. 55-56, Rollo. 596 596 SUPREME COURT REPORTS ANNOTATED Vda. de Nazareno vs. Court of Appeals 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,2246 SCRA 374 (1995). 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 ___________________ 2 246 SCRA 374 (1995). 597 VOL. 257, JUNE 26, 1996 597 Vda. de Nazareno vs. Court of Appeals

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.3Petition, p. 16, Rollo. 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,419 SCRA 931 (1967). 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) 571.5Memorandum for Private Respondents, p. 118, Rollo. 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. MSi10-06-000571-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 ____________________ 3 Petition, p. 16, Rollo. 4 19 SCRA 931 (1967). 5 Memorandum for Private Respondents, p. 118, Rollo. 598 598 SUPREME COURT REPORTS ANNOTATED Vda. de Nazareno vs. Court of Appeals 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 1978.6Annex “C,” Investigation Report, p. 30, Rollo. 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.7Appendices “D” and “E,” pp. 33-37, Rollo. 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.8COCOFED v. Trajano, 241 SCRA 362 (1995). 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.9Coca-Cola Bottlers Philippines, Inc. v. CA, 229 SCRA 533 (1994). It is this Court’s irresistible conclusion, therefore, that the accretion was man-made or artificial. In Republic v. CA,10132 SCRA 514 (1984). this Court ruled that the requirement that the deposit should be due to the effect of the current of the river is indispensable. This excludes from Art. 457 of the Civil Code all deposits caused by human intervention. Putting it differently, alluvion must be the exclusive work of nature. Thus, in Tiongco v. Director of Lands, et al.,1116 C.A. Rep. 211. 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__________________ 6 Annex “C,” Investigation Report, p. 30, Rollo. 7 Appendices “D” and “E,” pp. 33-37, Rollo. 8 COCOFED v. Trajano, 241 SCRA 362 (1995). 9 Coca-Cola Bottlers Philippines, Inc. v. CA, 229 SCRA 533 (1994). 10 132 SCRA 514 (1984). 11 16 C.A. Rep. 211. 599 VOL. 257, JUNE 26, 1996 599 Vda. de Nazareno vs. Court of Appeals

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.12Investigation Report, Appendix “C,” p. 30, Rollo. 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,13Petition, p. 16, Rollo. 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-InCharge 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.”14Appendix “D,” p. 33, Rollo. 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 __________________ 12 Investigation Report, Appendix “C,” p. 30, Rollo. 13 Petition, p. 16, Rollo. 14 Appendix “D,” p. 33, Rollo. 600 600 SUPREME COURT REPORTS ANNOTATED Vda. de Nazareno vs. Court of Appeals an Undersecretary on behalf of the Secretary of the Department. In the case of Hamoy v. Secretary of Agriculture and Natural Resources,15106 Phil. 1046 (1960). 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. 141.16Hamoy v. Secretary of Agriculture and Natural Resources, supra. 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 ___________________ 15 106 Phil. 1046 (1960). 16 Hamoy v. Secretary of Agriculture and Natural Resources, supra. 601 VOL. 257, JUNE 26, 1996 601 Vda. de Nazareno vs. Court of Appeals

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.17Appendix “D,” p. 35, Rollo. 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.18Pineda v. CFI of Davao, 1 SCRA 1020. 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. ____________________ 17 Appendix “D,” p. 35, Rollo. 18 Pineda v. CFI of Davao, 1 SCRA 1020. 602 602 SUPREME COURT REPORTS ANNOTATED Vda. de Nazareno vs. Court of Appeals In the case of Calibo v. Ballesteros,1915 SCRA 37 (1965). 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. Regalado (Chairman), Puno, Mendoza and Torres, Jr., JJ., concur. Petition dismissed. Notes.—Director of Lands has no authority to grant a free patent over land that has passed to private ownership and which has thereby ceased to be public land. Any title thus

issued or conveyed by him would be null and void. (Ferrer vs. Bautista, 231 SCRA 257 [1994]) It is only after the issuance of a Free Patent and title that the Government is divested of its ownership of the land subject of said grant. (Javier vs. Court of Appeals, 231 SCRA 498 [1994]) ——o0o—— [Vda. de Nazareno vs. Court of Appeals, 257 SCRA 589(1996)]

G.R. No. 92161. March 18, 1991.*THIRD DIVISION. SIMPLICIO BINALAY, PONCIANO GANNABAN, NICANOR MACUTAY, DOMINGO ROSALES, GREGORIO ARGONZA, EUSTAQUIO BAUA, FLORENTINO ROSALES, TEODORO MABBORANG, PATRICIO MABBORANG and FULGENCIO MORA, petitioners, vs. GUILLERMO MANALO and COURT OF APPEALS, respondents. Property; Ownership; Respondent Manalo did not acquire private ownership of the bed of the eastern branch of the river even if the same was included in the deeds of sale executed in his favor, because it constituted property of public dominion.— Now, then, pursuant to Article 420 of the Civil Code, respondent Manalo did not acquire private ownership of the bed of the eastern branch of the river even if it was included in the deeds of absolute sale executed by Gregorio Taguba and Faustina Taccad in his favor. These vendors could not have validly sold land that constituted property of public dominion. x x x Although Article 420 speaks only of rivers and banks, “rivers” is a composite term which includes: (1) the running waters, (2) the bed, and (3) the banks. _______________ * THIRD DIVISION. 375 VOL. 195, MARCH 18, 1991 375 Binalay vs. Manalo Same; Same; Same; Accretion; Accretion, as a mode of acquiring ownership, requires the concurrence of three (3) requisites: (a) that the deposition of soil be gradual and

imperceptible; (b) that it be the result of the action of the waters of the river; and (c) that the land where accretion takes place is adjacent to the banks of rivers.—We turn next to the issue of accretion. After examining the records of the case, the Court considers that there was no evidence to prove that Lot 821 is an increment to Lot 307 and the bed of the eastern branch of the river. Accretion as a mode of acquiring property under Article 457 of the Civil Code requires the concurrence of three (3) requisites: (a) that the deposition of soil or sediment be gradual and imperceptible; (b) that it be the result of the action of the waters of the river (or sea); and (c) that the land where accretion takes place is adjacent to the banks of rivers (or the sea coast). The Court notes that the parcels of land bought by respondent Manalo border on the eastern branch of the Cagayan River. Any accretion formed by this eastern branch which respondent Manalo may claim must be deposited on or attached to Lot 307. As it is, the claimed accretion (Lot 821) lies on the bank of the river not adjacent to Lot 307 but directly opposite Lot 307 across the river. Same; Same; Same; Same; A sudden and forceful action like that of flooding is not the alluvial process contemplated under Art. 457 of the Civil Code.—Assuming (arguendo only) that the Cagayan River referred to in the Deeds of Sale transferring ownership of the land to respondent Manalo is the western branch, the decision of the Court of Appeals and of the trial court are bare of factual findings to the effect that the land purchased by respondent Manalo received alluvium from the action of the river in a slow and gradual manner. On the contrary, the decision of the lower court made mention of several floods that caused the land to reappear making it

susceptible to cultivation. A sudden and forceful action like that of flooding is hardly the alluvial process contemplated under Article 457 of the Civil Code. It is the slow and hardly perceptible accumulation of soil deposits that the law grants to the riparian owner. Same; Same; Quieting of Title; Under Art. 477 of the Civil Code, the plaintiff in an action for quieting of title must at least have equitable title to or interest in the real property which is the subject matter of the action.—If respondent Manalo had proved prior possession, it was limited physically to Lot 307 and the depressed portion or the eastern river bed. The testimony of Dominga Malana who was a tenant for Justina Taccad did not indicate that she was also cultivating Lot 821. In fact, the complaints for forcible entry lodged before the Municipal Trial Court of Tumauini, Isabela pertained only to Lot 307 376 376 SUPREME COURT REPORTS ANNOTATED Binalay vs. Manalo and the depressed portion or river bed and not to Lot 821. In the same manner, the tax declarations presented by petitioners conflict with those of respondent Manalo. Under Article 477 of the Civil Code, the plaintiff in an action for quieting of title must at least have equitable title to or interest in the real property which is the subject matter of the action. The evidence of record on this point is less than satisfactory and the Court feels compelled to refrain from determining the ownership and possession of Lot 821, adjudging neither petitioners nor respondent Manalo as owner(s) thereof.

PETITION to review the decision and resolution of the Court of Appeals. The facts are stated in the opinion of the Court. Josefin De Alban Law Office for petitioners. FELICIANO, J.: The late Judge Taccad originally owned a parcel of land situated in Tumauini, Isabela having an estimated area of twenty (20) hectares. The western portion of this land bordering on the Cagayan River has an elevation lower than that of the eastern portion which borders on the national road. Through the years, the western portion would periodically go under the waters of the Cagayan River as those waters swelled with the coming of the rains. The submerged portion, however, would reappear during the dry season from January to August. It would remain under water for the rest of the year, that is, from September to December during the rainy season. The ownership of the landholding eventually moved from one person to another. On 9 May 1959, respondent Guillermo Manalo acquired 8.65 hectares thereof from Faustina Taccad, daughter of Judge Juan Taccad. The land sold was described in the Deed of Absolute Sale1Records, p. 123. as follows: “x x x a parcel of agricultural land in Balug, Tumauini, Isabela, containing an area of 8.6500 hectares, more or less; bounded on the North by Francisco Forto; on the East by National Road; on South by Julian Tumolva; and on the West by Cagayan River; declared for _______________ 1 Records, p. 123. 377

VOL. 195, MARCH 18, 1991 377 Binalay vs. Manalo taxation under Tax Declaration No. 12681 in the name of Faustina Taccad, and assessed at P750.00. x x x” Later in 1964, respondent Manalo purchased another 1.80 hectares from Gregorio Taguba who had earlier acquired the same from Judge Juan Taccad. The second purchase brought the total acquisition of respondent Manalo to 10.45 hectares. The second piece of property was more particularly described as follows: “x x x a piece of agricultural land consisting of tobacco land, and containing an area of 18,000 square meters, more or less, bounded on the North by Balug Creek; on the South, by Faustina Taccad (now Guillermo R. Manalo); on the East, by a Provincial Road; and on the West, by Cagayan River assessed at P440.00, as tax Declaration No. 3152. x x x”2Id., p. 120. During the cadastral survey conducted at Balug, Tumauini, Isabela on 21 October 1969, the two (2) parcels of land belonging to respondent Manalo were surveyed and consolidated into one lot, designated as Lot No. 307, Pls-964. Lot 307 which contains 4.6489 hectares includes: (a) the whole of the 1.80 hectares acquired from Gregorio Taguba; and (b) 2.8489 hectares out of the 8.65 hectares purchased from Faustina Taccad. As the survey was conducted on a rainy month, a portion of the land bought from Faustina Taccad then under water was left unsurveyed and was not included in Lot 307. The Sketch Plan3Id., p. 209. submitted during the trial of this case and which was identified by respondent Manalo shows

that the Cagayan River running from south to north, forks at a certain point to form two (2) branches—the western and the eastern branches—and then unites at the other end, further north, to form a narrow strip of land. The eastern branch of the river cuts through the land of respondent Manalo and is inundated with water only during the rainy season. The bed of the eastern branch is the submerged or the unsurveyed portion of the land belonging to respondent Manalo. For about eight (8) months of _______________ 2 Id., p. 120. 3 Id., p. 209. 378 378 SUPREME COURT REPORTS ANNOTATED Binalay vs. Manalo the year when the level of water at the point where the Cagayan River forks is at its ordinary depth, river water does not flow into the eastern branch. While this condition persists, the eastern bed is dry and is susceptible to cultivation. Considering that water flowed through the eastern branch of the Cagayan River when the cadastral survey was conducted, the elongated strip of land formed by the western and the eastern branches of the Cagayan River looked very much like an island. This strip of land was surveyed on 12 December 1969.4Id., p. 210. It was found to have a total area of 22.7209 hectares and was designated as Lot 821 and Lot 822. The area of Lot 822 is 10.8122 hectares while Lot 821 has an area of 11.9087 hectares. Lot 821 is located directly opposite Lot 307

and is separated from the latter only by the eastern branch of the Cagayan River during the rainy season and, during the dry season, by the exposed, dry river bed, being a portion of the land bought from Faustina Taccad. Respondent Manalo claims that Lot 821 also belongs to him by way of accretion to the submerged portion of the property to which it is adjacent. Petitioners who are in possession of Lot 821, upon the other hand, insist that they own Lot 821. They occupy the outer edges of Lot 821 along the river banks, i.e., the fertile portions on which they plant tobacco and other agricultural products. They also cultivate the western strip of the unsurveyed portion during summer.5Exhibits “1-C.” “1-D” and “1-E” for the Prosecution. Records, p. 209. This situation compelled respondent Manalo to file a case for forcible entry against petitioners on 20 May 1969. The case was dismissed by the Municipal Court of Tumauini, Isabela for failure of both parties to appear. On 15 December 1972, respondent Manalo again filed a case for forcible entry against petitioners. The latter case was similarly dismissed for lack of jurisdiction by the Municipal Court of Tumauini, Isabela. On 24 July 1974, respondent Manalo filed a complaint6Records, pp. 1-6. before the then Court of First Instance of Isabela, Branch 3 for quiet_______________ 4 Id., p. 210. 5 Exhibits “1-C.” “1-D” and “1-E” for the Prosecution. Records, p. 209. 6 Records, pp. 1-6. 379

VOL. 195, MARCH 18, 1991 379 Binalay vs. Manalo ing of title, possession and damages against petitioners. He alleged ownership of the two (2) parcels of land he bought separately from Faustina Taccad and Gregorio Taguba for which reason he prayed that judgment be entered ordering petitioners to vacate the western strip of the unsurveyed portion. Respondent Manalo likewise prayed that judgment be entered declaring him as owner of Lot 821 on which he had laid his claim during the survey. Petitioners filed their answer denying the material allegations of the complaint. The case was then set for trial for failure of the parties to reach an amicable agreement or to enter into a stipulation of facts.7Id., p. 24. On 10 November 1982, the trial court rendered a decision with the following dispositive portion: “WHEREFORE, in the light of the foregoing premises, the Court renders judgment against the defendants and in favor of the plaintiff and orders: 1. That plaintiff, Guillermo Manalo, is declared the lawful owner of the land in question, Lot No. 821, Pls-964 of Tumauini Cadastre, and which is more particularly described in paragraph 2-b of the Complaint; 2. That the defendants are hereby ordered to vacate the premises of the land in question, Lot No. 821, Pls-964 of Tumauini Cadastre, and which is more particularly described in paragraph 2-b of the Complaint; 3. That the defendants are being restrained from entering the premises of the land in question, Lot No. 821, Pls-964 of

Tumauini Cadastre, and which is more particularly described in paragraph 2-b of the Complaint; and 4. That there is no pronouncement as to attorney’s fees and costs. SO ORDERED.”8Court of First Instance Decision, p. 40; Rollo, p. 98. Petitioners appealed to the Court of Appeals which, however, affirmed the decision of the trial court. They filed a motion for reconsideration, without success. While petitioners insist that Lot 821 is part of an island surrounded by the two (2) branches of the Cagayan River, the _______________ 7 Id., p. 24. 8 Court of First Instance Decision, p. 40; Rollo, p. 98. 380 380 SUPREME COURT REPORTS ANNOTATED Binalay vs. Manalo Court of Appeals found otherwise. The Court of Appeals concurred with the finding of the trial court that Lot 821 cannot be considered separate and distinct from Lot 307 since the eastern branch of the Cagayan River substantially dries up for the most part of the year such that when this happens, Lot 821 becomes physically (i.e., by land) connected with the dried up bed owned by respondent Manalo. Both courts below in effect rejected the assertion of petitioners that the depression on the earth’s surface which separates Lot 307 and Lot 821 is, during part of the year, the bed of the eastern branch of the Cagayan River.

It is a familiar rule that the findings of facts of the trial court are entitled to great respect, and that they carry even more weight when affirmed by the Court of Appeals.9Go Ong vs. Court of Appeals, 154 SCRA 270 (1987). This is in recognition of the peculiar advantage on the part of the trial court of being able to observe first-hand the deportment of the witnesses while testifying. Jurisprudence is likewise settled that the Court of Appeals is the final arbiter of questions of fact.10Sese vs. Intermediate Appellate Court, 152 SCRA 585 (1987). But whether a conclusion drawn from such findings of facts is correct, is a question of law cognizable by this Court.11Pilar Development Corporation vs. Intermediate Appellate Court, 146 SCRA 215 (1986). In the instant case, the conclusion reached by both courts below apparently collides with their findings that periodically at the onset of and during the rainy season, river water flows through the eastern bed of the Cagayan River. The trial court held: “The Court believes that the land in controversy is of the nature and character of alluvion (Accretion), for it appears that during the dry season, the body of water separating the same land in controversy (Lot No. 821, Pls-964) and the two (2) parcels of land which the plaintiff purchased from Gregorio Taguba and Justina Taccad Cayaba becomes a marshy land and is only six (6) inches deep and twelve (12) meters in width at its widest in the northern tip (Exhs. ‘W’, ‘W-1’, ‘W-2’, ‘W-3’ and ‘W-4’). It has been held by our Supreme Court that ‘the owner of the riparian land which receives the gradual deposits of alluvion, does not have to make an express act of possession. The law does

_______________ 9 Go Ong vs. Court of Appeals, 154 SCRA 270 (1987). 10 Sese vs. Intermediate Appellate Court, 152 SCRA 585 (1987). 11 Pilar Development Corporation vs. Intermediate Appellate Court, 146 SCRA 215 (1986). 381 VOL. 195, MARCH 18, 1991 381 Binalay vs. Manalo not require it, and the deposit created by the current of the water becomes manifest’ (Roxas vs. Tuazon, 6 Phil. 408).”12Court of First Instance Decision, p. 39; Rollo, p. 97. The Court of Apppeals adhered substantially to the conclusion reached by the trial court, thus: “As found by the trial court, the disputed property is not an island in the strict sense of the word since the eastern portion of the said property claimed by appellants to be part of the Cagayan River dries up during summer. Admittedly, it is the action of the heavy rains which comes during rainy season especially from September to November which increases the water level of the Cagayan river. As the river becomes swollen due to heavy rains, the lower portion of the said strip of land located at its southernmost point would be inundated with water. This is where the water of the Cagayan river gains its entry. Consequently, if the water level is high the whole strip of land would be under water.” In Government of the Philippine Islands vs. Colegio de San Jose, it was held that—

‘According to the foregoing definition of the words “ordinary” and “extra-ordinary,” the highest depth of the waters of Laguna de Bay during the dry season is the ordinary one, and the highest depth they attain during the extra-ordinary one (sic); inasmuch as the former is the one which is regular, common, natural, which occurs always or most of the time during the year, while the latter is uncommon, transcends the general rule, order and measure, and goes beyond that which is the ordinary depth. If according to the definition given by Article 74 of the Law of Waters quoted above, the natural bed or basin of the lakes is the ground covered by their waters when at their highest ordinary depth, the natural bed or basin of Laguna de Bay is the ground covered by its waters when at their highest depth during the dry season, that is up to the northeastern boundary of the two parcels of land in question.’ We find the foregoing ruling to be analogous to the case at bar. The highest ordinary level of the waters of the Cagayan River is that attained during the dry season which is confined only on the west side of Lot [821] and Lot [822]. This is the natural Cagayan river itself. The _______________ 12 Court of First Instance Decision, p. 39; Rollo, p. 97. 382 382 SUPREME COURT REPORTS ANNOTATED Binalay vs. Manalo small residual of water between Lot [821] and 307 is part of the small stream already in existence when the whole of the late Judge Juan Taccad’s property was still susceptible to

cultivation and uneroded.”13Court of Appeals Decision, pp. 56; citation omitted. The Court is unable to agree with the Court of Appeals that Government of the Philippine Islands vs. Colegio de San Jose1453 Phil. 423. (1929). is applicable to the present case. That case involved Laguna de Bay; since Laguna de Bay is a lake, the Court applied the legal provisions governing the ownership and use of lakes and their beds and shores, in order to determine the character and ownership of the disputed property. Specifically, the Court applied the definition of the natural bed or basin of lakes found in Article 74 of the Law of Waters of 3 August 1866. Upon the other hand, what is involved in the instant case is the eastern bed of the Cagayan River. We believe and so hold that Article 70 of the Law of Waters of 3 August 1866 is the law applicable to the case at bar: “Art. 70. The natural bed or channel of a creek or river is the ground covered by its waters during the highest floods”. (Italics supplied) We note that Article 70 defines the natural bed or channel of a creek or river as the ground covered by its waters during the highest floods. The highest floods in the eastern branch of the Cagayan River occur with the annual coming of the rains as the river waters in their onward course cover the entire depressed portion. Though the eastern bed substantially dries up for the most part of the year (i.e., from January to August), we cannot ignore the periodical swelling of the waters (i.e., from September to December) causing the eastern bed to be covered with flowing river waters.

The conclusion of this Court that the depressed portion is a river bed rests upon evidence of record. Firstly, respondent Manalo admitted in open court that the entire area he bought from Gregorio Taguba was included in Lot 307.15TSN, 7 October 1975, pp. 4-6. If the 1.80 _______________ 13 Court of Appeals Decision, pp. 5-6; citation omitted. 14 53 Phil. 423. (1929). 15 TSN, 7 October 1975, pp. 4-6. 383 VOL. 195, MARCH 18, 1991 383 Binalay vs. Manalo hectares purchased from Gregorio Taguba was included in Lot 307, then the Cagayan River referred to as the western boundary in the Deed of Sale transferring the land from Gregorio Taguba to respondent Manalo as well as the Deed of Sale signed by Faustina Taccad, must refer to the dried up bed (during the dry months) or the eastern branch of the river (during the rainy months). In the Sketch Plan attached to the records of the case, Lot 307 is separated from the western branch of the Cagayan River by a large tract of land which includes not only Lot 821 but also what this Court characterizes as the eastern branch of the Cagayan River. Secondly, the pictures identified by respondent Manalo during his direct examination depict the depressed portion as a river bed. The pictures, marked as Exhibits “W” to “W-4”, were taken in July 1973 or at a time when the eastern bed becomes visible.16TSN, 13 October 1975, pp. 9-10. Thus, Exhibit “W-

2” which according to respondent Manalo was taken facing the east and Exhibit “W-3” which was taken facing the west both show that the visible, dried up portion has a markedly lower elevation than Lot 307 and Lot 821. It has dike-like slopes on both sides connecting it to Lot 307 and Lot 821 that are vertical upward and very prominent. This topographic feature is compatible with the fact that a huge volume of water passes through the eastern bed regularly during the rainy season. In addition, petitioner Ponciano Gannaban testified that one had to go down what he called a “cliff” from the surveyed portion of the land of respondent Manalo to the depressed portion. The cliff, as related by petitioner Gannaban, has a height of eight (8) meters.17TSN, 3 November 1976, p. 3. The records do not show when the Cagayan River began to carve its eastern channel on the surface of the earth. However, Exhibit “E”18Records, p. 122. for the prosecution which was the Declaration of Real Property standing in the name of Faustina Taccad indicates that the eastern bed already existed even before the sale to respondent Manalo. The words “old bed” enclosed in parentheses—perhaps written to make legitimate the claim of private ownership over the submerged portion—is an implied _______________ 16 TSN, 13 October 1975, pp. 9-10. 17 TSN, 3 November 1976, p. 3. 18 Records, p. 122. 384 384 SUPREME COURT REPORTS ANNOTATED Binalay vs. Manalo

admission of the existence of the river bed. In the Declaration of Real Property made by respondent Manalo, the depressed portion assumed the name Rio Muerte de Cagayan. Indeed, the steep dike-like slopes on either side of the eastern bed could have been formed only after a prolonged period of time. Now, then, pursuant to Article 420 of the Civil Code, respondent Manalo did not acquire private ownership of the bed of the eastern branch of the river even if it was included in the deeds of absolute sale executed by Gregorio Taguba and Faustina Taccad in his favor. These vendors could not have validly sold land that constituted property of public dominion. Article 420 of the Civil Code states: “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.” (Italics supplied) Although Article 420 speaks only of rivers and banks, “rivers” is a composite term which includes: (1) the running waters, (2) the bed, and (3) the banks.19Hilario vs. City of Manila, 126 Phil. 128 (1967). Manresa, in commenting upon Article 339 of the Spanish Civil Code of 1889 from which Article 420 of the Philippine Civil Code was taken, stressed the public ownership of river beds: “La naturaleza especial de los rios, en punto a su disfrute general, hace que sea necesario considerar en su relacion de dominio algo mas que sus aguas corrientes. En efecto, en todo

rio es preciso distinguir: 1. esta agua corriente; 2. el alveo o cauce, y 3. las riberas. Ahora bien: son estas dos ultimas cosas siempre de dominio publico, como las aguas? “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 aquellos tres elementos que integran el rio. Por otra parte, en cuanto a los alveos o cauces tenemos la declaracion del art. 407, num. 1, donde dice: son de dominio publico ... los rios y sus cauces naturales; declaracion que _______________ 19 Hilario vs. City of Manila, 126 Phil. 128 (1967). 385 VOL. 195, MARCH 18, 1991 385 Binalay vs. Manalo con lo que dispone el art. 34 de la ley de [Aguas], segun el cual, son de dominio publico: 1. los alveos o cauces de los arroyos que no se hallen comprendidos en el art. 33, y 2. los alveos o cauces naturales de los rios en la extension que cubran sus aguas en las mayores crecidas ordinarias.”203 Manresa, Comentarios al Codigo Civil Español (6a ed., 1934), p. 75. (Italics supplied) The claim of ownership of respondent Manalo over the submerged portion is bereft of basis even if it were alleged and proved that the Cagayan River first began to encroach on his property after the purchase from Gregorio Taguba and Faustina Taccad. Article 462 of the Civil Code would then apply divesting, by operation of law, respondent Manalo of private

ownership over the new river bed. The intrusion of the eastern branch of the Cagayan River into his landholding obviously prejudiced respondent Manalo but this is a common occurrence since estates bordering on rivers are exposed to floods and other evils produced by the destructive force of the waters. That loss is compensated by, inter alia, the right of accretion acknowledged by Article 457 of the Civil Code.21Cortes vs. City of Manila, 10 Phil. 567 (1908). See also Article 461, Civil Code. It so happened that instead of increasing the size of Lot 307, the eastern branch of the Cagayan River had carved a channel on it. We turn next to the issue of accretion. After examining the records of the case, the Court considers that there was no evidence to prove that Lot 821 is an increment to Lot 307 and the bed of the eastern branch of the river. Accretion as a mode of acquiring property under Article 457 of the Civil Code requires the concurrence of three (3) requisites: (a) that the deposition of soil or sediment be gradual and imperceptible; (b) that it be the result of the action of the waters of the river (or sea); and (c) that the land where accretion takes place is adjacent to the banks of rivers (or the sea coast).22Republic vs. Court of Appeals, 132 SCRA 514 (1984). The Court notes that the parcels of land bought by respondent Manalo border on the eastern branch of the Cagayan River. Any accretion formed by this eastern branch which respondent Manalo may claim must be deposited _______________ 20 3 Manresa, Comentarios al Codigo Civil Español (6a ed., 1934), p. 75.

21 Cortes vs. City of Manila, 10 Phil. 567 (1908). See also Article 461, Civil Code. 22 Republic vs. Court of Appeals, 132 SCRA 514 (1984). 386 386 SUPREME COURT REPORTS ANNOTATED Binalay vs. Manalo on or attached to Lot 307. As it is, the claimed accretion (Lot 821) lies on the bank of the river not adjacent to Lot 307 but directly opposite Lot 307 across the river. Assuming (arguendo only) that the Cagayan River referred to in the Deeds of Sale transferring ownership of the land to respondent Manalo is the western branch, the decision of the Court of Appeals and of the trial court are bare of factual findings to the effect that the land purchased by respondent Manalo received alluvium from the action of the river in a slow and gradual manner. On the contrary, the decision of the lower court made mention of several floods that caused the land to reappear making it susceptible to cultivation. A sudden and forceful action like that of flooding is hardly the alluvial process contemplated under Article 457 of the Civil Code. It is the slow and hardly perceptible accumulation of soil deposits that the law grants to the riparian owner. Besides, it is important to note that Lot 821 has an area of 11.91 hectares. Lot 821 is the northern portion of the strip of land having a total area of 22.72 hectares. We find it difficult to suppose that such a sizable area as Lot 821 resulted from slow accretion to another lot of almost equal size. The total landholding purchased by respondent Manalo is 10.45 hectares

(8.65 hectares from Faustina Taccad and 1.80 hectares from Gregorio Taguba in 1959 and 1964, respectively), in fact even smaller than Lot 821 which he claims by way of accretion. The cadastral survey showing that Lot 821 has an area of 11.91 hectares was conducted in 1969. If respondent Manalo’s contention were accepted, it would mean that in a span of only ten (10) years, he had more than doubled his landholding by what the Court of Appeals and the trial court considered as accretion. As already noted, there are steep vertical dike-like slopes separating the depressed portion or river bed and Lot 821 and Lot 307. This topography of the land, among other things, precludes a reasonable conclusion that Lot 821 is an increment to the depressed portion by reason of the slow and constant action of the waters of either the western or the eastern branches of the Cagayan River. We turn finally to the issue of ownership of Lot 821. Respondent Manalo’s claim over Lot 821 rests on accretion coupled with alleged prior possession. He alleged that the parcels of 387 VOL. 195, MARCH 18, 1991 387 Binalay vs. Manalo land he bought separately from Gregorio Taguba and Faustina Taccad were formerly owned by Judge Juan Taccad who was in possession thereof through his (Judge Taccad’s) tenants. When ownership was transferred to him, respondent Manalo took over the cultivation of the property and had it declared for taxation purposes in his name. When petitioners forcibly

entered into his property, he twice instituted the appropriate action before the Municipal Trial Court of Tumauini, Isabela. Against respondent Manalo’s allegation of prior possession, petitioners presented tax declarations standing in their respective names. They claimed lawful, peaceful and adverse possession of Lot 821 since 1955. If respondent Manalo had proved prior possession, it was limited physically to Lot 307 and the depressed portion or the eastern river bed. The testimony of Dominga Malana who was a tenant for Justina Taccad did not indicate that she was also cultivating Lot 821. In fact, the complaints for forcible entry lodged before the Municipal Trial Court of Tumauini, Isabela pertained only to Lot 307 and the depressed portion or river bed and not to Lot 821. In the same manner, the tax declarations presented by petitioners conflict with those of respondent Manalo. Under Article 477 of the Civil Code, the plaintiff in an action for quieting of title must at least have equitable title to or interest in the real property which is the subject matter of the action. The evidence of record on this point is less than satisfactory and the Court feels compelled to refrain from determining the ownership and possession of Lot 821, adjudging neither petitioners nor respondent Manalo as owner(s) thereof. WHEREFORE, the Decision and Resolution of the Court of Appeals in C.A.-G.R. CV No. 04892 are hereby SET ASIDE. Respondent Manalo is hereby declared the owner of Lot 307. The regularly submerged portion or the eastern bed of the Cagayan River is hereby DECLARED to be property of public dominion. The ownership of Lot 821 shall be determined in an

appropriate action that may be instituted by the interested parties inter se. No pronouncement as to costs. SO ORDERED. Fernan (C.J., Chairman), Gutierrez, Jr., Bidin and Davide, Jr., JJ., concur. 388 388 SUPREME COURT REPORTS ANNOTATED People vs. Sucro Decision and resolution set aside. Note.—For accretion or alluvion to form part of registered land of riparian owner, the gradual alluvial deposits made by human intervention are excluded. (Republic vs. Court of Appeals, 132 SCRA 514.) ——o0o—— [Binalay vs. Manalo, 195 SCRA 374(1991)]

G.R. No. 168800. April 16, 2009.* NEW REGENT SOURCES, INC., petitioner, vs. TEOFILO VICTOR TANJUATCO, JR., and VICENTE CUEVAS,** respondents. Remedial Law; Appeals; It is well-established that in an appeal by certiorari, only questions of law may be reviewed; A question of law exists when there is doubt or difference as to what the law is on a certain state of facts; A question of fact exists if the doubt centers on the truth or falsity of the alleged facts.—In its petition, NRSI questions the trial court’s dismissal of its complaint upon a demurrer to evidence and invites a calibration of the evidence on record to determine the sufficiency of the factual basis for the trial court’s order. This factual analysis, however, would involve questions of fact which are improper in a petition for review under Rule 45 of the Rules of Court. It is well-established that in an appeal by certiorari, only questions of law may be reviewed. A question of law exists when there is doubt or difference as to what the law is on a certain state of facts. A question of fact exists if the doubt centers on the truth or falsity of the alleged facts. There is a question of law when the issue does not call for an examination of the probative value of evidence presented, the truth or falsehood of facts being admitted, and the doubt concerns the correct application of law and jurisprudence on the matter. Otherwise, there is a question of fact. Since it raises essentially questions of fact, the instant petition must be denied. Same; Civil Procedure; Demurrer to Evidence; The Rules provide that if the defendant’s motion is denied, he shall have the right to present evidence; If the defendant’s motion is

granted but on appeal the order of dismissal is reversed, he shall be deemed to have waived the right to present evidence.—We note that Tanjuatco filed a demurrer to evidence before the RTC. By its nature, a demurrer to evidence is filed after the plaintiff has completed the presentation of his evidence but before the defendant offers evidence in his defense. Thus, the Rules provide that if the defendant’s motion is denied, he shall have the right to present evidence. However, if the defendant’s mo_______________ * SECOND DIVISION. ** Also known as Vicente P. Cuevas III. 330 330SUPREME COURT REPORTS ANNOTATED New Regent Sources, Inc. vs. Tanjuatco, Jr. tion is granted but on appeal the order of dismissal is reversed, he shall be deemed to have waived the right to present evidence. Civil Law; Property; Reconveyance; An action for reconveyance is one that seeks to transfer property, wrongfully registered by another, to its rightful and legal owner.— Petitioner filed a complaint for rescission/declaration of nullity of contract, reconveyance and damages against respondents. An action for reconveyance is one that seeks to transfer property, wrongfully registered by another, to its rightful and legal owner. In an action for reconveyance, the certificate of title is respected as incontrovertible. What is sought instead is the transfer of the property, specifically the title thereof, which has been wrongfully or erroneously registered in another

person’s name, to its rightful and legal owner, or to one with a better right. Same; Same; Same; Requisites to Warrant a Reconveyance.— To warrant a reconveyance of the land, the following requisites must concur: (1) the action must be brought in the name of a person claiming ownership or dominical right over the land registered in the name of the defendant; (2) the registration of the land in the name of the defendant was procured through fraud or other illegal means; (3) the property has not yet passed to an innocent purchaser for value; and (4) the action is filed after the certificate of title had already become final and incontrovertible but within four years from the discovery of the fraud, or not later than 10 years in the case of an implied trust. Petitioner failed to show the presence of these requisites. Same; Same; Accretion; Requisites to Acquire Property by Accretion.—But it must be stressed that accretion as a mode of acquiring property under Article 457 of the Civil Code requires the concurrence of the following 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; and (3) that the land where accretion takes place is adjacent to the banks of rivers. Thus, it is not enough to be a riparian owner in order to enjoy the benefits of accretion. One who claims the right of accretion must show by preponderant evidence that he has met all the conditions provided by law. Same; Same; Sales; Certificate of Title; Innocent Purchaser for Value; A person dealing with registered land may safely rely upon the 331 VOL. 585, APRIL 16, 2009331

New Regent Sources, Inc. vs. Tanjuatco, Jr. correctness of the certificate of title issued therefor and the law will in no way oblige him to go behind the certificate to determine the condition of the property; Meaning of an Innocent Purchaser for Value.—Petitioner introduced in evidence TCT Nos. T-369406 and T-369407 in the name of respondent Tanjuatco. These titles bear a certification that Tanjuatco’s titles were derived from OCT No. 245 in the name of no less than the Republic of the Philippines. Hence, we cannot validly and fairly rule that in relying upon said title, Tanjuatco acted in bad faith. A person dealing with registered land may safely rely upon the correctness of the certificate of title issued therefor and the law will in no way oblige him to go behind the certificate to determine the condition of the property. This applies even more particularly when the seller happens to be the Republic, against which, no improper motive can be ascribed. The law, no doubt, considers Tanjuatco an innocent purchaser for value. An innocent purchaser for value is one who buys the property of another, without notice that some other person has a right or interest in such property and pays the full price for the same, at the time of such purchase or before he has notice of the claims or interest of some other person in the property. PETITION for review on certiorari of the orders of the Regional Trial Court of Calamba City, Br. 37. The facts are stated in the opinion of the Court. Cortez & Associates for petitioner. Law Firm Tanjuatco & Partners for respondents. QUISUMBING, J.:

Petitioner through counsel prays for the reversal of the Orders dated February 12, 20051 and July 1, 20052 of the Regional Trial Court (RTC) of Calamba City, Branch 37, in Civil Case No. 2662-98-C. The RTC had granted the demurrer to _______________ 1 Rollo, pp. 26-27. Penned by Judge Antonio T. Manzano. 2 Id., at p. 28. 332 332SUPREME COURT REPORTS ANNOTATED New Regent Sources, Inc. vs. Tanjuatco, Jr. evidence filed by respondent Tanjuatco, and then denied petitioner’s motion for reconsideration. The facts, as culled from the records, are as follows: Petitioner New Regent Sources, Inc. (NRSI) filed a Complaint3 for Rescission/Declaration of Nullity of Contract, Reconveyance and Damages against respondent Tanjuatco and the Register of Deeds of Calamba before the RTC of Calamba, Laguna, Branch 37. NRSI alleged that in 1994, it authorized Vicente P. Cuevas III, its Chairman and President, to apply on its behalf, for the acquisition of two parcels of land by virtue of its right of accretion. Cuevas purportedly applied for the lots in his name by paying P82,400.38 to the Bureau of Lands. On January 2, 1995, Cuevas and his wife executed a Voting Trust Agreement4 over their shares of stock in the corporation. Then, pending approval of the application with the Bureau of Lands, Cuevas assigned his right to Tanjuatco for the sum of P85,000.5 On March 12, 1996, the Director of Lands released an Order,6 which approved the transfer of rights from Cuevas

to Tanjuatco. Transfer Certificates of Title Nos. T-3694067 and T-3694078 were then issued in the name of Tanjuatco. In his Answer with Counterclaim,9 Tanjuatco advanced the affirmative defense that the complaint stated no cause of action against him. According to Tanjuatco, it was Cuevas who was alleged to have defrauded the corporation. He averred further that the complaint did not charge him with knowledge of the agreement between Cuevas and NRSI. _______________ 3 Records, Vol. I, pp. 1-5. 4 Rollo, pp. 31-33. 5 Id., at pp. 34-37. 6 Records, Vol. I, p. 41. 7 Id., at p. 6. 8 Id., at p. 7. 9 Id., at pp. 27-34. 333 VOL. 585, APRIL 16, 2009333 New Regent Sources, Inc. vs. Tanjuatco, Jr. Upon Tanjuatco’s motion, the trial court conducted a preliminary hearing on the affirmative defense, but denied the motion to dismiss, and ordered petitioner to amend its complaint and implead Cuevas as a defendant.10 Summons was served on respondent Cuevas through publication,11 but he was later declared in default for failure to file an answer.12 After NRSI completed presenting evidence, Tanjuatco filed a Demurrer to Evidence,13 which the RTC granted in an Order dated February 12, 2005. In dismissing NRSI’s complaint,14

the RTC cited the Order of the Director of Lands and certain insufficiencies in the allegations in the complaint. The trial court further held that Tanjuatco is an innocent purchaser for value. NRSI moved for reconsideration, but it was denied by the trial court in an Order dated July 1, 2005, thus: “WHEREFORE, the Motion for Reconsideration filed by the plaintiff on May 3, 2005 is DENIED for lack of merit. SO ORDERED.”15 Hence, NRSI filed the instant petition for review on certiorari, raising the following issues: _______________ 10 Id., at pp. 101-102. 11 Id., at pp. 209-211. 12 Id., at pp. 221-222. 13 Id., at pp. 318-332. 14 Rollo, p. 27. The dispositive portion reads: WHEREFORE, the Motion To Dismiss by way of Demurrer To Evidence filed by defendant Tanjuatco is granted. The complaint for Rescission/Declaration of Nullity of Contract, Reconveyance, and Damages filed by plaintiff New Regent Sources, Inc. is DISMISSED. SO ORDERED. 15 Id., at p. 28. 334 334SUPREME COURT REPORTS ANNOTATED New Regent Sources, Inc. vs. Tanjuatco, Jr. I.

WHETHER OR NOT THE ALLEGED INSUFFICIENCY OF THE ALLEGATIONS IN THE COMPLAINT MAY BE USED AS A BASIS TO DISMISS THE SAME BY WAY OF A DEMURRER TO EVIDENCE; II. WHETHER OR NOT A COMPLAINT MAY BE DISMISSED ON DEMURRER TO EVIDENCE BASED ON A DOCUMENT NOT PROPERLY IDENTIFIED, MARKED AND OFFERED IN EVIDENCE.16 In a nutshell, the issue for our determination is whether the trial court erred in dismissing the case on demurrer to evidence. NRSI argues that the supposed insufficiency of allegations in the complaint did not justify its dismissal on demurrer to evidence. It contends that a dismissal on demurrer to evidence should be grounded on insufficiency of evidence presented at trial. NRSI contends that the sufficiency of its allegations was affirmed when the trial court denied the motion to dismiss. It likewise asserts that the RTC erred in declaring Tanjuatco a buyer in good faith. It stressed that the Order of the Director of Lands, as the basis for such finding, was not formally offered in evidence. Hence, it should not have been considered by the trial court in accordance with Section 34,17 Rule 132 of the Rules of Court. Tanjuatco, for his part, maintains that NRSI failed to make a case for reconveyance against him. He insists that the complaint stated no cause of action, and the evidence presented established, rather than refuted, that he was an innocent purchaser. Tanjuatco adds that the RTC’s denial of the mo_______________ 16 Id., at p. 16.

17 SEC. 34. Offer of evidence.—The court shall consider no evidence which has not been formally offered. The purpose for which the evidence is offered must be specified. 335 VOL. 585, APRIL 16, 2009335 New Regent Sources, Inc. vs. Tanjuatco, Jr. tion to dismiss, and admission of evidence negated NRSI’s claim that it relied on the complaint alone to decide the case. Lastly, Tanjuatco argues that the Order of the Director of Lands was a matter of judicial notice. Thus, under Section 1,18 Rule 129 of the Rules of Court, there was no need to identify, mark, and offer it in evidence. After serious consideration, we find the instant petition utterly without merit. In its petition, NRSI questions the trial court’s dismissal of its complaint upon a demurrer to evidence and invites a calibration of the evidence on record to determine the sufficiency of the factual basis for the trial court’s order. This factual analysis, however, would involve questions of fact which are improper in a petition for review under Rule 45 of the Rules of Court. It is well established that in an appeal by certiorari, only questions of law may be reviewed.19 A question of law exists when there is doubt or difference as to what the law is on a certain state of facts. A question of fact exists if the doubt centers on the truth or falsity of the alleged facts.20 There is a question of law when the issue does not call for an examination of the probative value of evidence presented, the truth or falsehood of facts being admitted, and the doubt concerns the

_______________ 18 SECTION 1. Judicial notice, when mandatory.—A court shall take judicial notice, without the introduction of evidence, of the existence and territorial extent of states, their political history, forms of government and symbols of nationality, the law of nations, the admiralty and maritime courts of the world and their seals, the political constitution and history of the Philippines, the official acts of the legislative, executive and judicial departments of the Philippines, the laws of nature, the measure of time, and the geographical divisions. (Emphasis supplied.) 19 Bangko Sentral ng Pilipinas v. Santamaria, G.R. No. 139885, January 13, 2003, 395 SCRA 84, 92. 20 Morales v. Skills International Company, G.R. No. 149285, August 30, 2006, 500 SCRA 186, 194, citing Microsoft Corporation v. Maxicorp, Inc., G.R. No. 140946, 438 SCRA 224, 230-231. 336 336SUPREME COURT REPORTS ANNOTATED New Regent Sources, Inc. vs. Tanjuatco, Jr. correct application of law and jurisprudence on the matter.21 Otherwise, there is a question of fact. Since it raises essentially questions of fact, the instant petition must be denied. In any event, we find that based on the examination of the evidence at hand, we are in agreement that the trial court correctly dismissed NRSI’s complaint on demurrer to evidence. Petitioner filed a complaint for rescission/declaration of nullity of contract, reconveyance and damages against respondents. An action for reconveyance is one that seeks to transfer

property, wrongfully registered by another, to its rightful and legal owner.22 In an action for reconveyance, the certificate of title is respected as incontrovertible. What is sought instead is the transfer of the property, specifically the title thereof, which has been wrongfully or erroneously registered in another person’s name, to its rightful and legal owner, or to one with a better right.23 To warrant a reconveyance of the land, the following requisites must concur: (1) the action must be brought in the name of a person claiming ownership or dominical right over the land registered in the name of the defendant; (2) the registration of the land in the name of the defendant was procured through fraud24 or other illegal means;25 (3) the property has not yet passed to an innocent purchaser for value;26 and (4) the action is filed after the certificate of title had already _______________ 21 Roman Catholic Archbishop of Manila v. Court of Appeals, G.R. No. 111324, July 5, 1996, 258 SCRA 186, 199. 22 Heirs of Maximo Sanjorjo v. Heirs of Manuel Y. Quijano, G.R. No. 140457, January 19, 2005, 449 SCRA 15, 27. 23 Walstrom v. Mapa, Jr., G.R. No. 38387, January 29, 1990, 181 SCRA 431, 442. 24 Id., at p. 440. 25 Heirs of Ambrocio Kionisala v. Heirs of Honorio Dacut, G.R. No. 147379, February 27, 2002, 378 SCRA 206, 217. 26 Walstrom v. Mapa, Jr., supra at p. 440. 337 VOL. 585, APRIL 16, 2009337 New Regent Sources, Inc. vs. Tanjuatco, Jr.

become final and incontrovertible27 but within four years from the discovery of the fraud,28 or not later than 10 years in the case of an implied trust.29 Petitioner failed to show the presence of these requisites. Primarily, NRSI anchors its claim over the lands subjects of this case on the right of accretion. It submitted in evidence, titles30 to four parcels of land, which allegedly adjoin the lots in the name of Tanjuatco. But it must be stressed that accretion as a mode of acquiring property under Article 45731 of the Civil Code requires the concurrence of the following 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; and (3) that the land where accretion takes place is adjacent to the banks of rivers.32 Thus, it is not enough to be a riparian owner in order to enjoy the benefits of accretion. One who claims the right of accretion must show by preponderant evidence that he has met all the conditions provided by law. Petitioner has notably failed in this regard as it did not offer any evidence to prove that it has satisfied the foregoing requisites. Further, it is undisputed that Tanjuatco derived his title to the lands from Original Certificate of Title (OCT) No. 245 registered in the name of the Republic of the Philippines. Said _______________ 27 A. Noblejas and E. Noblejas, Registration of Land Titles and Deeds 247 (2007 Revised ed.). 28 Balbin v. Medalla, No. L-46410, October 30, 1981, 108 SCRA 666, 677. 29 Heirs of Ambrocio Kionisala v. Heirs of Honorio Dacut, supra at p. 219.

30 Records, Vol. I, pp. 298-305. TCT No. T-312462, TCT No. T-312463, TCT No. T-312464, TCT No. T-312465. 31 Art. 457. 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. 32 Meneses v. Court of Appeals, G.R. Nos. 82220, 82251 and 83059, July 14, 1995, 246 SCRA 162, 172. 338 338SUPREME COURT REPORTS ANNOTATED New Regent Sources, Inc. vs. Tanjuatco, Jr. parcels of land formed part of the Dried San Juan River Bed,33 which under Article 502 (1)34 of the Civil Code rightly pertains to the public dominion. The Certification35 issued by Forester III Emiliano S. Leviste confirms that said lands were verified to be within the Alienable and Disposable Project No. 11-B of Calamba, Laguna per BFD LC Map No. 3004, certified and declared as such on September 28, 1981. Clearly, the Republic is the entity which had every right to transfer ownership thereof to respondent. Next, petitioner sought to establish fraudulent registration of the land in the name of Tanjuatco. NRSI presented before the trial court a copy of the Voting Trust Agreement which the spouses Cuevas executed in favor of Pauline Co. However, nothing in said agreement indicates that NRSI empowered Cuevas to apply for the registration of the subject lots on its behalf. Neither did petitioner adduce evidence to prove that Cuevas was its President and Chairman. Even assuming that Cuevas was the president of NRSI, his powers are confined only to

those vested upon him by the board of directors or fixed in the by-laws.36 In truth, petitioner could have easily presented its by-laws or a corporate resolution37 to show Cuevas’s authority to buy the lands on its behalf. But it did not. Petitioner disagrees with the trial court’s finding that Tanjuatco was a buyer in good faith. It contends that the March _______________ 33 Rollo, pp. 29-30. 34 Art. 502. The following are of public dominion: (1) Rivers and their natural beds; xxxx 35 Records, Vol. I, p. 35. 36 H. De Leon, The Law on Partnerships and Private Corporations 281 (2001 ed.). 37 black’s law dictionary 1311 (6th ed.). Corporation resolution.—Formal documentation of action taken by board of directors of corporation. 339 VOL. 585, APRIL 16, 2009339 New Regent Sources, Inc. vs. Tanjuatco, Jr. 12, 1996 Order of the Director of Lands which declared that the lots covered by TCT Nos. T-369406 and T-369407 were free from claims and conflicts when Cuevas assigned his rights thereon to Tanjuatco. But petitioner’s claim is untenable because respondents did not formally offer said order in evidence. Lastly, petitioner makes an issue regarding the “below-fair market value” consideration which Tanjuatco paid Cuevas for the assignment of his rights to the lots. But it draws

unconvincing conclusions therefrom that do not serve to persuade us of its claims. We note that Tanjuatco filed a demurrer to evidence before the RTC. By its nature, a demurrer to evidence is filed after the plaintiff has completed the presentation of his evidence but before the defendant offers evidence in his defense. Thus, the Rules provide that if the defendant’s motion is denied, he shall have the right to present evidence. However, if the defendant’s motion is granted but on appeal the order of dismissal is reversed, he shall be deemed to have waived the right to present evidence.38 It is understandable, therefore, why the respondent was unable to formally offer in evidence the Order of the Director of Lands, or any evidence for that matter. More importantly, petitioner introduced in evidence TCT Nos. T-369406 and T-369407 in the name of respondent Tanjuatco. These titles bear a certification that Tanjuatco’s titles were derived from OCT No. 245 in the name of no less than the Republic of the Philippines. Hence, we cannot validly and fairly rule that in relying upon said title, Tanjuatco acted in bad faith. A person dealing with registered land may safely _______________ 38 SECTION 1. Demurrer to evidence.—After the plaintiff has completed the presentation of his evidence, the defendant may move for dismissal on the ground that upon the facts and the law the plaintiff has shown no right to relief. If his motion is denied, he shall have the right to present evidence. If the motion is granted but on appeal the order of dismissal is reversed he shall be deemed to have waived the right to present evidence. 340

340SUPREME COURT REPORTS ANNOTATED New Regent Sources, Inc. vs. Tanjuatco, Jr. rely upon the correctness of the certificate of title issued therefor and the law will in no way oblige him to go behind the certificate to determine the condition of the property.39 This applies even more particularly when the seller happens to be the Republic, against which, no improper motive can be ascribed. The law, no doubt, considers Tanjuatco an innocent purchaser for value. An innocent purchaser for value is one who buys the property of another, without notice that some other person has a right or interest in such property and pays the full price for the same, at the time of such purchase or before he has notice of the claims or interest of some other person in the property.40 As regards the consideration which Tanjuatco paid Cuevas for the assignment of rights to the lands, suffice it to state that the assignment merely vested upon Tanjuatco all of Cuevas’s intangible claims, rights and interests over the properties and not the properties themselves. At the time of the assignment, the lots were still the subjects of a pending sales application before the Bureau of Lands. For, it was not until May 24, 1996, that titles were issued in Tanjuatco’s name. The assignment not being a sale of real property, it was not surprising that Cuevas demanded from Tanjuatco only P85,000 for the transfer of rights. From all the foregoing, it is plain and apparent that NRSI failed to substantiate its claim of entitlement to ownership of the lands in Tanjuatco’s name. The trial court, therefore, correctly dismissed petitioner’s complaint for reconveyance.

WHEREFORE, the petition is DENIED. The Orders dated February 12, 2005 and July 1, 2005 of the Regional Trial Court of Calamba City, Branch 37, in Civil Case No. 2662-98-C are AFFIRMED. Costs against petitioner. [New Regent Sources, Inc. vs. Tanjuatco, Jr., 585 SCRA 329(2009)]

No. 30067. March 23, 1929] PAYATAS ESTATE IMPROVEMENT CO., petitioner and appellant, vs. MARIANO TUASON, AUGUSTO TUASON ET AL., oppositors and appellees. 1. RlPARIAN RlGHTS; ACCRETIONS; OWNERSHIP THEREOF; LAND REGISTRATION LAWS.—Accretions which the banks of rivers may gradually receive from the effect of the current become the property of the owners of the banks. Such accretions are natural incidents to land bordering on running streams, and the provisions of the Civil Code in that' respect are not affected by the Land Registration Act. 2. LAND REGISTRATION ACT; RANGE OF SECTION 112 OF THE ACT.—The questions raised in the present case were not improperly brought before the court under section 112 of the Land Registration Act although they might also have been ventilated in a separate action. APPEAL from an order of the Court of First Instance of Rizal. Llorente, J. The facts are stated in the opinion of the court. Eusebio Orense, Vicente Santiago and Nicolas Belmonte for appellant. Araneta & Zaragoza for appellees. OSTRAND, J.: Maria de la Concepcion Martinez Cañas was originally the owner of the so-called Payatas estate, the principal part of which was bounded on the east by the Mariquina River. The so-called Mariquina estate adjoined the river on the other side and belonged to the Tuasons. In 1904, shortly after the initiation of the Torrens system of land registration, Maria de la Concepcion Cañas had the

property surveyed and obtained a certificate of title to the same. Later on, the land, consisting of three parcels, A, B and C, was sold by her to the Payatas Estate Improvement Company. In 1920 another survey was made for subdivision purposes, and on October 15, 1924, the subdivision plans were submitted to the Court of First 56 56 PHILIPPINE REPORTS ANNOTATED Payatas Estate Improvement Co. vs. Tuason Instance of Rizal for approval. In the motion accompanying the plans, it was stated: "1. That as shown by the transfer certificate of title No. 8691 issued by the register of deeds of Rizal, Philippine Islands, said company (the Payatas Estate Improvement Company) is the owner of the hacienda,, known under the name of 'Payatas,' situated in the municipality of San Mateo and Montalban of said province. "2. That in 1920 and 1921 said hacienda was surveyed by the surveyor Salvador N. Tolentino, dividing it in two parcels, the first portion being subdivided in 124 lots according to plan P. S. U. 24733, and the second portion being subdivided in 149 lots according to plan P. S. U. 32686. Both plans had already been approved by the Director of Lands." Before action on the motion was taken by the court, the plans were submitted to the General Land Registration Office for examination. After such examination, attention was called to the fact that the rivers, esteros, roads and some portions of land which were within the original plan had been excluded and that

the total area of the land included in the subdivision plans was only 4,839 hectares, 88 ares and 3 centares instead of 5,122 hectares, 84 ares and 35 centares as shown by the plan upon which the original decree was issued. The surveyor who prepared the plans explained that the difference in area was due " (1) to his conforming to the adjoining decreed old surveys, (2) to the exclusion of rivers and creeks inside the estate, and (3) to the erosion on the bank of Montalban-San Mateo river before the new survey, P. S. U. 24733, was executed." On October 25, 1924, the Payatas Estate Improvement Company filed another motion in which it asked that transfer certificate of title No. 8691 be cancelled as to parcels A and C but not in regard to parcel B, the latter not being included in the subdivision. Two days later, the Court of First Instance approved the subdivision and gave in57 VOL. 53, MARCH 23, 1929 57 Payatas Estate Improvement Co. vs. Tuason structions to the register of deeds in accordance with the Improvement Company's last motion. The register of deeds complied fully with the order of the court, and certificates of title were issued accordingly, but on March 18, 1925, the Payatas Estate Improvement Company filed another motion alleging that the area of the subdivided land, parcels A and C, together with parcel B, did not include all the land to which the company was entitled and which was included in the plan Exhibit A upon which the final decree was issued in 1905. The motion was accompanied by a plan (P. S.

U. 45292) of two strips of land situated along the eastern side of the Mariquina River and embracing a little over 22 hectares, and the company asked that a certificate of title be issued in its favor in accordance with that plan. The motion was opposed by the Tuasons and after hearing, the court below denied it, principally on the ground that a motion in the land registration record was not the proper action in a case such as this. From this order the Payatas Estate Improvement Company appealed. The controversy in the present case seems to be due to the erroneous conception that article 366 of the Civil Code does not apply to Torrens registered land. That article provides that "any accretions which the banks of rivers may gradually receive from the effect of the current belong to the owners of the estates bordering thereon." Accretions of that character are natural incidents to land bordering on running streams and are not affected by the registration laws. It follows that registration does not protect the riparian owner against diminution of the area of his land through gradual changes in the course of the adjoining stream. At the points where the land now in question is situated, the Mariquina River separates the Payatas estate from the Mariquina estate and constitutes the boundary between the two estates. According to plan P. S. U. 45292, the 58 58 PHILIPPINE REPORTS ANNOTATED Payatas Estate Improvement Co. vs. Tuason

river has changed its course to the prejudice of the Payatas estate on the western side of the stream and to the benefit of the Mariquina estate by increasing the latter's area, and the 22 hectares now in controversy which formerly were on the Payatas side of the river are now on the Mariquina estate side. Assuming this to be true—and it will not be denied by the appellant—the case reduces itself to the question whether the change in the course of the river was caused by accretion and erosion or whether it had occurred through avulsion. There is no direct evidence on this point, but according to the decision of this court in the case of Martinez Cañas vs. Tuason (5 Phil., 688), the presumption is that the change was gradual and caused by erosion of the Payatas bank of the river and consequent accretion to the Mariquina estate. It follows that the land in question is now a part of that estate and no longer pertains to the Payatas estate. We may say in passing that the Martinez Cañas vs. Tuason case was also a boundary dispute between the owners of the two estates, in which dispute the Tuasons claimed 30 hectares of land which had been shifted over to the Payatas estate side of the Mariquina River. Though the evidence for the owners of the Mariquina estate was much stronger than that for the owner of the Payatas estate in the present case, this court, nevertheless, held that the owner of the Payatas estate had acquired title to the land by accretion. We cannot quite agree with the court below that the matter before us may not be properly dealt with and determined under section 112 of the Land Registration Act; that section covers a wide range and undoubtedly embraces questions such as those raised in this case. That, however, does not necessarily mean

that said questions might not also have been ventilated in a separate action. For the reasons stated, the motion in question is denied, and it is declared that the land in dispute is now an integral 59 VOL. 53, MARCH 25, 1929 59 People vs. Asinas part of the af oresaid Mariquina estate. The appellant will pay the costs of this instance. So ordered. Johnson, Street, Johns, Romualdez, and Villa-Real, JJ., concur. MALCOLM, J.: My vote is to affirm the order appealed from in its result. Order affirmed. [Payatas Estate Improvement Co. vs. Tuason, 53 Phil. 55(1929)]

G.R. No. 94283. March 4, 1991.*FIRST DIVISION. MAXIMO JAGUALING, ANUNCITA JAGUALING and MISAMIS ORIENTAL CONCRETE PRODUCTS, INC., petitioners, vs. COURT OF APPEALS (FIFTEENTH DIVISION), JANITA F. EDUAVE and RUDYGONDO EDUAVE, respondents. Ownership; Property; Accession; Island formed in a nonnavigable and non-floatable river; Under Art. 465, the island belongs to the owner of the land along the nearer margin; Reasons.—The parcel of land in question is part of an island that formed in a non-navigable and non-flotable river; from a small mass of eroded or segregated outcrop of land, it increased to its present size due to the gradual and successive accumulation of alluvial deposits. In this regard the Court of Appeals also did not err in applying Article 465 of the Civil Code. Under this provision, the island belongs to the owner of the land along the nearer margin as sole owner thereof; or more accurately, because the island is longer than the property of private respondents, they are deemed ipso jure to be the owners of that portion which corresponds to the length of their property along the margin of the river. Same; Same; Same; Adverse possession; If the riparian owner failed to assert his claim, the same may yield to the adverse possession of third parties.—What, then, about the adverse possession established by petitioners? Are their rights as such not going to be recognized? It is well-settled that lands formed by accretion belong to the riparian owner. This preferential right is, under Article 465, also granted the owners of the land located in the margin nearest the formed island for the reason that they are in the best position to cultivate and attend to the

exploitation of the same. In fact, no specific act of possession over the accretion is required. If, however, the riparian owner fails to assert his claim thereof, the same may yield to the adverse possession of third parties, as indeed even accretion to land titled under the torrens system must itself still be registered. Same; Same; Same; Actions; Quasi-in rem; Judgment in action quasi-in rem is conclusive only between the parties and does not bind the State.—We are not prepared, unlike the trial court, to concede that the island is a delta which should be outside the commerce of man and that it belongs to the State as property of the public domain in the ________________ * FIRST DIVISION. 608 608 SUPREME COURT REPORTS ANNOTATED Jagualing vs. Court of Appeals absence of any showing that the legal requirements to establish such a status have been satisfied, which duty properly pertains to the State. However, We are also well aware that this petition is an upshot of the action to quiet title brought by the private respondents against petitioners. As such it is not technically an action in rem or an action in personam, but characterized as quasi in rem, which is an action in personam concerning real property. Thus, the judgment in proceedings of this nature is conclusive only between the parties and does not bind the State or the other riparian owners who may have an interest over the island involved herein. PETITION to review the decision of the Court of Appeals.

The facts are stated in the opinion of the Court. Cabanlas, Resma & Cabanlas Law Offices for petitioners. Jaime Y. Sindiong for private respondents. GANCAYCO, J.: Between the one who has actual possession of an island that forms in a non-navigable and non-flotable river and the owner of the land along the margin nearest the island, who has the better right thereto? This is the issue to be resolved in this petition. The parties to this case dispute the ownership of a certain parcel of land located in Sta. Cruz, Tagoloan, Misamis Oriental with an area of 16,452 square meters, more or less, forming part of an island in a non-navigable river, and more particularly described by its boundaries as follows: North—by the Tagoloan River, South—by the Tagoloan River, East—by the Tagoloan River and West—by the portion belonging to Vicente Neri. Private respondents filed with the Regional Trial Court of Misamis Oriental1Civil Case No. 5890, 10th Judicial Region, Branch 22, Cagayan de Oro City, the Hon. Alfredo J. Lagamon, Presiding Judge. an action to quiet title and/or remove a cloud over the property in question against petitioners. ________________ 1 Civil Case No. 5890, 10th Judicial Region, Branch 22, Cagayan de Oro City, the Hon. Alfredo J. Lagamon, Presiding Judge.

609 VOL. 194, MARCH 4, 1991 609 Jagualing vs. Court of Appeals Respondent Court of Appeals2Fifteenth Division, composed of Justices Gloria C. Paras as Chairperson, Bonifacio A. Cacdac, Jr., as ponente, and Serafin V. C. Guingona, CA-G.R. CV No. 17419, 15 June 1990. summarized the evidence for the parties as follows: The appellant [private respondent Janita Eduave] claims that she inherited the land from his [sic] father, Felomino Factura, together with his co-heirs, Reneiro Factura and Aldenora Factura, and acquired sole ownership of the property by virtue of a Deed of Extra Judicial Partition with sale (Exh. D). The land is declared for tax purposes under Tax Decl. No. 26137 (Exh. E) with an area of 16,452 square meters more or less (Exh. D). Since the death of her father on May 5, 1949, the appellant had been in possession of the property although the tax declaration remains in the name of the deceased father. The appellants further state that the entire land had an area of 16,452 square meters appearing in the deed of extrajudicial partition, while in [the] tax declaration (Exh. E) the area is only 4,937 square meters, and she reasoned out that she included the land that was under water. The land was eroded sometime in November 1964 due to typhoon Ineng, destroying the bigger portion and the improvements leaving only a coconut tree. In 1966 due to the movement of the river deposits on the land that was not eroded increased the area to almost half a hectare and in 1970 the appellant started to plant bananas [sic]. In 1973 the

defendants-appellees [petitioners herein] asked her permission to plant corn and bananas provided that they prevent squatters to come to the area. The appellant engaged the services of a surveyor who conducted a survey and placed concrete monuments over the land. The appellant also paid taxes on the land in litigation, and mortgaged the land to the Luzon Surety and Co., for a consideration of P6,000.00. The land was the subject of a reconveyance case, in the Court of First Instance of Misamis Oriental, Branch V, at Cagayan de Oro City, Civil Case No. 5892, between the appellant Janita Eduave vs. Heirs of Antonio Factura which was the subject of judgment by compromise in view of the amicable settlement of the parties, dated May 31, 1979. (Exh. R); That the heirs of Antonio Factura, who are presently the defendants-appellees in this case had ceded a portion of the land with an area of 1,289 square meters more or less, to the appellant, Janita Eduave, in a notarial document of conveyance, pursuant to the deci________________ 2 Fifteenth Division, composed of Justices Gloria C. Paras as Chairperson, Bonifacio A. Cacdac, Jr., as ponente, and Serafin V. C. Guingona, CA-G.R. CV No. 17419, 15 June 1990. 610 610 SUPREME COURT REPORTS ANNOTATED Jagualing vs. Court of Appeals sion of the Court of First Instance, after a subdivision of the lot No. 62 Pls-799, and containing 1,289 square meters more or

less was designated as Lot No. 62-A [sic], and the subdivision plan was approved as Pls-799-Psd-10-001782. (Exh. R; R-1 and R-2); The portion Lot No. 62-A, is described as follows: “A parcel of land (Lot No. 62-A, Psd-10-001782 being a portion of Lot 62, Pls-799, Tagoloan Public Land Subdivision) situated in Bo. Sta. Cruz, Municipality of Tagoloan, Province of Misamis Oriental. Bounded on the W, and on the N along lines 4-5-1 by Lot 62-B of the subdivision plan-10-001782; on the E by line 1-2 by Lot 64; Pls-799; on the S, along line 2-3-4 by Saluksok Creek, containing an area of one thousand two hundred eighty nine (1,289) square meters more or less.” Appellant also applied for concession with the Bureau of Mines to extract 200 cubic meters of gravel (Exh. G & G-1); and after an ocular inspection the permit was granted (Exh. K, and K-1 and K-2). That the appellant after permit was granted entered into an agreement with Tagoloan Aggregates to extract sand and gravel (Exh. L; L-1; and L-2), which agreement was registered in the office of the Register of Deeds (Exh. M; M-1; and M-2). The defendants-appellees [petitioners herein] denied the claim of ownership of the appellant, and asserted that they are the real owners of the land in litigation containing an area of 18,000 square meters more or less. During the typhoon Ineng in 1964 the river control was washed away causing the formation of an island, which is now the land in litigation. The defendants started occupying the land in 1969, paid land taxes as evidenced by tax declaration No. 26380 (Exh. 4) and tax receipts (Exhs. 7 to 7-G), and tax clearances (Exhs. 8 & 9). Photographs showing the actual occupation of the land by the

defendants including improvements and the house were presented as evidence (Exh. 11 to 11-E). The report of the Commissioner who conducted the ocular inspection was offered as evidence of the defendants (Exh. G). The sketch plan prepared by Eng. Romeo Escalderon (Exh. 12) shows that the plaintiffs’ [private respondents’] land was across the land in litigation (Exh. 12-A), and in going to the land of the plaintiff, one has to cross a distance of about 68 meters of the Tagoloan river to reach the land in litigation.3Rollo, pp. 1618. On 17 July 1987 the trial court dismissed the complaint for failure of private respondents as plaintiffs therein to establish ______________ 3 Rollo, pp. 16-18. 611 VOL. 194, MARCH 4, 1991 611 Jagualing vs. Court of Appeals by preponderance of evidence their claim of ownership over the land in litigation. The court found that the island is a delta forming part of the river bed which the government may use to reroute, redirect or control the course of the Tagoloan River. Accordingly, it held that it was outside the commerce of man and part of the public domain, citing Article 420 of the Civil Code.4Art. 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 whic... As such it cannot be registered

under the land registration law or be acquired by prescription. The trial court, however, recognized the validity of petitioners’ possession and gave them preferential rights to use and enjoy the property. The trial court added that should the State allow the island to be the subject of private ownership, the petitioners have rights better than that of private respondents.5RTC Decision, Rollo, p. 32, et seq. On appeal to the Court of Appeals, respondent court found that the island was formed by the branching off of the Tagoloan River and subsequent thereto the accumulation of alluvial deposits. Basing its ruling on Articles 463 and 465 of the Civil Code,6Art. 463. Whenever the current of a river divides itself into branches, leaving a piece of land or part thereof isolated, the owner of the land retains his ownership. He also retains it if a portion of land is separated from the estate by the current. Art.... the Court of Appeals reversed the decision of the trial court, declared private respondents as the lawful and true ________________ 4 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. 5 RTC Decision, Rollo, p. 32, et seq. 6 Art. 463. Whenever the current of a river divides itself into branches, leaving a piece of land or part thereof isolated, the owner of the land retains his ownership. He also retains it if a

portion of land is separated from the estate by the current. Art. 465. Islands which through successive accumulation of alluvial deposits are formed in non-navigable and non-flotable rivers, belong to the owners of the margins or banks nearest to each of them, or to the owners of both margins if the island is in the middle of the river, in which case it shall be divided longitudinally in halves. If a single island thus formed be more distant from one margin than from the other, the owner of the nearer margin shall be the sole owner thereof. 612 612 SUPREME COURT REPORTS ANNOTATED Jagualing vs. Court of Appeals owners of the land subject of this case and ordered petitioners to vacate the premises and deliver possession of the land to private respondents.7Rollo, p. 19. In the present petition, petitioners raise the following as errors of respondent court, to wit: 1. Whether [or not] respondent court correctly applied the provisions of Articles 463 and 465 of the new Civil Code to the facts of the case at bar; and 2. Whether [or not] respondent court gravely abused its discretion in the exercise of its judicial authority in reversing the decision appealed from.8Rollo, p. 8. Petitioners point out as merely speculative the finding of respondent court that the property of private respondents was split by the branching off or division of the river. They argue that because, as held by the trial court, private respondents failed to prove by preponderance of evidence the identity of

their property before the same was divided by the action of the river, respondent court erred in applying Article 463 of the Civil Code to the facts of this case. It must be kept in mind that the sole issue decided by respondent court is whether or not the trial court erred in dismissing the complaint for failure of private respondents [plaintiffs below] to establish by preponderance of evidence their claim of ownership over the island in question. Respondent court reversed the decision of the trial court because it did not take into account the other pieces of evidence in favor of the private respondents. The complaint was dismissed by the trial court because it did not accept the explanation of private respondents regarding the initial discrepancy as to the area they claimed: i.e., the prior tax declarations of private respondents refer to an area with 4,937 square meters, while the ExtraJudicial Partition with Sale, by virtue of which private respondents acquired ownership of the property, pertains to land of about 16,452 square meters. The trial court favored the theory of petitioners that private ______________ 7 Rollo, p. 19. 8 Rollo, p. 8. 613 VOL. 194, MARCH 4, 1991 613 Jagualing vs. Court of Appeals respondents became interested in the land only in 1979 not for agricultural purposes but in order to extract gravel and sand. This, however, is belied by other circumstances tantamount to

acts of ownership exercised by private respondents over the property prior to said year as borne out by the evidence, which apparently the trial court did not consider at all in favor of private respondents. These include, among others, the payment of land taxes thereon, the monuments placed by the surveyor whose services were engaged by the private respondent, as evidenced by the pictures submitted as exhibits, and the agreement entered into by private respondents and Tagoloan Aggregates to extract gravel and sand, which agreement was duly registered with the Register of Deeds. Private respondents also presented in evidence the testimony of two disinterested witnesses: Gregorio Neri who confirmed the metes and bounds of the property of private respondents and the effects of the typhoon on the same, and Candida Ehem who related on the agreement between private respondents and petitioners for the latter to act as caretakers of the former.9Rollo, pages 25-26. The trial court disregarded their testimony without explaining why it doubted their credibility and instead merely relied on the self-serving denial of petitioners.10Rollo, page 32. From the evidence thus submitted, respondent court had sufficient basis for the finding that the property of private respondents actually existed and was identified prior to the branching off or division of the river. The Court of Appeals, therefore, properly applied Article 463 of the Civil Code which allows the ownership over a portion of land separated or isolated by river movement to be retained by the owner thereof prior to such separation or isolation.11See note 6, supra. Notwithstanding the foregoing and assuming arguendo as claimed by petitioners that private respondents were not able to establish the existence and identity of the property prior to the

branching off or division of the Tagoloan River, and hence, their right over the same, private respondents are nevertheless entitled under the law to their respective portion of the island. _______________ 9 Rollo, pages 25-26. 10 Rollo, page 32. 11 See note 6, supra. 614 614 SUPREME COURT REPORTS ANNOTATED Jagualing vs. Court of Appeals It is clear petitioners do not dispute that the land in litigation is an island that appears in a non-flotable and non-navigable river; they instead anchor their claim on adverse possession for about fifteen years. It is not even controverted that private respondents are the owners of a parcel of land along the margin of the river and opposite the island. On the other hand, private respondents do not dispute that the island in question has been in the actual physical possession of petitioners; private respondents insist only that such possession by petitioners is in the concept of caretakers thereof with the permission of private respondents. This brings Us, as phrased earlier in this opinion, to the underlying nature of the controversy in this case: between the one who has actual possession of an island that forms in a nonnavigable and non-flotable river and the owner of the land along the margin nearest the island, who has the better right thereto? The parcel of land in question is part of an island that formed in a non-navigable and non-flotable river; from a small

mass of eroded or segregated outcrop of land, it increased to its present size due to the gradual and successive accumulation of alluvial deposits. In this regard the Court of Appeals also did not err in applying Article 465 of the Civil Code.12See note 6, supra. Under this provision, the island belongs to the owner of the land along the nearer margin as sole owner thereof; or more accurately, because the island is longer than the property of private respondents, they are deemed ipso jure to be the owners of that portion which corresponds to the length of their property along the margin of the river. What, then, about the adverse possession established by petitioners? Are their rights as such not going to be recognized? It is well-settled that lands formed by accretion belong to the riparian owner.13For the rationale thereof, see 2 A. Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, pp. 116-117 (1983); see also Tuason v. CA, 147 SCRA 37 [1987]. This preferential right is, under Article 465, also granted the owners of the land located in the margin nearest the formed island for the reason that they are in the best _________________ 12 See note 6, supra. 13 For the rationale thereof, see 2 A. Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, pp. 116-117 (1983); see also Tuason v. CA, 147 SCRA 37 [1987]. 615 VOL. 194, MARCH 4, 1991 615 Jagualing vs. Court of Appeals

position to cultivate and attend to the exploitation of the same.14Id., at 129, citing 3 Manresa 263. In fact, no specific act of possession over the accretion is required.15Roxas v. Tuazon, 9 Phil. 408 [1907] and Cortes v. City of Manila, 10 Phil. 567 [1908], as cited in 2 A. Tolentino, Id., at 118-119. If, however, the riparian owner fails to assert his claim thereof, the same may yield to the adverse possession of third parties, as indeed even accretion to land titled under the torrens system must itself still be registered.16Ignacio Grande, et al., v. CA, G.R. No. 17652, 115 Phil. 521, 5 SCRA 524 [1962]. Petitioners may, therefore, acquire said property by adverse possession for the required number of years under the doctrine of acquisitive prescription. Their possession cannot be considered in good faith, however, because they are presumed to have notice of the status of private respondents as riparian owners who have the preferential right to the island as recognized and accorded by law; they may claim ignorance of the law, specifically Article 465 of the Civil Code, but such is not, under Articles 3 and 526 of the same code, an adequate and valid defense to support their claim of good faith.17Art. 526. He is deemed a possessor in good faith who is not aware that there exists in his title or mode of acquisition any flaw which invalidates it.He is deemed a possessor in bad faith who possesses in any case contrary to the foregoing.Mistake upon a d... Hence, not qualifying as possessors in good faith, they may acquire ownership over the island only through uninterrupted adverse possession for a period of thirty years.18The Civil Code provides:Art. 1137. Ownership and other real rights over immovables also prescribe through uninterrupted adverse possession thereof for thirty years, without need of title or of

good faith. By their own admission, petitioners have been in possession of the property for only about fifteen years. Thus, by this token and under the theory adopted __________________ 14 Id., at 129, citing 3 Manresa 263. 15 Roxas v. Tuazon, 9 Phil. 408 [1907] and Cortes v. City of Manila, 10 Phil. 567 [1908], as cited in 2 A. Tolentino, Id., at 118-119. 16 Ignacio Grande, et al., v. CA, G.R. No. 17652, 115 Phil. 521, 5 SCRA 524 [1962]. 17 Art. 526. He is deemed a possessor in good faith who is not aware that there exists in his title or mode of acquisition any flaw which invalidates it. He is deemed a possessor in bad faith who possesses in any case contrary to the foregoing. Mistake upon a doubtful or difficult question of law may be the basis of good faith. Art. 3. Ignorance of the law excuses no one from compliance therewith. 18 The Civil Code provides: Art. 1137. Ownership and other real rights over immovables also prescribe through uninterrupted adverse possession thereof for thirty years, without need of title or of good faith. 616 616 SUPREME COURT REPORTS ANNOTATED Jagualing vs. Court of Appeals by petitioners, the island cannot be adjudicated in their favor.

This case is not between parties as opposing riparian owners contesting ownership over an accession but rather between a riparian owner and the one in possession of the island. Hence, there is no need to make a final determination regarding the origins of the island, i.e., whether the island was initially formed by the branching off or division of the river and covered by Article 463 of the Civil Code, in which case there is strictly no accession because the original owner retains ownership, or whether it was due to the action of the river under Article 465, or, as claimed by petitioners, whether it was caused by the abrupt segregation and washing away of the stockpile of the river control, which makes it a case of avulsion under Article 459.19Art. 459. Whenever the current of a river, creek or torrent segregates from an estate on its bank a known portion of land and transfers it to another estate, the owner of the land to which the segregated portion belonged retains the ownership of it, provid... We are not prepared, unlike the trial court, to concede that the island is a delta which should be outside the commerce of man and that it belongs to the State as property of the public domain in the absence of any showing that the legal requirements to establish such a status have been satisfied, which duty properly pertains to the State.20Under Article 175 of the Spanish Law of Waters [3 August 1866], the State has the duty to declare which rivers are navigable and which are not. The present law, Presidential Decree No. 1067 entitled A Decree Instituting a Water Code, Thereby Revising and C... However, We are also well aware that this petition is an upshot of the action to quiet title brought by the private respondents against petitioners. As such it is not technically an action in rem or an action in

personam, but characterized as quasi in rem,21Realty Sales Enterprise, Inc. v. Intermediate Appellate Court, which is an action in _________________ 19 Art. 459. Whenever the current of a river, creek or torrent segregates from an estate on its bank a known portion of land and transfers it to another estate, the owner of the land to which the segregated portion belonged retains the ownership of it, provided that he removes the same within two years. 20 Under Article 175 of the Spanish Law of Waters [3 August 1866], the State has the duty to declare which rivers are navigable and which are not. The present law, Presidential Decree No. 1067 entitled A Decree Instituting a Water Code, Thereby Revising and Consolidating the Laws Governing the Ownership, Appropriation, Utilization, Exploitation, Development, Conservation and Protection of Water Resources [73 O.G. 3554, 1976], under Article 59 thereof, provides that rivers, lakes and lagoons may, upon the recommendation of the Philippines Coast Guard, be declared navigable either in whole or in part. 21 Realty Sales Enterprise, Inc. v. Intermediate Appellate Court, 617 VOL. 194, MARCH 4, 1991 617 Jagualing vs. Court of Appeals personam concerning real property.222 E. Paras, Civil Code of the Philippines Annotated, p. 255 (12th ed., 1989). Thus, the judgment in proceedings of this nature is conclusive only

between the parties23Realty Sales Enterprise v. Intermediate Appellate Court, supra., citing Sandejas v. Robles, 81 Phil. 421 [1948]. and does not bind the State or the other riparian owners who may have an interest over the island involved herein. WHEREFORE, We find no error committed by respondent court and DENY the petition for lack of sufficient merit. The decision of respondent Court of Appeals is hereby AFFIRMED, without pronouncement as to costs. SO ORDERED. Narvasa (Chairman), Cruz, Griño-Aquino and Medialdea, JJ., concur. Decision affirmed. Note.—Rule that the registration under the Torrens System does not protect the riparian owner against the diminution of the area of his registered land through gradual changes in the course of an adjoining stream. (Viajar vs. Court of Appeals, 168 SCRA 405.) ——o0o—— [Jagualing vs. Court of Appeals, 194 SCRA 607(1991)]

G.R. No. 95748. November 21, 1996.*THIRD DIVISION. ANASTACIA VDA. DE AVILES, ET AL., petitioners, vs. COURT OF APPEALS and CAMILO AVILES, respondents. Civil Law; Property; Boundary disputes are not cognizable in a special civil action to quiet title.—We agree with respondent Court. The facts presented unmistakably constitute a clear case of boundary dispute, which is not cognizable in a special civil action to quiet title. Quieting of title is a common law remedy for the removal of any cloud upon or doubt or uncertainty with respect to title to real property. Same; Same; To avail of the remedy of quieting of title, a plaintiff must show that there is an instrument, record, claim, encumbrance or proceeding which constitutes or casts a cloud, doubt, question or shadow upon the owner’s title to or interest in real property.—In fine, to avail of the remedy of quieting of title, a plaintiff must show that there is an instrument, record, claim, encumbrance or proceeding which constitutes or casts a cloud, doubt, question or shadow upon the owner’s title to or interest in real property. Thus, petitioners have wholly misapprehended the import of the foregoing rule by claiming that respondent Court erred in holding that there was “no x x x evidence of any muniment of title, proceeding, written contract, x x x,” and that there were, as a matter of fact, two such contracts, viz., (i) the Agreement of Partition executed by private respondent and his brothers (including the petitioners’ father and ____________________________ * THIRD DIVISION. 474 474 SUPREME COURT REPORTS ANNOTATED

Vda. de. Aviles vs. Court of Appeals predecessor-in-interest), in which their respective shares in the inherited property were agreed upon, and (ii) the Deed of Sale evidencing the redemption by petitioner Anastacia Vda. de Aviles of the subject property in a foreclosure sale. However, these documents in no way constitute a cloud or cast a doubt upon the title of petitioners. Rather, the uncertainty arises from the parties’ failure to situate and fix the boundary between their respective properties. PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. Ulysses T. Sevilla for petitioners. Teodoro C. Fernandez and Manuel Y. Fernandez for private respondent. PANGANIBAN, J.: Is the special civil action of Quieting of Title under Rule 64 the proper remedy for settling a boundary dispute? Did the respondent Court1Thirteenth Division, composed of J. Jainal D. Rasul, ponente, andJJ. Manuel C. Herrera and Eduardo R. Bengzon, concurring. commit a reversible error when it did not declare the respective rights of the parties over the disputed property in said action? These are the key issues raised in this petition to review on certiorari the Decision2Rollo, pp. 21-25. of the respondent Court promulgated on September 28, 1990 in CA-G.R. CV No. 18155, which affirmed the decision dated December 29, 1987 of the Regional Trial Court, Branch 38,3Presided by Judge

Antonio M. Belen. Lingayen, Pangasinan, dismissing a complaint for quieting of title. The Facts In an action for quieting of title commenced before the aforementioned trial court, the following facts, “stripped of ____________________________ 1 Thirteenth Division, composed of J. Jainal D. Rasul, ponente, andJJ. Manuel C. Herrera and Eduardo R. Bengzon, concurring. 2 Rollo, pp. 21-25. 3 Presided by Judge Antonio M. Belen. 475 VOL. 264, NOVEMBER 21, 1996 475 Vda. de. Aviles vs. Court of Appeals unnecessary verbiage,” were established by the respondent Court:4Decision, pp. 2-3; rollo, pp. 22-23. “PLAINTIFFS aver that they are the actual possessors of a parcel of land situated in Malawa, Lingayen, Pangasinan, more particularly described as fishpond, cogonal, unirrigated rice and residential land, bounded on the N by Camilo Aviles; on the E by Malawa River, on the S by Anastacio Aviles and on the W by Juana and Apolonio Joaquin, with an area of 18,900 square meters and declared under Tax Declaration No. 31446. This property is the share of their father, Eduardo Aviles and brother of the defendant, in the estate of their deceased parents, Ireneo Aviles and Anastacia Salazar. SINCE 1957, Eduardo Aviles was in actual possession of the afore-described property. In fact, the latter mortgaged the same

with the Rural Bank and Philippine National Bank branch in Lingayen. When the property was inspected by a bank representative, Eduardo Aviles, in the presence of the boundary owners, namely, defendant Camilo Aviles, Anastacio Aviles and Juana and Apolonio Joaquin(,) pointed to the inspector the existing earthen dikes as the boundary limits of the property and nobody objected. When the real estate mortgage was foreclosed, the property was sold at public auction but this was redeemed by plaintiffs’ mother and the land was subsequently transferred and declared in her name. ON March 23, 1983, defendant Camilo Aviles asserted a color of title over the northern portion of the property with an area of approximately 1,200 square meters by constructing a bamboo fence (thereon) and moving the earthen dikes, thereby molesting and disturbing the peaceful possession of the plaintiffs over said portion. UPON the other hand, defendant Camilo Aviles admitted the agreement of partition (Exh. ‘1’) executed by him and his brothers, Anastacio and Eduardo. In accordance therewith, the total area of the property of their parents which they divided is 46,795 square meters and the area alloted (sic) to Eduardo Aviles is 16,111 square meters more or less, to Anastacio Aviles is 16,214 square meters more or less, while the area alloted to defendant Camilo Aviles is 14,470 square meters more or less. The respective area(s) alloted to them was agreed and measured before the execution of the agreement but he was not present when the measurement was made. __________________ 4 Decision, pp. 2-3; rollo, pp. 22-23.

476 476 SUPREME COURT REPORTS ANNOTATED Vda. de. Aviles vs. Court of Appeals Defendant agreed to have a smaller area because his brother Eduardo asked him that he wanted a bigger share because he has several children to support. The portion in litigation however is part of the share given to him in the agreement of partition. At present, he is only occupying an area of 12,686 square meters which is smaller than his actual share of 14,470 square meters. Tax Declarations Nos. 23575, 481 and 379 covering his property from 1958 (Exhs. ‘7,’ ‘8’ and ‘9’) show that the area of his property is 14,470 square meters. The riceland portion of his land is 13,290 square meters, the fishpond portion is 500 square meters and the residential portion is 680 square meters, or a total of 14,470 square meters. That the topography of his land is not the same, hence, the height of his pilapils are likewise not the same.” In its decision dated December 29, 1987, the trial court disposed of the case thus:5Rollo, pp. 21-22. “WHEREFORE, premises considered, judgment is hereby rendered as follows: 1. Ordering the parties to employ the services of a Land Surveyor of the Bureau of Lands, Region I, San Fernando, La Union, to relocate and determine the extent and the boundary limit of the land of the defendant on its southern side in order that the fourteen thousand four hundred seventy (14,470) square meters which is the actual area given to the defendant be determined;

2. Ordering the complaint dismissed for lack of basis and merits; 3. Ordering the plaintiffs to pay the defendant the sum of two thousand (P2,000.00) pesos as attorney’s fees and to further pay the costs of the proceedings; 4. All other claims are denied for lack of basis.” Dissatisfied with the trial court’s decision, petitioners appealed to the respondent appellate Court. In its now-assailed Decision, the Court of Appeals affirmed in part the decision of the trial court, reasoning that a special civil action for quieting of title is not the proper remedy for settling a boundary dispute, and that petitioners should have instituted an ____________________________ 5 Rollo, pp. 21-22. 477 VOL. 264, NOVEMBER 21, 1996 477 Vda. de. Aviles vs. Court of Appeals ejectment suit instead. The dispositive portion of the impugned Decision reads as follows: “WHEREFORE, in view of the foregoing, the decision dated December 29, 1987 dismissing the complaint is hereby AFFIRMED but without necessarily agreeing with the ration d’etre (sic) proferred by the Court a quo. The portion thereof ordering the parties to employ the service of a land surveyor to relocate and determine the extent and boundary limit of the land of the defendant on its southern portion in order that the fourteen thousand four hundred seventy (14,470) square meters which is the actual area given to the defendant be determined is

hereby REVERSED and SET ASIDE. Costs against plaintiffsappellants.” The Issues Disagreeing with the respondent Court, petitioners now raise the following issues:6Petitioners’ Memorandum, p. 8; rollo, p. 97. “a. Whether or not the Hon. Court of Appeals is correct when it opined that the x x x complaint for quieting of title instituted by the petitioners against private respondent before the court a quo is not the proper remedy but rather, it should be a case for eejectment (sic). b. Whether or not the Hon. Court of Appeals is correct in rendering a decision, now subject of the instant petition, without fully determining the respective rights of the herein parties.” Petitioners deem to be “without basis” the respondent Court’s holding that quieting of title is not the proper remedy in the case a quo. They assert that private respondent is occupying the disputed lot because he claimed it to be part of his share in the partitioned property of his parents, whereas petitioners are claiming the said lot as part and parcel of the land allotted to Eduardo Aviles, petitioners’ predecessor-in-interest. They contend that they have been occupying the aforesaid land as heirs of Eduardo Aviles in “open, actual, continuous, peaceful, public and adversed (sic) (possession) ____________________________ 6 Petitioners’ Memorandum, p. 8; rollo, p. 97. 478 478 SUPREME COURT REPORTS ANNOTATED

Vda. de. Aviles vs. Court of Appeals against the whole world.” Further, they argue that, if indeed the disputed lot belonged to private respondent, why then did it take him “almost 26 long years from June 27, 1957 or until March 27, 1983” to assert his ownership; why did he not “assert his ownership” over the property when Eduardo Aviles was still alive; and why did he not take any “action” when the mortgage over the disputed property was foreclosed?7Petitioners’ Memorandum, pp. 10-11; rollo, pp. 99-100. Private respondent corrects the petitioners’ claim in regard to the date when he had the bamboo fence constructed. He alleges that the petitioners maliciously concocted the story that private respondent had purportedly encroached some 1,200 meters on their property when, in fact, “he was merely repairing the old bamboo fence existing where it had always been since 1957.”8Comment, p. 4; rollo, p. 42. The Court’s Ruling First Issue: Quieting of Title Not Proper Remedy For Settling Boundary Dispute We agree with respondent Court. The facts presented unmistakably constitute a clear case of boundary dispute, which is not cognizable in a special civil action to quiet title. Quieting of title is a common law remedy for the removal of any cloud upon or doubt or uncertainty with respect to title to real property.9Vitug, Compendium of Civil Law and Jurisprudence, 1993 Rev. Ed., p. 295. The Civil Code authorizes the said remedy in the following language:

“Art. 476. Whenever there is a cloud on title to real property or any interest therein, by reason of any instrument, record, claim, encumbrance or proceeding which is apparently valid or effective but is, in truth and in fact, invalid, ineffective, voidable, or unenforce____________________________ 7 Petitioners’ Memorandum, pp. 10-11; rollo, pp. 99-100. 8 Comment, p. 4; rollo, p. 42. 9 Vitug, Compendium of Civil Law and Jurisprudence, 1993 Rev. Ed., p. 295. 479 VOL. 264, NOVEMBER 21, 1996 479 Vda. de. Aviles vs. Court of Appeals able, and may be prejudicial to said title, an action may be brought to remove such cloud or to quiet the title. An action may also be brought to prevent a cloud from being cast upon a title to real property or any interest therein.” In fine, to avail of the remedy of quieting of title, a plaintiff must show that there is an instrument, record, claim, encumbrance or proceeding which constitutes or casts a cloud, doubt, question or shadow upon the owner’s title to or interest in real property. Thus, petitioners have wholly misapprehended the import of the foregoing rule by claiming that respondent Court erred in holding that there was “no x x x evidence of any muniment of title, proceeding, written contract, x x x,” and that there were, as a matter of fact, two such contracts, viz., (i) the Agreement of Partition executed by private respondent and his brothers (including the petitioners’ father and predecessor-in-

interest), in which their respective shares in the inherited property were agreed upon, and (ii) the Deed of Sale evidencing the redemption by petitioner Anastacia Vda. de Aviles of the subject property in a foreclosure sale. However, these documents in no way constitute a cloud or cast a doubt upon the title of petitioners. Rather, the uncertainty arises from the parties’ failure to situate and fix the boundary between their respective properties. As correctly held by the respondent Court, “(i)n fact, both plaintiffs and defendant admitted the existence of the agreement of partition dated June 8, 1957 and in accordance therewith, a fixed area was alloted (sic) to them and that the only controversy is whether these lands were properly measured. There is no adverse claim by the defendant “which is apparently valid, but is, in truth and in fact, invalid, ineffective, voidable, or unenforceable” and which constitutes a cloud thereon. Corollarily, and equally as clear, the construction of the bamboo fence enclosing the disputed property and the moving of earthen dikes are not the “clouds” or “doubts” which can be removed in an action for quieting of title. 480 480 SUPREME COURT REPORTS ANNOTATED Vda. de. Aviles vs. Court of Appeals An action to quiet title or to remove cloud may not be brought for the purpose of settling a boundary dispute. The precedent on this matter cited by the respondent Court in its Decision is herewith reproduced in full:1078 ALR 58. (italics supplied.)

“In Ashurst v. McKenzie (1890) 92 Ala. 484, 9 So. 262, where the complainants’ predecessor in title and the defendant had, during their occupancy, destroyed and obliterated the boundary line between their adjoining tracts of land, and there was now a dispute as to its location, it was held that a bill did not lie to remove a cloud on the complainants’ title. The court said: ‘There is no allegation or evidence of any muniment of title, proceeding, written contract, or paper showing any color of title in the defendant, which could cast a shadow on the title of complainants to any part of the land; there is no overlapping of description in the muniments held by either. The land of complainants and defendant join. The line which separates them is in dispute and is to be determined by evidence aliunde. Each admits that the other has title up to his line wherever it may be, and the title papers of neither fix its precise location. So that there is no paper the existence of which clouds the title of either party, and nothing could be delivered up and canceled under the decree of the court undertaking to remove a cloud.’ ” Another similarly instructive precedent reported in the same reference is also quoted below: “In Kilgannon v. Jenkinson (1883) 51 Mich. 240, 16 N.W. 390, the court, dismissing a bill to quiet title, said: “The fundamental dispute is about the correct position of the line between lots 3 and 7. The case is not one where a complainant in possession of a specific piece of land, and a defendant out of possession, but claiming some right or title, are contending as to which one has the better right to that same parcel; but it is a case where the titles are not opposed, and the basis and existence of all right and claim depend simply upon where the original line runs. When that is once settled, there can remain

no semblance of claim or cloud to be passed on, and the issue on that particular question is one regularly triable at law . . .”1178 ALR 59. (italics supplied.) ____________________________ 10 78 ALR 58. (italics supplied.) 11 78 ALR 59. (italics supplied.) 481 VOL. 264, NOVEMBER 21, 1996 481 Vda. de. Aviles vs. Court of Appeals Second Issue: Should Parties’ Rights Have Been Declared? Petitioners also chide the respondent Court (and the trial court) for not declaring the respective rights of the parties with respect to the land in question, arguing that “when one is disturbed in any form in his rights of property over an immovable by the unfounded claims of others, he has the right to ask from the competent courts: x x x that their respective rights be determined x x x.” As support for their thesis, petitioners cite the ancient case of Bautista vs. Exconde.1240 O.G. 8th S., No. 12, p. 231, June 29, 1940. Rule 64 of the Rules of Court, dealing with actions for declaratory relief, specifies in Section 1 thereof the grounds, conditions precedent or requisites for bringing such petitions.13Section 1 of Rule 64 is reproduced hereinbelow for ease of reference:“Section 1. Who may file petition.—Any person interested under a deed, will, contract or other written instrument, or whose rights are affected by a statute, executive order o... This Court has previously held that—

“Under this rule, only a person who is interested ‘under a deed, will, contract or other written instrument, and whose rights are affected by a statute or ordinance, may bring an action to determine any question of construction or validity arising under the instrument or statute and for a declaration of his rights or duties thereunder.’ This means that the subject matter must refer to a deed, will, contract or other written instrument, or to a statute or ordinance, to warrant declaratory relief. Any other matter not mentioned therein ____________________________ 12 40 O.G. 8th S., No. 12, p. 231, June 29, 1940. 13 Section 1 of Rule 64 is reproduced hereinbelow for ease of reference: “Section 1. Who may file petition.—Any person interested under a deed, will, contract or other written instrument, or whose rights are affected by a statute, executive order or regulation, or ordinance, may, before breach or violation thereof, bring an action to determine any question of construction or validity arising under the instrument or statute and for a declaration of his rights or duties thereunder. An action for the reformation of an instrument, to quiet title to real property or remove clouds therefrom, or to consolidate ownership under Article 1607 of the Civil Code, may be brought under this rule.” 482 482 SUPREME COURT REPORTS ANNOTATED Vda. de. Aviles vs. Court of Appeals

is deemed excluded. This is under the principle of expressio unius est exclussio alterius.”14Lerum vs. Cruz, 87 Phil. 652, November 29, 1950. Inasmuch as the enumeration of the causes, grounds or conditions precedent in the first paragraph of said Sec. 1 is exclusive, by parity of reasoning, it follows that similar remedies provided for in the second paragraph of the same section would also be marked with the same exclusivity as to bar any other cause possibly clouding one’s title as a ground for such petitions. Thus, even assuming arguendo that the action to quiet title had been brought under Rule 64, the same would still not have prospered, the subject matter thereof not referring to “a deed, will, contract or other written instrument, or to a statute or ordinance,” but to a boundary dispute, and therefore not warranting the grant of declaratory relief. From another perspective, we hold that the trial court (and likewise the respondent Court) cannot, in an action for quieting of title, order the determination of the boundaries of the claimed property, as that would be tantamount to awarding to one or some of the parties the disputed property in an action where the sole issue is limited to whether the instrument, record, claim, encumbrance or proceeding involved constitutes a cloud upon the petitioners’ interest or title in and to said property. Such determination of boundaries is appropriate in adversarial proceedings where possession or ownership may properly be considered and where evidence aliunde, other than the “instrument, record, claim, encumbrance or proceeding” itself, may be introduced. An action for forcible entry, whenever warranted by the period prescribed in Rule 70, or for recovery of possession de facto, also within the prescribed

period, may be availed of by the petitioners, in which proceeding the boundary dispute may be fully threshed out. WHEREFORE, in view of the foregoing considerations, the instant petition is hereby DENIED and the Decision appealed from is AFFIRMED. Costs against petitioners. ____________________________ 14 Lerum vs. Cruz, 87 Phil. 652, November 29, 1950. 483 483 VOL. 264, NOVEMBER 21, 1996 Equatorial Realty Development, Inc. vs. Mayfair Theater, Inc. SO ORDERED. Narvasa (C.J., Chairman), Davide, Jr., Melo and Francisco, JJ., concur. Petition denied, judgment affirmed. Note.—The pendency of an action for quieting of title before the Regional Trial Court does not divest the city or municipal trial court of its jurisdiction over the ejectment covering the same property. (Oblea vs. Court of Appeals, 244 SCRA 101 [1995]) ——o0o—— [Vda. de. Aviles vs. Court of Appeals, 264 SCRA 473(1996)]

G.R. No. 111141. March 6, 1998.*THIRD DIVISION. MARIO Z. TITONG, petitioner, vs. THE HONORABLE COURT OF APPEALS (4th Division), VICTORICO LAURIO and ANGELES LAURIO, respondents. Civil Law; Property; Quieting of Title; The ground or reason for filing a complaint for quieting of title must be “an instrument, record, claim, encumbrance or proceeding.”—At the outset, we hold that the instant petition must be denied for the reason that the lower court should have outrightly dismissed the complaint for quieting of title. The remedy of quieting of title may be availed of under the circumstances enumerated in the Civil Code: “ART. 476. Whenever there is a cloud on title to real property or any interest therein, by reason of any instrument, record, claim, encumbrance or proceeding which is apparently valid or effective but is in truth and in fact invalid, ineffective, voidable, or unenforceable, and may be prejudicial to said title, an action may be brought to remove such cloud or to quiet the title. An action may also be brought to prevent a cloud from being cast upon title to real property or any interest therein.” Under this provision, a claimant must show that there is an instrument, record, claim, encumbrance or proceeding which constitutes or casts a cloud, doubt, question or shadow upon the owner’s title to or interest in real property. The ground or reason for filing a complaint for quieting of title must therefore be “an instrument, record, claim, encumbrance or proceeding.” Under the maxim expresio unius est exclusio alterius, these grounds are exclusive so that other reasons outside of the purview of these reasons may not be considered valid for the same action. _______________

* THIRD DIVISION. 103 VOL. 287, MARCH 6, 1998 103 Titong vs. Court of Appeals (4th Division) Same; Same; Same; The acts alleged may be considered grounds for an action for forcible entry but definitely not one for quieting of title.—He prayed that, aside from issuing a writ or preliminary injunction enjoining private respondents and their hired laborers from intruding into the land, the court should declare him “the true and absolute owner” thereof. Hence, through his allegations, what petitioner imagined as clouds cast on his title to the property were private respondents’ alleged acts of physical intrusion into his purported property. Clearly, the acts alleged may be considered grounds for an action for forcible entry but definitely not one for quieting of title. Same; Same; Prescription; A prescription title to real estate is not acquired by mere possession thereof under claim of ownership for a period of ten years unless such possession was acquired con justo titulo y buena fe (with color of title and good faith).—Petitioner’s claim that he acquired ownership over the disputed land through possession for more than twenty (20) years is likewise unmeritorious. While Art. 1134 of the Civil Code provides that “(o)wnership and other real rights over immovable property are acquired by ordinary prescription through possession of ten years,” this provision of law must be read in conjunction with Art. 1117 of the same Code. This article states that “x x x (o)rdinary acquisitive prescription of things requires possession in good faith and with just title for

the time fixed by law.” Hence, a prescriptive title to real estate is not acquired by mere possession thereof under claim of ownership for a period of ten years unless such possession was acquired con justo titulo y buena fe (with color of title and good faith). The good faith of the possessor consists in the reasonable belief that the person from whom he received the thing was the owner thereof, and could transmit his ownership. For purposes of prescription, there is just title when the adverse claimant came into possession of the property through one of the modes recognized by law for the acquisition of ownership or other real rights but the grantor was not the owner or could not transmit any right. Same; Same; Same; Petitioners have not satisfactorily met the requirements of good faith and just title.—Petitioners have not satisfactorily met the requirements of good faith and just title. As aptly observed by the trial court, the plaintiff’s admitted acts of converting the boundary line (Bugsayon River) into a ricefield and thereafter claiming ownership thereof were acts constituting deprivation of the 104 104 SUPREME COURT REPORTS ANNOTATED Titong vs. Court of Appeals (4th Division) rights of others and therefore “tantamount to bad faith.” To allow petitioner to benefit from his own wrong would run counter to the maxim ex dolo malo non oritur actio (no man can be allowed to found a claim upon his own wrongdoing). Extraordinary acquisitive prescription cannot similarly vest ownership over the property upon petitioner. Art. 1137 of the Civil Code states that “(o)wnership and other real rights over

immovables prescribe through uninterrupted adverse possession thereof for thirty years, without need of title or of good faith.” Petitioner’s alleged possession in 1962 up to September 1983 when private respondents entered the property in question spanned twenty-one (21) years. This period of time is short of the thirty-year requirement mandated by Art. 1137. Same; Same; Same; A survey, not being a conveyance, is not a mode of acquiring ownership.—A survey is the act by which the quantity of a parcel of land is ascertained and also a paper containing a statement of courses, distances, and quantity of land. A survey under a proprietary title is not a conveyance. It is an instrument sui generis in the nature of a partition; a customary mode in which a proprietor has set off to himself in severalty a part of the common estate. Therefore, a survey, not being a conveyance, is not a mode of acquiring ownership. A fortiori, petitioner cannot found his claim on the survey plan reflecting a subdivision of land because it is not conclusive as to ownership as it may refer only to a delineation of possession. Same; Same; Same; A survey plan not verified and approved by the Bureau of Lands is nothing more than a private writing, the due execution and authenticity of which must be proven in accordance with Sec. 20 of Rule 132 of the Rules of Court.— Furthermore, the plan was not verified and approved by the Bureau of Lands in accordance with Sec. 28, paragraph 5 of Act No. 2259, the Cadastral Act, as amended by Sec. 1862 of Act No. 2711. Said law ordains that private surveyors send their original field notes, computations, reports, surveys, maps and plots regarding a piece of property to the Bureau of Lands for verification and approval. A survey plan not verified and approved by said Bureau is nothing more than a private

writing, the due execution and authenticity of which must be proven in accordance with Sec. 20 of Rule 132 of the Rules of Court. The circumstance that the plan was admitted in evidence without any objection as to its due execution and authenticity does not signify that the courts shall give probative value therefor. To admit evi105 VOL. 287, MARCH 6, 1998 105 Titong vs. Court of Appeals (4th Division) dence and not to believe it subsequently are not contradictory to each other. This Court cannot alter the conclusions of the Court of Appeals on the credibility accorded to evidence presented by the parties. Same; Same; Ownership; A tax declaration, by itself, is not considered conclusive evidence of ownership.—Similarly, petitioner’s tax declaration issued under his name is not even persuasive evidence of his claimed ownership over the land in dispute. A tax declaration, by itself, is not considered conclusive evidence of ownership. It is merely an indicium of a claim of ownership. Because it does not by itself give title, it is of little value in proving one’s ownership. PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. Rodolfo A. Manlapaz for petitioner. Regino B. Tambago for private respondents. ROMERO, J.: Like a priceless treasure coveted by many, but capable of ownership by only one, this 20,592 square-meter parcel of land

located at Barrio Titong, Masbate, Masbate is claimed by two contestants in this petition for review on certiorari. Unfortunately, legal title over the property can be vested in only one of them. The case originated from an action for quieting of title filed by petitioner Mario Titong. The Regional Trial Court of Masbate, Masbate, Branch 441Penned by Judge Manuel C. Genova. ruled in favor of private respondents, Victorico Laurio and Angeles Laurio, adjudging them as the true and lawful owners of the disputed land. Affirmed on appeal to the Court of Appeals, petitioner comes to us for a favorable reversal. _______________ 1 Penned by Judge Manuel C. Genova. 106 106 SUPREME COURT REPORTS ANNOTATED Titong vs. Court of Appeals (4th Division) Petitioner alleges that he is the owner of an unregistered parcel of land with an area of 3.2800 hectares, more or less, surveyed as Lot No. 3918, and declared for taxation purposes in his name. He claims that on three separate occasions in September 1983, private respondents, with their hired laborers, forcibly entered a portion of the land containing an area of approximately two (2) hectares, and began plowing the same under pretext of ownership. Private respondents denied this allegation, and averred that the disputed property formed part of the 5.5-hectare agricultural land which they had purchased from their predecessor-in-interest,2Rollo, p. 17. Pablo Espinosa on August 10, 1981.

In his testimony, petitioner identified Espinosa as his adjoining owner,3TSN, May 8, 1995, p. 4. asserting that no controversy had sprouted between them for twenty years until the latter sold Lot No. 3479 to private respondent Victorico Laurio.4TSN, May 8, 1985, p. 6. This was corroborated by Ignacio Villamor, who had worked on the land even before its sale to Espinosa in 1962. The boundary between the land sold to Espinosa and what remained of petitioner’s property was the old Bugsayon river. When petitioner employed Bienvenido Lerit as his tenant in 1962, he instructed Lerit to change the course of the old river and direct the flow of water to the lowland at the southern portion of petitioner’s property, thus converting the old river into a riceland.5TSN, February 11, 1986, pp. 4-6. For his part, private respondent anchors his defense on the following facts: He denied petitioner’s claim of ownership, recounting that the area and boundaries of the disputed land remained unaltered during the series of conveyances prior to its coming into his hands. According to him, petitioner first declared the land for taxation purposes under Tax Declaration No. 2916,6Exh. 11. which showed that the land had an area of 5.5 _______________ 2 Rollo, p. 17. 3 TSN, May 8, 1995, p. 4. 4 TSN, May 8, 1985, p. 6. 5 TSN, February 11, 1986, pp. 4-6. 6 Exh. 11. 107 VOL. 287, MARCH 6, 1998 107

Titong vs. Court of Appeals (4th Division) hectares and was bounded on the North by the Bugsayon River; on the East by property under the ownership of Lucio Lerit; on the South by property owner by Potenciano Zaragoza; and on the West by property owned by Agapito de la Cruz.7Exhs. 11A & 11-B. Private Respondent then alleges that, on December 21, 1960, petitioner sold this property to Concepcion Verano vda. de Cabug, after which Tax Declaration No. 53398Exh. 10. was issued in her favor. In compliance with their mutual agreement to repurchase the same, petitioner reacquired the property by way of sale9Exhs. 8 & 8-A. on August 24, 1962 and then declared it for taxation purposes in his name under Tax Declaration No. 5720.10Exh. 7. However, the property remained in petitioner’s hands for only four (4) days because, on August 28, 1962, he sold it to Espinosa11Exhs. 6 & 6-B. who then declared it in his name under Tax Declaration No. 12311.12Exh. 5. Consequently, the property became a part of the estate of Pablo Espinosa’s wife, the late Segundina Liao Espinosa. On August 10, 1981, her heirs executed an instrument denominated as “Extrajudicial Settlement of Estate with Simultaneous Sale” whereby the 5.5-hectare property under Tax Declaration No. 12311 was sold to private respondent13He is described in the instrument as “married to Nelia Averilla.... in consideration of the amount of P5,000.00. Thereafter, Tax Declaration No. 12738 was issued in the name of private respondent. In all these conveyances, the area and boundaries of the property remained exactly the same as those appearing in Tax Declaration No. 2916 under petitioner’s name.

It was proved at the proceedings in the court a quo that two (2) surveys were made of the disputed property. The first _______________ 7 Exhs. 11-A & 11-B. 8 Exh. 10. 9 Exhs. 8 & 8-A. 10 Exh. 7. 11 Exhs. 6 & 6-B. 12 Exh. 5. 13 He is described in the instrument as “married to Nelia Averilla.” 108 108 SUPREME COURT REPORTS ANNOTATED Titong vs. Court of Appeals (4th Division) survey14Exh. B. was made for petitioner, while the second was the relocation survey ordered by the lower court. As anticipated, certain discrepancies between the two surveys surfaced. Thus, contrary to petitioner’s allegation in his complaint that he is the owner of only 3.2800 hectares, he was actually claiming 5.9789 hectares, the total areas of Lot Nos. 3918, 3918-A and 3606. On the other hand, Lot No. 3479 pertaining to Espinosa, was left with only an area of 4.1841 hectares instead of the 5.5 hectares sold by petitioner to him. Apprised of the discrepancy, private respondent filed a protest15Exh. 15. before the Bureau of Lands against the first survey, likewise filing a case for alteration of boundaries before the municipal trial court, the proceedings of which,

however, were suspended because of the instant case.16TSN, October 26, 1989, pp. 7-11, 45-49. Private respondent testified that petitioner is one of the four heirs of his mother, Leonida Zaragoza. In the Extrajudicial Settlement with Sale of Estate of the deceased Leonida Zaragoza,17Exhs. 12 & 12-B. the heirs adjudicated unto themselves the 3.6hectare property of the deceased. The property involved is described in the instrument as having been declared under Tax Declaration No. 330118Exh. 13. and as bounded on the North by Victor Verano, on the East by Benigno Titong, on the South by the Bugsayon River and on the West by Benigno Titong. On September 9, 1969, Tax Declaration No. 8723 was issued to petitioner for his corresponding share in the estate. However, instead of reflecting only .9000 hectare as his rightful share in the extrajudicial settlement19Exh. 12-A. petitioner’s share was bloated to 2.4 hectares. It therefore appeared to private respondent that petitioner encroached upon his (Laurio’s) property and declared it a part of his inheritance.20TSN, October 26, 1989, p. 35. _______________ 14 Exh. B. 15 Exh. 15. 16 TSN, October 26, 1989, pp. 7-11, 45-49. 17 Exhs. 12 & 12-B. 18 Exh. 13. 19 Exh. 12-A. 20 TSN, October 26, 1989, p. 35. 109

VOL. 287, MARCH 6, 1998 109 Titong vs. Court of Appeals (4th Division) The boundaries were likewise altered so that it was bounded on the North by Victor Verano, on the East by Benigno Titong, on the South by property owner Espinosa, and on the West by property owner Adolfo Titong.21Exh. 14-A. Private respondent accordingly denied that petitioner had diverted the course of the Bugsayon River after he had repurchased the land from Concepcion Verano vda. de Cabug22Exh. 8-B. because the land was immediately sold to Espinosa shortly thereafter.23Exhs. 6 & 6-B. The lower court rendered a decision in favor of private respondents, declaring him as the true and absolute owner of the litigated property and ordering petitioner to respect private respondents’ title and ownership over the property and to pay attorney’s fees, litigation expenses, costs and moral damages. Petitioner appealed to the Court of Appeals, which affirmed the decision. On motion for reconsideration, the same was denied for lack of merit. Hence, this petition for review on certiorari. At the outset, we hold that the instant petition must be denied for the reason that the lower court should have outrightly dismissed the complaint for quieting of title. The remedy of quieting of title may be availed of under the circumstances enumerated in the Civil Code: “ART. 476. Whenever there is a cloud on title to real property or any interest therein, by reason of any instrument, record, claim, encumbrance or proceeding which is apparently valid or effective but is in truth and in fact invalid, ineffective, voidable, or unenforceable, and may be prejudicial to said title,

an action may be brought to remove such cloud or to quiet the title. An action may also be brought to prevent a cloud from being cast upon title to real property or any interest therein.” _______________ 21 Exh. 14-A. 22 Exh. 8-B. 23 Exhs. 6 & 6-B. 110 110 SUPREME COURT REPORTS ANNOTATED Titong vs. Court of Appeals (4th Division) Under this provision, a claimant must show that there is an instrument, record, claim, encumbrance or proceeding which constitutes or casts a cloud, doubt, question or shadow upon the owner’s title to or interest in real property.24Vda. de Aviles v. Court of Appeals, G.R. No. 95748, November 21, 1996, 264 SCRA 473, 479. The ground or reason for filing a complaint for quieting of title must therefore be “an instrument, record, claim, encumbrance or proceeding.” Under the maxim expresio unius est exclusio alterius, these grounds are exclusive so that other reasons outside of the purview of these reasons may not be considered valid for the same action.25Ibid., citing Lerum v. Cruz, 87 Phil. 652 (1950). Had the lower court thoroughly considered the complaint filed, it would have had no other course of action under the law but to dismiss it. The complaint failed to allege that an “instrument, record, claim, encumbrance or proceeding” beclouded the plaintiff’s title over the property involved. Petitioner merely

alleged that the defendants (respondents herein), together with their hired laborers and without legal justification, forcibly entered the southern portion of the land of the plaintiff and plowed the same. He then proceeded to claim damages and attorney’s fees. He prayed that, aside from issuing a writ or preliminary injunction enjoining private respondents and their hired laborers from intruding into the land, the court should declare him “the true and absolute owner” thereof. Hence, through his allegations, what petitioner imagined as clouds cast on his title to the property were private respondents’ alleged acts of physical intrusion into his purported property. Clearly, the acts alleged may be considered grounds for an action for forcible entry but definitely not one for quieting of title. When the issues were joined by the filing of the answer to the complaint, it would have become apparent to the court that the case was a boundary dispute. The answer alleged, among other matters, that petitioner, “in bad faith, surreptitiously, maliciously and fraudulently had the land in question _______________ 24 Vda. de Aviles v. Court of Appeals, G.R. No. 95748, November 21, 1996, 264 SCRA 473, 479. 25 Ibid., citing Lerum v. Cruz, 87 Phil. 652 (1950). 111 VOL. 287, MARCH 6, 1998 111 Titong vs. Court of Appeals (4th Division) included in the survey of his land which extends to the south only as far as the Bugsayon River which is the visible and

natural and common boundary between the properties.”26 Moreover, during the hearing of the case, petitioner proved that it was actually a boundary dispute by evidence showing what he considered as the boundary of his property which private respondents perceived as actually encroaching on their property. In this regard, the following pronouncements of the Court are apropos: “x x x (T)he trial court (and likewise the respondent Court) cannot, in an action for quieting of title, order the determination of the boundaries of the claimed property, as that would be tantamount to awarding to one or some of the parties the disputed property in an action where the sole issue is limited to whether the instrument, record, claim, encumbrance or proceeding involved constitutes a cloud upon the petitioners’ interest or title in and to said property. Such determination of boundaries is appropriate in adversarial proceedings where possession or ownership may properly be considered and where evidence aliunde, other than the ‘instrument, record, claim, encumbrance or proceeding’ itself, may be introduced. An action for forcible entry, whenever warranted by the period prescribed in Rule 70, or for recovery of possession de facto, also within the prescribed period, may be availed of by the petitioners, in which proceeding the boundary dispute may be fully threshed out.”27Vda. de Aviles v. Court of Appeals, supra at p. 482. Nonetheless, even if the complaint below were to be considered as a valid one for quieting of title, still, the instant petition for review on certiorari must fail. As a general rule, findings of fact of the Court of Appeals are binding and conclusive upon this Court. Such factual findings

shall not be disturbed normally unless the same are palpably unsupported by the evidence on record or the judgment itself is based on a misapprehension of facts.28Inland Trailways, Inc. v. Court of Appeals, 325 Phil. 457, 462 (1996); Valenzuela v. Court of Appeals, 323 Phil. 374, 383 (1996); Upon an _______________ 26 Ibid., p. 11. 27 Vda. de Aviles v. Court of Appeals, supra at p. 482. 28 Inland Trailways, Inc. v. Court of Appeals, 325 Phil. 457, 462 (1996); Valenzuela v. Court of Appeals, 323 Phil. 374, 383 (1996); 112 112 SUPREME COURT REPORTS ANNOTATED Titong vs. Court of Appeals (4th Division) examination of the records, the Court finds no evident reason to depart from the general rule. The courts below correctly held that when petitioner “sold, ceded, transferred and conveyed” the 5.5-hectare land in favor of Pablo Espinosa, his rights of ownership and possession pertaining thereto ceased and these were transferred to the latter. In the same manner, Espinosa’s rights of ownership over the land ceased and were transferred to private respondent upon its sale to the latter. This finds justification in the Civil Code, as follows: “ART. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.

A contract of sale may be absolute or conditional.” In other words, a sale is a contract transferring dominion and other real rights in the thing sold.29AQUINO, CIVIL CODE OF THE PHILIPPINES, Vol. 3, 1990 ed., p. 1 citing Denoga v. Insular Government, 19 Phil. 261 (1911). In the case at bar, petitioner’s claim of ownership must of necessity fail because he has long abdicated his rights over the land when he sold it to private respondent’s predecessor-in-interest. Petitioner’s claim that he acquired ownership over the disputed land through possession for more than twenty (20) years is likewise unmeritorious. While Art. 1134 of the Civil Code provides that “(o)wnership and other real rights over immovable property are acquired by ordinary prescription through possession of ten years,” this provision of law must be read in conjunction with Art. 1117 of the same Code. This article states that “x x x (o)rdinary acquisitive prescription of things requires possession in good faith and with just title for the time fixed by law.” Hence, a prescriptive title to real estate is not acquired by mere possession thereof under claim of _______________ Acebedo Optical Co., Inc. v. Court of Appeals, G.R. No. 118833, November 29, 1995, 250 SCRA 409, 414. 29 AQUINO, CIVIL CODE OF THE PHILIPPINES, Vol. 3, 1990 ed., p. 1 citing Denoga v. Insular Government, 19 Phil. 261 (1911). 113 VOL. 287, MARCH 6, 1998 113 Titong vs. Court of Appeals (4th Division)

ownership for a period of ten years unless such possession was acquired con justo titulo y buena fe (with color of title and good faith).30Santiago v. Cruz, 19 Phil. 145 (1911). The good faith of the possessor consists in the reasonable belief that the person from whom he received the thing was the owner thereof, and could transmit his ownership.31Art. 1127, Civil Code. For purposes of prescription, there is just title when the adverse claimant came into possession of the property through one of the modes recognized by law for the acquisition of ownership or other real rights but the grantor was not the owner or could not transmit any right.32Art. 1129, Ibid. Petitioners have not satisfactorily met the requirements of good faith and just title. As aptly observed by the trial court, the plaintiff’s admitted acts of converting the boundary line (Bugsayon River) into a ricefield and thereafter claiming ownership thereof were acts constituting deprivation of the rights of others and therefore “tantamount to bad faith.”33Decision, p. 10. To allow petitioner to benefit from his own wrong would run counter to the maxim ex dolo malo non oritur actio (no man can be allowed to found a claim upon his own wrongdoing). Extraordinary acquisitive prescription cannot similarly vest ownership over the property upon petitioner. Art. 1137 of the Civil Code states that “(o)wnership and other real rights over immovables prescribe through uninterrupted adverse possession thereof for thirty years, without need of title or of good faith.” Petitioner’s alleged possession in 1962 up to September 1983 when private respondents entered the property in question spanned twentyone (21) years. This period of time is short of the thirty-year requirement mandated by Art. 1137.

Petitioner basically anchors his claim over the property on the survey plan prepared upon his request,34Exh. B. the tax declaration in his name,35Exh. A. the commissioner’s report on the relocation _______________ 30 Santiago v. Cruz, 19 Phil. 145 (1911). 31 Art. 1127, Civil Code. 32 Art. 1129, Ibid. 33 Decision, p. 10. 34 Exh. B. 35 Exh. A. 114 114 SUPREME COURT REPORTS ANNOTATED Titong vs. Court of Appeals (4th Division) survey,36Record, pp. 39-40. and the survey plan.37Exh. C. Respondent court correctly held that these documents do not conclusively demonstrate petitioner’s title over Lot Nos. 3918A and 3606. A survey is the act by which the quantity of a parcel of land is ascertained and also a paper containing a statement of courses, distances, and quantity of land.3840A WORDS AND PHRASES 531 citing Miller v. Lawyers Title Ins. Corp., D.C. Va., 112 F. Supp. 221, 224. A survey under a proprietary title is not a conveyance. It is an instrument sui generis in the nature of a partition; a customary mode in which a proprietor has set off to himself in severalty a part of the common estate.39Ibid., citing Jennings v. Burnham, 28 A. 1048, 56 N.J.L. 289, 291. Therefore, a survey, not being a conveyance, is not a mode of

acquiring ownership. A fortiori, petitioner cannot found his claim on the survey plan reflecting a subdivision of land because it is not conclusive as to ownership as it may refer only to a delineation of possession.40Heirs of George Bofill v. Court of Appeals, G.R. No. 107930, October 7, 1994, 237 SCRA 451, 458. Furthermore, the plan was not verified and approved by the Bureau of Lands in accordance with Sec. 28, paragraph 5 of Act No. 2259, the Cadastral Act, as amended by Sec. 1862 of Act No. 2711. Said law ordains that private surveyors send their original field notes, computations, reports, surveys, maps and plots regarding a piece of property to the Bureau of Lands for verification and approval.41Fige v. Court of Appeals, G.R. No. 107951, June 30, 1994, 233 SCRA 586, 590. A survey plan not verified and approved by said Bureau is nothing more than a private writing, the due execution and authenticity of which must be proven in accordance with Sec. 20 of Rule 132 of the Rules of Court. The circumstance that the plan was admitted in evidence without any objection as to its due execution and authenticity does not signify that the courts shall give proba_______________ 36 Record, pp. 39-40. 37 Exh. C. 38 40A WORDS AND PHRASES 531 citing Miller v. Lawyers Title Ins. Corp., D.C. Va., 112 F. Supp. 221, 224. 39 Ibid., citing Jennings v. Burnham, 28 A. 1048, 56 N.J.L. 289, 291. 40 Heirs of George Bofill v. Court of Appeals, G.R. No. 107930, October 7, 1994, 237 SCRA 451, 458.

41 Fige v. Court of Appeals, G.R. No. 107951, June 30, 1994, 233 SCRA 586, 590. 115 VOL. 287, MARCH 6, 1998 115 Titong vs. Court of Appeals (4th Division) tive value therefor. To admit evidence and not to believe it subsequently are not contradictory to each other. This Court cannot alter the conclusions of the Court of Appeals on the credibility accorded to evidence presented by the parties.42Ledesma v. Realubin and Court of Appeals, 118 Phil. 625, 629 (1963). Similarly, petitioner’s tax declaration issued under his name is not even persuasive evidence of his claimed ownership over the land in dispute. A tax declaration, by itself, is not considered conclusive evidence of ownership.43Rivera v. Court of Appeals, 314 Phil. 57 (1995); Republic v. IAC, G.R. No. 74380, July 5, 1993, 224 SCRA 285, 296; De Jesus v. Court of Appeals, G.R. No. 57092, January 21, 1993, 217 SCRA 307, 317. It is merely an indicium of a claim of ownership.44Director of Lands v. IAC, G.R. No. 73246, March 2, 1993, 219 SCRA 339, 348. Because it does not by itself give title, it is of little value in proving one’s ownership.45Sapu-an v. Court of Appeals, G.R. No. 91869, October 19, 1992, 214 SCRA 701. Moreover, the incompatibility in petitioner’s tax declaration and the commissioner’s report as regards the area of his claimed property is much too glaring to be ignored. Tax Declaration No. 8717 states that petitioner’s property has an area of 3.2800 hectares while the totality of his claim according

to the commissioned geodetic engineer’s survey amounts to 4.1385 hectares. There is therefore a notable discrepancy of 8,585 square meters. On the other hand, private respondent’s claimed property, as borne out by Tax Declaration No. 12738, totals 5.5 hectares, a more proximate equivalent of the 5.2433hectare property as shown by the commissioner’s report. There is also nothing in the commissioner’s report that substantiates petitioner’s claim that the disputed land was inside his property. Petitioner capitalizes on the lower court’s statement in its decision46Decision, p. 6. that “as reflected in the commis_______________ 42 Ledesma v. Realubin and Court of Appeals, 118 Phil. 625, 629 (1963). 43 Rivera v. Court of Appeals, 314 Phil. 57 (1995); Republic v. IAC, G.R. No. 74380, July 5, 1993, 224 SCRA 285, 296; De Jesus v. Court of Appeals, G.R. No. 57092, January 21, 1993, 217 SCRA 307, 317. 44 Director of Lands v. IAC, G.R. No. 73246, March 2, 1993, 219 SCRA 339, 348. 45 Sapu-an v. Court of Appeals, G.R. No. 91869, October 19, 1992, 214 SCRA 701. 46 Decision, p. 6. 116 116 SUPREME COURT REPORTS ANNOTATED Titong vs. Court of Appeals (4th Division) sioner’s report dated May 23, 1984 (Exhibit 3-3-A), the area claimed is inside lot 3918 of the defendants (Exhibit

2)”47Petition, p. 9. or the private respondents. A careful reading of the decision would show that this statement is found in the summary of defendants’ (herein private respondents) evidence. Reference to Lot No. 3918 may, therefore, be attributed to mere oversight as the lower court even continues to state the defendants’ assertion that the 2-hectare land is part of their 5.5hectare property. Hence, it is not amiss to conclude that either petitioner misapprehended the lower court’s decision or he is trying to contumaciously mislead or worse, deceive this Court. With respect to the awards of moral damages of P10,000.00 and attorney’s fees of P2,000.00, the Court finds no cogent reason to delete the same. Jurisprudence is replete with rulings to the effect that where fraud and bad faith have been established, the award of moral damages is in order.48Development Bank of the Philippines v. Court of Appeals, G.R. No. 109937, March 21, 1994, 231 SCRA 370, 377; Pasibigan v. Court of Appeals, G.R. No. 90169, April 7, 1993, 221 SCRA 202, 208; De Guzman v. NLRC, G.R. No. 90856, July 23, 1992, 211 SCRA 723, 73... This pronouncement finds support in Art. 2219 (10) of the Civil Code allowing the recovery of moral damages for acts enumerated in Art. 21 of the same Code. This article states that “(a)ny person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage.” The moral damages are hereby increased to P30,000.00. We agree with the respondent court in holding that the award of attorney’s fees is justified because petitioner filed a clearly unfounded civil action.49Art. 2208 (4), Civil Code.

WHEREFORE, the instant petition for review on certiorari is hereby DENIED and the questioned Decision of the Court _______________ 47 Petition, p. 9. 48 Development Bank of the Philippines v. Court of Appeals, G.R. No. 109937, March 21, 1994, 231 SCRA 370, 377; Pasibigan v. Court of Appeals, G.R. No. 90169, April 7, 1993, 221 SCRA 202, 208; De Guzman v. NLRC, G.R. No. 90856, July 23, 1992, 211 SCRA 723, 731. 49 Art. 2208 (4), Civil Code. 117 VOL. 287, MARCH 6, 1998 117 Santos, Jr. vs. NLRC of Appeals AFFIRMED. This Decision is immediately executory. Costs against petitioner. SO ORDERED. Narvasa (C.J., Chairman), Kapunan and Purisima, JJ., concur. Petition denied; Questioned decision affirmed. Note.—Tax receipts and declaration of ownership for taxation when coupled with proof of actual possession of the property can be the basis of claim of ownership through prescription. (Heirs of Placido Miranda vs. Court of Appeals, 255 SCRA 368 [1996]) ——o0o—— [Titong vs. Court of Appeals (4th Division), 287 SCRA 102(1998)]

G.R. No. 123231. November 17, 1997.*FIRST DIVISION. HEIRS OF MARCIANO NAGAÑO, petitioners, vs. COURT OF APPEALS, SPOUSES PONCIANO MALLARI and GLORIA BINUYA, SPOUSES ELENA MALLARI and MELENCIO TULABAN, and REGINA MALLARI, respondents. Actions; Motions to Dismiss; Land Registration; Free Patents; Public Land Act (C.A. No. 141); Where on the basis of the allegations in a complaint for declaration of nullity of an original certificate of title issued pursuant to a Free Patent, the lot in question is apparently beyond the jurisdiction of the Director of the Bureau of Lands and could not be the subject of a Free Patent, dismissal of a party’s complaint is premature and trial on the merits should be conducted to thresh out evidentiary matters.—The rule is settled that a motion to dismiss a complaint hypothetically admits the truth of the facts alleged therein. Under Section 48, a subject lot is, for all legal intents and purposes, segregated from the public domain, because the beneficiary is “conclusively presumed to have performed all the conditions essential to a Government grant and shall be entitled to a certificate of title under the provisions of this chapter.” Consequently, merely on the basis of the allegations in the complaint, the lot in question is apparently beyond the jurisdiction of the Director _____________ * FIRST DIVISION. 44 44 SUPREME COURT REPORTS ANNOTATED Heirs of Marciano Nagaño vs. Court of Appeals

of the Bureau of Lands and could not be the subject of a Free Patent. Hence, dismissal of private respondents’ complaint was premature and trial on the merits should have been conducted to thresh out evidentiary matters. Same; Same; Same; Same; Same; Parties; An action for reversion has to be instituted by the Solicitor General pursuant to Section 101 of C.A. No. 141.—It would have been entirely different if the action were clearly for reversion, in which case, it would have to be instituted by the Solicitor General pursuant to Section 101 of C.A. No. 141, which provides: SEC. 101. All actions for the reversion to the Government of lands of the public domain or improvements thereon shall be instituted by the Solicitor General or the officer acting in his stead, in the proper courts, in the name of the [Republic] of the Philippines. Same; Same; Same; Same; Same; Prescription; Quieting of Title; A Free Patent issued over private land is null and void, and produces no legal effects whatsoever; An action for quieting of title is imprescriptible.—In light of the above, and at this time, prescription is unavailing against private respondents’ action. It is settled that a Free Patent issued over private land is null and void, and produces no legal effects whatsoever. Quod nullum est, nullum producit effectum. Moreover, private respondents’ claim of open, public, peaceful, continuous and adverse possession of the 2,250 square meter portion since 1920, and its illegal inclusion in the Free Patent of petitioners and in their original certificate of title, gave private respondents a cause of action for quieting of title which is imprescriptible. The complaint of private respondents may thus likewise be considered an action for quieting of title.

PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. Valerio de Guzman & Dionido Law Offices for petitioners. Raul N. Bansale for private respondents. 45 VOL. 282, NOVEMBER 17, 1997 45 Heirs of Marciano Nagaño vs. Court of Appeals DAVIDE, JR., J.: In this petition for review under Rule 45 of the Rules of Court, petitioners seek the reversal of the decision of the Court of Appeals in CA-G.R. CV No. 400171Rollo, 52-55; Original Record (OR) CA-G.R. CV No. 40017 (CA OR), 36-39. Per Associate Justice Justo P. Torres, Jr., with Associate Justices Ramon U. Mabutas, Jr. and Jose C. De la Rama, concurring. which set aside the Order of the Regional Trial Court of Gapan, Nueva Ecija, Branch 35 in Civil Case No. 8362Id., 49; Id., 24 (RTC Civil Case No. 836. Per Judge Teofilo B. Talavera, Jr.). dismissing private respondents’ complaint3Rollo, 29-32. which sought the declaration of nullity of the Original Certificate of Title (OCT) issued pursuant to a Free Patent in the name of petitioners. The factual antecedents, as succinctly summarized by the Court of Appeals, are as follows: Plaintiffs-appellants [private respondents] filed a complaint for the declaration of nullity of Original Certificate of Title No. P8265 issued in the name of the heirs of Marciano Nagaño and covering Cad. Lot. No. 3275. Plaintiff-appellants alleged that

the issuance of the said title was on account of the fraud, deceit, and misrepresentation committed by defendant Macario Valerio. An information for perjury was even filed on November 2, 1983 against defendant Valerio, who unlawfully attested that Lot No. 3275 was not occupied or being claimed by other persons. Plaintiff-appellants alleged that part of the subject property was owned by their predecessors-in-interest Rufino Mallari and Fermina Jamlig and that they were in possession of the said land since 1920. They recently discovered that their entire Lot No. 3275 was registered by defendant Valerio under Free Patent No. (III-2) 001953 and OCT No. P-8265 in the name of the heirs of Marciano Nagaño. They allegedly demanded from defendant Valerio to execute the necessary document in order that the 2,250 square meters owned by them be segregated from the property titled in the name of the defendants-appellees [petitioners ______________ 1 Rollo, 52-55; Original Record (OR) CA-G.R. CV No. 40017 (CA OR), 36-39. Per Associate Justice Justo P. Torres, Jr., with Associate Justices Ramon U. Mabutas, Jr. and Jose C. De la Rama, concurring. 2 Id., 49; Id., 24 (RTC Civil Case No. 836. Per Judge Teofilo B. Talavera, Jr.). 3 Rollo, 29-32. 46 46 SUPREME COURT REPORTS ANNOTATED Heirs of Marciano Nagaño vs. Court of Appeals

herein]. Defendants-appellees, however, refused to accede their demands. A motion to dismiss was filed by defendants-appellees on the following grounds, viz.: 1. The court has no jurisdiction over the nature of the action; 2. Plaintiffs have no cause of action against the defendants, since suit for annulment of title which actually is a reversion proceedings should be instituted by the Solicitor; 3. Plaintiffs’ cause of action is barred by the statute of limitations, the lawsuit having been instituted more than one year, or in fact almost fifteen years after the issuance of the title.4Rollo, 52-53; CA OR, 36-37. In its Order of 21 September 1992,5Supra note 2. the trial court granted petitioners’ motion to dismiss on the ground that: [The] action to annul the subject certificate of title, which is the plaintiffs’ principal cause of action, should be instituted by the Solicitor General. (Lopez v. Padilla, 45 SCRA 44; Maximo v. CFI of Capis (sic), 182 SCRA 420; and Sumali v. Judge of CFI Cotabato, 96 Phil. 946, cited by the defendants). Private respondents appealed the order of dismissal to respondent court raising this lone assignment of error: THE COURT ERRED IN DISMISSING THE CASE AND/OR ALL THE CAUSES OF ACTION OF THE PLAINTIFFAPPELLANTS.6Rollo, 53; CA OR, 37. In its decision7Supra note 1. of 20 September 1995, the Court of Appeals set aside the challenged order of the trial court and reinstated private respondents’ complaint. Applying Agne v. Director of Lands,8181 SCRA 793 [1990]. respondent court distinguished private respondents’ _____________

4 Rollo, 52-53; CA OR, 36-37. 5 Supra note 2. 6 Rollo, 53; CA OR, 37. 7 Supra note 1. 8 181 SCRA 793 [1990]. 47 VOL. 282, NOVEMBER 17, 1997 47 Heirs of Marciano Nagaño vs. Court of Appeals action from a review of the decree of title on the ground of fraud, and held that the rule on the incontrovertibility of a certificate of title upon the expiration of one year after the entry of the decree did not apply as the action for cancellation of the patent and certificate of title issued pursuant thereto was instituted on the ground that they were null and void as the Bureau of Lands had no jurisdiction to issue them, the land having been withdrawn from the public domain prior to the award of the patent and grant of the certificate of title to another person. Petitioners’ motion to reconsider9Rollo, 56-69; CA OR, 46-59. having been denied by the Court of Appeals in its Resolution of 20 December 1995,10Id., 71; Id., attached. petitioners filed the petition at bar alleging that: I THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE ORDER OF DISMISSAL, CONSIDERING THE FACT THAT PRIVATE RESPONDENTS DO NOT HAVE THE LEGAL PERSONALITY TO CONTEST THE FINAL AWARD

MADE BY THE DIRECTOR OF LANDS, AND CIVIL COURTS ARE DEVOID OF JURISDICTION AND AUTHORITY TO REVIEW OR CONTROL SUCH FINAL JUDGMENT. II PRIVATE RESPONDENTS’ PRINCIPAL CAUSE OF ACTION IN THIS CASE IS FOR THE AWARD IN THEIR FAVOR OF 2,250 SQUARE METERS PORTION OF THAT PARCEL OF LAND COVERED BY OCT NO. P-8265 AND CIVIL COURTS HAVE NO JURISDICTION OVER THE NATURE OF THE ACTION SINCE IT IS THE DIRECTOR OF LANDS, NOT THE CIVIL COURTS, WHO IS VESTED WITH JURISDICTION TO DECIDE [TO] WHOM TO AWARD DISPOSABLE LANDS OF THE PUBLIC DOMAIN. _____________ 9 Rollo, 56-69; CA OR, 46-59. 10 Id., 71; Id., attached. 48 48 SUPREME COURT REPORTS ANNOTATED Heirs of Marciano Nagaño vs. Court of Appeals III PRIVATE RESPONDENTS HAVE NO CAUSE OF ACTION AGAINST THE PETITIONERS, SINCE [A] SUIT FOR ANNULMENT OF TITLE WHICH ACTUALLY IS A REVERSING PROCEEDINGS [sic], SHOULD BE INSTITUTED BY THE SOLICITOR GENERAL. IV

PRIVATE RESPONDENTS’ CAUSE OF ACTION IS BARRED BY THE STATUTE OF LIMITATIONS, THE LAWSUIT HAVING BEEN INSTITUTED MORE THAN ONE YEAR, OR IN FACT ALMOST FIFTEEN YEARS, AFTER THE ISSUANCE OF THE TITLE. The Court of Appeals correctly set aside the challenged order of the trial court, but not necessarily for the correct reasons. The trial court sustained the second ground of petitioners’ motion to dismiss, namely, that private respondents had no cause of action since the suit for annulment of title amounted to a reversion proceeding which only the Office of the Solicitor General could initiate. The propriety of that ruling was the primary issue before the Court of Appeals, as the trial court did not deem it necessary to rule on the other grounds, viz., (a) lack of jurisdiction over the nature of the action; and (2) that private respondents’ cause of action was barred by the statute of limitations since the action was filed more than one year after issuance of the title. The rule is settled that a motion to dismiss a complaint hypothetically admits the truth of the facts alleged therein.111 FLORENCE D. REGALADO, REMEDIAL LAW COMPENDIUM 242 (6th Rev. ed. 1997). In their complaint,12Supra note 3. private respondents specifically alleged that: (a) they are “the heirs of Rufino Mallari and Fermina Jamlig who are part owners of a parcel of land known as Cad. 324-D, Lot 3275, situated at Mambangan, San Leonardo, Nueva Ecija”; (b) the portion belonging to private respon_______________

11 1 FLORENCE D. REGALADO, REMEDIAL LAW COMPENDIUM 242 (6th Rev. ed. 1997). 12 Supra note 3. 49 VOL. 282, NOVEMBER 17, 1997 49 Heirs of Marciano Nagaño vs. Court of Appeals dents, with an area of 2,250 square meters, was covered by tax declarations in their names, occupied and possessed by their predecessors-in-interest since 1920 and continuously thereafter until the present; (c) their possession has been peaceful, public, continuous, adverse and in the concept of an owner; (d) on or about 18 February 1974, defendant Macario Valerio, in order to deprive private respondents of their rights over and ownership of the portion of the lot, committed perjury, for which he is now criminally charged in court, by causing the entire Lot 3275 to be registered under Free Patent No. (III-2) 001953 and the issuance of original certificate of Title No. P8265, both in the name of Marciano Nagaño, represented by Macario Valerio; (e) on account of the fraud, deceit and misrepresentation committed by Macario Valerio, the grant of the patent and issuance of the title were null and void and the indefeasibility of a title issued pursuant thereto one year after did not apply; (f) upon discovery, only recently, of the issuance of the title in the name of the Heirs of Marciano Nagaño, private respondents demanded from Macario Valerio the execution of the necessary documents segregating the 2,250 square meter portion and transferring the property to them, however, Macario refused without justifiable cause or reason;

and (g) as a consequence of Macario’s refusal, they suffered moral damages and were compelled to incur expenses and secure the services of counsel. Private respondents then prayed, inter alia, that Original Certificate of Title No. P-8265 be declared null and void, or that the 2,250 square meter portion be segregated and the Register of Deeds ordered to issue a title over said portion in their names, and that petitioners be ordered to pay actual, moral and other damages, attorney’s fees and litigation expenses. It is then clear from the allegations in the complaint that private respondents claim ownership of the 2,250 square meter portion for having possessed it in the concept of an owner, openly, peacefully, publicly, continuously and adversely since 1920. This claim is an assertion that the lot is private land, or that even assuming it was part of the public domain, private respondents had already acquired imperfect title thereto un50 50 SUPREME COURT REPORTS ANNOTATED Heirs of Marciano Nagaño vs. Court of Appeals der Section 48(b) of C.A. No. 141, otherwise known as the Public Land Act, as amended by R.A. No. 1942. This section provides: SECTION 48. The following described citizens of the Philippines, occupying lands of the public domain or claiming to own any such lands or an interest therein, but whose titles have not been perfected or completed, may apply to the Court of First Instance of the province where the land is located for

confirmation of their claims and issuance of a certificate of title therefor, under the Land Registration Act, to wit: xxx (b) Those who by themselves or through their predecessors in interest have been in open, continuous, exclusive and notorious possession and occupation of agricultural lands of the public domain, under a bona fide claim of acquisition of ownership, for at least thirty years immediately preceding the filing of the application for confirmation of title except when prevented by war or force majeure. These shall be conclusively presumed to have performed all the conditions essential to a Government grant and shall be entitled to a certificate of title under the provisions of this chapter.13In accordance with Section 4 of P.D. No. 1073, promulgated on 25 January 1977, this paragraph was amended to apply only to alienable and disposable lands of the public domain which have been in the open, continuous, exclusive and notorious possession and o... Under Section 48, a subject lot is, for all legal intents and purposes, segregated from the public domain, because the beneficiary is “conclusively presumed to have performed all the conditions essential to a Government grant and shall be entitled to a certificate of title under the provisions of this chapter.” Consequently, merely on the basis of the allegations in the complaint, the lot in question is apparently beyond the jurisdiction of the Director of the Bureau of Lands and could not _______________ 13 In accordance with Section 4 of P.D. No. 1073, promulgated on 25 January 1977, this paragraph was amended to apply only

to alienable and disposable lands of the public domain which have been in the open, continuous, exclusive and notorious possession and occupation by the applicant himself or thru his predecessors-in-interest, under a bona fide claim of acquisition of ownership, since 12 June 1945. 51 VOL. 282, NOVEMBER 17, 1997 51 Heirs of Marciano Nagaño vs. Court of Appeals be the subject of a Free Patent. Hence, dismissal of private respondents’ complaint was premature and trial on the merits should have been conducted to thresh out evidentiary matters. It would have been entirely different if the action were clearly for reversion, in which case, it would have to be instituted by the Solicitor General pursuant to Section 101 of C.A. No. 141, which provides: SEC. 101. All actions for the reversion to the Government of lands of the public domain or improvements thereon shall be instituted by the Solicitor General or the officer acting in his stead, in the proper courts, in the name of the [Republic] of the Philippines. In light of the above, and at this time, prescription is unavailing against private respondents’ action. It is settled that a Free Patent issued over private land is null and void,14Vital v. Anore, 90 Phil. 855, 858 [1952]; Agne v. Director of Lands, supra, note 8 at 807-808 [1990]; Mendoza v. Navarette, 214 SCRA 337, 349 [1992]. and produces no legal effects whatsoever. Quod nullum est, nullum producit effectum.15Agne v. Director of Lands, supra note 8, at 808.

Moreover, private respondents’ claim of open, public, peaceful, continuous and adverse possession of the 2,250 square meter portion since 1920, and its illegal inclusion in the Free Patent of petitioners and in their original certificate of title, gave private respondents a cause of action for quieting of title which is imprescriptible.16Mendoza v. Navarette, supra note 14, at 353-354, citing Canagay Layno v. Court of Appeals, 133 SCRA 718, 724-725 [1984]. The complaint of private respondents may thus likewise be considered an action for quieting of title. The grounds then relied upon in petitioners’ motion to dismiss are not indubitable and cannot be impressed with merit. We are not, however, foreclosing the presentation of evidence during trial on the merits that the land in question is not ______________ 14 Vital v. Anore, 90 Phil. 855, 858 [1952]; Agne v. Director of Lands, supra, note 8 at 807-808 [1990]; Mendoza v. Navarette, 214 SCRA 337, 349 [1992]. 15 Agne v. Director of Lands, supra note 8, at 808. 16 Mendoza v. Navarette, supra note 14, at 353-354, citing Canagay Layno v. Court of Appeals, 133 SCRA 718, 724-725 [1984]. 52 52 SUPREME COURT REPORTS ANNOTATED Heirs of Marciano Nagaño vs. Court of Appeals private property and that private respondents are not entitled to the benefits of Section 48 of C.A. No. 141.

WHEREFORE, the instant petition is DENIED for lack of merit and the challenged judgment of the Court of Appeals is AFFIRMED, but for the reasons stated above. Costs against petitioners. SO ORDERED. Bellosillo, Vitug and Kapunan JJ., concur. Petition denied, judgment affirmed. Notes.—The Land Registration Authority is not legally obligated to follow the Court’s order to issue a decree where the subject lot sought to be registered is discovered to have been already decreed and titled in the name of another. (Ramos vs. Rodriguez, 244 SCRA 418 [1995]) Even after the lapse of one year, the State may still bring an action under §101 of the Public Land Act for the reversion to the public domain of lands which have been fraudulently granted to private individuals. (Republic vs. Court of Appeals, 255 SCRA 335 [1996]) ——o0o—— [Heirs of Marciano Nagaño vs. Court of Appeals, 282 SCRA 43(1997)]

No. L-20954. May 24, 1967. ELIAS GALLAR, plaintiff-appellee, vs. HERMENEGILDA HUSAIN, ET AL., defendants. BONIFACIO HUSAIN, defendant-appellant. Appeals; Change of theory is not allowed.—Where the issue raised by the appellant in the lower court was whether the transaction was a mortgage and not a pacto de retro sale, on appeal he cannot raise the issue as to the identity of the land involved, for that would be unfair to the adverse party. Moreover, his defense that the deed of sale did not express the true intent of the parties is an admission that the land described in the deed of sale was the disputed land. Sale with right of repurchase; Redemption; Who may exercise right.—Unlike a debt which a third person may satisfy even against the debtor's will, the right of repurchase may be exercised only by the vendor in whom the right is recognized by contract or by any person to whom the right may have been transferred. Same; Right of transferee of vendee a retro.—The transferee of land bought under pacto de retro may dispose of the land. She could exchange it for a cow. Same; Old law; Effect of failure to redeem land sold under pacto de retro.—Ownership of land sold under pacto de retro was consolidated in the transferee of the vendee a retro upon the vendor's failure to redeem it within the stipulated period. Sales; Sale of land in a private instrument is valid; Tradition.— A sale of land in a private instrument is valid. Delivery of the possession of the land is a consummation of the sale. Quieting of title; Actions; Prescription.—An action to quiet title, brought by a person who is in possession of the property,

is imprescriptible. However, if the plaintiff is not in possession, the action would prescribe within the proper prescriptive period. Ownership; Action for conveyance.—A person, whose purchase of land is evidenced by a private instrument, may bring an action to compel the prior owner or his heirs to execute a deed of conveyance in a public instrument. APPEAL from a decision of the Court of First Instance of Iloilo. Nañawa, J. The facts are stated in the opinion of the Court. D. E. Esmeralda for defendant-appellant. E. B. Treñas for plaintiff-appellee. 187 VOL. 20, MAY 24, 1967 187 Gallar vs. Husain REGALA, J.: This is an appeal directly from the Court of First Instance. A hectare of rice land in Cabatuan, Iloilo, is the subject of this controversy. On January 9, 1919, Teodoro Husain, the owner, sold this land to Serapio Chichirita for P30, reserving for himself the right to repurchase it within six years. The deed of sale, written in the Ilongo dialect, is contained in a private instrument, the English translation of which reads: "I, Teodoro Husain, single, of legal age, native and resident of the Municipality of Cabatuan, Province of Iloilo, Philippine Islands, because of the amount of Thirty Pesos (P30.00), Philippine currency, that was paid to me by Serapio Chichirita, married to Florentina Muyuela, of legal age, native and

resident of this Municipality of Cabatuan. Province of Iloilo, Philippine Islands, hereby declare that I am selling to the aforementioned vendee Serapio Chichirita, his heirs, and the heirs of the latter, my one parcel of rice land at Barrio Salacay of this Municipality of Cabatuan, and its descriptions are as follows: One parcel of rice land that has a seedling of one cavan of palay, legal measure, bounded on the North, land of Juan Alcayaga, on the East, land of Agapito Suero, on the South, land of Elias Gallar and on the West, land of Juan Mina. The said land was inherited by me from my father who is now dead, Clemente Husain. "I also declare that we have agreed that if the vendor shall have repaid to the vendee the aforementioned amount of P30.00 within six years from this date, the vendee or his heirs shall execute a document of repurchase in my favor, but if after the said term that he cannot return the aforementioned amount, this document shall be considered absolute and irrevocably consummated and in the meantime the vendee shall be the one to make use of the aforementioned land in accordance with the Ley Hipotecaria. "In truth whereof, I have signed this document at Cabatuan, 9th of January, 1919. (Sgd.) TEODORO HUSAIN "Signed in the presence of: "(sgd.) TOMAS JILOCA (sgd.) EUSEBIO JOCANO" Teodoro Husain did not redeem the land, although shortly after the execution of the deed of sale, that is, on January 28, 1919, the vendee a retro, Chichirita, transferred his

188 188 SUPREME COURT REPORTS ANNOTATED Gallar vs. Husain right to Graciana Husain, sister of the vendor a retro, in what purports to be a resale of the land. The following annotation appears on the reverse side of the deed of pacto de retro sale: "NOTA: The amount stated above was received by me from Graciana Husain and on my own voluntary will as redemption (gawad) of the same land, and because of this, I am transferring my rights as stated above to Graciana Husain in the presence of her husband Manuel Catalan, and in truth whereof I have signed at Cabatuan, 28 January, 1919. Thumb marked Serapio Chichirita" (English translation) Graciana Husain subsequently transferred her rights to the land to appellee Elias Gallar in exchange for one cow. The transaction is recorded in a second note added on the reverse side of the deed of sale. The note reads. "OTRA NOTA: "The undersigned Graciana Husain, with the consent and knowledge of her husband Manuel Catalan, has agreed with Elias Gallar that all the rights that belongs to her, or she, Graciana Husain, is transferring to the said Elias Gallar in accordance with that stated in the original with the difference that this transfer is definite because it is their agreement in exchange of one head of cow described in the Certificate of Large Cattle existing in the Office of the Municipal treasurer of

this town. And in truth whereof, Graciana Husain signed hereunder together with her husband Manuel Catalan. Cabatuan, April 2, 1919. "(sgd.) MANUEL CATALAN (sgd.) GRACIANA HUSAIN" (English translation) Possession of the land, together with the owner's duplicate of the certificate of title of Teodoro Husain, was delivered on the same occasion to appellee who since then has been in possession of the land. In an affidavit dated March 6, 1928, Chichirita confirmed the "redemption" of the land by Graciana Husain. In another affidavit of the same date, Graciana Husain for her part confirmed having subsequently sold the land to the appellee. 189 VOL. 20, MAY 24, 1967 189 Gallar vs. Husain In 1960, appellee asked the Cadastral Court for the issuance to him of a transfer certificate of title but the court dismissed his petition for lack of jurisdiction. (The court, however, granted appellee's request for the amendment of the certif icate of title by changing the surname of "Osaen" to "Husain.") He, therefore, filed this suit in the Court of First Instance of Iloilo on October 10, 1960 to compel Hermenegilda and Bonifacio Husain, as heirs of Teodoro Husain, to execute a deed of conveyance in his favor so that he could get a transfer certificate of title. He also asked for damages.

In their answer, Hermenegilda and Bonifacio Husain denied the sale and contended that the agreement between their father and Serapio Chichirita was that of a mortgage to secure a loan of P30. They claimed that the mortgage had been discharged on January 28, 1919 when Graciana Husain paid Teodoro Husain's debt to Chichirita. Hermenegilda and Bonifacio Husain likewise invoked prescription to bar appellee's action and asked for damages for the value of palay which they claimed they failed to receive on account of appellee's refusal to return possession of the land to them. The trial court found that after acquiring the land from Teodoro Husain, Serapio Chichirita sold it to Graciana Husain who in turn sold it to the appellee. Accordingly, it ordered the appellants to execute a deed of conveyance of the land in favor of the appellee on the authority of our ruling in Sapto v. Fabiana, G.R. No. L-11285, May 16, 1958. From this judgment, Bonifacio Husain brought this appeal to this Court. He contends that the land in question, which is identified as Lot No. 766 of the Cadastral Survey of Cabatuan, Iloilo and covered by Original Certificate of Title No. 4521 of the Register of Deeds of Iloilo, is not the same land which Teodoro Husain sold to Serapio Chichirita on January 9, 1919. According to appellant he raised this question at the trial but the lower court passed it up in its decision. The records on appeal do not disclose that appellant made such a claim. About the only hint that he was questioning the identity of the land sold by means of the deed of sale of January 9, 1919 was an objection to a 190

190 SUPREME COURT REPORTS ANNOTATED Gallar vs. Husain question during the direct examination of the appellee. Thus the following appears on pages 20-21 of the transcript of notes taken on July 5, 1961; "Q—According to this Exhibit C, you bought the lot referred to in Exhibit A which is Lot 766 in question, was bought by you for one cow. Do you know how much the worth of your cow during that time? "ATTY. ESMERALDA [for defendants] Objection, Your Honor The question is premised on Lot 766 but the document does not mention Lot 766. "xxx xxx xxx "COURT So your objection is that it lacks basis. "ATTY. ESMERALDA It lacks basis, your Honor." Otherwise, the records do not show any allegation made, much less evidence presented, by appellant of the supposed difference in the identity of the land sold in the deed of pacto de retro sale and the land now in question. Indeed, the only defense put up by appellant was that the pacto de retro sale 'was' in reality a mortgage and that, at any rate, appellee's action was barred by the statute of limitations. In so doing, appellant joined issues with the appellee and he will not now be permitted to bring up new matters on appeal as this would constitute changing of theory—so utterly unfair to the adverse party1Quinio v. Muñoz, G. R. No. L-17222, Oct. 29, 1965; Agoncillo v. Javier, 38 Phil. 424 (1918). that the lower court

deliberately, perhaps, ignored the point. It may be added that an admission that the land described in the deed of sale and Lot No. 766 are one and the same is implicit in appellant's defense that the deed of sale did not express the true intention of the parties. Still it is argued that no action can be brought on the basis of the deed of sale with a right of repurchase because the land in question was redeemed a few days after it had been sold. While it is indeed true that the first note written on the reverse side of the deed of sale speaks of the "redemption" of the land, there is no evidence to show that the vendee, Graciana Husain, was acting in behalf of _________________ 1 Quinio v. Muñoz, G. R. No. L-17222, Oct. 29, 1965; Agoncillo v. Javier, 38 Phil. 424 (1918). 191 VOL. 20, MAY 24, 1967 191 Gallar vs. Husain her brother Teodoro Husain, in the exercise of the latter's right of redemption. Now, unlike a debt which a third party may satisfy even against the debtor's will2Spanish Civil Code, art. 1158; Phil. Civil Code, art. 1236. the right of repurchase may be exercised only by the vendor in whom the right is recognized by contract3Ordoñez v. Villaroman, 78 Phil. 117 (1947). or by any person to whom the right may have been transferred4See Gonzaga v. Garcia, 27 Phil. 7 (1914).. Graciana Husain must, therefore, be deemed to have acquired the land in her own right, subject only to Teodoro Husain's

right of redemption. As the new owner. she had a perfect right to dispose of the land as she in fact did when she exchanged it for a cattle with the appellee. Now, when Teodoro Husain failed to redeem the land within the stipulated period, i.e., January 9, 1925, its ownership became consolidated in the appellee. True the successive sales are in a private instrument, but they are valid just the same.5Spanish Civil Code, art. 1268; Philippine Civil Code, art. 1356; Irureta Goyena v. Tambunting, 1 Phil. 490 (1902). By the delivery of possession of the land on April 2, 1919 the sale was consummated and title was transferred to the appellee. Indeed, this action is not for specific performance; all it seeks is to quiet title,6Phil. Civil Code, article 476. to remove the cloud cast on appellee's ownership as a result of appellant's refusal to recognize the sale made by their predecessor. And, as plaintiff-appellee is in possession of the land, the action is imprescriptible.7Sapto v. Fabiana, G.R. No. L-11285, May 16, 1958. Appellant's argument that the action has prescribed would be correct if they were in possession as the action to quiet title would then be an action f or recovery of real property which must be brought within the statutory period of limitation governing such actions.8Ongsiaco v. Ongsiaco, G.R. No. L7510, March 30, 1957; Villanueva v. Villanueva, 91 Phil. 43, 46 (1952) (Bengzon, J. concurring) Wherefore, the decision appealed from is affirmed, with costs against appellant. ________________ 2 Spanish Civil Code, art. 1158; Phil. Civil Code, art. 1236. 3 Ordoñez v. Villaroman, 78 Phil. 117 (1947). 4 See Gonzaga v. Garcia, 27 Phil. 7 (1914).

5 Spanish Civil Code, art. 1268; Philippine Civil Code, art. 1356; Irureta Goyena v. Tambunting, 1 Phil. 490 (1902). 6 Phil. Civil Code, article 476. 7 Sapto v. Fabiana, G.R. No. L-11285, May 16, 1958. 8 Ongsiaco v. Ongsiaco, G.R. No. L-7510, March 30, 1957; Villanueva v. Villanueva, 91 Phil. 43, 46 (1952) (Bengzon, J. concurring) 192 192 SUPREME COURT REPORTS ANNOTATED National Development Co. vs. Ayson Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur. Decision affirmed. ————— [Gallar vs. Husain, 20 SCRA 186(1967)]

G.R. No. 156357. February 18, 2005.*SECOND DIVISION. ENGR. GABRIEL V. LEYSON, DR. JOSEFINA L. POBLETE, FE LEYSON QUA, CARIDAD V. LEYSON and ESPERANZA V. LEYSON, petitioners, vs. NACIANSINO BONTUYAN and MAURECIA B. BONTUYAN, respondents. Land Titles; Actions; Counterclaims; An action is an attack on a title if its object is to nullify the same, and thus challenge the proceeding pursuant to which the title was decreed; The attack is considered direct when the object of an action is to annul or set aside such proceeding, or enjoin its enforcement, and an attack is indirect or collateral when, in an action to obtain a different relief, an attack on the proceeding is nevertheless made as an incident thereof; An action to attack of certificate of title may be an original action or a counterclaim in which a certificate of title is assailed as void.—While Section 47 of Act No. 496 provides that a certificate of title shall not be sub_______________ * SECOND DIVISION. 95 VOL. 452, FEBRUARY 18, 2005 95 Leyson vs. Bontuyan ject to collateral attack, the rule is that an action is an attack on a title if its object is to nullify the same, and thus challenge the proceeding pursuant to which the title was decreed. The attack is considered direct when the object of an action is to annul or set aside such proceeding, or enjoin its enforcement. On the other hand, an attack is indirect or collateral when, in an action to obtain a different relief, an attack on the proceeding is nevertheless made as an incident thereof. Such action to attack

a certificate of title may be an original action or a counterclaim in which a certificate of title is assailed as void. A counterclaim is considered a new suit in which the defendant is the plaintiff and the plaintiff in the complaint becomes the defendant. It stands on the same footing and is to be tested by the same rules as if it were an independent action. Furthermore, since all the essential facts of the case for the determination of the title’s validity are now before the Court, to require the party to institute cancellation proceedings would be pointlessly circuitous and against the best interest of justice. Same; Same; Reconveyance; Prescription; An action for reconveyance prescribes in ten years, the point of reference being the date of registration of the deed or the date of issuance of the certificate of title over the property.—Case law has it that an action for reconveyance prescribes in ten years, the point of reference being the date of registration of the deed or the date of issuance of the certificate of title over the property. In an action for reconveyance, the decree of registration is highly regarded as incontrovertible. What is sought instead is the transfer of the property or its title, which has been wrongfully or erroneously registered in another person’s name, to its rightful or legal owner, or to one who has a better right. Same; Same; Same; Same; An action for reconveyance based on fraud is imprescriptible where the plaintiff is in possession of the property subject of the acts.—In a series of cases, this Court declared that an action for reconveyance based on fraud is imprescriptible where the plaintiff is in possession of the property subject of the acts. In Vda. de Cabrera v. Court of Appeals, the Court held: ... [A]n action for reconveyance of a parcel of land based on implied or constructive trust prescribes

in ten years, the point of reference being the date of registration of the deed or the date of the issuance of the certificate of title over the property, but this rule applies only when the plaintiff or the person enforcing the trust is not in possession of the property, 96 96 SUPREME COURT REPORTS ANNOTATED Leyson vs. Bontuyan since if a person claiming to be the owner thereof is in actual possession of the property, as the defendants are in the instant case, the right to seek reconveyance, which in effect seeks to quiet title to the property, does not prescribe. The reason for this is that one who is in actual possession of a piece of land claiming to be the owner thereof may wait until his possession is disturbed or his title is attacked before taking steps to vindicate his right, the reason for the rule being, that his undisturbed possession gives him a continuing right to seek the aid of a court of equity to ascertain and determine the nature of the adverse claim of a third party and its effect on his own title, which right can be claimed only by one who is in possession. Same; Same; Same; Same; Registration proceedings could not be used as shield for fraud.—The paramount reason for this exception is based on the theory that registration proceedings could not be used as a shield for fraud. Moreover, to hold otherwise would be to put premium on land-grabbing and transgressing the broader principle in human relations that no person shall unjustly enrich himself at the expense of another. Same; Same; Same; The reconveyance is just and proper where it is to put a stop to the unendurable anomaly that the patentees

should have a Torrens title for the land which they and their predecessors never possessed and which has been possessed by another in the concept of an owner.—In the present case, Lourdes Leyson and, after her death, the petitioners, had been in actual possession of the property. The petitioners were still in possession of the property when they filed their answers to the complaint which contained their counterclaims for the nullification of OCT No. 0-1619 and TCT No. 1392, and for the consequent reconveyance of the property to them. The reconveyance is just and proper in order to put a stop to the unendurable anomaly that the patentees should have a Torrens title for the land which they and their predecessors never possessed and which has been possessed by another in the concept of an owner. Damages; Attorney’s Fees; The award of attorney’s fees and appearance fees is better left to the sound discretion of the trial court, and if such discretion is well exercised, it will not be disturbed on appeal.—On the fifth assignment of error, we rule for the petitioners. The award of attorney’s and appearance fees is better left to the sound discretion of the trial court, and if such discretion is well exercised, as in this case, it will not be disturbed on appeal. With the 97 VOL. 452, FEBRUARY 18, 2005 97 Leyson vs. Bontuyan trial and the appellate courts’ findings that the respondents were in bad faith, there is sufficient basis to award attorney’s and appearance fees to the petitioners. Had it not been for the filing of a baseless suit by the respondents against the

petitioners, the latter would not have sought the services of counsel to defend their interests and represent them in this case. PETITION for review on certiorari of the decision and resolution of the Court of Appeals. The facts are stated in the opinion of the Court. Alicia E. Bathan for petitioner. Gines N. Abellana for respondents. CALLEJO, SR., J.: This is a petition for review on certiorari of the Decision1Penned by Associate Justice Eugenio S. Labitoria, with Associate Justices Teodoro P. Regino (retired) and Rebecca De Guia-Salvador, concurring. of the Court of Appeals (CA), as well as its Resolution in CA-G.R. CV No. 64471 denying the motion for reconsideration of the said decision. The Antecedents Calixto Gabud was the owner of a parcel of land located in Barangay Adlawon, Mabolo, Cebu City, which was declared for taxation purposes under Tax Declaration (T.D.) No. 03276R in 19452Records, p. 30. (Exhibit “1... with the following boundaries: North Calixto Gabud East Marcelo Cosido South Pedro Bontuyan West Asuncion Adulfo.3Ibid. Because of the construction of a provincial road, the property was divided into two parcels of land covered by T.D. No. _______________

1 Penned by Associate Justice Eugenio S. Labitoria, with Associate Justices Teodoro P. Regino (retired) and Rebecca De Guia-Salvador, concurring. 2 Records, p. 30. (Exhibit “1”). 3 Ibid. 98 98 SUPREME COURT REPORTS ANNOTATED Leyson vs. Bontuyan 03276-R and T.D. No. 01979-R. On February 14, 1948, Gabud executed a Deed of Absolute Sale4Id., at p. 31. (Exhibit “2... over the property covered by T.D. No. 03276-R, as well as the other lot covered by T.D. No. 01979-R, in favor of Protacio Tabal, married to Leodegaria Bontuyan. On the basis of the said deed, T.D. No. 03276-R was cancelled by T.D. No. 13615-R in the name of Protacio Tabal effective 1949.5Id., at p. 32. (Exhibit “3... On January 5, 1959, Tabal executed a Deed of Sale6Id. (Exhibit “4... over the property covered by T.D. No. 13615-R in favor of Simeon Noval, married to Vivencia Bontuyan, daughter of Gregorio Bontuyan, for P800.00. T.D. No. 13615-R was cancelled by T.D. No. 100356 in the names of the spouses Noval.7Id., at p. 33. (Exhibit “5... Gregorio Bontuyan received a copy of the said tax declaration in behalf of the spouses Noval.8Id. (Exhibit “5-A) The latter tax declaration was then cancelled by T.D. No. 008876 under the same names effective 1967.9Id., at p. 34. Subsequently, the property was surveyed by Cadastral Land Surveyor Mauro U. Gabriel on January 22, 1964. The plan survey was approved on September 30, 1966.10Id., at p. 42.

The property covered by T.D. No. 008876 was identified as Lot No. 17150 of Cebu Cadastre No. 12, while the property covered by T.D. No. 01979-R was identified as Lot No. 13272. On May 22, 1968, the spouses Noval executed a Deed of Absolute Sale11Id., at p. 35. (Exhibit “6... over the two lots covered by T.D. No. 008876 in favor of Lourdes V. Leyson for P4,000.00. Lourdes Leyson took possession of the property and had it fenced. Despite the said sale, T.D. No. 008876 was cancelled by T.D. No. 21267 effective 1974.12Id., at p. 36. (Exhibit “7... Thereafter, T.D. No. 21267 was cancelled by T.D. _______________ 4 Id., at p. 31. (Exhibit “2”). 5 Id., at p. 32. (Exhibit “3”). 6 Id. (Exhibit “4”). 7 Id., at p. 33. (Exhibit “5”). 8 Id. (Exhibit “5-A) 9 Id., at p. 34. 10 Id., at p. 42. 11 Id., at p. 35. (Exhibit “6”). 12 Id., at p. 36. (Exhibit “7”). 99 VOL. 452, FEBRUARY 18, 2005 99 Leyson vs. Bontuyan No. 2382113Id., at p. 37. (Exhibit “7-A... which, in turn, was cancelled by T.D. No. 01-17455 effective 1980.14Id., at p. 38. (Exhibit “7-B... In 1989, the latter was cancelled by a new tax declaration, T.D. No. 01-001-00646. All these tax declarations

were in the names of the spouses Noval.15Id., at p. 39. (Exhibit “7-C... Meanwhile, Lourdes Leyson paid for the realty taxes over the property. However, the tax declaration issued thereon continued to be under the names of the spouses Noval.16Id., at pp. 357-400. (Exhibits “28” to “28-QQ... Despite his knowledge that the property had been purchased by his son-in-law and daughter, the spouses Noval, Gregorio Bontuyan, who was then 91 years old, filed an application with the Bureau of Lands for a free patent over Lot No. 17150 on December 4, 1968. He alleged therein that the property was public land and was neither claimed nor occupied by any person,17Id., at p. 346. (Exhibit “8... and that he first entered upon and began cultivating the same in 1918. Thus, on November 19, 1971, Free Patent No. 510463 was issued over Lot No. 17150 in his favor, on the basis of which Original Certificate of Title (OCT) No. 0-1619 was issued to and under his name on March 21, 1974.18Id., at p. 347. (Exhibit “9... Another parcel of land, Lot No. 13272, was also registered under the name of Gregorio Bontuyan under OCT No. 0-1618. He then declared Lot No. 17150 for taxation purposes under T.D. No. 13596 effective 1974.19Id., at p. 405. (Exhibit “21... On February 20, 1976, Gregorio Bontuyan executed a Deed of Absolute Sale20Id., at p. 356. (Exhibit “16... over Lot No. 17150 in favor of his son, Naciansino Bontuyan. On April 28, 1980, Gregorio Bontuyan, then 103 years old, executed another Deed of Absolute Sale21Id., at p. 350. (Exhibit “10... over Lot Nos. 13272 and 17150, covered by OCT No. 0-1618 and OCT No. 0-1619, _______________

13 Id., at p. 37. (Exhibit “7-A”). 14 Id., at p. 38. (Exhibit “7-B”). 15 Id., at p. 39. (Exhibit “7-C”). 16 Id., at pp. 357-400. (Exhibits “28” to “28-QQ”). 17 Id., at p. 346. (Exhibit “8”). 18 Id., at p. 347. (Exhibit “9”). 19 Id., at p. 405. (Exhibit “21”). 20 Id., at p. 356. (Exhibit “16”). 21 Id., at p. 350. (Exhibit “10”). 100 100 SUPREME COURT REPORTS ANNOTATED Leyson vs. Bontuyan respectively, in favor of Naciansino Bontuyan for P3,000.00. On the basis of the said deed, OCT No. 0-1619 was cancelled by TCT No. 1392 in the name of Naciansino Bontuyan on December 2, 1980.22Id., at p. 220. (Exhibit “B... Gregorio Bontuyan died intestate on April 12, 1981.23Id., at p. 351. (Exhibit “11... On March 30, 1981, the spouses Bontuyan executed a Real Estate Mortgage over Lot No. 17150 covered by OCT No. 01619 in favor of the Development Bank of the Philippines (DBP) as security for a loan of P11,200.00.24Id., at p. 355. (Exhibit “15... Naciansino Bontuyan had earlier executed an affidavit that the property was not tenanted. Shortly thereafter, the spouses Bontuyan left the Philippines and resided in the United States. Meanwhile, Lourdes Leyson died intestate. The spouses Bontuyan returned to the Philippines in 1988 to redeem the property from DBP only to discover that there were

tenants living on the property installed by Engineer Gabriel Leyson, one of the late Lourdes Leyson’s children. Despite being informed that the said spouses owned the property, the tenants refused to vacate the same. The tenants also refused to deliver to the spouses the produce from the property. The spouses Bontuyan redeemed the property from DBP on September 22, 1989. On February 12, 1993, Jose Bontuyan, Nieves Atilano, Pacifico Bontuyan, Vivencia Noval and Naciansino Bontuyan, the surviving heirs of Gregorio Bontuyan, executed an Extrajudicial Settlement25Id., at p. 227. (Exhibit “C... of the latter’s estate and adjudicated Lot No. 13272 in favor of Naciansino. Based on the said deed, T.D. No. 01-001-00877 was issued to and under the name of Naciansino over the said property starting 1994. On June 24, 1993, Naciansino Bontuyan, through counsel, wrote Engr. Gabriel Leyson, demanding that he be furnished _______________ 22 Id., at p. 220. (Exhibit “B”). 23 Id., at p. 351. (Exhibit “11”). 24 Id., at p. 355. (Exhibit “15”). 25 Id., at p. 227. (Exhibit “C”). 101 VOL. 452, FEBRUARY 18, 2005 101 Leyson vs. Bontuyan with all the documents evidencing his ownership over the two lots, Lots Nos. 17150 and 13272.26Id., at p. 8. Engr. Leyson ignored the letter.

The spouses Bontuyan, thereafter, filed a complaint against Engr. Leyson in the Regional Trial Court (RTC) of Cebu City for quieting of title and damages. They alleged that they were the lawful owners of the two lots and when they discovered, upon their return from the United States, that the property was occupied and cultivated by the tenants of Engr. Leyson, they demanded the production of documents evidencing the latter’s ownership of the property, which was ignored. The spouses Bontuyan prayed that, after due proceedings, judgment be rendered in their favor, thus: “WHEREFORE, premises considered, it is most respectfully prayed of this Honorable Court to render judgment against the defendant and in favor of the plaintiffs, to wit: (a) Confirming the ownership of the plaintiffs on the lots in question; (b) Ordering defendant to pay the plaintiffs the amount of Twenty Thousand Pesos (P20,000.00) as the share of the plaintiffs of the produce of the lots in question; (c) Ordering defendant to pay plaintiffs the sum of P50,000.00 as reimbursement of attorney’s fees and the further sum of P500.00 as appearance fee every time the case is called for trial; (d) Ordering the defendant to pay plaintiffs the sum of P50,000.00 as moral damages and exemplary damages may be fixed by the court; (e) Ordering defendant to pay plaintiffs the sum of P5,000.00 as actual expenses for the preparation and filing of the complaint; (f) Ordering defendant to pay the costs; and

(g) Granting to plaintiffs such other reliefs and remedies just and equitable in the premises.27Id., at pp. 3-4. _______________ 26 Id., at p. 8. 27 Id., at pp. 3-4. 102 102 SUPREME COURT REPORTS ANNOTATED Leyson vs. Bontuyan In his answer to the complaint, Engr. Leyson averred, by way of affirmative defenses, that the two lots were but portions of a parcel of land owned by Calixto Gabud, covered by T.D. No. 03276-R, and was subdivided into two parcels of land because of the construction of a provincial road on the property; Gabud later sold the two lots to Protacio Tabal, who sold the same to Simeon Noval, married to Vivencia Bontuyan, one of the children of Gregorio Bontuyan; Simeon Noval later sold the property to Lourdes Leyson on May 22, 1968 who, forthwith, took possession thereof as owner; and Gregorio Bontuyan was issued a free patent over the property through fraud. Engr. Leyson concluded that the said patent, as well as OCT No. 01619 and TCT No. 1392, were null and void and that the plaintiffs acquired no title over the property. Engr. Leyson interposed a counterclaim against the spouses Bontuyan and repleaded as an integral part thereof all the material allegations in his affirmative defense. He prayed that, after due proceedings, judgment be rendered in his favor, thus: a) Dismissing Plaintiffs’ complaint for failure to include indispensable parties;

b) Declaring the Defendant and his four (4) sisters, namely, Dr. Josefina L. Poblete, Mrs. Fe L. Qua, Esperanza Leyson and Caridad Leyson as the true and legal owners and possessors of the parcels of land in issue; c) Declaring OCT No. 0-1619 in the name of Gregorio Bontuyan and TCT No. 1392 in the name of Naciansino Bontuyan null and void and to order the Register of Deeds to cancel the same and issue new ones in favor of the Defendant Gabriel V. Leyson and his four (4) sisters, namely: Dr. Josefina L. Poblete, Mrs. Fe L. Qua, Esperanza V. Leyson and Caridad V. Leyson; d) And on the Counterclaim, to order Plaintiffs to pay the Defendant the following sums: d-1) P50,000.00 as attorney’s fees and appearance fee of P1,000.00 per hearing; d-2) P500,000.00 as moral damages; 103 VOL. 452, FEBRUARY 18, 2005 103 Leyson vs. Bontuyan d-3) P20,000.00 as exemplary damages; d-4) P10,000.00 as expenses of litigation. Defendant further prays for such other reliefs just and equitable in the premises.28Id., at p. 28. In due course, the other children of Lourdes Leyson, namely, Dr. Josefina L. Poblete, Fe Leyson Qua, Caridad V. Leyson and Esperanza V. Leyson, were allowed to intervene as defendants. They filed their answer-in-intervention wherein they adopted, in their counterclaim, paragraphs 7 to 26 of the

answer of their brother, Engr. Leyson, the original defendant. They prayed that, after due hearing, judgment be rendered in their favor as follows: “Wherefore, this Honorable Court is prayed to render judgment in favor of the Defendant and the Defendants-in-Intervention and against the Plaintiffs as follows: a) Promissory Plaintiffs’ complaint for failure to include indispensable parties and for lack of cause of action; b) Declaring the Defendant and his four (4) sisters, namely: Dr. Josefina L. Poblete; Mrs. Fe L. Qua, Esperanza Leyson and Caridad Leyson as the true and legal owners and possessors of the parcels of land in issue; c) Declaring OCT No. 0-1619 in the name of Gregorio Bontuyan and TCT No. 1392 in the name of Naciansino Bontuyan null and void and to order the Register of Deeds to cancel the same and issue new ones in favor of the Defendant Gabriel V. Leyson and his four (4) sisters, namely: Dr. Josefina L. Poblete, Mrs. Fe L. Qua, Esperanza V. Leyson and Caridad V. Leyson; d) On the Counterclaim, Plaintiffs should pay the Defendants the following sums: d-1) P50,000.00 as attorney’s fees and appearance fee of P1,000.00 per hearing; d-2) P500,000.00 as moral damages to each Intervenor; _______________ 28 Id., at p. 28. 104 104 SUPREME COURT REPORTS ANNOTATED Leyson vs. Bontuyan

d-3) P50,000.00 as exemplary damages; d-4) P15,000.00 as expenses of litigation. Defendant further prays for such other reliefs just and equitable in the premises.29Id., at pp. 93-94. In their reply, the spouses Bontuyan averred that the counterclaim of the defendants for the nullity of TCT No. 1392 and the reconveyance of the property was barred by laches and prescription. On January 21, 1999, the trial court rendered judgment in favor of the Leyson heirs and against the spouses Bontuyan. The fallo of the decision reads: “WHEREFORE, foregoing considered judgment is hereby rendered dismissing plaintiff’s complaint for dearth of evidence declaring the defendant and the intervenors as the true and legal owners and possessors of the subject parcels of land; declaring OCT No. 0-1619 in the name of Gregorio Bontuyan and TCT No. 1392 in the name of Naciansino Bontuyan null and void; ordering the Register of Deeds to cancel OCT No. 01619 and TCT No. 1392 and issue new ones in favor of defendant Gabriel Leyson and intervenors Josefina Poblete, Fe Qua, Esperanza Leyson and Caridad Leyson; ordering plaintiff to pay defendant and intervenors the following: a) P50,000.00 attorney’s fees; b) 1,000.00 per appearance; c) 100,000.00 moral damages for defendant and intervenors; d) 10,000.00 exemplary damages; and e) 10,000.00 litigation expenses. SO ORDERED.30Id., at pp. 453-459.

The trial court held that Simeon Noval had sold the lots to Lourdes Leyson on May 22, 1968, who thus acquired title over the property. _______________ 29 Id., at pp. 93-94. 30 Id., at pp. 453-459. 105 VOL. 452, FEBRUARY 18, 2005 105 Leyson vs. Bontuyan The spouses Bontuyan appealed the decision to the CA which affirmed, with modification, the decision of the RTC. The appellate court held that the Leyson heirs were the owners of Lot No. 13273, while the spouses Bontuyan were the owners of Lot No. 17150. The CA ruled that the answer of the Leyson heirs to the complaint constituted a collateral attack of OCT No. 0-1619 which was proscribed by law. The Leyson heirs filed a motion for reconsideration of the decision insofar as Lot No. 17150 was concerned, contending that their counterclaim for the nullification of OCT No. 0-1619 contained in their answer constituted a direct attack on the said title. The CA denied the motion. The Leyson heirs then filed a petition for review with this Court and made the following assignments of error: First Assignment of Error THE HONORABLE COURT OF APPEALS COMMITTED ERROR WHEN IT RULED THAT THE NULLITY OR THE VALIDITY OF OCT NO. 0-1619 CANNOT BE RULED

UPON IN THESE PROCEEDINGS BROUGHT BY THE RESPONDENTS FOR THE QUIETING OF THEIR TITLE. Second Assignment of Error THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT RULED THAT PETITIONERS’ ANSWER WITH COUNTERCLAIM, PRAYING FOR THE CANCELLATION OF PLAINTIFFS’ TORRENS CERTIFICATE IS A MERE COLLATERAL ATTACK ON THE TITLE.31Rollo, p. 15. Third Assignment of Error THE APPELLATE COURT GRAVELY ERRED WHEN IT MODIFIED THE DECISION OF THE REGIONAL TRIAL COURT DATED JANUARY 21, 1999 BY RULING THAT PETITIONERS ARE DECLARED THE OWNERS OF LOT 13273 BUT RESPONDENTS ARE DECLARED THE OWNERS OF LOT 17150 UNDER _______________ 31 Rollo, p. 15. 106 106 SUPREME COURT REPORTS ANNOTATED Leyson vs. Bontuyan OCT NO. 0-1619 AND PRESENTLY COVERED BY TCT NO. 1392 IN THE NAME OF NACIANSINO BONTUYAN, DESPITE THE APPELLATE COURT’S AFFIRMING THE FINDINGS OF THE TRIAL COURT THAT FRAUD WAS COMMITTED BY GREGORIO BONTUYAN (RESPONDENTS’ PREDECESSOR-IN-INTEREST) IN

ACQUIRING TITLE OVER THE SUBJECT PROPERTIES.32Id., at p. 20. Fourth Assignment of Error THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT RULED THAT RECONVEYANCE OF TITLE OF LOT 17150 COVERED BY OCT NO. 0-1619 AND PRESENTLY COVERED BY TCT NO. 1392, IN FAVOR OF PETITIONERS HAD PRESCRIBED.33Id., at p. 24. Fifth Assignment of Error THE APPELLATE COURT GRAVELY ERRED IN NOT GRANTING ATTORNEY’S FEES AND APPEARANCE FEES DESPITE RESPONDENTS’ FRAUD IN ACQUIRING TITLE OVER THE SUBJECT PROPERTIES.34Id., at p. 25. On the first two assignments of errors, the petitioners aver that the counterclaim in their answer to the complaint constituted a direct attack of the validity of OCT No. 0-1619. They maintain that the appellate court’s reliance on the ruling of this Court in Cimafrancia v. Intermediate Appellate Court 35147 SCRA 611 (1987). was misplaced. They assert that what is controlling is the ruling in Pro Line Sports Center, Inc. v. Court of Appeals 36281 SCRA 162 (1997). wherein this Court held that the counterclaim of the petitioners therein constituted a direct attack on a certificate of title. The petitioners, likewise, cited Section 55 of Act No. 496, as amended, to buttress their stance. They plead that their an_______________ 32 Id., at p. 20. 33 Id., at p. 24. 34 Id., at p. 25.

35 147 SCRA 611 (1987). 36 281 SCRA 162 (1997). 107 VOL. 452, FEBRUARY 18, 2005 107 Leyson vs. Bontuyan swer to the complaint should be liberally construed so as to afford them substantial justice. On the other hand, the respondents assert that the decision of the CA is correct. They claim that Lot No. 17150 was still public land when Lourdes Leyson purchased the same from Simeon Noval, and that the property became private land only when Free Patent No. 510463 was issued to and under the name of Gregorio Bontuyan. We agree with the contention of the petitioners that the CA erred in not nullifying OCT No. 0-1619 and TCT No. 1392 and ordering the respondents to reconvey the property covered by the said title to the petitioners. The respondents, as plaintiffs in the court a quo, were burdened to prove their claim in their complaint that Gregorio Bontuyan was the owner of Lot No. 17150 and that they acquired the property in good faith and for valuable consideration from him.37Section 1, Rule 131 of the Revised Rules of Evidence. However, the respondents failed to discharge this burden. The evidence on record shows that Calixto Gabud sold the property to Protacio Tabal on February 14, 1948,38Supra at No. 4. (Exhibit “2... and that the latter sold the property to Simeon Noval on January 5, 1959.39Supra at No. 6. (Exhibit “4... Simeon Noval then sold the property to Lourdes Leyson on

May 22, 1968.40Supra at No. 11. (Exhibit “6... The respondents failed to adduce any evidence to prove that Lourdes Leyson, or even Simeon Noval, sold the property to Gregorio Bontuyan, or to any of the respondents for that matter. Since Gregorio Bontuyan was not the owner of the property, he could not have sold the same to his son Naciansino Bontuyan and the latter’s wife, the respondents herein. As the Latin adage goes: NEMO DAT QUOD NON HABET. Gregorio Bontuyan could not feign ignorance of Simeon Noval’s ownership of the property, considering that the latter was his son-in-law, and that he _______________ 37 Section 1, Rule 131 of the Revised Rules of Evidence. 38 Supra at No. 4. (Exhibit “2”). 39 Supra at No. 6. (Exhibit “4”). 40 Supra at No. 11. (Exhibit “6”). 108 108 SUPREME COURT REPORTS ANNOTATED Leyson vs. Bontuyan (Gregorio Bontuyan) was the one who received the owner’s copy of T.D. No. 100356 covering the property under the name of Simeon Noval.41Supra at No. 8. (Exhibit “5-A... At the dorsal portion of the said tax declaration, there was even an annotation that the property was transferred to Simeon Noval as shown by the deed of sale executed before Notary Public Gregorio A. Uriarte who notarized the deed of sale over the property executed by Protacio Tabal in favor of Simeon Noval on January 5, 1959.42Supra at No. 6. (Exhibit “4... We note

that the respondents failed to adduce in evidence any receipts of real property tax payments made on the property under their names, which would have fortified their claim that they were the owners of the property. We agree with the findings of the CA, thus: This case involves two parcels of land—Lot 17150 and Lot 13273. Lot 17150 is registered under the Torrens System under the names of plaintiffs-appellants, while Lot 13273 remained to be unregistered. In this case, records show that defendant-appellee and intervenors-appellees are the true owners of the subject lots. They have in their favor tax receipts covering the subject lots issued since 1945. While, indeed, tax receipts and declarations are not incontrovertible evidence of ownership, such, however, if accompanied with open, adverse, continuous possession in the concept of an owner, as in this case, constitute evidence of great weight that person under whose name the real taxes were declared has a claim of right over the land. Further, defendant-appellee and intervenors-appellees presented before the trial court the Deed of Absolute Sale dated February 14, 1948, executed by Calixto Gabud, conveying the subject lots in favor of Protacio Tabal. The deed is a notarial document. Likewise presented is the Deed of Absolute Sale of the subject lots dated January 5, 1959, executed by Protacio Tabal in favor of spouses Simeon Noval and Vivencia Bontuyan. The document is, likewise, a notarial document. _______________ 41 Supra at No. 8. (Exhibit “5-A”).

42 Supra at No. 6. (Exhibit “4”). 109 VOL. 452, FEBRUARY 18, 2005 109 Leyson vs. Bontuyan Defendant-appellee and intervenors-appellees also presented the Deed of Absolute Sale of the subject lots dated May 22, 1968, executed by spouses Simeon Noval and Vivencia Bontuyan in favor of Lourdes Leyson. The deed is a notarial document. A notarial document is evidence of the facts in clear, unequivocal manner therein expressed. It has in its favor the presumption of regularity. It is admissible in evidence without necessity of preliminary proof as to its authenticity and due execution. There exist (sic) no trace of irregularity in the transfers of ownership from the original owner, Calixto Gabud, to defendantappellee and intervenors-appellees. Plaintiffs-appellants, on the other hand, offered no convincing evidence as to how their predecessor-in-interest, Gregorio Bontuyan, acquired the subject lots. Plaintiffs-appellants presented only the Free Patent and OCT No. 0-1619, covering Lot No. 17150, issued in the name of Gregorio Bontuyan. As to Lot No. 13273, We find no sufficient reason why defendant-appellee and intervenors-appellees should be disturbed in their ownership and possession of the same.43Rollo, pp. 35-36. As copiously shown by the record, Gregorio Bontuyan filed his application for a free patent with the Bureau of Lands on

December 4, 1968 in gross bad faith, thereby defrauding Lourdes Leyson of the said property through deceit. Gregorio Bontuyan falsely declared in the said application: (a) that he entered upon and cultivated the property since 1918 and that the property was not claimed or occupied by any person; and (b) that Lot No. 17150 was located in Sirao, Cebu City, when, in fact, the property was located in Adlawon, Cebu City. Lourdes Leyson was not notified of the said application and failed to file any opposition thereto. Gregorio Bontuyan was then able to secure Free Patent No. 510463 on November 19, 1971 and OCT No. 0-1619 on March 21, 1974. It appears in the said title that the property’s location was indicated as _______________ 43 Rollo, pp. 35-36. 110 110 SUPREME COURT REPORTS ANNOTATED Leyson vs. Bontuyan “Sirao, Cebu City.”44Records, p. 347. (Exhibit “9-A... Indeed, the CA declared that Gregorio Bontuyan had acquired title to the property through fraud: However, as to Lot No. 17150, We find that despite the fraud committed by Gregorio Bontuyan (plaintiffs-appellants’ predecessor-in-interest) in acquiring his title over the said lot, ownership over the said lot should be adjudged in favor of plaintiffs-appellants. Records, indeed, show that, at the time when Gregorio Bontuyan applied for Free Patent, Gregorio Bontuyan was living with his daughter, Vivencia Bontuyan (defendant-

appellee’s predecessor-in-interest). Thus, Gregorio Bontuyan must have known that at the time when he applied for free patent on December 1968, the subject lots were already sold on May 1968 by his daughter Vivencia Bontuyan in favor of Lourdes Leyson, predecessor-in-interest of defendantsappellees. Moreover, records further show that Gregorio Bontuyan sold twice Lot [No.] 17150 to plaintiffs-appellants. The first was in 1976 and the other was in 1980. Plaintiffs-appellants offered no reasonable explanation why Gregorio Bontuyan have (sic) to sell twice Lot No. 17150 in favor of plaintiffs-appellants. As found by the trial court, these are badges of bad faith which affect the validity of the title of Gregorio Bontuyan over the subject lots. We are aware that the torrens system does not create or vest title. It only confirms and records title already existing and vested. It does not protect a usurper from the true owner. It cannot be a shield for the commission of fraud. It does not permit one to enrich himself at the expense of another. Where one does not have any rightful claim over a real property, the torrens system of registration can confirm or record nothing.45Rollo, p. 37. The findings of the CA affirmed the findings of the trial court in its decision, thus: After having thoroughly analyzed the records and the evidences adduced during the trial of this case, this Court is convinced _______________ 44 Records, p. 347. (Exhibit “9-A”). 45 Rollo, p. 37.

111 VOL. 452, FEBRUARY 18, 2005 111 Leyson vs. Bontuyan and sincerely believes that the lots in question were originally owned by Calixto Gabud as evidenced by T.D. [No.] 03276R marked as Exh. “1.” In 1945, this consisted of only one lot in Adlawon, Cebu City, as there was no provincial road yet. However in 1948, the said parcel of land was divided into two because a provincial road was constructed passing through it. Hence, T.D. [No.] 03276R and T.D. [No.] 01979-R were issued to Calixto Gabud. On February 16, 1948, Calixto Gabud sold the said parcels of land to spouses Protacio Tabal and Ludegaria (sic) Bontuyan as evidenced by an Absolute Deed of Sale, Exh. “2.” On January 5, 1959, spouses Protacio Tabal and Ludegaria (sic) Bontuyan, in turn, sold the same parcels of land to spouses Simeon Noval and Vivencia Bontuyan as evidenced by a Deed of Sale, Exh. “4.” It is noteworthy to mention at this point in time that Vivencia Bontuyan is one of the daughters of Gregorio Bontuyan, the father of herein plaintiff Naciansino Bontuyan. In May 1968, spouses Simeon Noval and Vivencia Bontuyan sold the subject parcels of land to Lourdes vs. (sic) Leyson, the mother of herein defendant as evidenced by a Deed of Sale marked as Exh. “6.” It is quite perplexing for the court to imagine that Gregorio Bontuyan, father of herein plaintiff, who was then residing with spouses Simeon Noval and Vivencia Bontuyan at 179 C San Jose dela Montaña, Mabolo, Cebu City, as reflected in his application for Free Patent (Exhs. “8” & “26”) dated December 4, 1968 was unaware of the sale

of the subject parcels of land made by his daughter Vivencia Bontuyan and spouse Simeon Noval to Lourdes Leyson. It is evident that, after the sale from spouses Noval to Lourdes Leyson in May 1968, Gregorio Bontuyan applied for Free Patent for the same parcels of land in December 1968 claiming to have cultivated the land since 1918, stating therein the location as Sirao and not Adlawon which is the true and correct location. Sirao and Adlawon are two different barangays which are not even adjacent to each other. In fact, as borne out by Exh. “25,” it is separated by Barangay Guba. In 1974, Free Patent No. 510463 and OCT# 0-1619 was issued to Gregorio Bontuyan covering subject property, the location of which is in Barangay Sirao in consonance to his application. Gregorio Bontuyan’s application for Free Patent over subject parcels of land had raised in the mind of this Court reasonable badges of bad faith on his part as the subject parcels of land were already sold by his daughter Vivencia Bontuyan and spouse Simeon Noval to Lourdes Leyson. Another badge of bad faith is raised in the mind of this Court when he (Gregorio) sold the subject parcels of land twice to his son Naciansino Bontuyan in 1976 112 112 SUPREME COURT REPORTS ANNOTATED Leyson vs. Bontuyan and 1980, respectively, wherein both Deeds of Sale were notarized by different Notary Publics, (Exhs. “10” & “16”).46Records, pp. 458-459. Considering that Lourdes Leyson was in actual possession of the property, the respondents cannot, likewise, claim that they

were in good faith when Gregorio Bontuyan allegedly sold the property to them on April 28, 1980. Anent the third and fourth assignments of error, we do not agree with the ruling of the CA that the petitioners failed to directly attack the validity of OCT No. 0-1619. The CA failed to consider the fact that, in their respective answers to the complaint, the petitioners inserted therein a counterclaim wherein they repleaded all the material allegations in their affirmative defenses, that Gregorio Bontuyan secured OCT No. 0-1619 through fraud and deceit and prayed for the nullification thereof. While Section 47 of Act No. 496 provides that a certificate of title shall not be subject to collateral attack, the rule is that an action is an attack on a title if its object is to nullify the same, and thus challenge the proceeding pursuant to which the title was decreed. The attack is considered direct when the object of an action is to annul or set aside such proceeding, or enjoin its enforcement. On the other hand, an attack is indirect or collateral when, in an action to obtain a different relief, an attack on the proceeding is nevertheless made as an incident thereof.47Mallilin, Jr. v. Castillo, 333 SCRA 628 (2000), citing Co v. Court of Appeals, 196 SCRA 705 (1991). Such action to attack a certificate of title may be an original action or a counterclaim in which a certificate of title is assailed as void. A counterclaim is considered a new suit in which the defendant is the plaintiff and the plaintiff in the complaint becomes the defendant. It stands on the same footing and is to be tested by the same rules as if it were _______________ 46 Records, pp. 458-459.

47 Mallilin, Jr. v. Castillo, 333 SCRA 628 (2000), citing Co v. Court of Appeals, 196 SCRA 705 (1991). 113 VOL. 452, FEBRUARY 18, 2005 113 Leyson vs. Bontuyan an independent action.48Pro Line Sports Center, Inc. v. Court of Appeals, 281 SCRA 162 (1997). Furthermore, since all the essential facts of the case for the determination of the title’s validity are now before the Court, to require the party to institute cancellation proceedings would be pointlessly circuitous and against the best interest of justice.49Mendoza v. Court of Appeals, 158 SCRA 508 (1988). The CA, likewise, erred in holding that the action of the petitioners to assail OCT No. 0-1619 and TCT No. 1392 and for the reconveyance of the property covered by the said title had already prescribed when they filed their answer to the complaint. Case law has it that an action for reconveyance prescribes in ten years, the point of reference being the date of registration of the deed or the date of issuance of the certificate of title over the property. In an action for reconveyance, the decree of registration is highly regarded as incontrovertible. What is sought instead is the transfer of the property or its title, which has been wrongfully or erroneously registered in another person’s name, to its rightful or legal owner, or to one who has a better right.50Heirs of Pomposa Saludares v. Court of Appeals, 420 SCRA 51 (2004).

However, in a series of cases, this Court declared that an action for reconveyance based on fraud is imprescriptible where the plaintiff is in possession of the property subject of the acts. In Vda. de Cabrera v. Court of Appeals,51267 SCRA 339 (1997), citing Heirs of Jose Olviga v. Court of Appeals, 227 SCRA 330 (1990). the Court held: . . . [A]n action for reconveyance of a parcel of land based on implied or constructive trust prescribes in ten years, the point of reference being the date of registration of the deed or the date of the issuance of the certificate of title over the property, but this rule _______________ 48 Pro Line Sports Center, Inc. v. Court of Appeals, 281 SCRA 162 (1997). 49 Mendoza v. Court of Appeals, 158 SCRA 508 (1988). 50 Heirs of Pomposa Saludares v. Court of Appeals, 420 SCRA 51 (2004). 51 267 SCRA 339 (1997), citing Heirs of Jose Olviga v. Court of Appeals, 227 SCRA 330 (1990). 114 114 SUPREME COURT REPORTS ANNOTATED Leyson vs. Bontuyan applies only when the plaintiff or the person enforcing the trust is not in possession of the property, since if a person claiming to be the owner thereof is in actual possession of the property, as the defendants are in the instant case, the right to seek reconveyance, which in effect seeks to quiet title to the property, does not prescribe. The reason for this is that one

who is in actual possession of a piece of land claiming to be the owner thereof may wait until his possession is disturbed or his title is attacked before taking steps to vindicate his right, the reason for the rule being, that his undisturbed possession gives him a continuing right to seek the aid of a court of equity to ascertain and determine the nature of the adverse claim of a third party and its effect on his own title, which right can be claimed only by one who is in possession. Similarly, in the case of David v. Malay,52318 SCRA 711 (1999), citing Faja v. Court of Appeals, 75 SCRA 441 (1977). the same pronouncement was reiterated by the Court: . . . There is settled jurisprudence that one who is in actual possession of a piece of land claiming to be owner thereof may wait until his possession is disturbed or his title is attacked before taking steps to vindicate his right, the reason for the rule being, that his undisturbed possession gives him a continuing right to seek the aid of the court of equity to ascertain and determine the nature of the adverse claim of a third party and its effect on his own title, which right can be claimed only by one who is in possession. No better situation can be conceived at the moment for Us to apply this rule on equity than that of herein petitioners whose . . . possession of the litigated property for no less than 30 years and was suddenly confronted with a claim that the land she had been occupying and cultivating all these years, was titled in the name of a third person. We hold that in such a situation the right to quiet title to the property, to seek its reconveyance and annul any certificate of title covering it, accrued only from the time the one in possession was made aware of a claim adverse to his

own, and it is only then that the statutory period of prescription commences to run against such possessor. _______________ 52 318 SCRA 711 (1999), citing Faja v. Court of Appeals, 75 SCRA 441 (1977). 115 VOL. 452, FEBRUARY 18, 2005 115 Leyson vs. Bontuyan The paramount reason for this exception is based on the theory that registration proceedings could not be used as a shield for fraud.53Heirs of Pomposa Saludares v. Court of Appeals, supra, p. 49. Moreover, to hold otherwise would be to put premium on land-grabbing and transgressing the broader principle in human relations that no person shall unjustly enrich himself at the expense of another.54Almarza v. Arguelles, 156 SCRA 718 (1987). In the present case, Lourdes Leyson and, after her death, the petitioners, had been in actual possession of the property. The petitioners were still in possession of the property when they filed their answers to the complaint which contained their counterclaims for the nullification of OCT No. 0-1619 and TCT No. 1392, and for the consequent reconveyance of the property to them. The reconveyance is just and proper in order to put a stop to the unendurable anomaly that the patentees should have a Torrens title for the land which they and their predecessors never possessed and which has been possessed by another in the concept of an owner.55Linaza v. Intermediate Appellate Court, 182 SCRA 855 (1990).

On the fifth assignment of error, we rule for the petitioners. The award of attorney’s and appearance fees is better left to the sound discretion of the trial court, and if such discretion is well exercised, as in this case, it will not be disturbed on appeal.56De Castro v. Court of Appeals, 384 SCRA 607 (2002). With the trial and the appellate courts’ findings that the respondents were in bad faith, there is sufficient basis to award attorney’s and appearance fees to the petitioners. Had it not been for the filing of a baseless suit by the respondents against the petitioners, the latter would not have sought the services of counsel to defend their interests and represent them in this case. IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court of Appeals declaring _______________ 53 Heirs of Pomposa Saludares v. Court of Appeals, supra, p. 49. 54 Almarza v. Arguelles, 156 SCRA 718 (1987). 55 Linaza v. Intermediate Appellate Court, 182 SCRA 855 (1990). 56 De Castro v. Court of Appeals, 384 SCRA 607 (2002). 116 116 SUPREME COURT REPORTS ANNOTATED Leyson vs. Bontuyan the respondents the owners of Lot No. 17150 covered by OCT No. 0-1619 and TCT No. 1392; and setting aside the award of attorney’s fees in favor of the petitioners by the Regional Trial Court are REVERSED AND SET ASIDE.

The Court hereby AFFIRMS the ownership of the petitioners of Lot No. 17150. OCT No. 0-1619 and TCT No. 1392 covering the said lot are hereby nullified. The Register of Deeds is ORDERED to cancel TCT No. 1392 and to issue another title over the property in favor of the petitioners as coowners thereof. The trial court’s award of P50,000.00 for attorney’s fees to the petitioners is AFFIRMED. No pronouncement as to costs. SO ORDERED. Puno (Chairman), Austria-Martinez, Tinga and ChicoNazario, JJ., concur. Petition granted, judgment reversed and set aside. Notes.—An action for reconveyance, reversion, accounting, restitution and damages can hardly be classified as a tort case. (Republic vs. Sandiganbayan, 230 SCRA 710 [1994]) An action for reconveyance of registered land on an implied trust prescribes in ten (10) years even if the decree of registration is no longer open to review. (Arlegui vs. Court of Appeals, 378 SCRA 322 [2002]) ——o0o—— [Leyson vs. Bontuyan, 452 SCRA 94(2005)]

G.R. No. 171571. March 24, 2008.* REPUBLIC OF THE PHILIPPINES, Represented by MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY (MCIAA), petitioner, vs. HEIRS OF FRANCISCA DIGNOS-SORONO, namely: TEODORO SORONO, LUCIO SORONO, JR., ARSENIO T. SORONO, RODULFO S. OLIVAR, ALFONSA T. SORONO, CONSTANCIO S. LUMONGSOD, EULALIA S. LIMPANGOG, and FLORENCIA S. BAGUIO; HEIRS OF JUAN L. AMISTOSO,1 namely: MARIO L. AMISTOSO, LYN-LYN AMISTOSO, ALLAN L. AMISTOSO, RAQUEL S. AMISTOSO, EUFRONIO S. AMISTOSO, JR., and ROGELIO S. AMISTOSO; HEIRS OF BRIGILDA D. AMISTOSO, namely: VICTOR A. YAGONG, HEDELIZA A. YAGONG, and CIRIACA A. YAGONG; HEIRS OF PASTOR DIGNOS; HEIRS OF ISABEL DIGNOS, namely: DR. NAPOLEON A. AMORES, VICENTE A. BASMAYOR, DOMINGO A. BASMAYOR, and LYDIA A. BASMAYOR; HEIRS OF DONATA DIGNOS, namely: TRINIDAD D. FUENTES, NICASIA D. FUENTES, and IRINEO D. FUENTES; HEIRS OF SEGUNDA DIGNOS, namely: HONORATA D. CORTES and BENIGNO D. CORTES; HEIRS OF GREGORIA DIGNOS, namely: RITA D. FUENTES and JOSE D. FUENTES; HEIRS OF DOMINGO FUENTES, namely: CIRILA P. DIGNOS and BASILIO P. DIGNOS; and HEIR OF ISABELO DIGNOS, namely: TERESITA R. DIGNOS,2 respondents. Civil Law; Property; Co-Ownership; Sales; Even if a co-owner sells the whole property as his, the sale will affect only his own share but not those of the other co-owners who did not consent

to the sale; A sale of the entire property by one co-owner without the consent of the other co-owners is not null and void; Buyer is made a co-owner of the property.—Apropos is the following pertinent portion of this Court’s _______________ * SECOND DIVISION. 1 Also spelled Amistuoso in some parts of the records. 2 The Court of Appeals was originally impleaded but was omitted pursuant to Section 4, Rule 45 of the Rules of Court. 59 VOL. 549, MARCH 24, 200859 Republic vs. Heirs of Francisca Dignos-Sorono decision in Bailon-Casilao v. CA, 160 SCRA 738 (1988): As early as 1923, this Court has ruled that even if a co-owner sells the whole property as his, the sale will affect only his own share but not those of the other co-owners who did not consent to the sale [Punsalan v. Boon Liat, 44 Phil. 320 (1923)]. This is because under the aforementioned codal provision, the sale or other disposition affects only his undivided share and the transferee gets only what would correspond to his grantor in the partition of the thing owned in common. [Ramirez v. Bautista, 14 Phil. 528 (1909)]. Consequently, by virtue of the sales made by Rosalia and Gaudencio Bailon which are valid with respect to their proportionate shares, and the subsequent transfers which culminated in the sale to private respondent Celestino Afable, the said Afable thereby became a co-owner of the disputed parcel of land as correctly held by the lower court since the sales produced the effect of substituting the buyers in the enjoyment thereof [Mainit v. Bandoy, 14 Phil.

730 (1910)]. From the foregoing, it may be deduced that since a co-owner is entitled to sell his undivided share, a sale of the entire property by one co-owner without the consent of the other co-owners is not null and void. However, only the rights of the co-owner-seller are transferred, thereby making the buyer a co-owner of the property. (Emphasis and italics supplied) PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. The Solicitor General for petitioner. Senining, Belcina, Atup, Entise, Limalima, Jumao-as and Bantilan Law Offices for respondents. CARPIO-MORALES, J.: Assailed via petition for review on certiorari is the April 23, 2005 decision of the Court of Appeals3 affirming that of the _______________ 3 Penned by Justice Mercedes Gozo-Dadole and concurred in by Justice Pampio A. Abarintos and Justice Sesinando E. Villon, all of the Court of Appeals; CA-G.R. CV. No. 64614, Rollo, pp. 53-64. 60 60SUPREME COURT REPORTS ANNOTATED Republic vs. Heirs of Francisca Dignos-Sorono Regional Trial Court (RTC) of Lapu-lapu City, Branch 54.4 Lot Nos. 2296 and 2316 of the Cadastral Survey of Opon, Lapu-lapu City were adjudicated on December 7, 1929 by the then Court of First Instance of Cebu in favor of the following in four equal shares:

a) Francisca Dignos, married to Blas Sorono—¼ share in the two lots; b) Tito Dignos, married to Candida Torrebillas—¼ share in the two lots; c) Isabel Dignos, married to Fabiano Amores; Donata Dignos, married to Estanislao Fuentes; Segunda Dignos, married to Demetrio Cortes; Gregoria Dignos, married to Severo Fuentes; Domingo Dignos, married to Venturada Potot; and Isabelo Dignos, married to Petronilla Gamallo—¼ share in the two lots; and d) Silveria Amistuoso, married to Melecio Tumulak; Mario Amistuoso, married to Rufina Tampus; Juan Amistuoso, married to Narcisa Cosef; Brigilda Amistuoso, married to Casimiro Yagong; and Pastor Amistuoso, widower—¼ share in the two lots.5 It appears that the two lots were not partitioned by the adjudicatees. It appears further that the heirs of Tito Dignos, who, as reflected above, was awarded ¼ share in the two lots, sold for P2,565.59 the entire two lots to the then Civil Aeronautics Administration (CAA) via a public instrument entitled “Extrajudicial Settlement and Sale” executed on October 11, 1957, without the knowledge of respondents whose predeces_______________ 4 Civil Case No. 4373-L, For: Quieting of Title, Legal Redemption with Prayer for Preliminary Injunction, id., at pp. 114-122. 5 Records, p. 183. 61

VOL. 549, MARCH 24, 200861 Republic vs. Heirs of Francisca Dignos-Sorono sors-in-interest were the adjudicatees of the rest of the 3/4 portion of the two lots.6 In 1996, CAA’s successor-in-interest, the Mactan Cebu International Airport Authority (MCIAA), erected a security fence traversing Lot No. 2316 and relocated a number of families, who had built their dwellings within the airport perimeter, to a portion of said lot to enhance airport security in line with the standards set by the International Civil Aviation Organization and the Federal Aviation Authority. MCIAA later caused the issuance in its name of Tax Declaration No. 00548 covering Lot No. 2296 and Tax Declaration No. 00568 covering Lot No. 2316. Respondents soon asked the agents of MCIAA to cease giving third persons permission to occupy the lots but the same was ignored. Respondents thereupon filed on January 8, 1996 a Complaint for Quieting of Title, Legal Redemption with Prayer for a Writ of Preliminary Injunction against MCIAA before the RTC of Lapu-lapu City,7 alleging that the existence of the tax declarations “would cast a cloud on their valid and existing titles” to the lots. They alleged that “corresponding original certificates of title in favor of the decreed owners were . . . issued but the same could no longer be found and located, and in all probability, were lost during the Second World War.”8 (This claim was not specifically denied by petitioner in its Answer with Counterclaim.)9

Respondents further alleged that neither they nor their predecessors-in-interests sold, alienated or disposed of their shares in the lots of which they have been in continuous peaceful possession. _______________ 6 Rollo, pp. 95-99. 7 Records, p. 2. 8 Vide Defendant[-petitioner]’s Answer with Counterclaim, id., pp. 55-61. 9 Ibid. 62 62SUPREME COURT REPORTS ANNOTATED Republic vs. Heirs of Francisca Dignos-Sorono Respondents furthermore alleged that neither petitioner nor its predecessor-in-interest had given them any written notice of its acquisition of the ¼ share of Tito Dignos. Respondents thus prayed as follows: “1) Upon the filing of this complaint, that a restraining order be issued enjoining the defendant and any of its officers, agents, employees, and any third person acting on their behest, to desist from occupying their portions of Lots 2296 and 2316, Opon Cadastre, and upon due notice and hearing, to issue the corresponding writ of preliminary injunction for the same purpose; 2) To declare the tax declarations of the defendant or any of its predecessors-in-interests covering Lots 2296 and 2316, Opon Cadastre, to be null and void; 3) To grant unto the plaintiffs the right of preemption in the sale of the one-fourth share of Tito Dignos in the above-

mentioned parcels of land under the provisions of Articles 1620 and 1623 of the Civil Code; 4) To order the defendant to reimburse plaintiffs the sum of P10,000.00 acceptance fee, the sums of P1,000.00 per appearance fee, the sum of P10,000.00 for costs of litigation; 5) To order the defendant to pay the plaintiffs the sum of P100,000.00 for moral damages. Plaintiffs further pray for such orders as may be just and equitable under the premises.”10 (Underscoring supplied) Republic of the Philippines, represented by the MCIAA (hereafter petitioner), in its Answer with Counterclaim,11 maintained that from the time the lots were sold to its predecessor-in-interest CAA, it has been in open, continuous, exclusive, and notorious possession thereof; through acquisitive prescription, it had acquired valid title to the lots since it was a purchaser in good faith and for value; and assuming arguendo that it did not have just title, it had, by possession for _______________ 10 Id., at pp. 3-4. 11 Id., at pp. 55-61. 63 VOL. 549, MARCH 24, 200863 Republic vs. Heirs of Francisca Dignos-Sorono over 30 years, acquired ownership thereof by extraordinary prescription. At all events, petitioner contended that respondents’ action was barred by estoppel and laches.

The trial court found for respondents. It held that respondents and their predecessors-in-interest were in peaceful and continuous possession of their shares in the lots, and were disturbed of such possession only in 1996 when petitioner put up the security fence that traversed Lot No. 2316 and relocated families that had built their houses within the airport perimeter to a portion of said lot. On petitioner’s claim that it had acquired ownership by extraordinary prescription, the trial court brushed it aside on the ground that registered lands cannot be the subject of acquisitive prescription. Neither, held the trial court, had respondents’ action prescribed, as actions for quieting of title cannot prescribe if the plaintiffs are in possession of the property in question, as in the case of herein respondents. On petitioner’s defense of laches, the trial court also brushed the same aside in light of its finding that respondents, who have long been in possession of the lots, came to know of the sale only in 1996. The trial court added that respondents could not be charged with constructive notice of the 1957 Extrajudicial Settlement and Sale of the lots to CAA as it was erroneously registered under Act No. 3344,12 the law governing recording of instruments or deeds relating to real estate which are not registered under the Torrens system. The subject lots being registered, the trial court found, the registration of the deed should have been made under Act No. 496,13 the applicable law in 1957. In fine, the trial court held _______________ 12 The trial court inadvertently referred to the law as Republic Act No. 3344.

13 The trial court inadvertently referred to the law as Republic Act No. 496. 64 64SUPREME COURT REPORTS ANNOTATED Republic vs. Heirs of Francisca Dignos-Sorono that the registration of the deed under Act No. 3344 did not operate as constructive notice to the whole world.14 Concluding, the trial court held that the questioned sale was valid only with respect to Tito Dignos’ ¼ share of the lots, and that the sale thereof was subject to the right of legal redemption by respondents following Article 1088 of the Civil Code, reading: “Should any of the heirs sell his hereditary rights to a stranger before partition, any or all of the co-heirs may be subrogated to the rights of the purchaser by reimbursing him for the price of the sale, provided they do so within the period of one month from the time they were notified in writing of the sale by the vendor.” In light of its finding that the heirs of Tito Dignos did not give notice of the sale to respondents, the trial court held that the period for legal redemption had not yet lapsed; and the redemption price should be ¼ of the purchase price paid by the CAA for the two lots. The trial court thus disposed: “WHEREFORE, all premises considered, the Court rules in favor of plaintiffs and hence renders judgment: a) Declaring Tax Declarations Nos. 00915 and 00935, as well as all other tax declarations covering Lot 2296 and Lot 2316 under the names of the Civil Aeronautics Administration, the

Bureau of Air Transportation and the defendant Mactan Cebu International Airport Authority, as null and void and directing the City Assessor of Lapu-Lapu City to cancel them; b) Declaring the Extrajudicial Settlement and Sale affecting Lot 2296 and Lot 2316 (Exhibit “H” for plaintiffs) as void and ineffective as regards the three-fourth[s] (3/4) shares of plaintiffs in both lots and declaring the herein plaintiffs as owners of such three fourth[s] shares and; c) Ordering the defendant to resell to plaintiffs for a total price of Six Hundred forty Pesos (P640.00) the one-fourth (¼) shares _______________ 14 Rollo, pp. 118-121. 65 VOL. 549, MARCH 24, 200865 Republic vs. Heirs of Francisca Dignos-Sorono in Lot 2296 and Lot 2316 it had purchased from the heirs of the late Tito Dignos in 1957; No pronouncement as to costs. SO ORDERED.”15 As priorly stated, the Court of Appeals affirmed the trial court’s decision. Hence, the present petition for review on certiorari which proffers the following GROUNDS FOR ALLOWANCE OF THE PETITION THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE TRIAL COURT’S DECISION WHEN RESPONDENTS NO LONGER HAVE ANY RIGHT TO RECOVER LOTS 2296 AND 2316 DUE TO THE PRIOR

SALE THEREOF TO THE REPUBLIC AND UPON THE EQUITABLE GROUNDS OF ESTOPPEL AND LACHES.16 The petition fails. Article 493 of the Civil Code provides: “Each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining thereto, and he may therefore alienate, assign or mortgage it, and even substitute another person in its enjoyment, except when personal rights are involved. But the effect of the alienation of the mortgage, with respect to the co-owners, shall be limited to the portion which may be allotted to him in the division upon the termination of the co-ownership.” Apropos is the following pertinent portion of this Court’s decision in Bailon-Casilao v. CA: “As early as 1923, this Court has ruled that even if a co-owner sells the whole property as his, the sale will affect only his own share but not those of the other co-owners who did not consent to the sale [Punsalan v. Boon Liat, 44 Phil. 320 (1923)]. This is _______________ 15 Id., at p. 122. 16 Id., at pp. 40-41. 66 66SUPREME COURT REPORTS ANNOTATED Republic vs. Heirs of Francisca Dignos-Sorono because under the aforementioned codal provision, the sale or other disposition affects only his undivided share and the transferee gets only what would correspond to his grantor in the partition of the thing owned in common. [Ramirez v. Bautista, 14 Phil. 528 (1909)]. Consequently, by virtue of the

sales made by Rosalia and Gaudencio Bailon which are valid with respect to their proportionate shares, and the subsequent transfers which culminated in the sale to private respondent Celestino Afable, the said Afable thereby became a co-owner of the disputed parcel of land as correctly held by the lower court since the sales produced the effect of substituting the buyers in the enjoyment thereof [Mainit v. Bandoy, 14 Phil. 730 (1910)]. From the foregoing, it may be deduced that since a co-owner is entitled to sell his undivided share, a sale of the entire property by one co-owner without the consent of the other co-owners is not null and void. However, only the rights of the co-ownerseller are transferred, thereby making the buyer a co-owner of the property.”17 (Emphasis and italics supplied) Petitioner’s predecessor-in-interest CAA thus acquired only the rights pertaining to the sellers-heirs of Tito Dignos, which is only ¼ undivided share of the two lots. Petitioner’s insistence that it acquired the property through acquisitive prescription, if not ordinary, then extraordinary, does not lie. The trial court’s discrediting thereof is well taken. It bears emphasis at this juncture that in the Extrajudicial Settlement and Sale forged by CAA and Tito Dignos’ heirs in 1957, the following material portions thereof validate the claim of respondents that the two lots were registered: “x x x x 4. That since the Original Transfer Certificate of Title of the above-mentioned property/ies has/have been lost and/or destroyed, or since the said lot/s is/are covered by Cadastral Case No. 19, and a decree issued on March 19, 1930, bearing Decree No./s 474824 & 474825, and the VENDEE hereby

binds itself to reconstitute said title/s at its own expense and that the HEIRS-VENDORS, their _______________ 17 G.R. No. 78178, April 15, 1988, 160 SCRA 738, 745. 67 VOL. 549, MARCH 24, 200867 Republic vs. Heirs of Francisca Dignos-Sorono heirs, successors and assigns bind themselves to help in the reconstitution of title so that the said lot/s may be registered in the name of the VENDEE in accordance with law[.]18 x x x x” The trial court’s discrediting of petitioner’s invocation of laches and prescription of action is well-taken too. As for petitioner’s argument that the redemption price should be ¼ of the prevailing market value, not of the actual purchase price, since, so it claims, “(1) they received just compensation for the property at the time it was purchased by the Government; and, (2) the property, due to improvements introduced by petitioner in its vicinity, is now worth several hundreds of millions of pesos,”19 the law is not on its side. Thus, Article 1088 of the Civil Code provides: “Should any of the heirs sell his hereditary rights to a stranger before the partition, any or all of the co-heirs may be subrogated to the rights of the purchaser by reimbursing him for the price of the sale, provided they do so within the period of one month from the time they were notified in writing of the sale by the vendor.” (Emphasis and underscoring supplied) The Court may take judicial notice of the increase in value of the lots. As mentioned earlier, however, the heirs of Tito

Dignos did not notify respondents about the sale. At any rate, since the Extrajudicial Settlement and Sale stipulates, thus: “That the HEIRS-VENDORS, their heirs, assigns and successors, undertake and agree to warrant and defend the possession and ownership of the property/ies herein sold against any and all just claims of all persons whomsoever and should the VENDEE be disturbed in its possession, to prosecute and defend the same in the Courts of Justice”20 (Emphasis and underscoring supplied), _______________ 18 Records, pp. 127-128. 19 Rollo, p. 47. 20 Records, p. 127. [Republic vs. Heirs of Francisca DignosSorono, 549 SCRA 58(2008)]

G.R. No. 143826. August 28, 2003.*FIRST DIVISION. HEIRS OF IGNACIA AGUILAR-REYES, petitioners, vs. SPOUSES CIPRIANO MIJARES and FLORENTINA MIJARES, respondents. Civil Law; Marriage; Conjugal Property; The husband could not alienate or encumber any conjugal real property without the consent, express or implied of the wife otherwise the contract is voidable.—The husband could not alienate or encumber any conjugal real property without the consent, express or implied, of the wife otherwise, the contract is voidable. Indeed, in several cases the Court had ruled that such alienation or encumbrance by the husband is void. The better view, however, is to consider the transaction as merely voidable and not void. This is consistent with Article 173 of the Civil Code pursuant to which the wife could, during the marriage and within 10 years from the questioned transaction, seek its annulment. Same; Same; Same; The alienation or encumbrance must be annulled in its entirety and not only insofar as the share of the wife in the conjugal property is concerned.—The trial court correctly annulled the voidable sale of Lot No. 4349-B-2 in its entirety. In Bucoy v. Paulino, a case involving the annulment of sale with assumption of mortgages executed by the husband without the consent of the wife, it was held that the alienation or encumbrance must be annulled in its entirety and not only insofar as the share of the wife in the conjugal property is concerned. Although the transaction in the said case was declared void and not merely voidable. Same; Property; Sales; A purchaser cannot close his eyes to facts which should put a reasonable man on his guard and still

claim he acted in good faith.—With respect to the third issue, the Court finds that respondent spouses are not purchasers in good faith. A purchaser in good faith is one who buys property of another, without notice that some other person has a right to, or interest in, such property and pays full and fair price for the same, at the time of such purchase, or before he has notice of the claim or interest of some other persons in the property. He buys the property with the belief that the person from whom he receives the thing was the owner and could convey title to the property. A purchaser cannot close his eyes to facts which should put a reasonable man on his guard and still claim he acted in good faith. _______________ * FIRST DIVISION. 98 98 SUPREME COURT REPORTS ANNOTATED Heirs of Ignacia Aguilar-Reyes vs. Mijares Same; Same; Same; If a voidable contract is annulled the restoration of what has been given is proper.—If a voidable contract is annulled, the restoration of what has been given is proper. The relationship between parties in any contract even if subsequently annulled must always be characterized and punctuated by good faith and fair dealing. Hence, for the sake of justice and equity, and in consonance with the salutary principle of non-enrichment at another’s expense, the Court sustains the trial court’s order directing Vicente to refund to respondent spouses the amount of P110,000.00 which they have paid as purchase price of Lot No. 4349-B-2.

Same; Interests; Interest on obligations not constituting a loan or forbearance of money is six percent (6%) annually; After the judgment becomes final and executory until the obligation is satisfied the amount due shall earn interest at 12% per year, the interim period being deemed equivalent to a forbearance of credit.—The trial court, however, erred in imposing 12% interest per annum on the amount due the respondents. In Eastern Shipping Lines, Inc. v. Court of Appeals, it was held that interest on obligations not constituting a loan or forbearance of money is six percent (6%) annually. If the purchase price could be established with certainty at the time of the filing of the complaint, the six percent (6%) interest should be computed from the date the complaint was filed until finality of the decision. After the judgment becomes final and executory until the obligation is satisfied, the amount due shall earn interest at 12% per year, the interim period being deemed equivalent to a forbearance of credit. PETITION for review on certiorari of the decision and resolution of the Court of Appeals. The facts are stated in the opinion of the Court. Renato T. Nuguid for petitioners. Napoleon A. Espiritu for private respondents. YNARES-SANTIAGO, J.: Under the regime of the Civil Code, the alienation or encumbrance of a conjugal real property requires the consent of the wife. The absence of such consent renders the entire transaction1Bucoy v. Paulino, 131 Phil. 790, 804-805; 23 SCRA 248 (1968). merely voidable and not void.2Heirs of Christina Ayuste v. Court of Appeals, 372 Phil. 370, 379; 313 SCRA 493 (1999), citing Felipe v. Heirs of Aldon, et al., 205

Phil. 537; 120 SCRA 628 (1983), Roxas v. Court of Appeals, G.R. No. 92245, 26 June The wife may, during the marriage and _______________ 1 Bucoy v. Paulino, 131 Phil. 790, 804-805; 23 SCRA 248 (1968). 2 Heirs of Christina Ayuste v. Court of Appeals, 372 Phil. 370, 379; 313 SCRA 493 (1999), citing Felipe v. Heirs of Aldon, et al., 205 Phil. 537; 120 SCRA 628 (1983), Roxas v. Court of Appeals, G.R. No. 92245, 26 June 99 VOL. 410, AUGUST 28, 2003 99 Heirs of Ignacia Aguilar-Reyes vs. Mijares within ten years from the transaction questioned, bring an action for the annulment of the contract entered into by her husband without her consent.3Civil Code, Article 173. Assailed in this petition for review on certiorari are the January 26, 2000 Decision4Penned by Associate Justice Corona IbaySomera and concurred in by Associate Justices Portia AliñoHormachuelos and Wenceslao I. Agnir, Jr. (Rollo, p. 92). and June 19, 2000, Resolution5Rollo, p. 128. of the Court of Appeals in CA-G.R. No. 28464 which declared respondents as purchasers in good faith and set aside the May 31, 1990 and June 29, 1990 Orders of the Regional Trial Court of Quezon City, Branch 101, in Civil Case No. Q-48018. The controversy stemmed from a dispute over Lot No. 4349-B2,6Particularly described as follows: “A parcel of land (Lot 4349-B-2 of the subdivision plan (LRC) Psd-64445; being a

portion of Lot 4349-B, Psd-37979, LRC (GLRO) Rec. No. 4429), situated in the Dist. of Balintawak, Quezon City. Bounded on the NE., pts... approximately 396 square meters, previously covered by Transfer Certificate of Title (TCT) No. 205445, located in Balintawak, Quezon City and registered in the name of Spouses Vicente Reyes and _______________ 1991, 198 SCRA 541, 546; Spouses Guiang v. Court of Appeals, 353 Phil. 578, 588; 291 SCRA 372 (1998); Vitug, Compendium of Civil Law and Jurisprudence, 1993 edition, p. 71. 3 Civil Code, Article 173. 4 Penned by Associate Justice Corona Ibay-Somera and concurred in by Associate Justices Portia Aliño-Hormachuelos and Wenceslao I. Agnir, Jr. (Rollo, p. 92). 5 Rollo, p. 128. 6 Particularly described as follows: “A parcel of land (Lot 4349-B-2 of the subdivision plan (LRC) Psd-64445; being a portion of Lot 4349-B, Psd-37979, LRC (GLRO) Rec. No. 4429), situated in the Dist. of Balintawak, Quezon City. Bounded on the NE., pts 3 to 4 by Lot 4349-B-3 of the subdivision plan; on the SE., points 4 to 1 by Lot 4350-A, Psd17828; on the SW., points 3 to 2 by Lot 4349-B-l of the subdivision plan; and on NW., points 2 to 3 by Lot 4371, Caloocan Cadastre. Beginning at the point marked “1” on plan, being S.89 deg. 19’E. 2968.87 m. from BLLM 6, Caloocan Cadastre: thence N. 18 deg. 39 ‘W., 42.88 m. to point 2; thence N. 65 deg. 51 ‘E., 9.70m to point 3; thence S.16 deg. 58 ‘E., 45.25 m. to point 4;

thence S. 80 deg. 59 ‘W., 8.45m. to point of beginning; containing an area of THREE HUNDRED NINETY SIX SQUARE AND TWENTY SQUARE DECIMETERS (396.20) more or less. All points referred to are indicated on the plan and are marked on the ground by PS Cyl. Cone. Mons. 15 x 60 cm., bearing true, date of the original survey, December 1930Sept. 1832 and that of the subdivision survey, Nov. 12, 1966.” (Transfer Certificate of Title, Records, p. 8) 100 100 SUPREME COURT REPORTS ANNOTATED Heirs of Ignacia Aguilar-Reyes vs. Mijares Ignacia Aguilar-Reyes.7Transfer Certificate of Title, Records, p. 8. Said lot and the apartments built thereon were part of the spouses’ conjugal properties having been purchased using conjugal funds from their garments business.8Sinumpaang Salaysay, Records, pp. 140-141; Complaint, Records, p. 4. Vicente and Ignacia were married in 1960, but had been separated de facto since 1974.9TSN, 16 March 1989, pp. 18 and 21. Sometime in 1984, Ignacia learned that on March 1, 1983, Vicente sold Lot No. 4349-B-2 to respondent spouses Cipriano and Florentina Mijares for P40,000.00.10Demand letter of Ignacia Reyes to the respondent spouses, Rollo, p. 149. As a consequence thereof, TCT No. 205445 was cancelled and TCT No. 306087 was issued on April 19, 1983 in the name of respondent spouses.11Records, pp. 154-155. She likewise found out that Vicente filed a petition for administration and appointment of guardian with the Metropolitan Trial Court of Quezon City, Branch XXI. Vicente misrepresented therein that

his wife, Ignacia, died on March 22, 1982, and that he and their 5 minor children were her only heirs.12Order, Records, p. 188. On September 29, 1983, the court appointed Vicente as the guardian of their minor children.13Id., penned by Judge Mariano M. Singson, Jr. Subsequently, in its Order dated October 14, 1983, the court authorized Vicente to sell the estate of Ignacia.14Records, p. 187. On August 9, 1984, Ignacia, through her counsel, sent a letter to respondent spouses demanding the return of her 1/2 share in the lot. Failing to settle the matter amicably, Ignacia filed on June 4, 1996 a complaint15Records, p. 4. for annulment of sale against respondent spouses. The complaint was thereafter amended to include Vicente Reyes as one of the defendants.16Amended Complaint, Records, p. 30. In their answer, respondent spouses claimed that they are purchasers in good faith and that the sale was valid because it was duly approved by the court.17Records, p. 18. Vicente Reyes, on the other hand, contended that what he sold to the spouses was only his share in _______________ 7 Transfer Certificate of Title, Records, p. 8. 8 Sinumpaang Salaysay, Records, pp. 140-141; Complaint, Records, p. 4. 9 TSN, 16 March 1989, pp. 18 and 21. 10 Demand letter of Ignacia Reyes to the respondent spouses, Rollo, p. 149. 11 Records, pp. 154-155. 12 Order, Records, p. 188. 13 Id., penned by Judge Mariano M. Singson, Jr. 14 Records, p. 187.

15 Records, p. 4. 16 Amended Complaint, Records, p. 30. 17 Records, p. 18. 101 VOL. 410, AUGUST 28, 2003 101 Heirs of Ignacia Aguilar-Reyes vs. Mijares Lot No. 4349-B-2, excluding the share of his wife, and that he never represented that the latter was already dead.18Answer with Cross-claim. He likewise testified that respondent spouses, through the counsel they provided him, took advantage of his illiteracy by filing a petition for the issuance of letters of administration and appointment of guardian without his knowledge.19TSN, Records, pp. 3-10. On February 15, 1990, the court a quo rendered a decision declaring the sale of Lot No. 4349-B-2 void with respect to the share of Ignacia. It held that the purchase price of the lot was P110,000.00 and ordered Vicente to return 1/2 thereof or P55,000.00 to respondent spouses. The dispositive portion of the said decision, reads— “WHEREFORE, premises above considered, judgment is hereby rendered declaring the subject Deed of Absolute Sale, dated March [1,] 1983 signed by and between defendants Vicente Reyes and defendant Cipriano Mijares NULL AND VOID WITH RESPECT TO ONE-HALF (1/2) OF THE SAID PROPERTY; The Register of Deeds of Quezon City is hereby ordered to cancel TCT No. 306083 (sic) in the names of defendant spouses Cipriano Mijares and Florentina Mijares and to issue a

new TCT in the name of the plaintiff Ignacia Aguilar-Reyes as owner in fee simple of one-half (1/2) of said property and the other half in the names of defendant spouses Cipriano Mijares and Florentin[a] Mijares, upon payment of the required fees therefore; Said defendant spouses Mijares are also ordered to allow plaintiff the use and exercise of rights, as well as obligations, pertinent to her one-half (1/2) ownership of the subject property; Defendant Vicente Reyes is hereby ordered to reimburse P55,000.00 with legal rate of interest from the execution of the subject Deed of Absolute Sale on March 1, 1983, to the defendant spouses Cipriano Mijares and Florentina Mijares which corresponds to the one-half (1/2) of the actual purchase price by the said Mijares but is annulled in this decision (sic); Defendant Vicente Reyes is hereby further ordered to pay plaintiff the amount of P50,000.00 by way of moral and exemplary damages, plus costs of this suit. SO ORDERED.”20Rollo, p. 75. _______________ 18 Answer with Cross-claim. 19 TSN, Records, pp. 3-10. 20 Rollo, p. 75. 102 102 SUPREME COURT REPORTS ANNOTATED Heirs of Ignacia Aguilar-Reyes vs. Mijares Ignacia filed a motion for modification of the decision praying that the sale be declared void in its entirety and that the

respondents be ordered to reimburse to her the rentals they collected on the apartments built on Lot No. 4349-B--2 computed from March 1, 1983. On May 31, 1990, the trial court modified its decision by declaring the sale void in its entirety and ordering Vicente Reyes to reimburse respondent spouses the purchase price of P110,000. Thus— “WHEREFORE, premises considered, judgment is hereby rendered declaring the subject Deed of Absolute Sale, dated March 1, 1983 signed by and between defendants Vicente Reyes and defendant Cipriano Mijares as null and void ab initio, in view of the absence of the wife’s conformity to said transaction. Consequent thereto, the Register of Deeds for Quezon City is hereby ordered to cancel TCT No. 306083 (sic) in the name of Cipriano Mijares and Florentin[a] Mijares and issue a new TCT in the name of the plaintiff and defendant Ignacia Aguilar-Reyes and Vicente Reyes as owners in fee simple, upon payment of required fees therefore. Defendant Vicente Reyes is hereby ordered to pay the amount of one hundred ten thousand pesos (P110,000.00) with legal rate of interest at 12% per annum from the execution of the subject Deed of Absolute Sale on March 1, 1983. Further, defendant Vicente Reyes is ordered to pay the amount of P50,000.00 by way of moral and exemplary damages, plus costs of this suit. SO ORDERED.”21Rollo, p. 89. On motion22Motion to Correct Typographical Errors, Records, p. 228. of Ignacia, the court issued an Order dated June 29, 1990 amending the dispositive portion of the May 31, 1990

decision by correcting the Transfer Certificate of Title of Lot No. 4349-B-2, in the name of Cipriano Mijares and Florentina Mijares, from TCT No. 306083 to TCT No. 306087; and directing the Register of Deeds of Quezon City to issue a new title in the name of Ignacia Aguilar-Reyes and Vicente Reyes. The Order likewise specified that Vicente Reyes should pay Ignacia Aguilar-Reyes the amount of P50,000.00 as moral and exemplary damages.23Rollo, p. 90. _______________ 21 Rollo, p. 89. 22 Motion to Correct Typographical Errors, Records, p. 228. 23 Rollo, p. 90. 103 VOL. 410, AUGUST 28, 2003 103 Heirs of Ignacia Aguilar-Reyes vs. Mijares Both Ignacia Aguilar-Reyes and respondent spouses appealed the decision to the Court of Appeals.24Defendant Vicente Reyes also filed a Notice of Appeal manifesting to the trial court that he is appealing the decision dated February 15, 1990 (Records, p. 219). It appears, however, that he did not pursue his appeal with the Court of Appeals. Pending the appeal, Ignacia died and she was substituted by her compulsory heirs.25Court of Appeal’s Resolution dated October 14, 1991, CA Rollo, p. 31. Vicente Reyes and their 5 minor children, namely, Dominador Reyes, Agripino Reyes, Antonio Reyes, Ana Marie Reyes, and Jose Reyes, were substituted to the deceased Ignacia Reyes.

Petitioners contended that they are entitled to reimbursement of the rentals collected on the apartment built on Lot No. 4349-R2, while respondent spouses claimed that they are buyers in good faith. On January 26, 2000, the Court of Appeals reversed and set aside the decision of the trial court. It ruled that notwithstanding the absence of Ignacia’s consent to the sale, the same must be held valid in favor of respondents because they were innocent purchasers for value.26Decision, Records, pp. 114-115. The decretal potion of the appellate court’s decision states— “WHEREFORE, premises considered, the Decision appealed from and the Orders dated May 31, 1990 and June 29, 1990, are SET ASIDE and in lieu thereof a new one is rendered— 1. Declaring the Deed of Absolute Sale dated March 1, 1983 executed by Vicente Reyes in favor of spouses Cipriano and [Florentina] Mijares valid and lawful; 2. Ordering Vicente Reyes to pay spouses Mijares the amount of P30,000.00 as attorney’s fees and legal expenses; and 3. Ordering Vicente Reyes to pay spouses Mijares P50,000.00 as moral damages. No pronouncement as to costs. SO ORDERED.”27Rollo, pp. 115-116. Undaunted by the denial of their motion for reconsideration,28Resolution dated June 19, 2000, Rollo, p. 128. petitioners filed the instant petition contending that the assailed sale of Lot No. 4392-B-2 should be annulled because respondent spouses were not purchasers in good faith. _______________ 24 Defendant Vicente Reyes also filed a Notice of Appeal manifesting to the trial court that he is appealing the decision

dated February 15, 1990 (Records, p. 219). It appears, however, that he did not pursue his appeal with the Court of Appeals. 25 Court of Appeal’s Resolution dated October 14, 1991, CA Rollo, p. 31. Vicente Reyes and their 5 minor children, namely, Dominador Reyes, Agripino Reyes, Antonio Reyes, Ana Marie Reyes, and Jose Reyes, were substituted to the deceased Ignacia Reyes. 26 Decision, Records, pp. 114-115. 27 Rollo, pp. 115-116. 28 Resolution dated June 19, 2000, Rollo, p. 128. 104 104 SUPREME COURT REPORTS ANNOTATED Heirs of Ignacia Aguilar-Reyes vs. Mijares The issues for resolution are as follows: (1) What is the status of the sale of Lot No. 4349-B-2 to respondent spouses? (2) Assuming that the sale is annullable, should it be annulled in its entirety or only with respect to the share of Ignacia? (3) Are respondent spouses purchasers in good faith? Articles 166 and 173 of the Civil Code,29A sale or encumbrance of conjugal (or community) property concluded after the effectivity of the Family Code on August 3, 1988, is governed by Article 124 of the same Code that now treats such a disposition to be void if done without the conjoint consent o... the governing laws at the time the assailed sale was contracted, provide: Art. 166. Unless the wife has been declared a non compos mentis or a spendthrift, or is under civil interdiction or is

confined in a leprosarium, the husband cannot alienate or encumber any real property of the conjugal partnership without the wife’s consent. If she refuses unreasonably to give her consent, the court may compel her to grant the same . . . Art. 173. The wife may, during the marriage and within ten years from the transaction questioner, ask the courts for the annulment of any contract of the husband entered into without her consent, when such consent is required, or any act or contract of the husband which tends to defraud her or impair her interest in the conjugal partnership property. Should the wife fail to exercise this right, she or her heirs after the dissolution of the marriage, may demand the value of property fraudulently alienated by the husband. _______________ 29 A sale or encumbrance of conjugal (or community) property concluded after the effectivity of the Family Code on August 3, 1988, is governed by Article 124 of the same Code that now treats such a disposition to be void if done without the conjoint consent of the spouses or, in case of a spouse’s inability, the authority of the court. ART. 124. The administration and enjoyment of the conjugal partnership property shall belong to both spouses jointly. In case of disagreement, the husband’s decision shall prevail, subject to recourse to the court by the wife for a proper remedy which must be availed of within five years from the date of the contract implementing such decision. In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the conjugal properties, the other spouse may assume sole powers of administration. These powers do not include the powers of

disposition or encumbrance which must have the authority of the court or the written consent of the other spouse. In the absence of such authority or consent, the disposition or encumbrance shall be void. However, the transaction shall be construed as a continuing offer on the part of the consenting spouse and the third person, and may be perfected as a binding contract upon the acceptance by the other spouse or authorization by the court before the offer is withdrawn by either or both offerors. 105 VOL. 410, AUGUST 28, 2003 105 Heirs of Ignacia Aguilar-Reyes vs. Mijares Pursuant to the foregoing provisions, the husband could not alienate or encumber any conjugal real property without the consent, express or implied, of the wife otherwise, the contract is voidable. Indeed, in several cases30Garcia v. Court of Appeals, 215 Phil. 380, 383; 130 SCRA 433 (1984); Nicolas v. Court of Appeals, G.R. No. L-37631, 12 October 1987, 154 SCRA 635; Tolentino v. Cardenas, 123 Phil. 517, 521; 16 SCRA 720 (1996). the Court had ruled that such alienation or encumbrance by the husband is void. The better view, however, is to consider the transaction as merely voidable and not void.31Roxas v. Court of Appeals, supra, note 2. This is consistent with Article 173 of the Civil Code pursuant to which the wife could, during the marriage and within 10 years from the questioned transaction, seek its annulment.32Vitug, Compendium of Civil Law and Jurisprudence, 1993 edition, p.

71; Concurring Opinion of Associate Justice Jose C. Vitug in Heirs of Christina Ayuste v. Court of Appeals, supra, note 2. In the case of Heirs of Christina Ayuste v. Court of Appeals;33Supra, note 2. it was categorically held that— There is no ambiguity in the wording of the law. A sale of real property of the conjugal partnership made by the husband without the consent of his wife is voidable. The action for annulment must be brought during the marriage and within ten years from the questioned transaction by the wife. Where the law speaks in clear and categorical language, there is no room for interpretation—there is room only for application.34Supra, note 2. Likewise, in Spouses Guiang v. Court of Appeals,35Supra, note 2. the Court quoted with approval the ruling of the trial court that under the Civil Code, the encumbrance or alienation of a conjugal real property by the husband absent the wife’s consent, is voidable and not void. Thus— . . . Under Article 166 of the Civil Code, the husband cannot generally alienate or encumber any real property of the conjugal partnership without the wife’s consent. The alienation or encumbrance if so made however is not null and void. It is merely voidable. The offended wife may bring an action to annul the said alienation or encumbrance. Thus, the provision of Article 173 of the Civil Code of the Philippines, to wit: _______________ 30 Garcia v. Court of Appeals, 215 Phil. 380, 383; 130 SCRA 433 (1984); Nicolas v. Court of Appeals, G.R. No. L-37631, 12 October 1987, 154 SCRA 635; Tolentino v. Cardenas, 123 Phil. 517, 521; 16 SCRA 720 (1996). 31 Roxas v. Court of Appeals, supra, note 2.

32 Vitug, Compendium of Civil Law and Jurisprudence, 1993 edition, p. 71; Concurring Opinion of Associate Justice Jose C. Vitug in Heirs of Christina Ayuste v. Court of Appeals, supra, note 2. 33 Supra, note 2. 34 Supra, note 2. 35 Supra, note 2. 106 106 SUPREME COURT REPORTS ANNOTATED Heirs of Ignacia Aguilar-Reyes vs. Mijares Art. 173. The wife may, during the marriage and within ten years from the transaction questioned, ask the courts for the annulment of any contract of the husband entered into without her consent, when such consent is required, or any act or contract of the husband which tends to defraud her or impair her interest in the conjugal partnership property. Should the wife fail to exercise this right, she or her heirs after the dissolution of the marriage, may demand the value of property fraudulently alienated by the husband. This particular provision giving the wife ten (10) years x x x during [the] marriage to annul the alienation or encumbrance was not carried over to the Family Code. It is thus clear that any alienation or encumbrance made after August 3, 1988 when the Family Code took effect by the husband of the conjugal partnership property without the consent of the wife is null and void . . . In the case at bar, there is no dispute that Lot No. 4349-B-2, is a conjugal property having been purchased using the conjugal

funds of the spouses during the subsistence of their marriage. It is beyond cavil therefore that the sale of said lot to respondent spouses without the knowledge and consent of Ignacia is voidable. Her action to annul the March 1, 1983 sale which was filed on June 4, 1986, before her demise is perfectly within the 10 year prescriptive period under Article 173 of the Civil Code. Even if we reckon the period from November 25, 1978 which was the date when Vicente and the respondent spouses entered into a contract concerning Lot No. 4349-B-2, Ignacia’s action would still be within the prescribed period. Anent the second issue, the trial court correctly annulled the voidable sale of Lot No. 4349-B-2 in its entirety. In Bucoy v. Paulino,36Supra, note 1. a case involving the annulment of sale with assumption of mortgages executed by the husband without the consent of the wife, it was held that the alienation or encumbrance must be annulled in its entirety and not only insofar as the share of the wife in the conjugal property is concerned. Although the transaction in the said case was declared void and not merely voidable the rationale for the annulment of the whole transaction is the same thus— The plain meaning attached to the plain language of the law is that the contract, in its entirety, executed by the husband without the wife’s _______________ 36 Supra, note 1. 107 VOL. 410, AUGUST 28, 2003 107 Heirs of Ignacia Aguilar-Reyes vs. Mijares

consent, may be annulled by the wife. Had Congress intended to limit such annulment in so far as the contract shall “prejudice” the wife, such limitation should have been spelled out in the statute. It is not the legitimate concern of this Court to recast the law. As Mr. Justice Jose B. L. Reyes of this Court and Judge Ricardo C. Puno of the Court of First Instance correctly stated, “[t]he rule (in the first sentence of Article 173) revokes Baello vs. Villanueva, 54 Phil. 213 and Coque vs. Navas Sioca, 45 Phil. 430,” in which cases annulment was held to refer only to the extent of the one-half interest of the wife . . . The necessity to strike down the contract of July 5, 1963 as a whole, not merely as to the share of the wife, is not without its basis in the common-sense rule. To be underscored here is that upon the provisions of Articles 161, 162 and 163 of the Civil Code, the conjugal partnership is liable for many obligations while the conjugal partnership exists. Not only that. The conjugal property is even subject to the payment of debts contracted by either spouse before the marriage, as those for the payment of fines and indemnities imposed upon them after the responsibilities in Article 161 have been covered (Article 163, par. 3), if it turns out that the spouse who is bound thereby, “should have no exclusive property or if it should be insufficient.” These are considerations that go beyond the mere equitable share of the wife in the property. These are reasons enough for the husband to be stopped from disposing of the conjugal property without the consent of the wife. Even more fundamental is the fact that the nullity is decreed by the Code not on the basis of prejudice but lack of consent of an

indispensable party to the contract under Article 166.37Supra, note 1. With respect to the third issue, the Court finds that respondent spouses are not purchasers in good faith. A purchaser in good faith is one who buys property of another, without notice that some other person has a right to, or interest in, such property and pays full and fair price for the same, at the time of such purchase, or before he has notice of the claim or interest of some other persons in the property. He buys the property with the belief that the person from whom he receives the thing was the owner and could convey title to the property. A purchaser cannot close his eyes to facts which should put a reasonable man on his guard and still claim he acted in good faith.38Sandoval v. Court of Appeals, 329 Phil. 48, 62; 260 SCRA 283 (1996), citing Agricultural and Home Extension Development Corporation v. Court of Appeals, G.R. No. 92310, 3 September 1992, 213 SCRA 563; Santos v. Court of Appeals, G.R. No. 90380, 13 Septembe... _______________ 37 Supra, note 1. 38 Sandoval v. Court of Appeals, 329 Phil. 48, 62; 260 SCRA 283 (1996), citing Agricultural and Home Extension Development Corporation v. Court of Appeals, G.R. No. 92310, 3 September 1992, 213 SCRA 563; Santos v. Court of Appeals, G.R. No. 90380, 13 September 1990, 189 SCRA 550; Fule v. Legare, 117 Phil. 367; 7 SCRA 351 (1963); De Santos v. Inter108 108 SUPREME COURT REPORTS ANNOTATED

Heirs of Ignacia Aguilar-Reyes vs. Mijares In the instant case, there existed circumstances that should have placed respondent spouses on guard. The death certificate of Ignacia, shows that she died on March 22, 1982. The same death certificate, however, reveals that—(1) it was issued by the Office of the Civil Registrar of Lubao Pampanga on March 10, 1982; (2) the alleged death of Ignacia was reported to the Office of the Civil Registrar on March 4, 1982; and (3) her burial or cremation would be on March 8, 1982.39Certificate of Death, Records, p. 182. These obvious flaws in the death certificate should have prompted respondents to investigate further, especially so that respondent Florentina Mijares admitted on cross examination that she asked for the death certificate of Ignacia because she was suspicious that Ignacia was still alive.40TSN, December 19, 1989, pp. 17-19. Moreover, respondent spouses had all the opportunity to verify the claim of Vicente that he is a widower because it was their lawyer, Atty. Rodriguito S. Saet, who represented Vicente in the special proceedings before the Metropolitan Trial Court. Neither can respondent spouses rely on the alleged court approval of the sale. Note that the Order issued by the Metropolitan Trial Court of Quezon City, Branch XXXI, appointing Vicente as guardian of his 5 minor children, as well as the Order authorizing him to sell the estate of Ignacia were issued only on September 29, 1983 and October 14, 1983, respectively. On the other hand, the sale of the entire Lot No. 4349-B-2 to respondent spouses appears to have been made not on March 1, 1983, but even as early as November 25, 1978. In the “Agreement” dated November 25, 1978, Vicente in

consideration of the amount of P110,000.00, sold to Cipriano Mijares Lot No. 4349-B-2 on installment basis, with the first installment due on or before July 31, 1979.41Agreement, Records, p. 175. This was followed by a “Memorandum of Understanding” executed on July 30, 1979, by Vicente and Cipriano—(1) acknowledging Cipriano’s receipt of Vicente’s down payment in the amount of P50,000.00; and (2) authorizing Florentina Mijares to collect rentals.42Memorandum of Understanding, Records, p. 183. On July 14, _______________ mediate Appellate Court, G.R. No. L-69591, 25 January 1988, 157 SCRA 295; Duran v. Intermediate Appellate Court, G.R. No. L-64159, 10 September 1985, 138 SCRA 489; Arriola v. Gomez dela Serna, 14 Phil. 627; Embrado v. Court of Appeals, G.R. No. 51457, 27 June 1994, 233 SCRA 335. 39 Certificate of Death, Records, p. 182. 40 TSN, December 19, 1989, pp. 17-19. 41 Agreement, Records, p. 175. 42 Memorandum of Understanding, Records, p. 183. 109 VOL. 410, AUGUST 28, 2003 109 Heirs of Ignacia Aguilar-Reyes vs. Mijares 1981, Vicente and Cipriano executed another “Memorandum of Agreement,” stating, among other, that out of the purchase price of P110,000.00 Vicente had remaining balance of P19,000.00.43Memorandum of Agreement, Records, p. 200. Clearly therefore, the special proceedings before the

Metropolitan Trial Court of Quezon City, Branch XXXI, could not have been the basis of respondent spouses’ claim of good faith because the sale of Lot No. 4349-B-2 occurred prior thereto. Respondent spouses cannot deny knowledge that at the time of the sale in 1978, Vicente was married to Ignacia and that the latter did not give her conformity to the sale. This is so because the 1978 “Agreement” described Vicente as “married” but the conformity of his wife to the sale did not appear in the deed. Obviously, the execution of another deed of sale in 1983 over the same Lot No. 4349-B-2, after the alleged death of Ignacia on March 22, 1982, as well as the institution of the special proceedings were, intended to correct the absence of Ignacia’s consent to the sale. Even assuming that respondent spouses believed in good faith that Ignacia really died on March 22, 1982, after they purchased the lot, the fact remains that the sale of Lot No. 4349-B-2 prior to Ignacia’s alleged demise was without her consent and therefore subject to annulment. The October 14, 1983 order authorizing the sale of the estate of Ignacia, could not have validated the sale of Lot No. 4349-B-2 because said order was issued on the assumption that Ignacia was already dead and that the sale dated March 1, 1983 was never categorically approved in the said order. The fact that the 5 minor children44Then of ages, 12, 13, 14, 17 and 19 (Records, p. 184). The age of majority then under Republic Act No. 6809 was 21 years. of Vicente represented by the latter, signed the March 1, 1983 deed of sale of Lot No. 4349-B-2 will not estop them from assailing the validity thereof. Not only were they too young at that time to understand the repercussions of the sale, they likewise had no

right to sell the property of their mother who, when they signed the deed, was very much alive. If a voidable contract is annulled, the restoration of what has been given is proper. The relationship between parties in any contract even if subsequently annulled must always be characterized and punctuated by good faith and fair dealing. Hence, for the sake of justice and equity, and in consonance with the salutary principle _______________ 43 Memorandum of Agreement, Records, p. 200. 44 Then of ages, 12, 13, 14, 17 and 19 (Records, p. 184). The age of majority then under Republic Act No. 6809 was 21 years. 110 110 SUPREME COURT REPORTS ANNOTATED Heirs of Ignacia Aguilar-Reyes vs. Mijares of non-enrichment at another’s expense, the Court sustains the trial court’s order directing Vicente to refund to respondent spouses the amount of P110,000.00 which they have paid as purchase price of Lot No. 4349-B-2.45Delos Reyes v. Court of Appeals, 372 Phil. 522, 539; 313 SCRA 632 (1999), citing Nool v. Court of Appeals, 342 Phil. 106; 276 SCRA 149 (1997); Bricktown Development Corporation v. Amor Tierra Development Corporation, G.R. No. 112182, 12 December 1994, 239 ... The court a quo correctly found that the subject of the sale was the entire Lot No. 4349-B-2 and that the consideration thereof is not P40,000.00 as stated in the March 1, 1983 deed of sale, but P110,000.00 as evidenced by the—(1)

“Agreement” dated November 25, 1978 as well as the July 30, 1979 “Memorandum of Understanding” and the July 14, 1981 “Memorandum of Agreement” which served as receipts of the installment payments made by respondent Cipriano Mijares; and (2) the receipt duly signed by Vicente Reyes acknowledging receipt of the amount of P110,000.00 from respondent spouses as payment of the sale of the controverted lot.46Records, p. 176. The trial court, however, erred in imposing 12% interest per annum on the amount due the respondents. In Eastern Shipping Lines, Inc. v. Court of Appeals,47G.R. No. 97412, 12 July 1994, 234 SCRA 78, 96. it was held that interest on obligations not constituting a loan or forbearance of money is six percent (6%) annually. If the purchase price could be established with certainty at the time of the filing of the complaint, the six percent (6%) interest should be computed from the date the complaint was filed until finality of the decision. In Liu v. Loy, Jr.48G.R. No. 145982, 3 July 2003, 405 SCRA 316. involving a suit for reconveyance and annulment of title filed by the first buyer against the seller and the second buyer, the Court, ruling in favor of the first buyer and annulling the second sale, ordered the seller to refund to the second buyer (who was not a purchaser in good faith) the purchase price of the lots. It was held therein that the 6% interest should be computed, from the date of the filing of the complaint by the first buyer. After the judgment becomes final and executory until the obligation is satisfied, the amount due shall _______________ 45 Delos Reyes v. Court of Appeals, 372 Phil. 522, 539; 313 SCRA 632 (1999), citing Nool v. Court of Appeals, 342 Phil.

106; 276 SCRA 149 (1997); Bricktown Development Corporation v. Amor Tierra Development Corporation, G.R. No. 112182, 12 December 1994, 239 SCRA 126; J.M. Tuason & Co., Inc. v. Court of Appeals, G.R. No. L-41233, 21 November 1979, 94 SCRA 413. 46 Records, p. 176. 47 G.R. No. 97412, 12 July 1994, 234 SCRA 78, 96. 48 G.R. No. 145982, 3 July 2003, 405 SCRA 316. 111 VOL. 410, AUGUST 28, 2003 111 Heirs of Ignacia Aguilar-Reyes vs. Mijares earn interest at 12% per year, the interim period being deemed equivalent to a forbearance of credit.49Eastern Shipping Lines, Inc. v. Court of Appeals, supra, at p. 97. Accordingly, the amount of P110,000.00 due the respondent spouses which could be determined with certainty at the time of the filing of the complaint shall earn 6% interest per annum from June 4, 1986 until the finality of this decision. If the adjudged principal and the interest (or any part thereof) remain unpaid thereafter, the interest rate shall be twelve percent (12%) per annum computed from the time the judgment becomes final and executory until it is fully satisfied. Petitioner’s prayer for payment of rentals should be denied. Other than the allegation of Ignacia in her Sinumpaang Salaysay that the apartments could be rented at P1,000.00 a month, no other evidence was presented to substantiate her claim. In awarding rentals which are in the nature of actual damages, the Court cannot rely on mere assertions,

speculations, conjectures or guesswork but must depend on competent proof and on the best evidence obtainable regarding the actual amount of loss.50Lucena v. Court of Appeals, 371 Phil. 188, 802; 313 SCRA 47 (1999), citing Barzaga v. Court of Appeals, 335 Phil. 568; 268 SCRA 105 (1997). None, having been presented in the case at bar, petitioner’s claim for rentals must be denied. While as a general rule, a party who has not appealed is not entitled to affirmative relief other than the ones granted in the decision of the court below, law and jurisprudence authorize a tribunal to consider errors, although unassigned, if they involve (1) errors affecting the lower court’s jurisdiction over the subject matter, (2) plain errors not specified, and (3) clerical errors.51Aurora Land Projects Corporation v. National Labor Relations Commission, 334 Phil. 44, 59; 266 SCRA 48 (1997), citing Santos v. Court of Appeals, G.R. No. 100963, 6 April 1993, 221 SCRA 42. In this case, though defendant Vicente Reyes did not appeal, the “plain error” committed by the court a quo as to the award of moral and exemplary damages must be corrected. These awards cannot be lumped together as was done by the trial court.52Herbosa v. Court of Appeals, G.R. No. 119087, 25 January 2002, 374 SCRA 578. Moral and exemplary damages are different in nature, and require separate determina_______________ 49 Eastern Shipping Lines, Inc. v. Court of Appeals, supra, at p. 97. 50 Lucena v. Court of Appeals, 371 Phil. 188, 802; 313 SCRA 47 (1999), citing Barzaga v. Court of Appeals, 335 Phil. 568; 268 SCRA 105 (1997).

51 Aurora Land Projects Corporation v. National Labor Relations Commission, 334 Phil. 44, 59; 266 SCRA 48 (1997), citing Santos v. Court of Appeals, G.R. No. 100963, 6 April 1993, 221 SCRA 42. 52 Herbosa v. Court of Appeals, G.R. No. 119087, 25 January 2002, 374 SCRA 578. 112 112 SUPREME COURT REPORTS ANNOTATED Heirs of Ignacia Aguilar-Reyes vs. Mijares tion. Moral damages are awarded where the claimant experienced physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury as a result of the act complained of.53Philippine Telegraph and Telephone Corporation v. Court of Appeals, G.R. No. 139268, 3 September 2002, 388 SCRA 270. The award of exemplary damages, on the other hand, is warranted when moral, temperate, liquidated, or compensatory damages were likewise awarded by the court.54Pacific Airways Corporation v. Tonda, G.R. No. 138478, 26 November 2002, 392 SCRA 625. Hence, the trial court’s award of “P50,000.00 by way of moral and exemplary damages” should be modified. Vicente Reyes should be ordered to pay the amounts of P25,000.00 as moral damages and P25,000.00 as exemplary damages. Since Vicente Reyes was among the heirs substituted to the late Ignacia Aguilar-Reyes, payment of moral and exemplary damages must be made by Vicente to his children, petitioners in this case.

WHEREFORE, in view of all the foregoing, the petition is PARTIALLY GRANTED. The January 26, 2000 Decision and June 19, 2002, Resolution of the Court of Appeals in CA-G.R. No. 28464 are REVERSED and SET ASIDE. The May 31, 1990 Order of the Regional Trial Court of Quezon City, Branch 101, in Civil Case No. Q-48018, which annulled the March 1, 1983 Deed of Absolute Sale over Lot No. 4349-B-2, and ordered the Register of Deeds of Quezon City to cancel TCT No. 306087 in the name of respondent spouses Cipriano Mijares and Florentina Mijares covering the same property; as well as the June 29, 1990 Order correcting the typographical errors in the order dated March 1, 1983, are REINSTATED, with the following MODIFICATIONS— (1) The Register of Deeds of Quezon City is ordered to issue a new certificate of title over Lot No. 4349-B-2, in the name of petitioners as co-owners thereof; (2) Vicente Reyes is ordered to reimburse the respondent spouses the amount of P110,000.00 as purchase price of Lot No. 4349-B-2, with interest at 6% per annum from June 4, 1986, until finality of this decision. After this decision becomes final, interest at the rate of 12% per annum on the principal and interest (or any part thereof) shall be imposed until full payment. _______________ 53 Philippine Telegraph and Telephone Corporation v. Court of Appeals, G.R. No. 139268, 3 September 2002, 388 SCRA 270. 54 Pacific Airways Corporation v. Tonda, G.R. No. 138478, 26 November 2002, 392 SCRA 625.

113 VOL. 410, AUGUST 28, 2003 113 Rivera vs. Santiago (3) Defendant Vicente Reyes is ordered to pay the heirs of the late Ignacia Aguilar-Reyes, the amounts of P25,000.00 as moral damages and P25,000.00 as exemplary damages. SO ORDERED. Davide, Jr. (C.J., Chairman), Vitug, Carpio and Azcuna, JJ., concur. Petition partially granted, judgment and resolution reversed and set aside. Note.—A sale of real property of the conjugal partnership made by the husband without the consent of his wife is voidable. (Heirs of Christina Ayuste vs. Court of Appeals, 313 SCRA 493 [1999]) ——o0o—— [Heirs of Ignacia Aguilar-Reyes vs. Mijares, 410 SCRA 97(2003)]

.R. No. 126950. July 2, 1999.*THIRD DIVISION. NELSON NUFABLE, SILMOR NUFABLE and AQUILINA NUFABLE, petitioners, vs. GENEROSA NUFABLE, VILFOR NUFABLE, MARCELO NUFABLE, and the COURT OF APPEALS, respondents. Civil Law; Wills; As a general rule, courts in probate proceedings are limited only to passing upon the extrinsic validity of the will sought to be probated, the due execution thereof, the testator’s testamentary capacity and the compliance with the requisites or solemnities prescribed by law.—As a general rule, courts in probate proceedings are limited only to passing upon the extrinsic validity of the will sought to be probated, the due execution thereof, the testator’s testamentary capacity and the compliance with the requisites or solemnities prescribed by law. Said court at this stage of the proceedings is not called upon to rule on the intrinsic validity or efficacy of the provision of the will. The question of the intrinsic validity of a will normally comes only after the court has declared that the will has been duly authenticated. ____________________ * THIRD DIVISION. 693 VOL. 309, JULY 2, 1999 693 Nufable vs. Nufable Same; Property; Co-ownership; Well-entrenched is the rule that a co-owner can only alienate his pro indiviso share in the co-owned property.—When Angel Nufable and his spouse mortgaged the subject property to DBP on March 15, 1966, they had no right to mortgage the entire property. Angel’s right

over the subject property was limited only to 1/4 pro indiviso share. As co-owner of the subject property, Angel’s right to sell, assign or mortgage is limited to that portion that may be allotted to him upon termination of the coownership. Wellentrenched is the rule that a co-owner can only alienate his pro indiviso share in the co-owned property. Same; Same; Same; Court of Appeals did not err in ruling that Angel Custodio Nufable had no right to mortgage the subject property in its entirety.—The Court of Appeals did not err in ruling that Angel Custodio Nufable “had no right to mortgage the subject property in its entirety. His right to encumber said property was limited only to 1/4 pro indiviso share of the property in question.” Article 493 of the Civil Code spells out the rights of co-owners over a co-owned property. Pursuant to said Article, a co-owner shall have full ownership of his part and of the fruits and benefits pertaining thereto. He has the right to alienate, assign or mortgage it, and even substitute another person in its enjoyment. As a mere part owner, he cannot alienate the shares of the other co-owners. The prohibition is premised on the elementary rule that “no one can give what he does not have.” Same; Same; Same; A co-owner does not lose his part ownership of a co-owned property when his share is mortgaged by another coowner without the former’s knowledge and consent.—Respondents stipulated that they were not aware of the mortgage by petitioners of the subject property. This being the case, a co-owner does not lose his part ownership of a coowned property when his share is mortgaged by another coowner without the former’s knowledge and consent as in the case at bar. It has likewise been ruled that the mortgage of the

inherited property is not binding against co-heirs who never benefitted. Remedial Law; Actions; Parties; Rule on inclusion of indispensable, proper or necessary parties in the pleadings.— The rule is that indispensable parties, i.e., parties in interest without whom no final determination can be had of an action, shall be joined either as plaintiffs or defendants, their inclusion as a party being compulsory. On the other hand, in case of proper or necessary parties, i.e., per694 694 SUPREME COURT REPORTS ANNOTATED Nufable vs. Nufable sons who are not indispensable but ought to be parties if complete relief is to be accorded as between those already parties, the court may, in its discretion, proceed in the action without making such persons parties, and the judgment rendered therein shall be without prejudice to the rights of such persons. Proper parties, therefore, have been described as parties whose presence is necessary in order to adjudicate the whole controversy, but whose interests are so far separable that a final decree can be made in their absence without affecting them. Any claim against a party may be severed and proceeded with separately. Same; Same; Same; DBP, not being an indispensable party did not have to be impleaded in this case.—Private respondents do not question the legality of the foreclosure of the mortgaged property and the subsequent sale of the same to DBP. The subject property was already purchased by petitioner Nelson from DBP and the latter, by such sale, transferred its rights and

obligations to the former. Clearly, petitioners’ interest in the controversy is distinct and separable from the interest of DBP and a final determination can be had of the action despite the non-inclusion of DBP as party-defendant. Hence, DBP, not being an indispensable party, did not have to be impleaded in this case. PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. Lenin R. Victoriano for petitioners. Quinciano D. Vailoces for private respondents. GONZAGA-REYES, J.: This petition for review on certiorari seeks to reverse and set aside the Decision dated November 25, 1995 of the Fifth Division1Penned by Justice Alicia Austria-Martinez, with Justices Pedro A. Ramirez and Bernardo LL. Salas, concurring. of the Court of Appeals for allegedly being contrary to law. The following facts as found by the Court of Appeals are undisputed: ___________________ 1 Penned by Justice Alicia Austria-Martinez, with Justices Pedro A. Ramirez and Bernardo LL. Salas, concurring. 695 VOL. 309, JULY 2, 1999 695 Nufable vs. Nufable “Edras Nufable owned an untitled parcel of land located at Poblacion, Manjuyod, Negros Oriental, consisting of 948 square meters, more or less. He died on August 9, 1965 and

was survived by his children, namely: Angel Custodio, Generosa, Vilfor and Marcelo, all surnamed Nufable. Upon petition for probate filed by said heirs and after due publication and hearing, the then Court of First Instance of Negros Oriental (Branch II) issued an Order dated March 30, 1966 admitting to probate the last will and testament executed by the deceased Edras Nufable (Exhs. B, C and C-1). On June 6, 1966, the same court issued an Order approving the Settlement of Estate submitted by the heirs of the late Esdras Nufable, portions of which read: ‘KNOW ALL MEN BY THESE PRESENTS: We, ANGEL CUSTODIO NUFABLE, GENEROSA NUFABLE, VILFOR NUFABLE, and MARCELO NUFABLE, all of legal ages (sic), Filipinos, and with residence and postal address at Manjuyod, Negros Oriental, Philippines, ‘—HEREBY DECLARE AND MAKE MANIFEST— ‘1. That on August 9, 1965, Rev. Fr. Esdras Nufable died leaving (a) Last Will and Testament (marked Exh. G) disposing (of) his properties or estate in favor of his four legitimate children, namely: Angel Custodio Nufable, Generosa Nufable, Vilfor Nufable and Marcelo Nufable; ‘2. That on March 30, 1966, the said Last Will and Testament was probated by the Honorable Court, Court of First Instance of Negros Oriental, and is embodied in the same order appointing an Administratrix, Generosa Nufable, but to qualify only if she put up a necessary bond of P1,000.00; ‘3. That herein legitimate children prefer not to appoint an Administratrix, as agreed upon (by) all the heirs, because they have no objection as to the manner of disposition of their share made by the testator, the expenses of the proceedings and that

they have already taken possession of their respective shares in accordance with the will; ‘4. That the herein heirs agreed, as they hereby agree to settle the estate in accordance with the terms and condition of the will in the following manner, to wit: 696 696 SUPREME COURT REPORTS ANNOTATED Nufable vs. Nufable ‘a) That the parcel of land situated in Poblacion Manjuyod, Negros Oriental remains undivided for community ownership but respecting conditions imposed therein (sic) in the will; ‘x x x x x x x x x.’ (Exhs. “E” and “E-1”) Two months earlier, or on March 15, 1966, spouses Angel Custodio and Aquilina Nufable mortgaged the entire property located at Manjuyod to the Development Bank of the Philippines [DBP] (Pretrial Order, dated January 7, 1992, p. 103, Original Records). Said mortgagors became delinquent for which reason the mortgaged property was foreclosed by DBP on February 26, 1973 (id.). On January 11, 1980, Nelson Nufable, the son of Angel Custodio Nufable (who died on August 29, 1978 [TSN, Testimony of Nelson Nufable, Hearing of August 18, 1992, p. 17]), purchased said property from DBP (Exh. ‘1’). Generosa, Vilfor and Marcelo, all surnamed Nufable filed with the lower court a complaint dated July 25, 1985 ‘To Annul Fraudulent Transactions, to Quiet Title and To Recover

Damages’ against Nelson Nufable, and wife, Silnor Nufable and his mother Aquilina Nufable. Plaintiffs pray: ‘WHEREFORE, plaintiffs pray this Honorable Court that after trial judgment be rendered ordering: ‘(a) That the said Deed of Sale (Annex ‘C’) executed by the Development Bank of the Philippines in favor of the defendants be declared null and void as far as the three fourths (3/4) rights which belongs (sic) to the plaintiffs are concerned; ‘(b) That the said three fourths (3/4) rights over the above parcel in question be declared as belonging to the plaintiffs at one fourth right to each of them; ‘(c) To order the defendants to pay jointly and severally to the plaintiffs by way of actual and moral damages the amount of P10,000.00 and another P5,000.00 as Attorney’s fees, and to pay the costs. ‘(d) Plus any other amount which this Court may deem just and equitable.’ (p. 6, Original Records) In their Answer, defendants contend: ‘4. Paragraph 4 is denied, the truth being that the late Angel Nufable was the exclusive owner of said property, that 697 VOL. 309, JULY 2, 1999 697 Nufable vs. Nufable as such owner he mortgaged the same to the Development Bank of the Philippines on March 15, 1966, that said mortgage was foreclosed and the DBP became the successful bidder at the auction sale, that ownership was consolidated in the name of the DBP, and that defendant Nelson Nufable bought said

property from the DBP thereafter. During this period, the plaintiffs never questioned the transactions which were public, never filed any third party claim nor attempted to redeem said property as redemptioners, and that said Deed of Sale, Annex ‘B’ to the complaint, is fictitious, not being supported by any consideration’; (pp. 20-21, id.) The Deed of Sale (Annex ‘B’), referred to by the parties is a notarized Deed of Sale, dated July 12, 1966 (marked as Exhibit ‘H’) by virtue of which, spouses Angel and Aquilina Nufable, as vendors, sold 3/4 portion of the subject property to herein plaintiffs for and in consideration of P1,000.00 (Exh. ‘5’).”2pp. 1-4, CA-Decision, pp. 13-16, Rollo. On November 29, 1995, the Court of Appeals rendered judgment, the dispositive portion3p. 4, thereof, p. 21, Rollo. of which reads: “WHEREFORE, the appealed decision of the lower court is REVERSED and SET ASIDE. A new judgment is hereby entered declaring plaintiffs-appellants as the rightful co-owners of the subject property and entitled to possession of 3/4 southern portion thereof; and defendant-appellee Nelson Nufable to 1/4 portion. No award on damages. No costs.” Defendants-appellees’ Motion for Reconsideration was denied for lack of merit in the Resolution of the Court of Appeals4Composed of Justices Pedro A. Ramirez (chairman), Alicia Austria-Martinez (ponente) and Celia Lipana-Reyes (vice Justice Bernardo LL. Salas who was on leave of absence). dated October 2, 1996.

Hence, the present petition. Petitioners raise the following grounds for the petition: ___________________ 2 pp. 1-4, CA-Decision, pp. 13-16, Rollo. 3 p. 4, thereof, p. 21, Rollo. 4 Composed of Justices Pedro A. Ramirez (chairman), Alicia Austria-Martinez (ponente) and Celia Lipana-Reyes (vice Justice Bernardo LL. Salas who was on leave of absence). 698 698 SUPREME COURT REPORTS ANNOTATED Nufable vs. Nufable “1. The Honorable Court of Appeals erred in considering as controlling the probate of the Last Will and Testament of Esdras Nufable, the probate thereof not being an issue in this case; 2. The Honorable Court of Appeals erred in not considering the fact that the Development Bank of the Philippines became the absolute, exclusive, legal, and rightful owner of the land in question, from whom petitioner Nelson Nufable acquired the same by purchase and that, therefore, no award can be made in favor of private respondents unless and until the Development Bank of the Philippines’ title thereto is first declared null and void by the court.” The Court of Appeals, in its decision, stated that the trial court failed to take into consideration the probated will of the late Esdras Nufable bequeathing the subject property to all his four children.5p. 7, thereof, p. 19, Rollo. In the present petition, petitioners present the issue of whether or not the Last Will and

Testament of Esdras Nufable and its subsequent probate are pertinent and material to the question of the right of ownership of petitioner Nelson Nufable who purchased the land in question from, and as acquired property of, the Development Bank of the Philippines (DBP, for short). They contend that the probate of the Last Will and Testament of Esdras Nufable did not determine the ownership of the land in question as against third parties. As a general rule, courts in probate proceedings are limited only to passing upon the extrinsic validity of the will sought to be probated, the due execution thereof, the testator’s testamentary capacity and the compliance with the requisites or solemnities prescribed by law. Said court at this stage of the proceedings is not called upon to rule on the intrinsic validity or efficacy of the provision of the will.6Acain vs. IAC, 155 SCRA 100. The question of the intrinsic validity of a will normally comes only after the court has declared that the will has been duly authenticated. The records show that upon petition for probate filed by the heirs of the late Esdras Nufable, an Order dated March 30, 1966 was issued by then Court of First Instance of Negros Oriental, Branch II, admitting to probate the last will and __________________ 5 p. 7, thereof, p. 19, Rollo. 6 Acain vs. IAC, 155 SCRA 100. 699 VOL. 309, JULY 2, 1999 699 Nufable vs. Nufable

testament executed by the decedent.7p. 1, CA-Decision, p. 13, Rollo. Thereafter, on June 6, 1966, the same court approved the Settlement of Estate submitted by the heirs of the late Esdras Nufable wherein they agreed “(T)hat the parcel land situated in Poblacion Manjuyod, Negros Oriental remains undivided for community ownership but respecting conditions imposed therein (sic) in the will.”8p. 2, CA-Decision, p. 14, Rollo. In paragraph 3 thereof, they stated that “they have no objection as to the manner of disposition of their share made by the testator, the expenses of the proceeding and that they have already taken possession of their respective shares in accordance with the will.” Verily, it was the heirs of the late Esdras Nufable who agreed among themselves on the disposition of their shares. The probate court simply approved the agreement among the heirs which approval was necessary for the validity of any disposition of the decedent’s estate.9Acebedo vs. Abesamis, 217 SCRA 186. It should likewise be noted that the late Esdras Nufable died on August 9, 1965. When the entire property located at Manjuyod was mortgaged on March 15, 1966 by his son Angel Custodio with DBP, the other heirs of Esdras—namely: Generosa, Vilfor and Marcelo—had already acquired successional rights over the said property. This is so because of the principle contained in Article 777 of the Civil Code to the effect that the rights to the succession are transmitted from the moment of death of the decedent. Accordingly, for the purpose of transmission of rights, it does not matter whether the Last Will and Testament of the late Esdras Nufable was admitted on March 30, 1966 or thereafter or that the Settlement of Estate was approved on June 6, 1966 or months later. It is to be noted that the probated

will of the late Esdras Nufable specifically referred to the subject property in stating that “the land situated in the Poblacion, Manjuyod, Negros Oriental, should not be divided because this must remain in common for them, but it is necessary to allow anyone of them ____________________ 7 p. 1, CA-Decision, p. 13, Rollo. 8 p. 2, CA-Decision, p. 14, Rollo. 9 Acebedo vs. Abesamis, 217 SCRA 186. 700 700 SUPREME COURT REPORTS ANNOTATED Nufable vs. Nufable brothers and sisters to construct a house therein.”10p. 7, CADecision, p. 19, Rollo. It was therefore the will of the decedent that the subject property should remain undivided, although the restriction should not exceed twenty (20) years pursuant to Article 87011ART. 870: The dispositions of the testator declaring all or part of the estate inalienable for more than twenty years are void. of the Civil Code. Thus, when Angel Nufable and his spouse mortgaged the subject property to DBP on March 15, 1966, they had no right to mortgage the entire property. Angel’s right over the subject property was limited only to 1/4 pro indiviso share. As coowner of the subject property, Angel’s right to sell, assign or mortgage is limited to that portion that may be allotted to him upon termination of the co-ownership. Well-entrenched is the rule that a co-owner can only alienate his pro indiviso share in

the co-owned property.12Mercado vs. Court of Appeals, 240 SCRA 616. The Court of Appeals did not err in ruling that Angel Custodio Nufable “had no right to mortgage the subject property in its entirety. His right to encumber said property was limited only to 1/4 pro indiviso share of the property in question.”13p. 8, CA-Decision, p. 20, Rollo. Article 493 of the Civil Code spells out the rights of coowners over a co-owned property. Pursuant to said Article, a co-owner shall have full ownership of his part and of the fruits and benefits pertaining thereto. He has the right to alienate, assign or mortgage it, and even substitute another person in its enjoyment. As a mere part owner, he cannot alienate the shares of the other co-owners. The prohibition is premised on the elementary rule that “no one can give what he does not have.”14Mercado vs. Court of Appeals, 240 SCRA 616. Moreover, respondents stipulated that they were not aware of the mortgage by petitioners of the subject property.15Pre-Trial Order of January 7, 1992, pp. 103-104, Record. This being the case, a co-owner does not lose his part ownership of ___________________ 10 p. 7, CA-Decision, p. 19, Rollo. 11 ART. 870: The dispositions of the testator declaring all or part of the estate inalienable for more than twenty years are void. 12 Mercado vs. Court of Appeals, 240 SCRA 616. 13 p. 8, CA-Decision, p. 20, Rollo. 14 Mercado vs. Court of Appeals, 240 SCRA 616. 15 Pre-Trial Order of January 7, 1992, pp. 103-104, Record.

701 VOL. 309, JULY 2, 1999 701 Nufable vs. Nufable a co-owned property when his share is mortgaged by another co-owner without the former’s knowledge and consent16Ibid. as in the case at bar. It has likewise been ruled that the mortgage of the inherited property is not binding against coheirs who never benefitted.17Tan vs. IAC, 186 SCRA 322. Furthermore, the Deed of Sale dated June 17, 1966 marked as Exhibit “H” executed by spouses Angel and Aquilina Nufable in favor of respondents Generosa, Vilfor and Marcelo wherein the former sold, ceded and transferred back to the latter the 3/4 portion of the subject property bolsters respondents’ claim that there was co-ownership. Petitioner Nelson himself claimed that he was aware of the aforesaid Deed of Sale.18p. 3, RTCDecision, p. 147, Record. Anent the second ground of the petition, petitioners allege that the Development Bank of the Philippines acquired ownership of the land in question through foreclosure, purchase and consolidation of ownership. Petitioners argue that if petitioner Nelson Nufable had not bought said land from the DBP, private respondents, in order to acquire said property, must sue said bank for the recovery thereof, and in so doing, must allege grounds for the annulment of documents evidencing the bank’s ownership thereof. Petitioners contend that since petitioner Nelson Nufable simply bought the whole land from the bank, they cannot be deprived of the ownership of 3/4 without making any pronouncement as to the legality or illegality of the bank’s ownership of said land. It is argued that there was no

evidence to warrant declaration of nullity of the bank’s acquisition of said land; and that neither was there a finding by the court that the bank illegally acquired the said property. As adverted to above, when the subject property was mortgaged by Angel Custodio, he had no right to mortgage the entire property but only with respect to his 1/4 pro indiviso share as the property was subject to the successional rights of ____________________ 16 Ibid. 17 Tan vs. IAC, 186 SCRA 322. 18 p. 3, RTC-Decision, p. 147, Record. 702 702 SUPREME COURT REPORTS ANNOTATED Nufable vs. Nufable the other heirs of the late Esdras. Moreover, in case of foreclosure, a sale would result in the transmission of title to the buyer which is feasible only if the seller can be in a position to convey ownership of the things sold.19Article 1458, Civil Code. And in one case,20Castro, Jr. vs. Court of Appeals, 250 SCRA 661. it was held that a foreclosure would be ineffective unless the mortgagor has title to the property to be foreclosed. Therefore, as regards the remaining 3/4 pro indiviso share, the same was held in trust for the party rightfully entitled thereto,21Magallon vs. Montejo, 146 SCRA 282. who are the private respondents herein. Pursuant to Article 1451 of the Civil Code, when land passes by succession to any person and he causes the legal title to be put in the name of another, a trust is established by implication

of law for the benefit of the true owner. Likewise, under Article 1456 of the same Code, if property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. In the case of Noel vs. Court of Appeals,22240 SCRA 78. this Court held that “a buyer of a parcel of land at a public auction to satisfy a judgment against a widow acquired only one-half interest on the land corresponding to the share of the widow and the other half belonging to the heirs of her husband became impressed with a constructive trust in behalf of said heirs.” Neither does the fact that DBP succeeded in consolidating ownership over the subject property in its name terminate the existing co-ownership. Registration of property is not a means of acquiring ownership.23Adille vs. Court of Appeals, 157 SCRA 455. When the subject property was sold to and consolidated in the name of DBP, it being the winning bidder in the public auction, DBP merely held the 3/4 portion in trust for the private respondents. When petitioner Nelson purchased the said property, he merely stepped into the shoes ___________________ 19 Article 1458, Civil Code. 20 Castro, Jr. vs. Court of Appeals, 250 SCRA 661. 21 Magallon vs. Montejo, 146 SCRA 282. 22 240 SCRA 78. 23 Adille vs. Court of Appeals, 157 SCRA 455. 703 VOL. 309, JULY 2, 1999 703 Nufable vs. Nufable

of DBP and acquired whatever rights and obligations appertain thereto. This brings us to the issue of whether or not the DBP should have been impleaded as party-defendant in the case at bar. Petitioners contend that DBP was never impleaded and that due process requires that DBP be impleaded so that it can defend its sale to petitioner Nelson Nufable; and that it was the duty of private respondents, and not of petitioner Nelson, to implead the bank and ask for the annulment of documents evidencing the bank’s ownership of the disputed land. In the Rejoinder to the Reply, private respondents stated that the non-inclusion of DBP as a “necessary party” was not questioned by petitioners from the time the Complaint was filed until the case was “finished.” It was only after the adverse decision by the respondent Court of Appeals that petitioners raised the issue. At the outset, it should be stated that petitioners never raised this issue in their Answer and pursuant to Section 2, Rule 9 of the Rules of Court, defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed waived. Nonetheless, the rule is that indispensable parties, i.e., parties in interest without whom no final determination can be had of an action, shall be joined either as plaintiffs or defendants, their inclusion as a party being compulsory.24Section 7, Rule 3. On the other hand, in case of proper or necessary parties, i.e., persons who are not indispensable but ought to be parties if complete relief is to be accorded as between those already parties, the court may, in its discretion, proceed in the action without making such persons parties, and the judgment

rendered therein shall be without prejudice to the rights of such persons.25Section 8, Rule 3. Proper parties, therefore, have been described as parties whose presence is necessary in order to adjudicate the ___________________ 24 Section 7, Rule 3. 25 Section 8, Rule 3. 704 704 SUPREME COURT REPORTS ANNOTATED Nufable vs. Nufable whole controversy, but whose interests are so far separable that a final decree can be made in their absence without affecting them.26Imson vs. Court of Appeals, 239 SCRA 58; Servicewide Specialists, Inc. vs. Court of Appeals, 251 SCRA 70. Any claim against a party may be severed and proceeded with separately.27Section 11, Rule 3. The pivotal issue to be determined is whether DBP is an indispensable party in this case. Private respondents do not question the legality of the foreclosure of the mortgaged property and the subsequent sale of the same to DBP. The subject property was already purchased by petitioner Nelson from DBP and the latter, by such sale, transferred its rights and obligations to the former. Clearly, petitioners’ interest in the controversy is distinct and separable from the interest of DBP and a final determination can be had of the action despite the non-inclusion of DBP as partydefendant. Hence, DBP, not being an indispensable party, did not have to be impleaded in this case.

WHEREFORE, there being no reversible error in the decision appealed from, the petition for review on certiorari is hereby DENIED. SO ORDERED. Vitug (Actg. Chairman), Panganiban and Purisima, JJ., concur. Romero, J. (Chairman), Abroad, on official business leave. Petition denied. Note.—A person’s co-ownership in a property is not inconsistent with her authorizing another to sell her share in the property via an agency arrangement. (Esguerra vs. Court of Appeals, 267 SCRA 380 [1997]) ——o0o—— [Nufable vs. Nufable, 309 SCRA 692(1999)]

G.R. No. 148376. March 31, 2005.*THIRD DIVISION. LEONARDO ACABAL and RAMON NICOLAS, petitioners, vs. VILLANER ACABAL, EDUARDO ACABAL, SOLOMON ACABAL, GRACE ACABAL, MELBA ACABAL, EVELYN ACABAL, ARMIN ACABAL, RAMIL ACABAL, and BYRON ACABAL, respondents. Actions; Pleadings and Practice; Evidence; The failure to deny the genuineness and due execution of an actionable document does not preclude a party from arguing against it by evidence of fraud, mistake, compromise, payment, statute of limitations, estoppel, and want of consideration.—Procedurally, petitioners contend that the Court of Appeals erred when it failed to apply Section 8, Rule 8 of the Rules of Court, respondent Villaner having failed to deny under oath the genuineness and due execution of the April 19, 1990 Deed of Absolute Sale. Petitioners’ contention does not persuade. The failure to deny the genuineness and due execution of an actionable document does not preclude a party from arguing against it by evidence of fraud, mistake, compromise, payment, statute of limitations, estoppel, and want of consideration. Same; Same; Same; It is a basic rule in evidence that the burden of proof lies on the party who makes the allegations—ei incumbit probatio, qui dicit, non qui negat; cum per rerum natruam factum negantis probatio nulla sit (the proof lies upon him who affirms, not upon him who denies; since by the nature of things, he who denies a fact cannot produce any proof); Facts not conjectures decide cases.—It is a basic rule in evidence that the burden of proof lies on the party who makes the allegations—ei incumbit probatio, qui dicit, non qui negat; cum per rerum naturam factum negantis probatio nulla sit. If he

claims a right granted by law, he must prove it by competent evidence, relying on the strength of his own evidence and not upon the weakness of that of his opponent. More specifically, allegations of a defect in or lack of valid consent to a contract by reason of fraud or undue influence are never presumed but must be established not by mere preponderance of evidence but by clear and convincing evidence. For the circumstances evidencing fraud and misrepresenta_______________ * THIRD DIVISION. 556 556 SUPREME COURT REPORTS ANNOTATED Acabal vs. Acabal tion are as varied as the people who perpetrate it in each case, assuming different shapes and forms and may be committed in as many different ways. In the case at bar, it was incumbent on the plaintiff-herein respondent Villaner to prove that he was deceived into executing the Deed of Absolute Sale. Except for his bare allegation that the transaction was one of lease, he failed to adduce evidence in support thereof. His conjecture that “perhaps those copies of the deed of sale were placed by Mr. Cadalin under the documents which I signed the contract of lease,” must fail, for facts not conjectures decide cases. Sales; Absent any evidence of the fair market value of a land as of the time of its sale, it cannot be concluded that the price at which it was sold was inadequate.—It bears noting, however, that Villaner failed to present evidence on the fair market value of the property as of April 19, 1990, the date of execution of the disputed deed. Absent any evidence of the fair market value

of a land as of the time of its sale, it cannot be concluded that the price at which it was sold was inadequate. Inadequacy of price must be proven because mere speculation or conjecture has no place in our judicial system. Same; Mere inadequacy of the price per se will not rule out the transaction as one of sale—the price must be grossly inadequate or shocking to the conscience.—Even, however, on the assumption that the price of P10,000.00 was below the fair market value of the property in 1990, mere inadequacy of the price per se will not rule out the transaction as one of sale. For the price must be grossly inadequate or shocking to the conscience such that the mind revolts at it and such that a reasonable man would neither directly nor indirectly be likely to consent to it. Sales; Pari Delicto; A party in pari delicto is not entitled to affirmative relief—one who seeks equity and justice must come to court with clean hands.—Even assuming that the disposition of the property by Villaner was contrary to law, he would still have no remedy under the law as he and Leonardo were in pari delicto, hence, he is not entitled to affirmative relief—one who seeks equity and justice must come to court with clean hands. In pari delicto potior est conditio defendentis. The proposition is universal that no action arises, in equity or at law, from an illegal contract; no suit can be maintained for its specific performance, or to recover the property agreed to be 557 VOL. 454, MARCH 31, 2005 557 Acabal vs. Acabal

sold or delivered, or the money agreed to be paid, or damages for its violation. The rule has sometimes been laid down as though it were equally universal, that where the parties are in pari delicto, no affirmative relief of any kind will be given to one against the other. Same; Same; The principle of pari delicto is grounded on two premises—first, that courts should not lend their good offices to mediating disputes among wrongdoers, and second, that denying relief to an admitted wrongdoer is an effective means of deterring illegality; This principle of ancient vintage is not a principle of justice but one of policy.—The principle of pari delicto is grounded on two premises: first, that courts should not lend their good offices to mediating disputes among wrongdoers; and second, that denying judicial relief to an admitted wrongdoer is an effective means of deterring illegality. This doctrine of ancient vintage is not a principle of justice but one of policy as articulated in 1775 by Lord Mansfield in Holman v. Johnson: The objection, that a contract is immoral or illegal as between the plaintiff and defendant, sounds at all times very ill in the mouth of the defendant. It is not for his sake, however, that the objection is ever allowed; but it is founded in general principles of policy, which the defendant has the advantage of, contrary to the real justice, as between him and the plaintiff, by accident, if I may so say. The principle of public policy is this; ex dolo malo non oritur actio. No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act. If, from the plaintiff’s own stating or otherwise, the cause of action appears to arise ex turpi causa, or the transgression of a positive law of this country, there the court says he has no right to be assisted. It is

upon that ground the court goes; not for the sake of the defendant, but because they will not lend their aid to such a plaintiff. So if the plaintiff and the defendant were to change sides, and the defendant was to bring his action against the plaintiff, the latter would then have the advantage of it; for where both are equally in fault potior est conditio defendentis. Thus, to serve as both a sanction and as a deterrent, the law will not aid either party to an illegal agreement and will leave them where it finds them. Same; Same; An exception to the principle of pari delicto is that provided for in Article 1416 of the Civil Code; Requisites.—The principle of pari delicto, however, is not absolute, admitting an exception under Article 1416 of the Civil Code. ART. 1416. When the agree558 558 SUPREME COURT REPORTS ANNOTATED Acabal vs. Acabal ment is not illegal per se but is merely prohibited, and the prohibition by the law is designed for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered. Under this article, recovery for what has been paid or delivered pursuant to an inexistent contract is allowed only when the following requisites are met: (1) the contract is not illegal per se but merely prohibited; (2) the prohibition is for the protection of the plaintiffs; and (3) if public policy is enhanced thereby. The exception is unavailing in the instant case, however, since the prohibition is clearly not for the protection of the plaintiff-landowner but for the beneficiary farmers.

Same; Co-Ownership; Every co-owner has absolute ownership of his undivided interest in the co-owned property and is free to alienate, assign or mortgage his interest except as to purely personal rights.—While Villaner owns five-ninths (5/9) of the disputed property, he could not claim title to any definite portion of the community property until its actual partition by agreement or judicial decree. Prior to partition, all that he has is an ideal or abstract quota or proportionate share in the property. Villaner, however, as a co-owner of the property has the right to sell his undivided share thereof. The Civil Code provides so: ART. 493. Each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining thereto, and he may therefore alienate, assign or mortgage it, and even substitute another person in its enjoyment, except when personal rights are involved. But the effect of the alienation or the mortgage, with respect to the co-owners, shall be limited to the portion which may be allotted to him in the division upon the termination of the co-ownership. Thus, every co-owner has absolute ownership of his undivided interest in the co-owned property and is free to alienate, assign or mortgage his interest except as to purely personal rights. While a co-owner has the right to freely sell and dispose of his undivided interest, nevertheless, as a co-owner, he cannot alienate the shares of his other co-owners—nemo dat qui non habet. Same; Same; Following the well-established principle that the binding force of a contract must be recognized as far as it is legally possible to do so, the disposition by a co-owner affects only his share pro indiviso, and the transferee gets only what corresponds to his grantor’s share in the partition of the

property owned in common.— Villaner, however, sold the entire property without obtaining the 559 VOL. 454, MARCH 31, 2005 559 Acabal vs. Acabal consent of the other co-owners. Following the well-established principle that the binding force of a contract must be recognized as far as it is legally possible to do so—quando res non valet ut ago, valeat quantum valere potest—the disposition affects only Villaner’s share pro indiviso, and the transferee gets only what corresponds to his grantor’s share in the partition of the property owned in common. Same; Same; Land Registration; The issue of good faith or bad faith of a buyer is relevant only where the subject of the sale is a registered land but not where the property is an unregistered land.— This Court is not unmindful of its ruling in Cruz v. Leis where it held: It is conceded that, as a rule, a co-owner such as Gertrudes could only dispose of her share in the property owned in common. Article 493 of the Civil Code provides: x x x Unfortunately for private respondents, however, the property was registered in TCT No. 43100 solely in the name of “Gertrudes Isidro, widow.” Where a parcel of land, forming part of the undistributed properties of the dissolved conjugal partnership of gains, is sold by a widow to a purchaser who merely relied on the face of the certificate of title thereto, issued solely in the name of the widow, the purchaser acquires a valid title to the land even as against the heirs of the deceased spouse. The rationale for this rule is that “a person dealing with registered land is not required to go behind the register to

determine the condition of the property. He is only charged with notice of the burdens on the property which are noted on the face of the register or the certificate of title. To require him to do more is to defeat one of the primary objects of the Torrens system.” (Citation omitted) Cruz, however, is not applicable for the simple reason that in the case at bar the property in dispute is unregistered. The issue of good faith or bad faith of a buyer is relevant only where the subject of the sale is a registered land but not where the property is an unregistered land. One who purchases an unregistered land does so at his peril. Nicolas’ claim of having bought the land in good faith is thus irrelevant. PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. Edlaw Office for petitioners. 560 560 SUPREME COURT REPORTS ANNOTATED Acabal vs. Acabal Leo Diocos for respondents. CARPIO-MORALES, J.: Before this Court is a Petition for Review on Certiorari of the February 15, 2001 Decision1Court of Appeals (CA) Rollo at pp. 58-65. of the Court of Appeals reversing that of the Regional Trial Court (RTC) of Dumaguete City, Branch 35.2Records Vol. I at pp. 224-227. In dispute is the exact nature of the document3Exhibits “C” and “1... which respondent Villaner Acabal (Villaner) executed

in favor of his godson-nephew-petitioner Leonardo Acabal (Leonardo) on April 19, 1990. Villaner’s parents, Alejandro Acabal and Felicidad Balasabas, owned a parcel of land situated in Barrio Tanglad, Manjuyod, Negros Oriental, containing an area of 18.15 hectares more or less, described in Tax Declaration No. 15856.4Exhibit “H... By a Deed of Absolute Sale dated July 6, 1971,5Exhibit “F... his parents transferred for P2,000.00 ownership of the said land to him, who was then married to Justiniana Lipajan.6The Deed of Absolute Sale states that at the time the contract was entered into respondent Villaner Acabal was married to Justiniana Lipajan. Sometime after the foregoing transfer, it appears that Villaner became a widower. Subsequently, he executed on April 19, 1990 a deed7Exhibits “C” and “1”. The document states that at the time the contract was entered into respondent Villaner Acabal was a widower. conveying the same property8The Deed of Absolute Sale states that the property is described by Tax Declaration No. 16878 (Exhibit “I”) and has an area of in favor of Leonardo. _______________ 1 Court of Appeals (CA) Rollo at pp. 58-65. 2 Records Vol. I at pp. 224-227. 3 Exhibits “C” and “1”. 4 Exhibit “H”. 5 Exhibit “F”. 6 The Deed of Absolute Sale states that at the time the contract was entered into respondent Villaner Acabal was married to Justiniana Lipajan.

7 Exhibits “C” and “1”. The document states that at the time the contract was entered into respondent Villaner Acabal was a widower. 8 The Deed of Absolute Sale states that the property is described by Tax Declaration No. 16878 (Exhibit “I”) and has an area of 561 VOL. 454, MARCH 31, 2005 561 Acabal vs. Acabal Villaner was later to claim that while the April 19, 1990 document he executed now appears to be a “Deed of Absolute Sale” purportedly witnessed by a Bais City trial court clerk Carmelo Cadalin and his wife Lacorte, what he signed was a document captioned “Lease Contract”9Transcript of Stenographic Notes (TSN), March 16, 1994 at p. 17. (modeled after a July 1976 lease agreement10Exhibit “Q”. It should be noted that that the lease agreement was not signed by Maria Luisa Montenegro. The lease agreement was also not signed by any witness nor is it notarized. Only the signature of Villaner Acabal appears on the document. he had previously executed with previous lessee, Maria Luisa Montenegro11TSN, March 16, 1994 at pp. 22-23.) wherein he leased for 3 years the property to Leonardo at P1,000.00 per hectare12Id., at p. 16. and which was witnessed by two women employees of one Judge Villegas of Bais City. Villaner thus filed on October 11, 1993 a complaint13Records Vol. I at pp. 1-3. before the Dumaguete RTC against Leonardo

and Ramon Nicolas to whom Leonardo in turn conveyed the property, for annulment of the deeds of sale. At the witness stand, Villaner declared: Q: It appears, Mr. Acabal, that you have signed a document of sale with the defendant Leonardo Acabal on April 19, 1990, please tell the court whether you have really agreed to sell this property to the defendant on or before April 19, 1990? A: We had some agreement but not about the selling of this property. _______________ 186,000 square meters more or less. In contrast, the Deed of Absolute Sale between Villaner Acabal and his parents states that the property has an area of 18.15 hectares. 1 hectare is equal to 10,000 square meters. 9 Transcript of Stenographic Notes (TSN), March 16, 1994 at p. 17. 10 Exhibit “Q”. It should be noted that that the lease agreement was not signed by Maria Luisa Montenegro. The lease agreement was also not signed by any witness nor is it notarized. Only the signature of Villaner Acabal appears on the document. 11 TSN, March 16, 1994 at pp. 22-23. 12Id., at p. 16. 13 Records Vol. I at pp. 1-3. 562 562 SUPREME COURT REPORTS ANNOTATED Acabal vs. Acabal

Q: What was your agreement with the defendant Leonardo Acabal? A: Our agreement [was] that he will just rent.14TSN, March 16, 1994 at p. 16. xxx Q: Now, please tell the court how were you able to sign this document on April 19, 1990? A: I do not know why I signed that, that is why I am puzzled. Q: Why, did you not read the contents of this document? A: I have not read that. I only happened to read the title of the Lease Contract. Q: And do you recall who were the witnesses of the document which you signed in favor of Leonardo Acabal? A: Employees of Judge Villegas of Bais City. Q: Did you see them sign that document? A: Yes, sir. Q: These signatures appearing in this document marked as Exhibit “C” for the plaintiff and Exhibit “1” for the defendant, please examine over (sic) these signatures if these were the signatures of these witnesses who signed this document? A: These are not the signatures of the two women. Q: And after signing this document on April 19, 1990, did you appear before a notary public to have this notarized? A: No, I went home to San Carlos.15Id., at pp. 17-18. xxx Q: According to this document, you sell (sic) this property at P10,000.00, did you sell this property to Leonardo Acabal? A: No, sir. Q: How about after April 19, 1990, did you receive this amount from Leonardo Acabal?

_______________ 14 TSN, March 16, 1994 at p. 16. 15Id., at pp. 17-18. 563 VOL. 454, MARCH 31, 2005 563 Acabal vs. Acabal A: No, sir.16Id., at p. 18. xxx Q: Now you said that on May 25, 1990, Leonardo Acabal did not pay the amount that he promised to you, what did you do of (sic) his refusal to pay that amount? A: I went to Mr. [Carmelo] Mellie Cadalin because he was the one who prepared the papers and to ask Leonardo Acabal why he will not comply with our agreement. Q: By the way, who is this Mellie Cadalin? A: Mellie Cadalin is also working in the sala of Judge Villegas. Q: Who requested Mellie Cadalin to prepare this document? A: Maybe it was Leonardo Acabal. Q: By the way, when for the first time did you talk to Leonardo Acabal regarding your agreement to lease this property to him? A: March 14, 1990, in San Carlos. Q: And what document did you give to him in order that that document will be prepared? A: I have given (sic) some papers and contract of lease that I have signed to (sic) Mrs. Montenegro.17Id., at pp. 22-23. (Emphasis and italics supplied) xxx

Q: Now, Carmelo Cadalin [“Mellie”] also testified before this court that in fact he identified the document marked as Exhibit “C” for the plaintiff that what you executed on April 19, 1990 was a deed of sale and not a contract of lease, what can you say to that statement? A: That is a lie. Q: And what’s the truth then? A: What really (sic) I have signed was the document of lease contract. _______________ 16Id., at p. 18. 17Id., at pp. 22-23. 564 564 SUPREME COURT REPORTS ANNOTATED Acabal vs. Acabal Q: Now, can you explain to the Honorable Court why it so happened that on April 19, you were able to sign a deed of sale? A: What I can see now is that perhaps those copies of the deed of sale were placed by Mr. Cadalin under the documents which I signed the lease contract. But why is it that it has already a deed of sale when what I have signed was only the lease of contract or the contract of lease. Q: Now, Mr. Cadalin also stated before this court that he handed over to you this Deed of Sale marked as Exhibit “C” and according to him you read this document, what can you say to this statement?

A: Yes, there was a document that he gave me to read it (sic) but it was a contract of lease. Q: How sure are you that what you signed on April 19, 1990 was really a contract of lease and not a contract of sale? A: Because when I signed the contract of lease the witnesses that witnessed my signing the document were the employees of Judge Villegas and then I am now surprised why in the deed of sale which I purportedly signed are witnessed by Carmelo Cadalin and his wife Lacorte.18TSN, November 23, 1994 at pp. 4-5. (Emphasis and italics supplied) On the other hand, Leonardo asserts that what Villaner executed was a Deed of Absolute Sale for a consideration of P10,000.00 which he had already paid,19The document states that Villaner Acabel acknowledges receipt of the consideration of P10,000.00. and as he had become the absolute owner of the property, he validly transferred it to Ramon Nicolas on May 19, 1990.20Exhibits “D” and “3... Carmelo Cadalin who admittedly prepared the deed of absolute sale and who appears as a witness, along with his wife, _______________ 18 TSN, November 23, 1994 at pp. 4-5. 19 The document states that Villaner Acabel acknowledges receipt of the consideration of P10,000.00. 20 Exhibits “D” and “3”. 565 VOL. 454, MARCH 31, 2005 565 Acabal vs. Acabal

to the execution of the document corroborated Leonardo’s claim: Q: Mr. Cadalin, do you know the plaintiff Villaner Acabal? A: Yes, I know.21TSN, July 18, 1994 at p. 4. xxx Q: And I would like to ask you Mr. witness why do you know Villaner Acabal? A: At the time that he went to our house together with Leonardo Acabal he requested me to prepare a deed of sale as regards to a sale of the property.22Id., at p. 5. xxx Q: And after they requested you to prepare a document of sale, what did you do? A: At first I refused to [do] it because I have so many works to do, but then they insisted so I prepared the deed. Q: After you prepared the document, what did you do? A: After I prepared it I gave it to him so that he could read the same. Q: When you say “him,” whom do you refer to? A: Villaner Acabal. Q: And did Villaner Acabal read the document you prepared? A: Yes, he read it. Q: And after reading it what did Villaner Acabal do? A: He signed the document. Q: Showing to you a document which is marked Exhibit “C” for the plaintiff and Exhibit “1” for the defendants, please tell the Honorable Court what relation this document has to the document which you described earlier? _______________

21 TSN, July 18, 1994 at p. 4. 22Id., at p. 5.

A: Affidavit of non-tenancy and aggregate area.26Id., at p. 8. (Emphasis and italics supplied)

566 566 SUPREME COURT REPORTS ANNOTATED Acabal vs. Acabal

The complaint was later amended27Records at pp. 204-205. to implead Villaner’s eight children as party plaintiffs, they being heirs of his deceased wife. By Decision of August 8, 1996, the trial court found for the therein defendants-herein petitioners Leonardo and Ramon Nicolas and accordingly dismissed the complaint. _______________ 23Id., at pp. 5-6. 24Id. at p. 7. 25Id., at pp. 7-8. 26Id., at p. 8. 27 Records at pp. 204-205.

COURT INTERPRETER: Witness is confronted with the said document earlier marked as Exhibit “C” for the prosecution and Exhibit “1” for the defense. A: Yes, this is the one.23Id., at pp. 5-6. xxx Q: Also stated in the document is the phrase “Signed in the presence of” and there is a number and then two signatures, could you please examine the document and say whether these signatures are familiar to you? A: Yes, number one is my signature and number 2 is the signature of my wife as witness.24Id. at p. 7. xxx Q: After Villaner Acabal signed the document, what did Villaner Acabal do? A: He was given the payment by Leonardo Acabal.25Id., at pp. 7-8. xxx Q: Aside from the document, deed of absolute sale, that you mentioned earlier that you prepared for Villaner Acabal and Leonardo Acabal, what other documents, if any, did you prepare for them?

567 VOL. 454, MARCH 31, 2005 567 Acabal vs. Acabal Villaner, et al. thereupon brought the case on appeal to the Court of Appeals which reversed the trial court, it holding that the Deed of Absolute Sale executed by Villaner in favor of Leonardo was simulated and fictitious.”28CA Rollo at p. 103. Hence, Leonardo and Ramon Nicolas’ present petition for review on certiorari,29Rollo at pp. 25-54. anchored on the following assignments of error: I. THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED THAT RESPONDENT

VILLANER ACABAL WAS DECEIVED INTO SIGNING THE DEED OF ABSOLUTE SALE WHEN THE LATTER KNOWINGLY, FREELY AND VOLUNTARILY EXECUTED THE SAME IN FAVOR OF PETITIONER LEONARDO ACABAL. II. THE COURT OF APPEALS ERRED WHEN IT RULED THAT THE CONSIDERATION OF THE DEED OF ABSOLUTE SALE IN THE AMOUNT OF TEN THOUSAND PESOS (P10,0000.00) WAS “UNUSUALLY LOW AND INADEQUATE,” ESPECIALLY TAKING INTO ACCOUNT THE LOCATION OF THE SUBJECT PROPERTY. III. THE COURT OF APPEALS ERRED WHEN IT FAILED TO CONSIDER WHY RESPONDENT VILLANER ACABAL ONLY QUESTIONED THE POSSESSION AND OWNERSHIP OF PETITIONER RAMON NICOLAS IN COURT AFTER THE LATTER WAS IN OPEN, CONTINUOUS AND PEACEFUL POSSESSION OF THE SUBJECT PROPERTY FOR ALMOST THREE (3) YEARS. IV. THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN LAW WHEN IT FAILED TO DECLARE PETITIONER RAMON _______________ 28 CA Rollo at p. 103. 29 Rollo at pp. 25-54.

568 568 SUPREME COURT REPORTS ANNOTATED Acabal vs. Acabal NICOLAS AS A BUYER IN GOOD FAITH AS THE LATTER TOOKTHE NECESSARY STEPS AN ORDINARY AND PRUDENT MANWOULD HAVE TAKEN BEFORE BUYING THE QUESTIONEDPROPERTY. V. THE COURT OF APPEALS ERRED IN RULING IN FAVOR OF RESPONDENT VILLANER ACABAL WHEN THE LATTER DID NOT PRESENT A SINGLE WITNESS TO TESTIFY ON THE ALLEGED CONTRACT OF LEASE WHICH HE ALLEGEDLY SIGNED AND WITNESSED BY THE EMPLOYEES OF JUDGE VILLEGAS. VI. THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN LAW WHEN IT RULED THAT RULE 8, SECTION 8 OF THE 1987 (sic) RULE (sic) OF CIVIL PROCEDURE IS NOT APPLICABLE IN THE CASE AT BAR, CONTRARY TO THE RULING OF THE LOWER COURT. VII. THE COURT OF APPEALS ERRED WHEN IT ORDERED PETITIONERS TO PAY RESPONDENTS “JOINTLY AND SEVERALLY BY WAY OF RENTAL THE SUM OF P10,000.00 PER YEAR FROM 1990 UP TO THE TIME THEY VACATE THE PREMISES.”30Id., at pp. 32-33. Procedurally, petitioners contend that the Court of Appeals erred when it failed to apply Section 8, Rule 8 of the Rules of

Court, respondent Villaner having failed to deny under oath the genuineness and due execution of the April 19, 1990 Deed of Absolute Sale. Petitioners’ contention does not persuade. The failure to deny the genuineness and due execution of an actionable document does not preclude a party from arguing against it _______________ 30Id., at pp. 32-33. 569 VOL. 454, MARCH 31, 2005 569 Acabal vs. Acabal by evidence of fraud, mistake, compromise, payment, statute of limitations, estoppel, and want of consideration.31Republic v. Court of Appeals, 296 SCRA 171, 181-182 (1998); Bough and Bough v. Cantiveros and Hanopol, 40 Phil. 209, 213-214 (1919); Hibberd v. Rohde and McMillian, 32 Phil. 476, 480 (1915). On the merits, this Court rules in petitioners’ favor. It is a basic rule in evidence that the burden of proof lies on the party who makes the allegations32Citibank, N.A. Mastercard v. Teodoro, 411 SCRA 577, 583 (2003); Manongsong v. Estimo, 404 SCRA 683, 693 (2003); Noceda v. Court of Appeals, 313 SCRA 504, 520 (1999); Pimentel v. Court of Appeals, 307 SCRA 38, 46 (1999); Luxuria Homes, Inc. v. Court of Appe...—ei incumbit probatio, qui dicit, non qui negat; cum per rerum naturam factum negantis probatio nulla sit.33The proof lies upon him who affirms, not upon him who denies; since by the nature of things, he who denies a fact cannot produce any proof. (Black’s Law Dictionary 516

[1991], 6th ed.) If he claims a right granted by law, he must prove it by competent evidence, relying on the strength of his own evidence and not upon the weakness of that of his opponent. More specifically, allegations of a defect in or lack of valid consent to a contract by reason of fraud or undue influence are never presumed but must be established not by mere preponderance of evidence but by clear and convincing evidence.34Heirs of William Sevilla v. Sevilla, 402 SCRA 501, 511 (2003); Cenido v. Apacionado, 318 SCRA 688, 702 (1999); Palmares v. Court of Appeals, 288 SCRA 422, 434 (1998); Inciong, Jr. v. Court of Appeals, 257 SCRA 578, 586 (1996); Samson v. Court of Appeals, 2... For the circumstances evidencing fraud and misrepresentation are as varied as the people who perpetrate it in _______________ 31 Republic v. Court of Appeals, 296 SCRA 171, 181-182 (1998); Bough and Bough v. Cantiveros and Hanopol, 40 Phil. 209, 213-214 (1919); Hibberd v. Rohde and McMillian, 32 Phil. 476, 480 (1915). 32Citibank, N.A. Mastercard v. Teodoro, 411 SCRA 577, 583 (2003); Manongsong v. Estimo, 404 SCRA 683, 693 (2003); Noceda v. Court of Appeals, 313 SCRA 504, 520 (1999); Pimentel v. Court of Appeals, 307 SCRA 38, 46 (1999); Luxuria Homes, Inc. v. Court of Appeals, 302 SCRA 315, 325 (1999); Pacific Banking Corporation Employees Organization v. Court of Appeals, 288 SCRA 197, 206 (1998); Jison v. Court of Appeals, 286 SCRA 495, 532 (1998); P.T. Cerna Corporation v. Court of Appeals, 221 SCRA 19, 25 (1993).

33 The proof lies upon him who affirms, not upon him who denies; since by the nature of things, he who denies a fact cannot produce any proof. (Black’s Law Dictionary 516 [1991], 6th ed.) 34Heirs of William Sevilla v. Sevilla, 402 SCRA 501, 511 (2003); Cenido v. Apacionado, 318 SCRA 688, 702 (1999); Palmares v. Court of Appeals, 288 SCRA 422, 434 (1998); Inciong, Jr. v. Court of Appeals, 257 SCRA 578, 586 (1996); Samson v. Court of Appeals, 238 SCRA 397, 408 (1994); Cu v. Court of Appeals, 195 SCRA 647, 657 (1991); Carenan v. Court of Appeals, 173 SCRA 711, 715 (1989). 570 570 SUPREME COURT REPORTS ANNOTATED Acabal vs. Acabal each case, assuming different shapes and forms and may be committed in as many different ways.35Spouses Morandarte v. Court of Appeals, G.R. No. 123586, August 12, 2004, 436 SCRA 213. In the case at bar, it was incumbent on the plaintiff-herein respondent Villaner to prove that he was deceived into executing the Deed of Absolute Sale. Except for his bare allegation that the transaction was one of lease, he failed to adduce evidence in support thereof. His conjecture that “perhaps those copies of the deed of sale were placed by Mr. Cadalin under the documents which I signed the contract of lease,”36TSN, November 23, 1994 at p. 4. must fail, for facts not conjectures decide cases. Attempting to seek corroboration of his account, Villaner presented Atty. Vicente Real who notarized the document.

While on direct examination, Atty. Real virtually corroborated Villaner’s claim that he did not bring the document to him for notarization,37TSN, April 26, 1994 at p. 11. on crossexamination, Atty. Real conceded that it was impossible to remember every person who would ask him to notarize documents: Q: And in the course of your notarization, can you remember each and every face that come (sic) to you for notarization? A: No, it is impossible. Q: In the case of Villaner Acabal which you have his document notarized (sic) in 1990, can you remember his face when he came to you? A: No. Q: And can you also say, if a person who came to you having a document to be notarized and if he will appear again after a month, can you remember whether he was the one who came to you? A: Not so much because everyday there are many people who appear with documents to be notarized. _______________ 35Spouses Morandarte v. Court of Appeals, G.R. No. 123586, August 12, 2004, 436 SCRA 213. 36 TSN, November 23, 1994 at p. 4. 37 TSN, April 26, 1994 at p. 11. 571 VOL. 454, MARCH 31, 2005 571 Acabal vs. Acabal

Q: So, it is safe to say that if Villaner Acabal came to you on April 25 or rather April 16, 1990 andhave (sic) his document notarized if he comes back in, say May 25, can you still remember if he was the one who came to you? A: I cannot be sure but at least, there are times I can remember persons because he seems to be close to me already. Q: Is this Villaner close to you? A: Because he has been frequenting the house/asking for a copy of the document. Q: So, he became close to you after you notarized the document? A: Yes.38Id., at pp. 13-14. (Emphasis and italics supplied) On Villaner’s claim that two women employees of Judge Villegas signed as witnesses to the deed39TSN, March 16, 1994 at pp. 17-18. but that the signatures appearing thereon are not those of said witnesses,40Ibid. the same must be discredited in light of his unexplained failure to present such alleged women employee-witnesses. In another vein, Villaner zeroes in on the purchase price of the property—P10,000.00—which to him was unusually low if the transaction were one of sale. To substantiate his claim, Villaner presented Tax Declarations covering the property for the years 1971,41Tax Declaration No. 15856, Exhibit “H... 1974,42Tax Declaration No. 16878, Exhibit “I... 1977,43Tax Declaration No. 10237, Exhibit “J... 1980,44Tax Declaration No. 29-63, Exhibit “K... 1983,45Tax Declaration No. 27-107, Exhibit “L... 1985,46Tax Declaration No. 27-185, Exhibit “M”, and Tax Declaration No. 27-184, Exhibit “N... as well as a Declaration

of Real Property executed in 1994.47Declaration of Real Property No. 12-027-0136, Exhibit “O... _______________ 38Id., at pp. 13-14. 39 TSN, March 16, 1994 at pp. 17-18. 40Ibid. 41 Tax Declaration No. 15856, Exhibit “H”. 42 Tax Declaration No. 16878, Exhibit “I”. 43 Tax Declaration No. 10237, Exhibit “J”. 44 Tax Declaration No. 29-63, Exhibit “K”. 45 Tax Declaration No. 27-107, Exhibit “L”. 46 Tax Declaration No. 27-185, Exhibit “M”, and Tax Declaration No. 27-184, Exhibit “N”. 47 Declaration of Real Property No. 12-027-0136, Exhibit “O”. 572 572 SUPREME COURT REPORTS ANNOTATED Acabal vs. Acabal It bears noting, however, that Villaner failed to present evidence on the fair market value of the property as of April 19, 1990, the date of execution of the disputed deed. Absent any evidence of the fair market value of a land as of the time of its sale, it cannot be concluded that the price at which it was sold was inadequate.48San Pedro v. Lee, G.R. No. 156522, May 28, 2004, 430 SCRA 338;Fernandez v. Tarun, 391 SCRA 653, 662 (2002). Inadequacy of price must be proven because mere speculation or conjecture has no place in our judicial system.49Ng Cho Cio v. Ng Diong, 1 SCRA 275, 282 (1961). Victor Ragay, who was appointed by the trial court to conduct an ocular inspection50Records Vol. I at p. 129. of the property

and to investigate matters relative to the case,51Id., at p. 134. gave an instructive report dated December 3, 1994,52Id., at pp. 145-153. the pertinent portions of which are hereby reproduced verbatim: a) Only three (3) to four (4) hectares of the eighteen (18) were planted to sugar cane, the rest was never cultivated; b) the soil is reddish and somewhat sandy in composition; c) the soil contains so much limestones (rocks consisting mainly of calcium carbonate); d) no part of the land in question is plain or flat, contrary to claim of the plaintiff that almost 10 hectares of the land in question is plain or flat; e) some areas, eastward of and adjacent of the land in question (mistakenly to be owned by the defendant Nicolas) were planted to sugar cane by the owners—Kadusales; f) the road going to the land in question (as claimed to be the road) is no longer passable because it has been abandoned and not maintained by anyone, thus it makes everything impossible for anybody to get and haul the sugar cane from the area; _______________ 48 San Pedro v. Lee, G.R. No. 156522, May 28, 2004, 430 SCRA 338;Fernandez v. Tarun, 391 SCRA 653, 662 (2002). 49Ng Cho Cio v. Ng Diong, 1 SCRA 275, 282 (1961). 50 Records Vol. I at p. 129. 51Id., at p. 134. 52Id., at pp. 145-153. 573 VOL. 454, MARCH 31, 2005 573 Acabal vs. Acabal

g) the Commissioner has discovered some stockpiles of abandoned harvested sugar canes left to rot, along the side of the road, undelivered to the milling site because of the difficulty in bringing up trucks to the scene of the harvest; h) the sugarcanes presently planted on the land in question at the time of the ocular inspection were three (3) feet in height and their structural built was thin or lean; i) Most of the part of the 18 hectares is not planted or cultivated because the same is too rocky and not suitable for planting to sugarcane.53Id., at pp. 150-151. Additionally, Ragay reported that one Anatolio Cabusog recently purchased a 6-hectare property adjoining that of the subject property for only P1,600.0054Id., at p. 152. or P266.67 per hectare. Given that, had the 18-hectare subject property been sold at about the same time, it would have fetched the amount of P4,800.00,55P266.67 per hectare x 18 hectares = 4,800.06. hence, the P10,000.00 purchase price appearing in the questioned April 19, 1990 document is more than reasonable. Even, however, on the assumption that the price of P10,000.00 was below the fair market value of the property in 1990, mere inadequacy of the price per se will not rule out the transaction as one of sale. For the price must be grossly inadequate or shocking to the conscience such that the mind revolts at it and such that a reasonable man would neither directly nor indirectly be likely to consent to it.56San Pedro v. Lee, supra; Fernandez v. Tarun, supra; Cachola, Sr. v. Court of Appeals, 208 SCRA 496, 501 (1992). Still in another vein, Villaner submits that Leonardo’s transfer of the property to Nicolas in a span of one month for a profit of

P30,000.00 conclusively reflects Leonardo’s fraudulent intent. This submission is a non sequitur. _______________ 53Id., at pp. 150-151. 54Id., at p. 152. 55 P266.67 per hectare x 18 hectares = 4,800.06. 56 San Pedro v. Lee, supra; Fernandez v. Tarun, supra; Cachola, Sr. v. Court of Appeals, 208 SCRA 496, 501 (1992). 574 574 SUPREME COURT REPORTS ANNOTATED Acabal vs. Acabal As for Villaner’s argument that the sale of the property to Leonardo and the subsequent sale thereof to Nicolas are void for being violative of the retention limits imposed by Republic Act No. 6657, otherwise known as the Comprehensive Agrarian Reform Law, the same fails. The pertinent provisions of said law read: SECTION 6. Retention Limits.—Except as otherwise provided in this Act, no person may retain, directly or indirectly, any public or agricultural land, the size of which may vary according to factors governing a viable family-sized farm, such as commodity produced, terrain, infrastructure, and soil fertility as determined by the Presidential Agrarian Reform Council (PARC) created here-under, but in no case shall retention by the landowner exceed five (5) hectares. Three (3) hectares may be awarded to each child of the landowner, subject to the following qualifications: (1) that he is at least fifteen (15) years of age; and (2) that he is tilling the land or directly managing the farm: Provided, That landowners whose lands have been

covered by Presidential Decree No. 27 shall be allowed to keep the areas originally retained by them thereunder:57Presidential Decree No. 27 allows for a maximum retention area of not more than seven (7) hectares. Provided further, That original homestead grantees or direct compulsory heirs who still own the original homestead at the time of the approval of this Act shall retain the same areas as long as they continue to cultivate said homestead. xxx Upon the effectivity of this Act, any sale, disposition, lease, management, contract or transfer of possession of private lands executed by the original landowner in violation of this Act shall be null and void: Provided, however, that those executed prior to this Act shall be valid only when registered with the Register of Deeds within a period of three (3) months after the effectivity of this Act. Thereafter, all Registers of Deeds shall inform the DAR within thirty (30) days of any transaction involving agricultural lands in excess of five (5) hectares. xxx _______________ 57 Presidential Decree No. 27 allows for a maximum retention area of not more than seven (7) hectares. 575 VOL. 454, MARCH 31, 2005 575 Acabal vs. Acabal SECTION 70. Disposition of Private Agricultural Lands.—The sale or disposition of agricultural lands retained by a land owner as a consequence of Section 6 hereof shall be valid as long as the total landholdings that shall be owned by the

transferee thereof inclusive of the land to be acquired shall not exceed the landholding ceilings provided for in this Act. Any sale or disposition of agricultural lands after the effectivity of this Act found to be contrary to the provisions hereof shall be null and void. Transferees of agricultural lands shall furnish the appropriate Register of Deeds and the BARC an affidavit attesting that his total landholdings as a result of the said acquisition do not exceed the landholding ceiling. The Register of Deeds shall not register the transfer of any agricultural land without the submission of his sworn statement together with proof of service of a copy thereof to the BARC. (Emphasis and italics supplied) As the above-quoted provisions of the Comprehensive Agrarian Reform Law show, only those private lands devoted to or suitable for agriculture are covered by it.58Rep. Act No. 6657 (1988), sec. 4. As priorly related, Victor Ragay, who was appointed by the trial court to conduct an ocular inspection of the property, observed in his report that only three (3) to four (4) hectares were planted with sugarcane while the rest of the property was not suitable for planting as the soil was full of limestone.59Records Vol. I at pp. 150-151. He also remarked that the sugarcanes were only 3 feet in height and very lean,60Id., at p. 151. whereas sugarcanes usually grow to a height of 3 to 6 meters (about 8 to 20 feet) and have stems 2 to 5 centimeters (1-2 inches) thick.61http://encarta.msn.com/encyclopedia_761573379/Suga rcane.html.

It is thus gathered that the property was not suitable for agricultural purposes. In any event, since the area devoted to the planting of sugarcane, hence, suitable for agricultural _______________ 58 Rep. Act No. 6657 (1988), sec. 4. 59 Records Vol. I at pp. 150-151. 60Id., at p. 151. 61 http://encarta.msn.com/encyclopedia_761573379/Sugarcane.ht ml. 576 576 SUPREME COURT REPORTS ANNOTATED Acabal vs. Acabal purposes, comprises only 4 hectares at the most, it is less than the maximum retention limit prescribed by law. There was then no violation of the Comprehensive Agrarian Reform Law. Even assuming that the disposition of the property by Villaner was contrary to law, he would still have no remedy under the law as he and Leonardo were in pari delicto, hence, he is not entitled to affirmative relief—one who seeks equity and justice must come to court with clean hands. In pari delicto potior est conditio defendentis.62In case of equal or mutual fault [between two parties] the condition of the party defending is the better one. Where each party is equally in fault, the law favors him who is actually in possession. Where the fault is mutual, the law will leave the case as... The proposition is universal that no action arises, in equity or at law, from an illegal contract; no suit can be maintained for its specific performance, or to recover the property agreed to be

sold or delivered, or the money agreed to be paid, or damages for its violation. The rule has sometimes been laid down as though it were equally universal, that where the parties are in pari delicto, no affirmative relief of any kind will be given to one against the other.63Silagan v. Intermediate Appellate Court, 196 SCRA 774, 785 (1991). (Emphasis and italics supplied) The principle of pari delicto is grounded on two premises: first, that courts should not lend their good offices to mediating disputes among wrongdoers;64Bateman Eichler, Hill Richards, Inc. v. Berner, 472 U.S. 299, 306 (1985). and second, that denying judicial relief to an admitted wrongdoer is an effective means of deterring illegality.65Ibid. In McMullen v. Hoffman, 174 U.S. 639, 669-670 (1899), the U.S. Supreme Court said:To refuse to grant either party to an illegal contract judicial aid for the enforcement of his alleged rights under it tends This doctrine of ancient vintage is not _______________ 62 In case of equal or mutual fault [between two parties] the condition of the party defending is the better one. Where each party is equally in fault, the law favors him who is actually in possession. Where the fault is mutual, the law will leave the case as it finds it. (Black’s Law Dictionary 791 [1991], 6th ed.) 63 Silagan v. Intermediate Appellate Court, 196 SCRA 774, 785 (1991). 64 Bateman Eichler, Hill Richards, Inc. v. Berner, 472 U.S. 299, 306 (1985). 65 Ibid. In McMullen v. Hoffman, 174 U.S. 639, 669-670 (1899), the U.S. Supreme Court said:

To refuse to grant either party to an illegal contract judicial aid for the enforcement of his alleged rights under it tends 577 VOL. 454, MARCH 31, 2005 577 Acabal vs. Acabal a principle of justice but one of policy as articulated in 1775 by Lord Mansfield in Holman v. Johnson:661 Cowp. 341 (1775). The objection, that a contract is immoral or illegal as between the plaintiff and defendant, sounds at all times very ill in the mouth of the defendant. It is not for his sake, however, that the objection is ever allowed; but it is founded in general principles of policy, which the defendant has the advantage of, contrary to the real justice, as between him and the plaintiff, by accident, if I may so say. The principle of public policy is this; ex dolo malo non oritur actio.67Out of fraud no action arises; fraud never gives a right of action. No court will lend its aid to a man who founds his cause of action upon an immoral or illegal act. (Black’s Law Dictionary 567 [1991], 6th ed.) No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act. If, from the plaintiff’s own stating or otherwise, the cause of action appears to arise ex turpi causa,68Out of a base [illegal, or immoral] consideration. (Black’s Law Dictionary 589 [1991], 6th ed.) or the transgression of a positive law of this country, there the court says he has no right to be assisted. It is upon that ground the court goes; not for the sake of the defendant, but because they will not lend their aid to such a plaintiff. So if the plaintiff and the defendant were to change sides, and the defendant was to bring his action against the plaintiff, the latter would then have

the advantage of it; for where both are equally in fault potior est conditio defendentis.691 Cowp. 341, 343 (1775). Thus, to serve as both a sanction and as a deterrent, the law will not aid either party to an illegal agreement and will leave them where it finds them. _______________ strongly towards reducing the number of such transactions to a minimum. The more plainly parties understand that when they enter into contracts of this nature they place themselves outside the protection of the law, so far as that protection consists in aiding them to enforce such contracts, the less inclined will they be to enter into them. In that way the public secures the benefit of a rigid adherence to the law. 66 1 Cowp. 341 (1775). 67 Out of fraud no action arises; fraud never gives a right of action. No court will lend its aid to a man who founds his cause of action upon an immoral or illegal act. (Black’s Law Dictionary 567 [1991], 6th ed.) 68 Out of a base [illegal, or immoral] consideration. (Black’s Law Dictionary 589 [1991], 6th ed.) 69 1 Cowp. 341, 343 (1775). 578 578 SUPREME COURT REPORTS ANNOTATED Acabal vs. Acabal The principle of pari delicto, however, is not absolute, admitting an exception under Article 1416 of the Civil Code. ART. 1416. When the agreement is not illegal per se but is merely prohibited, and the prohibition by the law is designed

for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered. Under this article, recovery for what has been paid or delivered pursuant to an inexistent contract is allowed only when the following requisites are met: (1) the contract is not illegal per se but merely prohibited; (2) the prohibition is for the protection of the plaintiffs; and (3) if public policy is enhanced thereby.70Philippine National Bank v. De los Reyes, 179 SCRA 619, 628 (1989); Guiang v. Kintanar, 106 SCRA 49, 92 (1981). The exception is unavailing in the instant case, however, since the prohibition is clearly not for the protection of the plaintiff-landowner but for the beneficiary farmers.71An example of a prohibition beneficial to a plaintiff is the prohibition in the Public Land Act which prohibits the alienation of homesteads granted by the State within the 5 year prohibitive period. The primordial aim of this prohibition is to preserve an... _______________ 70 Philippine National Bank v. De los Reyes, 179 SCRA 619, 628 (1989); Guiang v. Kintanar, 106 SCRA 49, 92 (1981). 71 An example of a prohibition beneficial to a plaintiff is the prohibition in the Public Land Act which prohibits the alienation of homesteads granted by the State within the 5 year prohibitive period. The primordial aim of this prohibition is to preserve and keep in the family of the homesteader the piece of land that the State had gratuitously given. Thus, in Santos v. Roman Catholic Church of Midsayap, et al. (94 Phil. 405, 411 [1954]) this Court held: The case under consideration comes within the exception above adverted to. Here appellee desires to nullify a transaction

which was done in violation of the law. Ordinarily the principle of pari delicto would apply to her because her predecessor-ininterest has carried out the sale with the presumed knowledge of its illegality, but because the subject of the transaction is a piece of public land, public policy requires that she, as heir, be not prevented from re-acquiring it because it was given by law to her family for her home and cultivation. This is the policy on which our homestead law is predicated. This right cannot be waived. “It is not within the competence of any citizen to barter away what public policy by law seeks to preserve.” We are, therefore, constrained to hold that appellee 579 VOL. 454, MARCH 31, 2005 579 Acabal vs. Acabal In fine, Villaner is estopped from assailing and annulling his own deliberate acts.72San Agustin v. Court of Appeals, 371 SCRA 348, 359 (2001); Sarmiento v. Salud, 45 SCRA 213, 216 (1972). More. Villaner cannot feign ignorance of the law, nor claim that he acted in good faith, let alone assert that he is less guilty than Leonardo. Under Article 3 of the Civil Code, “ignorance of the law excuses no one from compliance therewith.” And now, Villaner’s co-heirs’ claim that as co-owners of the property, the Deed of Absolute Sale executed by Villaner in favor of Leonardo does not bind them as they did not consent to such an undertaking. There is no question that the property is conjugal. Article 160 of the Civil Code73The governing law in this case is Article 160 of the Civil Code since the marriage between Villaner Acabal and Justiniana Lipajan and Lipajan’s

death was before August 3, 1988—the effectivity of the Family Code. Incidentally, Art. 119 of the Ci... provides: ART. 160. All property of the marriage is presumed to belong to the conjugal partnership, unless it be proved that it pertains exclusively to the husband or to the wife.74Article 116 of the Family Code states: All property acquired during the marriage, whether the acquisition appears to have been _______________ can maintain the present action it being in furtherance of this fundamental aim of our homestead law. (Citations omitted) 72 San Agustin v. Court of Appeals, 371 SCRA 348, 359 (2001); Sarmiento v. Salud, 45 SCRA 213, 216 (1972). 73 The governing law in this case is Article 160 of the Civil Code since the marriage between Villaner Acabal and Justiniana Lipajan and Lipajan’s death was before August 3, 1988—the effectivity of the Family Code. Incidentally, Art. 119 of the Civil Code provides: ART. 119. The future spouses may in the marriage settlements agree upon absolute or relative community of property, or upon complete separation of property, or upon any other regime. In the absence of marriage settlements, or when the same are void, the system of relative community or conjugal partnership of gains as established in this Code, shall govern the property relations between husband and wife. Thus, before the effectivity of the Family Code, in the absence of evidence to the contrary, there is a presumption that the property relations of the husband and wife are under the regime of conjugal partnership of gains.

74 Article 116 of the Family Code states: All property acquired during the marriage, whether the acquisition appears to have been 580 580 SUPREME COURT REPORTS ANNOTATED Acabal vs. Acabal The presumption, this Court has held, applies to all properties acquired during marriage. For the presumption to be invoked, therefore, the property must be shown to have been acquired during the marriage.75Torela v. Torela, 93 SCRA 391, 396 (1979); Ponce de Leon v. Rehabilitation Finance Corporation, 36 SCRA 289, 310 (1970); Cobb-Perez v. Lantin, 23 SCRA 637, 644-645 (1968); Maramba v. Lozano, 20 SCRA 474, 478 (1967). In the case at bar, the property was acquired on July 6, 1971 during Villaner’s marriage with Justiniana Lipajan. It cannot be seriously contended that simply because the tax declarations covering the property was solely in the name of Villaner it is his personal and exclusive property. In Bucoy v. Paulino7623 SCRA 248 (1968). and Mendoza v. Reyes77124 SCRA 154 (1983). which both apply by analogy, this Court held that registration alone of the properties in the name of the husband does not destroy the conjugal nature of the properties.78Id., at p. 165; 23 SCRA 248, 257 (1968). What is material is the time when the land was acquired by Villaner, and that was during the lawful existence of his marriage to Justiniana. Since the property was acquired during the existence of the marriage of Villaner and Justiniana, the presumption under

Article 160 of the Civil Code is that it is the couple’s conjugal property. The burden is on petitioners then to prove that it is not. This they failed to do. The property being conjugal, upon the death of Justiniana Lipajan, the conjugal partnership was terminated.79Civil Code, art. 175 (1). With the dissolution of the conjugal partnership, Villaner’s interest in the conjugal partnership became actual and vested with respect to an undivided one-half portion.80Civil Code, art. 185. Justiniana's rights to _______________ made, contracted or registered in the name of one or both spouses, is presumed to be conjugal unless the contrary is proved. 75 Torela v. Torela, 93 SCRA 391, 396 (1979); Ponce de Leon v. Rehabilitation Finance Corporation, 36 SCRA 289, 310 (1970); Cobb-Perez v. Lantin, 23 SCRA 637, 644-645 (1968); Maramba v. Lozano, 20 SCRA 474, 478 (1967). 76 23 SCRA 248 (1968). 77 124 SCRA 154 (1983). 78Id., at p. 165; 23 SCRA 248, 257 (1968). 79 Civil Code, art. 175 (1). 80 Civil Code, art. 185. 581 VOL. 454, MARCH 31, 2005 581 Acabal vs. Acabal the other half, in turn, vested upon her death to her heirs81Civil Code, art. 777. including Villaner who is entitled to the same share as that of each of their eight legitimate children.82Civil Code, art. 996. As a result then of the death of Justiniana, a

regime of co-ownership arose between Villaner and his coheirs in relation to the property.83Carvajal v. Court of Appeals, 112 SCRA 237, 239 (1982); Pamplona v. Moreto, 96 SCRA 775, 781 (1980); Taningco v. Register of Deeds of Laguna, 5 SCRA 381, 382-383 (1962). With respect to Justiniana’s one-half share in the conjugal partnership which her heirs inherited, applying the provisions on the law of succession, her eight children and Villaner each receives one-ninth (1/9) thereof. Having inherited one-ninth (1/9) of his wife’s share in the conjugal partnership or one eighteenth (1/18)841/2 x 1/9 = 1/18, one-half representing Justiniana’s share in the conjugal partnership and one-ninths representing each heir’s share in Justiniana’s said half. This was done in order to get each heir’s share with respect to the enti... of the entire conjugal partnership and is himself already the owner of one half (1/2) or nine-eighteenths (9/18), Villaner’s total interest amounts to ten-eighteenths (10/18) or five-ninths (5/9). While Villaner owns five-ninths (5/9) of the disputed property, he could not claim title to any definite portion of the community property until its actual partition by agreement or judicial decree. Prior to partition, all that he has is an ideal or abstract quota or proportionate share in the property.85City of Mandaluyong v. Aguilar, 350 SCRA 487, 499 (2001); Oliveras v. Lopez, 168 SCRA 431, 437 (1988); Carvajal v. Court of Appeals, supra at p. 240; Diversified Credit Corporation v. Rosado, 26 SCRA 470, 474 (1968). Villaner, however, as a coowner of the property has the right to sell his undivided share thereof. The Civil Code provides so:

ART. 493. Each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining thereto, and he may _______________ 81 Civil Code, art. 777. 82 Civil Code, art. 996. 83 Carvajal v. Court of Appeals, 112 SCRA 237, 239 (1982); Pamplona v. Moreto, 96 SCRA 775, 781 (1980); Taningco v. Register of Deeds of Laguna, 5 SCRA 381, 382-383 (1962). 84 1/2 x 1/9 = 1/18, one-half representing Justiniana’s share in the conjugal partnership and one-ninths representing each heir’s share in Justiniana’s said half. This was done in order to get each heir’s share with respect to the entire conjugal partnership. 85 City of Mandaluyong v. Aguilar, 350 SCRA 487, 499 (2001); Oliveras v. Lopez, 168 SCRA 431, 437 (1988); Carvajal v. Court of Appeals, supra at p. 240; Diversified Credit Corporation v. Rosado, 26 SCRA 470, 474 (1968). 582 582 SUPREME COURT REPORTS ANNOTATED Acabal vs. Acabal therefore alienate, assign or mortgage it, and even substitute another person in its enjoyment, except when personal rights are involved. But the effect of the alienation or the mortgage, with respect to the co-owners, shall be limited to the portion which may be allotted to him in the division upon the termination of the co-ownership. Thus, every co-owner has absolute ownership of his undivided interest in the co-owned property and is free to alienate, assign

or mortgage his interest except as to purely personal rights. While a co-owner has the right to freely sell and dispose of his undivided interest, nevertheless, as a co-owner, he cannot alienate the shares of his other co-owners—nemo dat qui non habet.86He who hath not cannot give. (Black’s Law Dictionary 1037 [1991], 6th ed.) Villaner, however, sold the entire property without obtaining the consent of the other co-owners. Following the wellestablished principle that the binding force of a contract must be recognized as far as it is legally possible to do so—quando res non valet ut ago, valeat quantum valere potest87When a thing is of no effect as I do it, it shall have effect as far as [or in whatever way] it can. (Black’s Law Dictionary 1243 [1991], 6th ed.)—the disposition affects only Villaner’s share pro indiviso, and the transferee gets only what corresponds to his grantor’s share in the partition of the property owned in common.88Aguirre v. Court of Appeals, 421 SCRA 310, 323324 (2004); Corinthian Realty, Inc. v. Court of Appeals, 394 SCRA 260, 268 (2002); Tomas Claudio Memorial College, Inc. v. Court of Appeals, 316 SCRA 502, 509 (1999); Paulmitan v. Court of Appeals, 215 SCRA 86... As early as 1923, this Court has ruled that even if a co-owner sells the whole property as his, the sale will affect only his own share but not those of the other co-owners who did not consent to the sale. This is because under the aforementioned codal provision, the sale or other disposition affects only his undivided share and the transferee _______________ 86 He who hath not cannot give. (Black’s Law Dictionary 1037 [1991], 6th ed.)

87 When a thing is of no effect as I do it, it shall have effect as far as [or in whatever way] it can. (Black’s Law Dictionary 1243 [1991], 6th ed.) 88 Aguirre v. Court of Appeals, 421 SCRA 310, 323-324 (2004); Corinthian Realty, Inc. v. Court of Appeals, 394 SCRA 260, 268 (2002); Tomas Claudio Memorial College, Inc. v. Court of Appeals, 316 SCRA 502, 509 (1999); Paulmitan v. Court of Appeals, 215 SCRA 866, 872-873 (1992); BailonCasilao v. Court of Appeals, 160 SCRA 738, 745 (1988). 583 VOL. 454, MARCH 31, 2005 583 Acabal vs. Acabal gets only what would correspond to this grantor in the partition of the thing owned in common. Consequently, by virtue of the sales made by Rosalia and Gaudencio Bailon which are valid with respect to their proportionate shares, and the subsequent transfers which culminated in the sale to private respondent Celestino Afable, the said Afable thereby became a co-owner of the disputed parcel of land as correctly held by the lower court since the sales produced the effect of substituting the buyers in the enjoyment thereof. From the foregoing, it may be deduced that since a co-owner is entitled to sell his undivided share, a sale of the entire property by one co-owner without the consent of the other co-owners is not null and void. However, only the rights of the co-ownerseller are transferred, thereby making the buyer a co-owner of the property. The proper action in cases like this is not for the nullification of the sale or the recovery of possession of the thing owned in

common from the third person who substituted the co-owner or co-owners who alienated their shares, but the DIVISION of the common property as if it continued to remain in the possession of the co-owners who possessed and administered it.89En passant, co-owners instead of filing a case for partition may resort to legal redemption under Article 1623 of the Civil Code. Article 1623 provides:ART. 1623. The right of legal preemption or redemption shall not be exercised except within thirty days... _______________ 89 En passant, co-owners instead of filing a case for partition may resort to legal redemption under Article 1623 of the Civil Code. Article 1623 provides: ART. 1623. The right of legal pre-emption or redemption shall not be exercised except within thirty days from the notice in writing by the prospective vendor, or by the vendor, as the case may be. The deed of sale shall not be recorded in the Registry of Property, unless accompanied by an affidavit of the vendor that he has given written notice thereof to all possible redemptioners. The right of redemption of co-owners excludes that of adjoining owners. Under Article 1623, when a vendor sells real property, he must notify in writing his co-owners who may redeem the same within thirty (30) days from notice. The general rule is that written notice of the sale to all possible redemptioners is indispensable. The 30 day period which is a condition precedent to the exercise of the right of legal redemption is counted from the written notice. However, in Alonzo v.

Intermediate Appellate Court (150 SCRA 259), this Court held that as an exception to 584 584 SUPREME COURT REPORTS ANNOTATED Acabal vs. Acabal Thus, it is now settled that the appropriate recourse of coowners in cases where their consent were not secured in a sale of the entire property as well as in a sale merely of the undivided shares of some of the co-owners is an action for PARTITION under Rule 69 of the Revised Rules of Court. Neither recovery of possession nor restitution can be granted since the defendant buyers are legitimate proprietors and possessors in joint ownership of the common property claimed.90Bailon-Casilao v. Court of Appeals, supra. (Italics in the original; citations omitted; italics supplied) This Court is not unmindful of its ruling in Cruz v. Leis91327 SCRA 570 (2000). where it held: It is conceded that, as a rule, a co-owner such as Gertrudes could only dispose of her share in the property owned in common. Article 493 of the Civil Code provides: xxx Unfortunately for private respondents, however, the property was registered in TCT No. 43100 solely in the name of “Gertrudes Isidro, widow.” Where a parcel of land, forming part of the undistributed properties of the dissolved conjugal partnership of gains, is sold by a widow to a purchaser who merely relied on the face of the certificate of title thereto, issued solely in the name of the widow, the purchaser acquires a valid title to the land even as against the heirs of the deceased

spouse. The rationale for this rule is that “a person dealing with registered land is not required to go behind the register to determine the condition of the property. He is only charged with notice of the burdens on the property which are noted on the face of the register or the certificate of title. To require him to do more is to _______________ the general rule the co-heirs who lived with the vendors in the same lot are deemed to have received actual notice of the sale. Alonzo is applicable in this case since the co-heirs are deemed to have received actual notice of the sale since they live in the same house as the vendor. Hence, they may no longer exercise their right of redemption. 90Bailon-Casilao v. Court of Appeals, supra. 91 327 SCRA 570 (2000). 585 VOL. 454, MARCH 31, 2005 585 Acabal vs. Acabal defeat one of the primary objects of the Torrens system.”92Id., at pp. 577-578. (Citation omitted) Cruz, however, is not applicable for the simple reason that in the case at bar the property in dispute is unregistered. The issue of good faith or bad faith of a buyer is relevant only where the subject of the sale is a registered land but not where the property is an unregistered land.93Sales v. Court of Appeals, 211 SCRA 858, 865-866 (1992). One who purchases an unregistered land does so at his peril.94Aguirre v. Court of Appeals, supra at pp. 321-322. Nicolas’ claim of having bought

the land in good faith is thus irrelevant.95David v. Bandin, 149 SCRA 140, 150 (1987). WHEREFORE, the petition is GRANTED. The Court of Appeals February 15, 2001 Decision in CA-G.R. CV No. 56148 is REVERSED and SET ASIDE and another is rendered declaring the sale in favor of petitioner Leonardo Acabal and the subsequent sale in favor of petitioner Ramon Nicolas valid but only insofar as five-ninths (5/9) of the subject property is concerned. No pronouncement as to costs. SO ORDERED. Panganiban (Chairman), Sandoval-Gutierrez, Corona and Garcia, JJ., concur. Petition granted, judgment reversed and set aside. Notes.—Where both parties are equally guilty, neither is entitled to complain against the other—having entered into the transaction with open eyes, and having benefit from it, said parties should be held in estoppel to assail and annul their own deliberate acts. (San Agustin vs. Court of Appeals, 371 SCRA 348 [2001]) _______________ 92Id., at pp. 577-578. 93Sales v. Court of Appeals, 211 SCRA 858, 865-866 (1992). 94Aguirre v. Court of Appeals, supra at pp. 321-322. 95David v. Bandin, 149 SCRA 140, 150 (1987). 586 586 SUPREME COURT REPORTS ANNOTATED PCI Leasing and Finance, Inc. vs. Go Ko

Pari delicto may not be invoked in a case of the waiver of rights under P.D. No. 27 since it runs counter to an avowed fundamental policy of the State. (Siacor vs. Gigantana, 380 SCRA 306 [2002]) ——o0o—— [Acabal vs. Acabal, 454 SCRA 555(2005)]

G.R. No. 141993. March 17, 2006.*SECOND DIVISION. NARCISA AVILA, assisted by her husband BERNARDO AVILA, Spouses JANUARIO N. ADLAWAN and NANETTE A. ADLAWAN, NATIVIDAD MACAPAZ, assisted by her husband EMILIO MACAPAZ, FRANCISCA N. ADLAWAN and LEON NEMEÑO, petitioners, vs. Spouses BENJAMIN BARABAT and JOVITA BARABAT, respondents. Civil Law; Sales; In the absence of evidence as to the fair market value of a parcel of land at the time of its sale, we cannot reasonably conclude that the price at which it was sold was inadequate.—Petitioners’ claim of gross inadequacy of selling price has no basis. They failed to introduce evidence of the correct price at the time the land was sold to respondents in 1979. How can we therefore conclude that the price was grossly inadequate? In the absence of evidence as to the fair market value of a parcel of land at the time of its sale, we cannot reasonably conclude that the price at which it was sold was inadequate. Same; Same; Redemption; Co-ownership; For the right of redemption to be exercised, co-ownership must exist at the time the conveyance is made by a co-owner and the redemption is demanded _______________ * SECOND DIVISION. 9 VOL. 485, MARCH 17, 2006 9 Avila vs. Barabat by the other co-owner or co-owners.—Petitioners’ right to redeem would have existed only had there been co-ownership

among petitioners-siblings. But there was none. For this right to be exercised, co-ownership must exist at the time the conveyance is made by a co-owner and the redemption is demanded by the other co-owner or co-owner(s). However, by their own admission, petitioners were no longer co-owners when the property was sold to respondents in 1979. The coownership had already been extinguished by partition. Same; Same; Same; By the nature of co-ownership, a co-owner cannot point to any specific portion of the property owned in common as his own because his share in it remains intangible and ideal.—The regime of co-ownership exists when the ownership of an undivided thing or right belongs to different persons. By the nature of co-ownership, a co-owner cannot point to any specific portion of the property owned in common as his own because his share in it remains intangible and ideal. Same; Co-ownership; Partition; Every act intended to put an end to indivision among co-heirs is deemed to be a partition.— Every act intended to put an end to indivision among co-heirs is deemed to be a partition. Here, the particular portions pertaining to petitioners had been ascertained and they in fact already took possession of their respective parts. The following statement of petitioners in their amended answer as one of their special and affirmative defenses was revealing: That all defendants [i.e., petitioners] in this case who are co-owners of lot 348 have their own respective buildings constructed on the said lot in which case it can be safely assumed that that their respective shares in the lot have been physically segregated although there is no formal partition of the land among themselves. (emphasis supplied) Being an express judicial admission, it was conclusive on petitioners unless it was made

through palpable mistake or that no such admission was in fact made. Petitioners proved neither and were therefore bound by it. Same; Same; Same; Legal Redemption; As legal redemption is intended to minimize co-ownership, once a property is subdivided and distributed among the co-owners, the community ceases to exist and there is no more reason to sustain any right of legal redemption.—The purpose of partition is to separate, divide and assign a thing held in common among those to whom it belongs. By their own admission, petitioners already segregated and took possession of 10 10 SUPREME COURT REPORTS ANNOTATED Avila vs. Barabat their respective shares in the lot. Their respective shares were therefore physically determined, clearly identifiable and no longer ideal. Thus, the co-ownership had been legally dissolved. With that, petitioners’ right to redeem any part of the property from any of their former co-owners was already extinguished. As legal redemption is intended to minimize coownership, once a property is subdivided and distributed among the co-owners, the community ceases to exist and there is no more reason to sustain any right of legal redemption. Same; Right of Preemption; Under the law, subject to certain conditions, owners of adjoining urban land have the preemptive right to a lot before it is sold to third parties.—Under the law, subject to certain conditions, owners of adjoining

urban land have the preemptive right to a lot before it is sold to third parties, or the redemptive right if it has already been sold. PETITION for review on certiorari of the decision and resolution of the Court of Appeals. The facts are stated in the opinion of the Court. Goering G.C. Paderanga for petitioners. Francisco M. Malilong, Jr. for respondents. CORONA, J.: This petition for review on certiorari under Rule 45 of the Rules of Court assails the July 30, 1999 decision1Penned by Associate Justice Mariano M. Umali and concurred in by Associate Justices Quirino D. Abad-Santos, Jr. and Romeo J. Callejo, Sr. (now Associate Justice of the Supreme Court) of the Sixth Division of the Court of Appeals. and January 19, 2000 resolution of the Court of Appeals in CA-G.R. CV No. 50899. The subject of this controversy is a portion of a 433-square meter parcel of land located in Poblacion, Toledo City, Cebu. The entire property is designated as cadastral lot no. 348 registered in the name of Anunciacion Bahena Vda. de Ne_______________ 1 Penned by Associate Justice Mariano M. Umali and concurred in by Associate Justices Quirino D. Abad-Santos, Jr. and Romeo J. Callejo, Sr. (now Associate Justice of the Supreme Court) of the Sixth Division of the Court of Appeals. 11 VOL. 485, MARCH 17, 2006 11 Avila vs. Barabat

meño. Upon her death, ownership of the lot was transferred by operation of law to her five children, petitioners Narcisa Avila, Natividad Macapaz, Francisca Adlawan, Leon Nemeño and Jose Bahena. These heirs built their respective houses on the lot. In 1964, respondent Benjamin Barabat leased a portion of the house owned by Avila. His co-respondent, Jovita Barabat, moved in with him in 1969 when they got married. Avila subsequently relocated to Cagayan de Oro City. She came back to Toledo City in July 1979 to sell her house and share in the lot to her siblings but no one showed interest in it. She then offered it to respondents who agreed to buy it. Their agreement was evidenced by a private document dated July 17, 1979 which read: ALANG SA KASAYURAN SA TANAN: Nga ako, NARCISA AVILA, nagpuyo sa siyudad sa Cagayan de Oro, 52 años ang panu-igon, minyo ug may mga anak magatimaan ning maong kasulatan nga akong guibaligya sa kantidad nga walo ka libo ka pesos (P8,000.00) ang bahin nga balay ug yuta nga sinunod ko sa akong mga ginikanan ngadto sa magtiayon nga Benjamin ug Jovita Barabat, mga lumulupyo sa siyudad sa Toledo. Nga ang maong lote ug balay ana-a mahimutang sa Poblacion, Toledo City kansang mga utlanan mao kining musunod: Atubangan ............. N. Rafols Street Dapit sa Tuo ........... yuta ug mga panimalay sa Magsuong Natividad Macapaz, Francisca Adlawan, Jose Bahena ug Leoning Nemeno Dapit sa wala ......... kanal sa tubig Dapit sa luyo .......... lote nga kumon sa magsuong Nemeno

Tiniman-an: (Sgd.)______ Narcisa Avila2CA Decision, Rollo, pp. 65-66. The agreement was attached as one of the annexes to the complaint and offered as respondents’ evidence before the court a quo. The trial court admitted the docu_______________ 2 CA Decision, Rollo, pp. 65-66. The agreement was attached as one of the annexes to the complaint and offered as respondents’ evidence before the court a quo. The trial court admitted the docu12 12 SUPREME COURT REPORTS ANNOTATED Avila vs. Barabat Respondents stopped paying rentals to Avila and took possession of the property as owners. They also assumed the payment of realty taxes on it. Sometime in early 1982, respondents were confronted by petitioner Januario Adlawan who informed them that they had until March 1982 only to stay in Avila’s place because he was buying the property. Respondents replied that the property had already been sold to them by Avila. They showed Adlawan the July 17, 1979 document executed by Avila. On January 6, 1983, respondents received a letter from Atty. Joselito Alo informing them that Avila had sold her house and share in lot no. 348 to his clients, the spouses Januario and Nanette Adlawan. Considering the sale to the spouses Adlawan

as prejudicial to their title and peaceful possession of the property, they demanded that Avila execute _______________ ment even if no translation in the official languages as required by Rule 132, Section 33 of the Rules of Court was presented by respondents. Translated in English, it read: TO ALL CONCERNED: That I, NARCISA AVILA, residing at Cagayan de Oro City, 52 years of age, married and with children[,] executed this document where I sell for the amount of eight thousand pesos (P8,000.00) my house and lot representing my share in the inheritance from my parents in favor of the spouses Benjamin and Jovita Barabat, both residing in Toledo City. That the house and lot are situated at Poblacion, Toledo City with the following boundaries: At the front ............ N. Rafols Street At the right side .... lot and houses of the siblings Natividad Macapaz, Francisca Adlawan, Jose Bahena and Leoning Nemeno At the left side ....... creek At the rear ............. common lot of the Nemeno siblings (Sgd.) Narcisa Avila 13 VOL. 485, MARCH 17, 2006 13 Avila vs. Barabat a public document evidencing the sale of the property to them but Avila refused.

Respondents filed a complaint for quieting of title with the Regional Trial Court (RTC) of Toledo City, Branch 29.3Presided by Judge Peary G. Aleonar. Docketed as Civil Case No. T-53, the complaint was subsequently amended to include annulment of the deed of sale to the spouses Adlawan, specific performance, partition and damages as additional causes of action. Respondents anchored their claim over the property to the July 17, 1979 private document which they presented as Exhibit “A.” Avila denied having offered to sell her property to respondents. She claimed that respondents gave her an P8,000 loan conditioned on her signing a document constituting her house and share in lot no. 348 as security for its payment. She alleged that she innocently affixed her signature on Exhibit “A” which was prepared by respondents and which they now claim as a private deed of sale transferring ownership to them. The trial court rendered its May 9, 1995 decision in favor of respondents. It declared Exhibit “A” as a valid and lawful deed of sale. It nullified the subsequent deed of sale between Avila and the spouses Adlawan. Avila was ordered to execute a formal and notarized deed of sale in favor of respondents. It also held petitioners liable for moral damages and attorney’s fees. Aggrieved, petitioners filed an appeal with the Court of Appeals. In its July 30, 1999 decision, the appellate court affirmed the decision of the RTC in toto. Petitioners sought a reconsideration but it was denied. Hence, this petition. Petitioners claim that the appellate court erred in ruling that the transaction between respondents and Avila was an absolute sale, not an equitable mortgage. They assert that the facts of the

case fell within the ambit of Article 1602 in relation to Article 1604 of the Civil Code on equitable mortgage _______________ 3 Presided by Judge Peary G. Aleonar. 14 14 SUPREME COURT REPORTS ANNOTATED Avila vs. Barabat because they religiously paid the realty tax on the property and there was gross inadequacy of consideration. In this connection, Articles 1602 and 1604 provide: “Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases: (1) When the price of a sale with right to repurchase is unusually inadequate; (2) When the vendor remains in possession as lessee or otherwise; (3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; (4) When the purchaser retains for himself a part of the purchase price; (5 When the vendor binds himself to pay the taxes of the thing sold; (6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.

In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws. xxx xxx xxx Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale.” They also claim that the court erred in denying them the right to redeem the property and in ruling that there was implied partition by the acts of the parties. We rule in favor of respondents. For Articles 1602 and 1604 to apply, two requisites must concur: (1) the parties entered into a contract denominated as a contract of sale and (2) their intention was to secure an 15 VOL. 485, MARCH 17, 2006 15 Avila vs. Barabat existing debt by way of mortgage.4Heirs of the Late Spouses Aurelio and Esperanza Balite v. Lim, G.R. No. 152168, 10 December 2004, 446 SCRA 56. Here, both the trial and appellate courts found that Exhibit “A” evidenced a contract of sale. They also agreed that the circumstances of the case show that Avila intended her agreement with respondents to be a sale. Both courts were unanimous in finding that the subsequent acts of Avila revealed her intention to absolutely convey the disputed property. It was only after the perfection of the contract, when her siblings began protesting the sale, that she wanted to change the agreement.

Furthermore, contrary to petitioners’ claim, the trial court found that it was respondents who took over the payment of real property taxes after the execution of Exhibit “A.” There is no reason to depart from these factual findings because, as a rule, factual findings of the trial court, when adopted and confirmed by the Court of Appeals, are binding and conclusive on the Court and generally will not be reviewed on appeal to us.5Miranda v. Besa, G.R. No. 146513, 30 July 2004, 435 SCRA 532. There is no reason for us to deviate from this rule. Petitioners’ claim of gross inadequacy of selling price has no basis. They failed to introduce evidence of the correct price at the time the land was sold to respondents in 1979. How can we therefore conclude that the price was grossly inadequate? In the absence of evidence as to the fair market value of a parcel of land at the time of its sale, we cannot reasonably conclude that the price at which it was sold was inadequate.6Acabal v. Acabal, G.R. No. 148376, 31 March 2005, 454 SCRA 555. Petitioners’ rely on Article 1623 in relation to Article 1620 of the Civil Code to justify their right of redemption. This is incorrect. These provisions state: _______________ 4 Heirs of the Late Spouses Aurelio and Esperanza Balite v. Lim, G.R. No. 152168, 10 December 2004, 446 SCRA 56. 5 Miranda v. Besa, G.R. No. 146513, 30 July 2004, 435 SCRA 532. 6 Acabal v. Acabal, G.R. No. 148376, 31 March 2005, 454 SCRA 555. 16

16 SUPREME COURT REPORTS ANNOTATED Avila vs. Barabat “Art. 1620. A co-owner of a thing may exercise the right of redemption in case the shares of all the other co-owners or any of them, are sold to a third person. If the price of the alienation is grossly excessive, the redemptioner shall pay only a reasonable one. Should two or more co-owners desire to exercise the right of redemption, they may only do so in proportion to the share they may respectively have in the thing owned in common. xxx xxx xxx Art. 1623. The right of legal pre-emption or redemption shall not be exercised except within thirty days from the notice in writing by the prospective vendor, or by the vendor, as the case may be. The deed of sale shall not be recorded in the Registry of Property, unless accompanied by an affidavit of the vendor that he has given written notice thereof to all possible redemptioners. The right of redemption of co-owners excludes that of adjoining owners.” Petitioners’ right to redeem would have existed only had there been co-ownership among petitioners-siblings. But there was none. For this right to be exercised, co-ownership must exist at the time the conveyance is made by a co-owner and the redemption is demanded by the other co-owner or coowner(s).7Vda. de Ape v. Court of Appeals, G.R. No. 133638, 15 April 2005, 456 SCRA 193 citing Uy v. Court of Appeals, 316 Phil. 863; 246 SCRA 711 (1995). However, by their own admission, petitioners were no longer co-owners when the

property was sold to respondents in 1979. The co-ownership had already been extinguished by partition. The regime of co-ownership exists when the ownership of an undivided thing or right belongs to different persons.8Id., citing Felices v. Colegado, 146 Phil. 180; 35 SCRA 173 (1970). By the nature of co-ownership, a co-owner cannot point to any _______________ 7 Vda. de Ape v. Court of Appeals, G.R. No. 133638, 15 April 2005, 456 SCRA 193 citing Uy v. Court of Appeals, 316 Phil. 863; 246 SCRA 711 (1995). 8 Id., citing Felices v. Colegado, 146 Phil. 180; 35 SCRA 173 (1970). 17 VOL. 485, MARCH 17, 2006 17 Avila vs. Barabat specific portion of the property owned in common as his own because his share in it remains intangible and ideal.9Salatandol v. Retes, G.R. No. L-38120, 27 June 1988, 162 SCRA 568. Every act intended to put an end to indivision among co-heirs is deemed to be a partition.10Article 1082, CIVIL CODE. Here, the particular portions pertaining to petitioners had been ascertained and they in fact already took possession of their respective parts. The following statement of petitioners in their amended answer11RTC Records, pp. 198-202. as one of their special and affirmative defenses was revealing: “F-8. That all defendants [i.e., petitioners] in this case who are co-owners of lot 348 have their own respective buildings

constructed on the said lot in which case it can be safely assumed that that their respective shares in the lot have been physically segregated although there is no formal partition of the land among themselves.”12Id., p. 200. (emphasis supplied) Being an express judicial admission, it was conclusive on petitioners unless it was made through palpable mistake or that no such admission was in fact made.13Cf. Section 4, Rule 129, RULES OF COURT. Petitioners proved neither and were therefore bound by it. The purpose of partition is to separate, divide and assign a thing held in common among those to whom it belongs.14Article 1079, CIVIL CODE. By their own admission, petitioners already segregated and took possession of their respective shares in the lot. Their respective shares were therefore physically determined, clearly identifiable and no longer ideal. Thus, the co-ownership had been legally dissolved. With that, petitioners’ right to redeem any part of the property from any of their former co-owners was already extinguished. As legal redemption is intended to _______________ 9 Salatandol v. Retes, G.R. No. L-38120, 27 June 1988, 162 SCRA 568. 10 Article 1082, CIVIL CODE. 11 RTC Records, pp. 198-202. 12Id., p. 200. 13Cf. Section 4, Rule 129, RULES OF COURT. 14 Article 1079, CIVIL CODE. 18 18 SUPREME COURT REPORTS ANNOTATED

Avila vs. Barabat minimize co-ownership,15Basa v. Aguilar, 208 Phil. 452; 117 SCRA 128 (1982). once a property is subdivided and distributed among the co-owners, the community ceases to exist and there is no more reason to sustain any right of legal redemption.16Vda. de Ape v. Court of Appeals, supra. Under the law, subject to certain conditions, owners of adjoining urban land have the pre-emptive right to a lot before it is sold to third parties, or the redemptive right if it has already been sold. In particular, Article 1622 of the Civil Code provides: “Art. 1622. Whenever a piece of urban land is so small and so situated in that a major portion thereof cannot be used for any practical purpose within a reasonable time, having been bought merely for speculation, is about to be re-sold, the owner of any adjoining land has a right of pre-emption at a reasonable price. If the re-sale has been perfected, the owner of the adjoining land shall have a right of redemption, also at a reasonable price. When two or more owners of adjoining lands wish to exercise the rights of pre-emption or redemption, the owner whose intended use of the land in question appears best justified shall be preferred.” However, this provision does not apply here. Aside from the fact that petitioners never raised it as an issue, the conditions provided for its application were not met. While the property may be considered as urban land, it was not shown or even alleged that its area and location would render a major portion of no practical use within a reasonable time. Neither was there

any allegation to the effect that the disputed property was bought merely for speculation. WHEREFORE, the petition is hereby DENIED. The July 30, 1999 decision and January 19, 2000 resolution of the Court of Appeals in CA-G.R. CV No. 50899 are AFFIRMED. Costs against petitioners. _______________ 15Basa v. Aguilar, 208 Phil. 452; 117 SCRA 128 (1982). 16 Vda. de Ape v. Court of Appeals, supra. 19 VOL. 485, MARCH 17, 2006 19 Manila Electric Company vs. Energy Regulatory Board SO ORDERED. Puno (Chairperson), Sandoval-Gutierrez, Azcuna and Garcia, JJ., concur. Petition denied, judgment and resolution affirmed. Notes.—Rule 39, Section 28 of the 1997 Rules of Civil Procedure now provides that the period of redemption shall be “at any time within one (1) year from the date of registration of the certificate of sale,” so that the period is now to be understood as composed of 365 days. (Ysmael vs. Court of Appeals, 318 SCRA 215 [1999]) The Supreme Court has clearly distinguished between an option and a right of first refusal. (Vazquez vs. Ayala Corporation, 443 SCRA 231 [2004]) [Avila vs. Barabat, 485 SCRA 8(2006)]

G.R. No. 122904. April 15, 2005.*SECOND DIVISION. ADORACION E. CRUZ, THELMA DEBBIE E. CRUZ, GERRY E. CRUZ and NERISSA CRUZ-TAMAYO, petitioners, vs. THE HONORABLE COURT OF APPEALS, SUMMIT FINANCING CORP., VICTOR S. STA. ANA, MAXIMO C. CONTRERAS, RAMON G. MANALASTAS, and VICENTE TORRES, respondents. Co-ownership; Partition; Words and Phrases; Co-ownership is terminated upon judicial or extrajudicial partition of the properties owned in common; Partition is the separation, division and assignment of a thing held in common among those to whom it may belong.—Co-ownership is terminated upon judicial or extrajudicial partition of the properties owned in common. Partition, in general, is the separation, division and assignment of a thing held in common among those to whom it may belong. Every act which is intended to put an end to indivision among co-heirs and legatees or devisees is deemed to be a partition, although it should purport to be a sale, an exchange, a compromise, or any other transaction. Same; Same; To be considered a co-owner, one “must have a spiritual part of a thing which is not physically divided, or each of them is an 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.”—To be considered a co-owner, one “must have a spiritual part of a thing which is not physically divided, or each of them is an 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.” In Dela Cruz v. Cruz, et al., this Court denied the prayer for legal redemption of plaintiff-appellant therein

because “the portions of appellant-plaintiff and of the defendant spouses are concretely determined and identifiable, for to the former belongs the northern half, and to the latter belongs the remaining southern half, of the land.” _______________ * SECOND DIVISION. 166 166 SUPREME COURT REPORTS ANNOTATED Cruz vs. Court of Appeals Same; Same; Contracts; To ascertain the intent of the parties in a contractual relationship, it is imperative that the various stipulations provided for in the contracts be construed together, consistent with the parties’ contemporaneous and subsequent acts as regards the execution of the contract.—To ascertain the intent of the parties in a contractual relationship, it is imperative that the various stipulations provided for in the contracts be construed together, consistent with the parties’ contemporaneous and subsequent acts as regards the execution of the contract. Subsequent to the execution of the Deed of Partition and Memorandum of Agreement, the properties were titled individually in the names of the co-owners to which they were respectively adjudicated, to the exclusion of the other coowners. Petitioners Adoracion Cruz and Thelma Cruz separately sold the properties distributed to them as absolute owners thereof. Being clear manifestations of sole and exclusive dominion over the properties affected, the acts signify total incongruence with the state of co-ownership claimed by petitioners. Thus, this Court holds that the real

estate mortgage on the disputed property is valid and does not contravene the agreement of the parties. PETITION for review on certiorari of the decision and resolution of the Court of Appeals. The facts are stated in the opinion of the Court. Redentor G. Liboro for petitioners. Vicente Fernando for private respondent. TINGA, J.: This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure. Petitioners are assailing the Decision1Penned by J. Pacita Cañizares-Nye and concurred in by JJ. Jorge S. Imperial, Chairman, and Romeo J. Callejo, Sr. (now an Associate Justice of this Court); Rollo, pp. 24-32. of the Court of Appeals in CA-G.R. CV No. 41298 which reversed and set aside the Decision2Dated June 4, 1992 and penned by Judge Willelmo C. Fortun; Id., at pp. 45-71. of the Re_______________ 1 Penned by J. Pacita Cañizares-Nye and concurred in by JJ. Jorge S. Imperial, Chairman, and Romeo J. Callejo, Sr. (now an Associate Justice of this Court); Rollo, pp. 24-32. 2 Dated June 4, 1992 and penned by Judge Willelmo C. Fortun; Id., at pp. 45-71. 167 VOL. 456, APRIL 15, 2005 167 Cruz vs. Court of Appeals gional Trial Court (RTC), Branch CLXIII, Pasig in Civil Case No. 49466 and dismissed petitioners’ complaint therein for

annulment of certain deeds, and the November 21, 1995 Resolution,3Id., at p. 41. which denied petitioners’ motion for reconsideration. Herein petitioner Adoracion Cruz is the mother of her copetitioners Thelma Cruz, Gerry Cruz and Nerissa Cruz Tamayo, as well as Arnel Cruz, who was one of the defendants in Civil Case No. 49466. Petitioners filed said case on February 11, 1983 against Arnel Cruz and herein private respondents Summit Financing Corporation (“Summit”), Victor S. Sta. Ana and Maximo C. Contreras, the last two in their capacities as deputy sheriff and ex-officio sheriff of Rizal, respectively, and Ramon G. Manalastas in his capacity as Acting Register of Deeds of Rizal. The Complaint4RTC Records, p. 1. alleged that petitioners and Arnel Cruz were co-owners of a parcel of land situated in Taytay, Rizal. Yet the property, which was then covered by Transfer Certificate of Title (TCT) No. 495225, was registered only in the name of Arnel Cruz. According to petitioners, the property was among the properties they and Arnel Cruz inherited upon the death of Delfin Cruz, husband of Adoracion Cruz. On August 22, 1977, petitioners and Arnel Cruz executed a Deed of Partial Partition,5Exhibit “25,” RTC Records. distributing to each of them their shares consisting of several lots previously held by them in common. Among the properties adjudicated to defendant Cruz was the parcel of land covered at the time by TCT No. 495225. It is the subject of this case. Subsequently, the same parties to the Deed of Partial Partition agreed in writing to share equally in the proceeds of the sale of the properties although they had been subdivided and

individually titled in the names of the former co-owners pursuant to the Deed of Partial Partition. This arrangement was _______________ 3 Id., at p. 41. 4 RTC Records, p. 1. 5 Exhibit “25,” RTC Records. 168 168 SUPREME COURT REPORTS ANNOTATED Cruz vs. Court of Appeals embodied in a Memorandum of Agreement6RTC Records, p. 7. executed on August 23, 1977 or a day after the partition. The tenor of the Memorandum of Agreement was annotated at the back of TCT No. 495225 on September 1, 1977. Sometime in January 1983, petitioner Thelma Cruz discovered that TCT No. 495225 had already been cancelled by TCT No. 514477 which was issued on October 18, 1982 in the name of Summit. Upon further investigation, petitioners learned that Arnel Cruz had executed a Special Power of Attorney7Exhibit “13-A,” RTC Records. on May 16, 1980 in favor of one Nelson Tamayo, husband of petitioner Nerissa Cruz Tamayo, authorizing him to obtain a loan in the amount of One Hundred Four Thousand Pesos (P104,000.00) from respondent Summit, to be secured by a real estate mortgage on the subject parcel of land. On June 4, 1980, a Real Estate Mortgage8Exhibit “6,” RTC Records. was constituted on the disputed property then covered by TCT No. 495225 to secure the loan obtained by Arnel Cruz thru Nelson Tamayo from respondent Summit. Since the loan

had remained outstanding on maturity, Summit instituted extrajudicial foreclosure proceedings, and at the foreclosure sale it was declared the highest bidder. Consequently, Sheriff Sta. Ana issued a Certificate of Sale9Exhibit “12,” RTC Records. to respondent Summit, which more than a year later consolidated its ownership of the foreclosed property. Upon presentation of the affidavit of consolidation of ownership, the Acting Register of Deeds of Rizal cancelled TCT No. 495225 and issued, in lieu thereof, TCT No. 514477 in the name of respondent Summit. In their complaint before the RTC, petitioners asserted that they co-owned the properties with Arnel Cruz, as evidenced by the Memorandum of Agreement. Hence, they ar_______________ 6 RTC Records, p. 7. 7 Exhibit “13-A,” RTC Records. 8 Exhibit “6,” RTC Records. 9 Exhibit “12,” RTC Records. 169 VOL. 456, APRIL 15, 2005 169 Cruz vs. Court of Appeals gued that the mortgage was void since they did not consent to it. In ruling in favor of petitioners, the trial court declared that with the execution of the Memorandum of Agreement, petitioners and Arnel Cruz had intended to keep the inherited properties in a state of co-ownership. The trial court stated that respondent Summit should suffer the consequences of

incorrectly assuming that Arnel Cruz was the exclusive owner of the mortgaged property. It found respondent Summit negligent in its failure to inquire further into the limitations of defendant Cruz’s title. Thus, the trial court declared that only the undivided share of Cruz in the mortgaged property was validly transferred to respondent Summit although it granted petitioners’ prayer for nullification, per the dispositive portion of its Decision, thus: “WHEREFORE, judgment is hereby rendered, in favor of plaintiff and against defendants, as follows: 1. Declaring the “Special Power of Attorney,” the Real Estate Mortgage, the “Public Auction Sale,” the “Certificate of Sale,” the “Affidavit of Consolidation,” executed by defendant Summit Financing Corporation, and the Consolidation of Ownership null and void ab initio; 2. Ordering the Register of Deeds of Rizal, to cancel TCT No. 514477, and to issue, in lieu thereof another TCT, in the name of Arnel E. Cruz, with the same annotations on the Real Estate Mortgage inscribed on September 16, 1980 and thereafter. 3. Ordering defendants, jointly and severally, to pay to plaintiffs, the amount of P10,000.00, as reasonable attorney’s fees, plus costs. 4. Dismissing defendants (sic) counterclaims, for lack of merit. SO ORDERED.”10RTC Decision, p. 26; Rollo, pp. 70-71. _______________ 10 RTC Decision, p. 26; Rollo, pp. 70-71. 170 170 SUPREME COURT REPORTS ANNOTATED Cruz vs. Court of Appeals

With the exception of Arnel Cruz, the other defendants, who are herein private respondents, elevated the case to the Court of Appeals. Private respondents as appellants therein argued, among others, that the trial court erred in not holding Arnel Cruz as the sole and exclusive owner of the mortgaged property, in not holding petitioners in estoppel, and in not finding that under the Memorandum of Agreement the parties thereto merely agreed to share in the proceeds of the sale of the properties. Private respondents also questioned the trial court’s nullification of the special power of attorney and its declaration that respondent Summit was grossly negligent in not verifying the capacity of Arnel Cruz.11CA Decision, p. 5; Rollo, p. 28. In the assailed Decision, the Court of Appeals reversed the trial court’s decision. The appellate court stressed that the Memorandum of Agreement does not contain any proscription against the mortgage of the subject property although it provides that the parties thereto are entitled to share in the proceeds of the sale of the properties covered by it. In that regard, the appellate court noted that petitioner Adoracion Cruz had executed two other real estate mortgages on the other parcels of land, which were not objected to by her supposed coowners. Thus, it upheld the validity of the real estate mortgage executed by Nelson Tamayo on behalf of Arnel Cruz, without prejudice to petitioners’ right of action against Arnel Cruz for the collection of the proceeds of the loan.12Id., at p. 30. Petitioners moved for the reconsideration of the decision, but the Court of Appeals denied it in the assailed Resolution dated November 21, 1995.

Hence, the present petition which at the bottom presents the issue whether or not the real estate mortgage on the property then covered by TCT No. 495225 is valid. Resolution of the issue in turn depends on the determination of whether the mortgaged property was the exclusive property of Arnel _______________ 11 CA Decision, p. 5; Rollo, p. 28. 12 Id., at p. 30. 171 VOL. 456, APRIL 15, 2005 171 Cruz vs. Court of Appeals Cruz when it was mortgaged. If answered in the affirmative, then there was nothing to prevent him from exercising ownership over the said property. Petitioners insist that the Memorandum of Agreement “expressly created a pro-indiviso co-ownership over the property.”13Id., at p. 15. Thus, petitioners argue that the Court of Appeals erred in upholding the validity of the mortgage considering that it was executed without their knowledge and consent. On the other hand, private respondents rely on the provisions of the Deed of Partial Partition in claiming that defendant Cruz was already the exclusive owner of the disputed property at the time it was mortgaged. To further bolster their claim, private respondents assert that each of petitioners also executed real estate mortgages on the properties allocated to them in the partition deed as absolute owners in fee simple. This Court finds no merit in the petition.

Co-ownership is terminated upon judicial or extra-judicial partition of the properties owned in common. Partition, in general, is the separation, division and assignment of a thing held in common among those to whom it may belong.14Article 1079, Civil Code. Every act which is intended to put an end to indivision among coheirs and legatees or devisees is deemed to be a partition, although it should purport to be a sale, an exchange, a compromise, or any other transaction.15Article 1082, Civil Code; Sanchez v. Court of Appeals, 345 Phil. 157, 184; 279 SCRA 647 (1997). From a reading of the following provisions of the Deed of Partial Partition, no other meaning can be gathered other than that petitioners and Arnel Cruz had put an end to the coownership, to wit: _______________ 13 Id., at p. 15. 14 Article 1079, Civil Code. 15 Article 1082, Civil Code; Sanchez v. Court of Appeals, 345 Phil. 157, 184; 279 SCRA 647 (1997). 172 172 SUPREME COURT REPORTS ANNOTATED Cruz vs. Court of Appeals That the parties hereto are common co-owners pro-indiviso in equal shares of the following registered real properties . . . That there are no liens and encumbrance of whatsoever nature and kind on the above-described real properties except . . .; That the said liability was actually inscribed and annotated in the aforesaid titles on July 19, 1967 . . .;

That since July 19, 1967 and up to this writing two years have already lapsed and no claim has been filed against the estate of said Delfin I. Cruz . . .; That the parties hereto mutually decided to end their common ownership pro-indiviso over the above-described properties and agreed to partition the same as follows: (1) To be adjudicated to THELMA E. CRUZ: . . . (2) To be adjudicated to NERISSA CRUZ-TAMAYO: . . . (3) To be adjudicated to ARNEL E. CRUZ: (a) . . . (b) Lot 1-C-2-B-2-B-4-P-4, (LRC) PSD-264936 (c) . . . (d) . . . (4) To be adjudicated to GERRY E. CRUZ: . . . (5) To be adjudicated to ADORACION E. CRUZ: . . . That the contracting parties warrant unto each other quiet and peaceful possession as owners and possessors of their respective shares in the partition . . . 16Exhibit “25,” RTC Records. (emphasis supplied) In the aforesaid deed, the shares of petitioners and Arnel Cruz’s in the mass of co-owned properties were concretely determined and distributed to each of them. In particular, to Arnel Cruz was assigned the disputed property. There is nothing from the words of said deed which expressly or impliedly stated that petitioners and Arnel Cruz intended to remain as co-owners with respect to the disputed property or to any of the properties for that matter. It is well-settled in both law and jurisprudence, that contracts are the law between the _______________ 16 Exhibit “25,” RTC Records.

173 VOL. 456, APRIL 15, 2005 173 Cruz vs. Court of Appeals contracting parties and should be fulfilled, if their terms are clear and leave no room for doubt as to the intention of the contracting parties.17Carceller v. Court of Appeals, 362 Phil. 332, 340; 302 SCRA 718, 725 (1999). To be considered a co-owner, one “must have a spiritual part of a thing which is not physically divided, or each of them is an 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.”18Dela Cruz v. Cruz, 143 Phil. 230, 234; 32 SCRA 307, 311 (1970). In Dela Cruz v. Cruz, et al.,19Ibid. this Court denied the prayer for legal redemption of plaintiff-appellant therein because “the portions of appellantplaintiff and of the defendant spouses are concretely determined and identifiable, for to the former belongs the northern half, and to the latter belongs the remaining southern half, of the land.”20Ibid. Petitioners do not question the validity or efficacy of the Deed of Partial Partition. In fact, they admitted its existence in their pleadings and submitted it as part of their evidence. Thus, the deed should be accorded its legal dire effect. Since a partition legally made confers upon each heir the exclusive ownership of the property adjudicated to him,21Article 1091, Civil Code. it follows that Arnel Cruz acquired absolute ownership over the specific parcels of land assigned to him in the Deed of Partial Partition, including the property subject of this case. As the

absolute owner thereof then, Arnel Cruz had the right to enjoy and dispose of the property,22Article 428, Civil Code. as well as the right to constitute a real estate mortgage over the same without securing the consent of petitioners. _______________ 17 Carceller v. Court of Appeals, 362 Phil. 332, 340; 302 SCRA 718, 725 (1999). 18 Dela Cruz v. Cruz, 143 Phil. 230, 234; 32 SCRA 307, 311 (1970). 19 Ibid. 20 Ibid. 21 Article 1091, Civil Code. 22 Article 428, Civil Code. 174 174 SUPREME COURT REPORTS ANNOTATED Cruz vs. Court of Appeals On the other hand, there is absolutely nothing in the Memorandum of Agreement which diminishes the right of Arnel Cruz to alienate or encumber the properties allotted to him in the deed of partition. The following provisions of the agreement, which recognize the effects of partition, negate petitioner’s claim that their consent is required to make the mortgage in favor of respondent Summit valid, to wit: That the parties hereto are common co-owners pro-indiviso in equal shares of the following registered real properties . . . That as a result of said partial partition, the properties affected were actually partitioned and the respective shares of each party, adjudicated to him/her;

That despite the execution of this Deed of Partial Partition and the eventual disposal or sale of their respective shares, the contracting parties herein covenanted and agreed among themselves and by these presents do hereby bind themselves to one another that they shall share alike and receive equal shares from the proceeds of the sale of any lot or lots allotted to and adjudicated in their individual names by virtue of this deed of partial partition; That this Agreement shall continue to be valid and enforceable among the contracting parties herein up to and until the last lot is covered by the deed of partial partition above adverted to shall have been disposed of or sold and the proceeds thereof equally divided and their respective shares received by each of them.23Rollo, p. 125. (emphasis supplied) As correctly held by the Court of Appeals, the parties only bound themselves to share in the proceeds of the sale of the properties. The agreement does not direct reconveyance of the properties to reinstate the common ownership of the parties. To insist that the parties also intended to re-establish co-ownership after the properties had been partitioned is to read beyond the clear import of the agreement and to render nugatory the effects of partition, which is not the obvious or implied intent of the parties. _______________ 23 Rollo, p. 125. 175 VOL. 456, APRIL 15, 2005 175 Cruz vs. Court of Appeals

Moreover, to ascertain the intent of the parties in a contractual relationship, it is imperative that the various stipulations provided for in the contracts be construed together, consistent with the parties’ contemporaneous and subsequent acts as regards the execution of the contract.24Carceller v. Court of Appeals, supra note 17 at p. 340; p. 725. Subsequent to the execution of the Deed of Partition and Memorandum of Agreement, the properties were titled individually in the names of the co-owners to which they were respectively adjudicated, to the exclusion of the other co-owners. Petitioners Adoracion Cruz and Thelma Cruz separately sold the properties distributed to them as absolute owners thereof. Being clear manifestations of sole and exclusive dominion over the properties affected, the acts signify total incongruence with the state of co-ownership claimed by petitioners. Thus, this Court holds that the real estate mortgage on the disputed property is valid and does not contravene the agreement of the parties. WHEREFORE, the instant petition is DENIED. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 41298 are hereby AFFIRMED. Costs against petitioners. SO ORDERED. Puno (Chairman), Austria-Martinez and Chico-Nazario, JJ., concur. Callejo, Sr., No Part. Petition denied, judgment and resolution affirmed. Notes.—Partition is the separation, division and assignment of a thing held in common among those to whom it may belong. (Maestrado vs. Court of Appeals, 327 SCRA 678 [2000]) _______________

24 Carceller v. Court of Appeals, supra note 17 at p. 340; p. 725. 176 176 SUPREME COURT REPORTS ANNOTATED Metropolitan Manila Development Authority vs. Garin A co-ownership or co-possession is not an indicium of the existence of a partnership. (Heirs of Tan Eng Kee vs. Court of Appeals, 341 SCRA 740 [2000]) ——o0o—— [Cruz vs. Court of Appeals, 456 SCRA 165(2005)]

G.R. No. 153625. July 31, 2006.* Heirs of Marcelino CABAL, represented by VICTORIA CABAL, petitioner, vs. Spouses Lorenzo Cabal1 and Rosita Cabal, respondents. Appeals; As a general rule, in petitions for review, the jurisdiction of the Court in cases brought before it from the Court of Appeals (CA) is limited to reviewing questions of law which involves no examination of the probative value of the evidence presented by the litigants or any of them, exceptions.—As a general rule, in petitions _______________ * FIRST DIVISION. 1 Died during the pendency of the trial in the MTC. 302 302SUPREME COURT REPORTS ANNOTATED Heirs of Marcelo Cabal vs. Cabal for review, the jurisdiction of this Court in cases brought before it from the CA is limited to reviewing questions of law which involves no examination of the probative value of the evidence presented by the litigants or any of them. The Supreme Court is not a trier of facts; it is not its function to analyze or weigh evidence all over again. Accordingly, findings of fact of the appellate court are generally conclusive on the Supreme Court. Nevertheless, jurisprudence has recognized several exceptions in which factual issues may be resolved by this Court, such as: (1) when the findings are grounded entirely on speculation, surmises or conjectures; (2)

when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the CA went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioner’s main and reply briefs are not disputed by the respondent; (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record; (11) when the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion. The Court finds that exceptions (1), (2), (4) and (11) apply to the present petition. Property; Co-Ownership; Elementary is the rule that there is no co-ownership where the portion owned is concretely determined and identifiable, though not technically described, or that said portion is still embraced in one and the same certificate of title does make said portion less determinable or identifiable or distinguishable, one from the other, nor that dominion over each portion less exclusive in their respective owners.—It is undisputed that Marcelino built his house on the disputed property in 1949 with the consent of his father. Marcelino has been in possession of the disputed lot since then with the knowledge of his co-heirs, such that even before his father died in 1954, when the co-ownership was created, his inheritance or share in the co-ownership was already

particularly designated or physically segregated. Thus, even before Lot G was subdivided in 1976, Marcelino already occupied the disputed portion and even then co303 VOL. 497, JULY 31, 2006303 Heirs of Marcelo Cabal vs. Cabal ownership did not apply over the disputed lot. Elementary is the rule that there is no co-ownership where the portion owned is concretely determined and identifiable, though not technically described, or that said portion is still embraced in one and the same certificate of title does make said portion less determinable or identifiable, or distinguishable, one from the other, nor that dominion over each portion less exclusive, in their respective owners. Ownership; Prescription; Prescription, in general, is a mode of acquiring or losing ownership and other real rights through the lapse of time in the manner and under conditions laid down by law, namely, that the possession should be in the concept of an owner, public, peaceful, uninterrupted and adverse.— Marcelino raised the defense of acquisitive prescription, in addition to possession in good faith, in his Answer to the Complaint in the MTC. Prescription, in general, is a mode of acquiring or losing ownership and other real rights through the lapse of time in the manner and under conditions laid down by law, namely, that the possession should be in the concept of an owner, public, peaceful, uninterrupted and adverse. Acquisitive prescription is either ordinary or extraordinary. Ordinary acquisitive prescription requires possession in good faith and with just title for ten years. In extraordinary prescription

ownership and other real rights over immovable property are acquired through uninterrupted adverse possession thereof for thirty years, without need of title or of good faith. Prescription; Tax declarations and receipts can only be the basis of a claim of ownership through prescription when coupled with proof of actual possession.—The evidence presented during the trial proceedings in the MTC were sorely insufficient to prove that acquisitive prescription has set in with regards to the disputed lot. The tax declaration and receipts presented in evidence factually established only that Marcelino had been religiously paying realty taxes on Lot G-1. Tax declarations and receipts can only be the basis of a claim of ownership through prescription when coupled with proof of actual possession. Evidently, Marcelino declared and paid realty taxes on property which he did not actually possess as he took possession of a lot eventually identified as the southernmost portion of Lot 1-E of subdivision plan (LRC) Psd-307100. 304 304SUPREME COURT REPORTS ANNOTATED Heirs of Marcelo Cabal vs. Cabal Good Faith; Principle of Possession in Good Faith; Applied to possession, one is considered in good faith if he is not aware that there exists in his title or mode of acquisition any flaw which invalidates it.—It has been said that good faith is always presumed, and upon him who alleges bad faith on the part of the possessor rests the burden of proof. Good faith is an intangible and abstract quality with no technical meaning or statutory definition, and it encompasses, among other things,

an honest belief, the absence of malice and the absence of design to defraud or to seek an unconscionable advantage. An individual’s personal good faith is a concept of his own mind and, therefore, may not conclusively be determined by his protestations alone. It implies honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry. The essence of good faith lies in an honest belief in the validity of one’s right, ignorance of a superior claim, and absence of intention to overreach another. Applied to possession, one is considered in good faith if he is not aware that there exists in his title or mode of acquisition any flaw which invalidates it. Same; Rights of a Builder in Good Faith.—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 building, planting or sowing, after payment to the builder, planter or sower of the necessary and useful expenses, and in the proper case, expenses for pure luxury or mere pleasure. The owner of the land may also oblige the builder, planter or sower to purchase and pay the price of the land. If the owner chooses to sell his land, the builder, planter or sower must purchase the land, otherwise the owner may remove the improvements thereon. The builder, planter or sower, however, is not obliged to purchase the land if its value is considerably more than the building, planting or sowing. In such case, the builder, planter or sower must pay rent to the owner of the land. If the parties cannot come to terms over the conditions of the lease, the court must fix the terms thereof. The right to choose between appropriating the improvement or selling the land on which the

improvement stands to the builder, planter or sower, is given to the owner of the land. PETITION for review on certiorari of the decision and resolution of the Court of Appeals. 305 VOL. 497, JULY 31, 2006305 Heirs of Marcelo Cabal vs. Cabal The facts are stated in the opinion of the Court. AUSTRIA-MARTINEZ, J.: Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure assailing the Decision2 of the Court of Appeals (CA) dated September 27, 2001 in CA-G.R. SP No. 64729 which affirmed in toto the Decision of the Regional Trial Court, Branch 70, Iba, Zambales (RTC) dated August 10, 2000 in Civil Case No. RTC-1489-I; and the CA Resolution3 dated May 22, 2002 which denied the Motion for Reconsideration of Marcelino Cabal (Marcelino). The factual background of the case is as follows: During his lifetime, Marcelo Cabal (Marcelo) was the owner of a 4,234-square meter parcel of land situated at Barrio Palanginan, Iba, Zambales, described as Lot G and covered by Original Certificate of Title (OCT) No. 29 of the Registry of Deeds of Zambales. Sometime in August 1954,4 Marcelo died, survived by his wife Higinia Villanueva (Higinia) and his children: Marcelino, Daniel, Cecilio, Natividad, Juan, Margarita, Lorenzo, Lauro and Anacleto.5 It appears that sometime in 1949, five years before he died, Marcelo allowed his son, Marcelino, to build

his house on a portion of Lot G, now the southernmost portion of Lot 1-E of Transfer Certificate of _______________ 2 Penned by Associate Justice Ramon A. Barcelona (now retired) and concurred in by Associate Justices Rodrigo V. Cosico and Bienvenido L. Reyes. 3 Penned by Associate Justice Bienvenido L. Reyes and concurred in by Associate Justices Eubulo G. Verzola (now deceased) and Rodrigo V. Cosico, CA Rollo, p. 220. 4 TSN, Testimony of Domeciano C. Cabigao, September 17, 1996, p. 11. 5 Id., at p. 6. 306 306SUPREME COURT REPORTS ANNOTATED Heirs of Marcelo Cabal vs. Cabal Title (TCT) No. 43419.6 Since then, Marcelino resided thereon.7 Later, Marcelino’s son also built his house on the disputed property.8 On August 17, 1964, Marcelo’s heirs extrajudicially settled among themselves Lot G into undivided equal shares of 423.40-square meters each and Transfer Certificate of Title (TCT) No. T-8635 was issued in their names.9 On September 17, 1973, Daniel sold 380 square meters of his 423.40-square meter undivided share to spouses Oscar Merete and Clarita Ebue.10 On September 12, 1976, the heirs subdivided Lot G into Lot G1 in favor of Marcelino, resulting in the issuance of TCT No.

T-22656;11 and Lot G-2 in favor of Higinia, Daniel, Natividad, Juan, Cecilio, Margarita, Lorenzo, Lauro and Anacleto, resulting in the issuance of TCT No. 22657.12 On March 1, 1977, Marcelino mortgaged his share, as described under TCT No. 22656, to the Rural Bank of San Antonio (Zambales), Inc.13 The mortgage on the property was subsequently released on December 19, 1983.14 In the interim, based on consolidated subdivision plan (LRC) Pcd-24078, Lot G-2 was further subdivided and the remaining portion, known as Lot 1 of the subdivision plan, comprising 3387.20 square meters, became subject of TCT No. _______________ 6 TSN, Testimony of Marcelino Cabal, December 11, 1996, pp. 7-10. 7 TSN, Testimony of Domeciano C. Cabigao, September 17, 1996, pp. 8-9. 8 TSN, Testimony of Marcelino Cabal, December 11, 1996, p. 16. 9 Annex “B” of the Brief of Plaintiffs-Appellants, Records, p. 669. 10 Id. (dorsal side). 11 Exhibit “E,” Id., at p. 290. 12 Annex “B” of the Brief of Plaintiffs-Appellants, supra. 13 Exhibit “E,” supra, (dorsal side). 14 Id. 307 VOL. 497, JULY 31, 2006307 Heirs of Marcelo Cabal vs. Cabal

T-24533 with Higinia, Margarita, Natividad, Lorenzo, Daniel, Oscar Merete, Cecilio, Carmelita C. Pagar, and Anacleto as coowners. On August 3, 1978, the co-owners of Lot 1 executed a Deed of Agreement of Partition with Sale. Lot 1 was subdivided among the co-owners with Higinia, Margarita, Natividad, Lorenzo, Cecilio, Carmelita C. Pagar and Anacleto, receiving 423.40 square meters each; Daniel, with 43.4 square meters; and Oscar Merete, with 380 square meters.15 In the same deed, Lorenzo bought the shares of Higinia, Margarita, Daniel and Natividad.16 Thus, Lorenzo’s share in the co-ownership amounted to 1,737 square meters. Likewise, in the same deed, Cecilio sold his share to a certain Marcela B. Francia.17 On January 13, 1982, a land survey was conducted on Lot 1 by Geodetic Engineer Dominador L. Santos and Junior Geodetic Engineer Eufemio A. Abay and based on the survey, they submitted subdivision survey plan (LRC) Psd-307100, designating the shares of Carmelita C. Pagar, Marcela B. Francia, spouses Oscar Merete and Clarita Ebue, Anacleto, and Lorenzo as Lots 1-A, 1-B, 1-C, 1-D and 1-E, respectively.18 The subdivision survey plan of Lot 1 was approved by the Director of the Bureau of Lands on May 7, 1982.19 On June 7, 1990, the co-owners of Lot 1 executed a Subdivision Agreement designating their shares based on the approved subdivision plan.20 On July 13, 1993, TCT No. 43419 covering Lot 1-E was issued in the name of Lorenzo.21 In the meantime, since the subdivision plan revealed that Marcelino and his son occupied and built their houses on a 423-square meter area located on the southernmost portion of

_______________ 15 Exhibits “G” and “G-1,” Id., at pp. 292-293. 16 Exhibit “G-1,” Id., at p. 293. 17 Id. 18 Exhibit “H,” Id., at p. 295. 19 Id. 20 Id. 21 Exhibit “B,” Id., at p. 287. 308 308SUPREME COURT REPORTS ANNOTATED Heirs of Marcelo Cabal vs. Cabal Lot 1-E and not the adjacent lot designated as Lot G-1 under TCT No. T-22656,22 the spouses Lorenzo and Rosita Cabal (respondents) confronted Marcelino on this matter which resulted to an agreement on March 1, 1989 to a re-survey and swapping of lots for the purpose of reconstruction of land titles.23 However, the agreed resurvey and swapping of lots did not materialize24 and efforts to settle the dispute in the barangay level proved futile.25 Hence, on August 10, 1994, respondents filed a complaint for Recovery of Possession with Damages against Marcelino before the Municipal Trial Court of Iba, Zambales (MTC), docketed as Civil Case No. 735. They alleged that Marcelino introduced improvements in bad faith on their land with knowledge that the adjacent lot is titled in his name.26 On August 26, 1994, Marcelino filed his Answer with Counterclaim, contending that respondents have no cause of action against him because he has been in possession in good faith since 1949 with the respondents’ knowledge and

acquiescence. He further avers that acquisitive prescription has set in.27 On January 24, 1997, during the pendency of the trial of the case, Lorenzo died. Following trial on the merits, the MTC rendered on November 19, 1997 its Decision28 in favor of Marcelino, the dispositive portion of which reads: “WHEREFORE, on the basis of the foregoing premises as adduced by this Court the plaintiff or their representatives are hereby directed to relinquish the possession of said property subject matter of this case and deliver the peaceful possession of the same to the _______________ 22 Exhibit “E-4,” Id., at p. 289. 23 Exhibit “1,” Id., at p. 472. 24 TSN, Testimony of Rosita Cabal, April 20, 1995, p. 22. 25 Id., at pp. 22-23; Exhibit “F,” Records, p. 8. 26 Records, p. 1. 27 Id., at p. 12. 28 Id., at p. 504. 309 VOL. 497, JULY 31, 2006309 Heirs of Marcelo Cabal vs. Cabal herein defendant or his authorized representatives, to remove the improvements made thereon within fifteen (15) days from the receipt of this decision, otherwise, this Court would remove and/or destroy the same with cost against the plaintiff, further the plaintiff is hereby ordered to pay the amount of Ten Thousand Pesos (P10,000.00), Philippine Currency representing moral damages and exemplary damages in the

amount of Five Thousand Pesos (P5,000.00), Philippine Currency, and the amount of Twenty Thousand Pesos (P20,000.00), Philippine Currency, representing attorney’s fees. SO ORDERED.”29 The MTC reasoned that prescription or the length of time by which Marcelino has held or possessed the property has barred the respondents from filing a claim. On December 12, 1997, respondents filed a Motion for Reconsideration30 but the MTC denied it in its Order dated February 5, 1998.31 Dissatisfied, respondents filed an appeal with the RTC Branch 70, Iba, Zambales, docketed as RTC-1489-I. On August 10, 2000, the RTC rendered its Decision setting aside the Decision of the MTC.32 The dispositive portion of the Decision states: “WHEREFORE, the appealed Decision of the Municipal Trial Court is hereby REVERSED and SET ASIDE ordering the defendant Marcelino Cabal and all other persons claiming interest under him to vacate and deliver peaceful possession of the disputed area of 423 sq. m. within Lot 1-E embraced in TCT No. T-43419 to the plaintiffs-appellants; to remove all improvements therein introduced by said defendant or by persons under his direction and authority; to pay the plaintiffsappellants P10,000.00 and P5,000.00 by way of moral and exemplary damages, respectively; to pay plaintiff-appellants attorney’s fee in the sum of P20,000.00 and cost of this suit. _______________ 29 Id., at p. 514. 30 Id., at p. 515. 31 Id., at p. 521.

32 Id., at p. 673. 310 310SUPREME COURT REPORTS ANNOTATED Heirs of Marcelo Cabal vs. Cabal SO ORDERED.”33 In reversing the MTC, the RTC held that Marcelino’s possession was in the concept of a co-owner and therefore prescription does not run in his favor; that his possession, which was tolerated by his co-owners, does not ripen into ownership. On August 30, 2000, Marcelino filed a Motion for Reconsideration34 but the RTC denied it in its Order dated May 3, 2001.35On May 18, 2001, Marcelino filed a petition for review with the CA, docketed as CA-G.R. SP No. 64729.36 Marcelino, however, died during the pendency of the case. On September 27, 2001, the CA rendered its Decision affirming in toto the Decision of the RTC.37 In sustaining the RTC, the CA held that Marcelino may have been in good faith when he started to occupy the disputed portion in 1949 but his occupation in good faith diminished after Lot G was surveyed when he was apprised of the fact that the portion he was occupying was not the same as the portion titled in his name; that from the tenor of the petition for review Marcelino would like to hold on to both the lot he occupies and Lot G-1, which cannot be allowed since it will double his inheritance to the detriment of his brother Lorenzo.

On November 13, 2001, Marcelino’s counsel filed a Motion for Reconsideration38 but the CA denied it in its Resolution dated May 22, 2002.39 _______________ 33 Id., at p. 680. 34 Id., at p. 682. 35 Id., at p. 688. 36 CA Rollo, p. 2. 37 CA Rollo, p. 194. 38 Id., at p. 208. 39 Id., at p. 220. 311 VOL. 497, JULY 31, 2006311 Heirs of Marcelo Cabal vs. Cabal On June 6, 2002, the heirs of Marcelino (petitioners), represented by his widow, Victoria Cabal, filed the present petition anchored on the following grounds: I. CONTRARY TO THE COURT OF APPEALS’ FINDINGS AND CONCLUSION, PETITIONER NEVER INTENDED AND NEITHER DOES HE INTEND TO HOLD ON TO BOTH THE 423 SQUARE METER WITHIN LOT 1E WHICH HE IS OCCUPYING AND LOT 1-G (sic). PETITIONER IS ONLY INTERESTED IN THE DISPUTED PROPERTY, THAT IS, A PORTION OF LOT 1-E BECAUSE THIS IS WHERE HE INTRODUCED CONSIDERABLE IMPROVEMENTS IN GOOD FAITH. II. THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED THAT THE GOOD FAITH OF PETITIONER ON THE

DISPUTED PROPERTY BEGAN TO DIMINISH AFTER LOT-G WAS SURVEYED.40 Anent the first ground, petitioners contend that since 1949 Marcelino has claimed no other portion as his inheritance from Marcelo, except the disputed lot; that Marcelino believed in good faith that the disputed lot is Lot G-1; that Marcelino never intended to hold on to both lots since he did not introduce any improvement on Lot G-1 and he even agreed to a resurvey, swapping of lots and reconstruction of title after discovery of the mistake in 1989; that Marcelino wanted the disputed lot because he has introduced considerable improvements thereon. On the second ground, petitioners maintain that Marcelino became aware of the flaw in his title only before the execution of the swapping agreement in March 1, 1989, long after he had introduced considerable improvements in the disputed lot; that Marcelino should not be faulted for believing that the disputed lot is his titled property because he is a layman, not versed with the technical description of properties; that Marcelino should be adjudged a builder in good faith of all the improvements built on the disputed property immediately _______________ 40 Rollo, p. 8. 312 312SUPREME COURT REPORTS ANNOTATED Heirs of Marcelo Cabal vs. Cabal prior to the execution of the swapping agreement and accorded all his rights under the law or, alternatively, the swapping of lots be ordered since no improvements have been introduced on Lot G-1.

Respondents, on the other hand, submit that Marcelino cannot be adjudged a builder in good faith since he exhibited blatant and deliberate bad faith in dealing with respondents. The Court rules in favor of the petitioners. As a general rule, in petitions for review, the jurisdiction of this Court in cases brought before it from the CA is limited to reviewing questions of law which involves no examination of the probative value of the evidence presented by the litigants or any of them.41 The Supreme Court is not a trier of facts; it is not its function to analyze or weigh evidence all over again.42 Accordingly, findings of fact of the appellate court are generally conclusive on the Supreme Court.43 Nevertheless, jurisprudence has recognized several exceptions in which factual issues may be resolved by this Court, such as: (1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the CA went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to the trial court; (8) when the findings are conclusions without _______________ 41 Spouses Hanopol v. Shoemart, Incorporated, 439 Phil. 266, 277; 390 SCRA 439, 447 (2002); St. Michael’s Institute v. Santos, 422 Phil. 723, 737; 371 SCRA 383, 396 (2001).

42 Go v. Court of Appeals, G.R. No. 158922, May 28, 2004, 430 SCRA 358, 364; Spouses Hanopol v. Shoemart, Incorporated, supra. 43 Custodio v. Corrado, G.R. No. 146082, July 30, 2004, 435 SCRA 500, 511; Spouses Hanopol v. Shoemart, Incorporated, supra. 313 VOL. 497, JULY 31, 2006313 Heirs of Marcelo Cabal vs. Cabal citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioner’s main and reply briefs are not disputed by the respondent; (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record; (11) when the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion.44 The Court finds that exceptions (1), (2), (4) and (11) apply to the present petition. It is undisputed that Marcelino built his house on the disputed property in 1949 with the consent of his father. Marcelino has been in possession of the disputed lot since then with the knowledge of his co-heirs, such that even before his father died in 1954, when the co-ownership was created, his inheritance or share in the co-ownership was already particularly designated or physically segregated. Thus, even before Lot G was subdivided in 1976, Marcelino already occupied the disputed portion and even then co-ownership did not apply over the disputed lot. Elementary is the rule that there is no coownership where the portion owned is concretely determined

and identifiable, though not technically described,45 or that said portion is still embraced in one and the same certificate of title does make said portion less determinable or identifiable, or distinguishable, one from the other, nor that dominion over each portion less exclusive, in their respective owners.46 _______________ 44 The Insular Life Assurance Company, Ltd. v. Court of Appeals, G.R. No. 126850, April 28, 2004, 428 SCRA 79, 86; Aguirre v. Court of Appeals, G.R. No. 122249, January 29, 2004, 421 SCRA 310, 319. 45 De Guia v. Court of Appeals, 459 Phil. 447, 462; 413 SCRA 114, 124-125 (2003); Spouses Si v. Court of Appeals, 396 Phil. 821, 828; 342 SCRA 653, 661 (2000). 46 Noceda v. Court of Appeals, 372 Phil. 383, 397; 313 SCRA 504, 518 (1999). 314 314SUPREME COURT REPORTS ANNOTATED Heirs of Marcelo Cabal vs. Cabal Thus, since Marcelino built a house and has been occupying the disputed portion since 1949, with the consent of his father and knowledge of the co-heirs,47 it would have been just and equitable to have segregated said portion in his favor and not one adjacent to it. Undoubtedly, the subdivision survey effected in 1976 spawned the dilemma in the present case. It designated Lot G-1 as Marcelino’s share in the inheritance notwithstanding his possession since 1949 of a definite portion of Lot G, now the southernmost portion of Lot 1-E.

Marcelino raised the defense of acquisitive prescription, in addition to possession in good faith, in his Answer to the Complaint in the MTC. Prescription, in general, is a mode of acquiring or losing ownership and other real rights through the lapse of time in the manner and under conditions laid down by law, namely, that the possession should be in the concept of an owner, public, peaceful, uninterrupted and adverse.48 Acquisitive prescription is either ordinary or extraordinary.49 Ordinary acquisitive prescription requires possession in good faith and with just title50 for ten years.51 In extraordinary prescription ownership and other real rights over immovable property are acquired through uninterrupted adverse possession thereof for thirty years, without need of title or of good faith.52 In the present case, the evidence presented during the trial proceedings in the MTC were sorely insufficient to prove that acquisitive prescription has set in with regards to the dis_______________ 47 TSN, Testimony of Rosita Cabal, April 20, 1995, p. 12. 48 Calicdan v. Cendaña, G.R. No. 155080, February 5, 2004, 422 SCRA 272, 279; Gesmundo v. Court of Appeals, 378 Phil. 1099, 1108; 321 SCRA 487, 494 (1999); Heirs of Maningding v. Court of Appeals, 342 Phil. 567, 574; 276 SCRA 601, 605 (1997). 49 Civil Code, Article 1117. 50 Id. 51 Civil Code, Article 1134. 52 Civil Code, Article 1137. 315 VOL. 497, JULY 31, 2006315 Heirs of Marcelo Cabal vs. Cabal

puted lot. The tax declaration53 and receipts54 presented in evidence factually established only that Marcelino had been religiously paying realty taxes on Lot G-1. Tax declarations and receipts can only be the basis of a claim of ownership through prescription when coupled with proof of actual possession.55 Evidently, Marcelino declared and paid realty taxes on property which he did not actually possess as he took possession of a lot eventually identified as the southernmost portion of Lot 1-E of subdivision plan (LRC) Psd-307100. Furthermore, the Court notes that Marcelino no longer invoked prescription in his pleadings before the RTC56 and CA;57 neither did herein petitioners raise prescription in their petition58 and memorandum59 before this Court. They only extensively discussed the defense of possession in good faith. They are thus deemed to have abandoned the defense of prescription. The Court shall now delve on the applicability of the principle of possession in good faith. It has been said that good faith is always presumed, and upon him who alleges bad faith on the part of the possessor rests the burden of proof.60 Good faith is an intangible and abstract quality with no technical meaning or statutory defi_______________ 53 Exhibit “2,” Records, p. 473. 54 Exhibit “5,” Id., at pp. 476-499. 55 Heirs of Flores Restar v. Heirs of Dolores R. Cichon, G.R. No. 161720, November 22, 2005, 475 SCRA 731, 741; De la Cruz v. Court of Appeals, G.R. No. 127593, September 30, 2003, 412 SCRA 282, 292.

56 Motion for Reconsideration; despite notice, Marcelino failed to file an appellee’s memorandum or brief, Records at pp. 670, 678 and 682. 57 Petition for Review and Motion for Reconsideration, CA Rollo, pp. 2, 208. 58 Rollo, p. 3. 59 Id., at p. 115. 60 Civil Code, Article 527. 316 316SUPREME COURT REPORTS ANNOTATED Heirs of Marcelo Cabal vs. Cabal nition, and it encompasses, among other things, an honest belief, the absence of malice and the absence of design to defraud or to seek an unconscionable advantage. An individual’s personal good faith is a concept of his own mind and, therefore, may not conclusively be determined by his protestations alone. It implies honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry.61 The essence of good faith lies in an honest belief in the validity of one’s right, ignorance of a superior claim, and absence of intention to overreach another.62 Applied to possession, one is considered in good faith if he is not aware that there exists in his title or mode of acquisition any flaw which invalidates it.63 In the present case, Marcelino’s possession of the disputed lot was based on a mistaken belief that Lot G-1 is the same lot on which he has built his house with the consent of his father. There is no evidence, other than bare allegation, that Marcelino was aware that he intruded on respondents’ property when he

continued to occupy and possess the disputed lot after partition was effected in 1976. Moreover, the fact that in 1977 Marcelino mortgaged Lot G-1 subject of TCT No. 22656 is not an indication of bad faith since there is no concrete evidence that he was aware at that time that the property covered by the title and the one he was occupying were not the same. There is also no evidence that he introduced improvements on Lot G-1. In fact, the agreement on March 1, 1989 to a resurvey and swapping of lots for the purpose of reconstructing the land titles is substantial proof of Marcelino’s good faith, sincerity of purpose and lack of intention to hold on to two lots. _______________ 61 Black’s Law Dictionary, Abridged Fifth Edition, p. 353. 62 Philippine National Bank v. De Jesus, G.R. No. 149295, September 23, 2003, 411 SCRA 557, 561; Negrete v. Court of First Instance of Marinduque, 150-C Phil. 322, 333; 48 SCRA 113, 123 (1972); Bernardo v. Bernardo, 96 Phil. 202, 205 (1954). 63 Civil Code, Article 526. 317 VOL. 497, JULY 31, 2006317 Heirs of Marcelo Cabal vs. Cabal Thus, the CA’s conclusion that Marcelino intended to hold on to both the disputed lot and Lot G-1 is pure speculation, palpably unsupported by the evidence on record. Marcelino is deemed a builder in good faith64 at least until the time he was informed by respondents of his encroachment on their property.65

When a person builds in good faith on the land of another, the applicable provision is Article 448, which reads: Article 448. The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in Articles 54666 and 548,67 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 _______________ 64 See Macasaet v. Macasaet, G.R. Nos. 154391-92, September 30, 2004, 439 SCRA 625, 644; Boyer-Roxas v. Court of Appeals, G.R. No. 100866, July 15, 1992, 211 SCRA 470, 488; De Guzman v. Fuente, 55 Phil. 501, 503 (1930); Aringo v. Arena, 14 Phil. 263, 268-269 (1909); Javier v. Javier, 7 Phil. 261, 267 (1907). 65 Article 528, Civil Code provides: Possession acquired in good faith does not lose this character except in the case and from the moment facts exist which show that the possessor is not unaware that he possesses the thing improperly or wrongfully. 66 Art. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain the thing until he has been reimbursed therefor. Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the person who has defeated him in the possession having the option of refunding the amount of the expenses or of paying the increase value which the thing may have acquired by reason thereof.

67 Art. 548. Expenses for pure luxury or mere pleasure shall not be refunded to the possessor in good faith; but he may remove the ornaments with which he has embellished the principal thing if it suffers no injury thereby, and if his successor in the possession does not prefer to refund the amount expended. 318 318SUPREME COURT REPORTS ANNOTATED Heirs of Marcelo Cabal vs. Cabal 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. Thus, 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 building, planting or sowing, after payment to the builder, planter or sower of the necessary and useful expenses, and in the proper case, expenses for pure luxury or mere pleasure. The owner of the land may also oblige the builder, planter or sower to purchase and pay the price of the land. If the owner chooses to sell his land, the builder, planter or sower must purchase the land, otherwise the owner may remove the improvements thereon. The builder, planter or sower, however, is not obliged to purchase the land if its value is considerably more than the building, planting or sowing. In such case, the builder, planter or sower must pay rent to the owner of the land. If the parties cannot come to terms over the conditions of the lease, the court must fix the terms thereof.

The right to choose between appropriating the improvement or selling the land on which the improvement stands to the builder, planter or sower, is given to the owner of the land.68 In accordance with Depra v. Dumlao,69 this case must be remanded to the trial court to determine matters necessary for the proper application of Article 448 in relation to Articles 546 and 548. Such matters include the option that respondents would take and the amount of indemnity that they would pay, should they decide to appropriate the improvements on the lots. _______________ 68 Ballatan v. Court of Appeals, 363 Phil. 408, 423; 304 SCRA 34, 46 (1999); Grana & Torralba v. Court of Appeals, 109 Phil. 260, 263 (1960); Acuña v. Furukawa Plantation Co., 93 Phil. 957, 961 (1953); Aringo v. Arena, supra. 69 G.R. No. 57348, May 16, 1985, 136 SCRA 475, 483. 319 VOL. 497, JULY 31, 2006319 Heirs of Marcelo Cabal vs. Cabal The Court notes that petitioners’ alternative prayer that swapping of lots be ordered because no improvements have been introduced on Lot G-1. This cannot be granted. Respondents and Marcelino, petitioners’ predecessor-ininterest, did not pray for swapping of lots in all their pleadings below. Both parties also did not allege the existence of a swapping agreement in their initial pleadings, much less pursue the enforcement of the swapping agreement. They are deemed to have renounced or abandoned any enforceable right they had under the swapping agreement and the parties cannot be compelled to a swapping of lots.

WHEREFORE, the instant petition is GRANTED. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 64729 are REVERSED and SET ASIDE. The case is REMANDED to the court of origin for further proceedings to determine the facts essential to the proper application of Article 448 in relation to Articles 546 and 548 of the Civil Code. No pronouncement as to costs. SO ORDERED. Panganiban (C.J., Chairperson), Ynares-Santiago, Callejo, Sr. and Chico-Nazario, JJ., concur. Petition granted, assailed decision and resolution reversed and set aside. Case remanded to court of origin. Note.—Although tax declarations or realty tax payment of property are not conclusive evidence of ownership, nevertheless, they are good indicia of possession in the concept of owner. (Alcaraz vs. Tangga-an, 401 SCRA 84 [2003]) ——o0o——

G.R. No. 109910. April 5, 1995.*FIRST DIVISION. REMEDIOS G. SALVADOR and MA. GRACIA G. SALVADOR, petitioners,vs. COURT OF APPEALS, ALBERTO and ELPIA YABO, FRANCISCA YABO, et al., respondents. Civil Law; Property; Conjugal Partnership; All property of the marriage is presumed to belong to the conjugal partnership, unless it be proved that it pertains exclusively to the husband or to the wife.—Article 160 of the Civil Code provides that all property of the marriage is presumed to belong to the conjugal partnership, unless it be proved that it pertains exclusively to the husband or to the wife. Since the shares of Jose, Victoriano, Lope, Baseliza, Procopio, and Francisca in Lot No. 6180 and Lot No. 6080 had been purchased by Pastor during his marriage with Maria, and there is no proof that these were acquired with his exclusive money, the same are deemed conjugal properties. Same; Same; Co-ownership; Partition; Each co-owner may demand at any time the partition of the common property implies that an action to demand partition is imprescriptible or cannot be barred by laches.—It has been said that Article 494 of the Civil Code which provides that each co-owner may demand at any time the partition of the common property implies that an action to demand partition is imprescriptible or cannot be barred by laches. The imprescriptibility of the action cannot, however, be invoked when one of the co-owners has possessed the property as exclusive owner and for a period sufficient to acquire it by prescription. Same; Same; Same; Same; Possession of a co-owner is like that of a trustee and shall not be regarded as adverse to the

other co-owners but in fact as beneficial to all of them.—This Court has held that the possession of a co-owner is like that of a trustee and shall not be regarded as adverse to the other coowners but in fact as beneficial to all of them. Acts which may be considered adverse to strangers may not be considered adverse insofar as co-owners are concerned. A mere silent possession by a co-owner, his receipt of rents, fruits or profits from the property, the erection of buildings and fences and the planting of trees thereon, and the payment of land taxes, cannot serve as proof of exclusive ownership, if it is not borne out by clear and convincing evidence that he exercised acts of possession which unequivocably _______________ * FIRST DIVISION. 240 240 SUPREME COURT REPORTS ANNOTATED Salvador vs. Court of Appeals constituted an ouster or deprivation of the rights of the other co-owners. Same; Same; Same; Same; Elements in order that a co-owner’s possession may be deemed adverse to the cestui que trust or the other co-owners.—Thus, in order that a co-owner’s possession may be deemed adverse to the cestui que trust or the other coowners, the following elements must concur: (1) that he has performed unequivocal acts of repudiation amounting to an ouster of the cestui que trust or the other co-owners; (2) that such positive acts of repudiation have been made known to the cestui que trust or the other co-owners; and (3) that the evidence thereon must be clear and convincing.

Remedial Law; Appeal; When the findings of facts of the appellate court vary with those of the trial court, the Court has to review the evidence in order to arrive at the correct findings.—The issue presented by the petitioners in their third assigned error involves a question of fact. This Court is not ordinarily a trier of facts, its jurisdiction being limited to errors of law. Thus, the findings of facts of the Court of Appeals are as a rule deemed conclusive. However, when the findings of facts of the appellate court vary with those of the trial court, this Court has to review the evidence in order to arrive at the correct findings. PETITION for review of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. Constancio G. Jaraula for petitioners. Marvi Manuel B. Roa for private respondents. DAVIDE, JR.,J.: Assailed in this petition is the legal determination made by the Court of Appeals on the issues of which portion of Lot No. 6080 and Lot No. 6180 formed part of the conjugal assets of the spouses Pastor Makibalo and Maria Yabo, and of whether or not the rights of Pastor’s co-heirs in the estate of Maria Yabo were extinguished through prescription or laches. Alipio Yabo was the owner of Lot No. 6080 and Lot No. 6180 situated in Barrio Bulua, Cagayan de Oro City, containing an area of 1,267 and 3,816 square meters, respectively. Title thereto devolved upon his nine children, namely, Victoriano, Procopio, 241 VOL. 243, APRIL 5, 1995 241

Salvador vs. Court of Appeals Lope, Jose, Pelagia, Baseliza, Francisca, Maria, and Gaudencia, upon his death sometime before or during the second world war. On 28 April 1976, Pastor Makibalo, who is the husband of Maria Yabo, one of Alipio’s children, filed with the then Court of First Instance of Misamis Oriental a complaint, docketed as Civil Case No. 5000, against the spouses Alberto and Elpia Yabo for “Quieting of Title, Annulment of Documents, and Damages.” In the complaint, he alleged that he owned a total of eight shares of the subject lots, having purchased the shares of seven of Alipio’s children and inherited the share of his wife, Maria, and that except for the portion corresponding to Gaudencia’s share which he did not buy, he occupied, cultivated, and possessed continuously, openly, peacefully, and exclusively the two parcels of land. He then prayed that he be declared the absolute owner of 8/9 of the lots in question.1Original Records (OR) (Civil Case No. 5000), 1-5. On 8 October 1976, the grandchildren and great-grandchildren of the late Alipio Yabo2Namely: Francisca, Damasa, Ignacio, Serapio, Alberto, Maria, Brigida, Enecita, Epitacia, Benito, Filoteo, Andresa, Jovita, Bonifacia, Rondino, all surnamed Yabo, Rustum Apag, Nastracion, Gerardo, Leoncito, all surnamed Abratigen, and Juanita and Felicisimo... lodged with the same court a complaint for partition and quieting of title with damages,3OR (Civil Case No. 5174), 1-4. docketed as Civil Case No. 5174, against Pastor Makibalo, Enecia Cristal, and the spouses Eulogio and Remedios Salvador. They alleged that Lot No. 6080 and Lot No. 6180 are the common property

of the heirs of Alipio Yabo, namely, the plaintiffs, defendant Enecia Cristal, Maria Yabo, and Jose Yabo, whose share had been sold to Alberto Yabo; that after Alipio’s death, the spouses Pastor and Maria Makibalo, Enecia Cristal, and Jose Yabo became the de facto administrators of the said properties; and that much to their surprise, they discovered that the Salvador spouses, who were strangers to the family, have been harvesting coconuts from the lots, which act cast a cloud on the plaintiffs’ title over the lots. The plaintiffs then prayed that (a) they, as well as defendant Pastor Makibalo, in representation of his wife, and Enecia Cristal, _______________ 1 Original Records (OR) (Civil Case No. 5000), 1-5. 2 Namely: Francisca, Damasa, Ignacio, Serapio, Alberto, Maria, Brigida, Enecita, Epitacia, Benito, Filoteo, Andresa, Jovita, Bonifacia, Rondino, all surnamed Yabo, Rustum Apag, Nastracion, Gerardo, Leoncito, all surnamed Abratigen, and Juanita and Felicisimo Apdian. 3 OR (Civil Case No. 5174), 1-4. 242 242 SUPREME COURT REPORTS ANNOTATED Salvador vs. Court of Appeals in representation of Gaudencia, be declared as the owners of the lots; (b) the Salvador spouses be declared as having no rights thereto except as possible assignees of their codefendants, Pastor Makibalo and Enecia Cristal; (c) the lots be partitioned according to law among the aforementioned co-

owners; and (d) the defendants be made to pay for the value of the fruits they harvested from the lots and for moral and exemplary damages, attorney’s fees, expenses of the litigation, and costs of the suit. The two cases were consolidated and jointly heard by Branch 5 of the Court of First Instance of Cagayan de Oro City. By evidence, Pastor Makibalo sought to prove the following allegations: He was married to Maria Yabo who died on 17 March 1962.4Exhibit “F”; TSN, 18 January 1978, 284, 301. In August 1949, Jose and Victoriano, both surnamed Yabo, sold their respective shares in the disputed lots to one Pedro Ebarat, and in 1952 the latter sold both shares to Pastor Makibalo.5Exhibit “A”; TSN, 10 September 1976, 15-18, 30-37; TSN, 17 January 1978, 286-287. Ebarat formalized this conveyance by executing an Affidavit of Waiver and Quitclaim dated 30 May 1969 in favor of Pastor.6Exhibit “B.... On 16 January 1951, the heirs of the late Lope Yabo sold Lope’s shares in the litigated properties to one Dominador Canomon,7Exhibit “C”; TSN, 21 October 1976, 121-124. who, in turn, sold the same to Pastor.8TSN, 21 October 1976, 124125; TSN, 17 January 1978, 288, 291. Canomon afterwards executed an Affidavit of Waiver and Quitclaim in favor of the latter.9Exhibit “D.... Pastor Makibalo likewise purchased the shares of Baseliza in the two lots in 1942, of Procopio in 1957, of Francisca in 1958, and of Pelagia in 1967. The only share he did not buy was that of Gaudencia. After every purchase, he took possession of the portions bought and harvested the products thereof.10TSN, 17 January 1978, 286, 288-290, 296-298.

_______________ 4 Exhibit “F”; TSN, 18 January 1978, 284, 301. 5 Exhibit “A”; TSN, 10 September 1976, 15-18, 30-37; TSN, 17 January 1978, 286-287. 6 Exhibit “B.” 7 Exhibit “C”; TSN, 21 October 1976, 121-124. 8 TSN, 21 October 1976, 124-125; TSN, 17 January 1978, 288, 291. 9 Exhibit “D.” 10 TSN, 17 January 1978, 286, 288-290, 296-298. 243 VOL. 243, APRIL 5, 1995 243 Salvador vs. Court of Appeals In 1966, Pastor sold back to Alberto a portion of Lot No. 6180 which was formerly the share of Alberto’s father, Procopio.11Exhibit “1”; Id., 304. In December 1968, Pastor mortgaged the two lots to the spouses Eulogio and Remedios Salvador.12TSN, 18 October 1977, 251-252; TSN, 6 March 1978, 10. On 26 September 1978, he executed a document denominated as a “Confirmation and Quitclaim” whereby he waived all his rights, interests, and participation in the lots in favor of the Salvador spouses.13Exhibit “N.... On the other hand, by their evidence,14Exhibits “1,” “2,” and “3.... the spouses Alberto and Elpia Yabo tried to prove that they had repurchased from Pastor Makibalo the share of Procopio, which was previously sold to Pastor, and had bought

the shares of Jose and Maria.15TSN, 15 November 1979, 6671. Filoteo Yabo denied having sold the share of his father, Lope Yabo, in the contested lots and disowned his signature and those of his mother, brothers, and sisters appearing at the back of Exhibit “C.”16TSN, 12 September 1978, 49-51. Ignacio Yabo testified that his father, Victoriano Yabo, did not know how to write and sign his name. He further declared that he had no knowledge that his father affixed his thumbmark in the document marked as Exhibit “A” purporting to alienate his father’s share in the disputed lots.17Id., 84-85. On 15 January 1983, the trial court rendered its decision18OR (Civil Case No. 5000), 551 et seq.; OR (Civil Case No. 5174), 143 et seq.; Annex “E” of Petition; Rollo, 32-48. Per Judge Eulalio D. Rosete. holding as follows: Assuming that the thumbmark on the typewritten name “Jose Yabo” in Exh. 3 was that of Jose Yabo, Alberto Yabo and Elpia R. Yabo purchased the share of Jose Yabo in bad faith because they knew before and up to the execution of Exh. 3 on October 24, 1972 that Jose Yabo was no longer the owner of that area because from the documents she borrowed from Mrs. Salvador they came to know that Jose Yabo had _______________ 11 Exhibit “1”; Id., 304. 12 TSN, 18 October 1977, 251-252; TSN, 6 March 1978, 10. 13 Exhibit “N.” 14 Exhibits “1,” “2,” and “3.” 15 TSN, 15 November 1979, 66-71. 16 TSN, 12 September 1978, 49-51. 17 Id., 84-85.

18 OR (Civil Case No. 5000), 551 et seq.; OR (Civil Case No. 5174), 143 et seq.; Annex “E” of Petition; Rollo, 32-48. Per Judge Eulalio D. Rosete. 244 244 SUPREME COURT REPORTS ANNOTATED Salvador vs. Court of Appeals sold his shares to Pedro Ebarat, and they have seen that Pastor Makibalo has been in possession of those shares together with the seven others exclusively as owner, he having mortgaged them to Mrs. Salvador. As Jose Yabo was no longer the owner of the one ninth (1/9) shares which he sold to Alberto Yabo and Elpia Yabo under Exh. 3, the sale is null and void, and Alberto and Elpia acquired nothing because Jose Yabo had no more title, right or interest to dispose of. ... Pastor Makibalo had been in possession of Jose Yabo’s share since 1949 after purchasing it from Ebarat, and has been in possession thereof up to September 26, 1978 when he sold it to the spouses Eulogio Salvador and Remedios Salvador, who are now in possession of the same. Exh. A, evidencing the sale of Victoriano Yabo’s share to Pedro Ebarat was identified by the latter who testified that he sold it to Pastor Makibalo in 1951. Exh. A is an ancient document—1949 when the document came to existence up to now is more than 30 years, and the document had been in the possession of Pastor Makibalo, then Remedios Salvador who had interest in its preservation.

As regards the shares of Lope Yabo, the same had been sold by his surviving spouse Juana Legaspi, and his children Filoteo, Andresa, Jovita, Bonifacio, and Rundino for P105.00 on January 16, 1951 to Dominador Conomon (Exh. C and C-1), who in turn sold it to Pastor Makibalo in 1952, executing a formal Deed of Waiver and Quitclaim on May 30, 1969 (Exh. D). Exh. C is an ancient document, being more than 30 years old and has been in the possession of Pastor Makibalo and then the spouses Eulogio and Remedios Salvador—who had an interest in its preservation. The claim of Filoteo Yabo that the signatures appearing in Exh. C are not his and those of his brothers and sisters are of no avail, for if they were not the ones who affixed those signatures and so they did not sell the shares of their father Lope Yabo, why did they not then take possession of said shares—they remained silent from 1951 to September 16, 1976 a period of 25 years. They are now [e]stopped by laches. And as regards the shares of Baseliza, Francisca and Pelagia, there is no evidence presented to effectively rebut the testimony of Pastor Makibalo that he acquired the shares of Baseliza Yabo in 1942 by changing it with a buffalo; that he bought the shares of Francisca Yabo in 1958 and that he bought the shares of Pelagia Yabo in 1967; Pastor Makibalo had been in possession of these shares from the time he acquired them, continuously, adversely, openly, and peacefully, as owner up to the time he sold his rights and interest therein to the spouses Eulogio and Remedios Salvador. The heirs of Baseliza, Francisca

245 VOL. 243, APRIL 5, 1995 245 Salvador vs. Court of Appeals and Pelagia have not taken any step to protect their rights over those shares for over 40 years in the case of Baseliza’s share, for about 20 years in the case of Francisca’s share, and for more than 10 years in the case of Pelagia’s share. Laches, likewise has rendered their rights stale. On March 10, 1966 Pastor Makibalo sold back to Alberto Yabo the share of Procopio Yabo in Lot 6180 (Exh. 1 and 2), but there is nothing to show that Pastor Makibalo also sold back Procopio’s share in Lot 6080. So then, by purchase, Pastor Makibalo and Maria Yabo acquired the shares of Baseliza, Victoriano, Jose, Lope, Procopio and Francisca, or six (6) shares from Lots 6080 and 6180. These belonged to the conjugal partnership of Pastor Makibalo and Maria Yabo. Maria Yabo had also a share from Lots 6080 and 6180, and Pastor Makibalo acquired the shares of Pelagia Yabo in both Lots 6080 and 6180. All in all, Pastor Makibalo acquired eight shares in both Lot 6080 and 6180. While Maria Yabo died on March 17, 1962, and so one-fourth (1/ 4) of the shares of Baseliza, Victoriano, Jose, Lope, and Francisca, or one-fourth of five-ninth (5/9) of both lots and one-fourth (1/4) of Lot 6080 should go to the children of the brothers and sisters of Maria Yabo by virtue of the provisions of Article 1001 of the New Civil Code, the latter have lost their rights thereto by laches for their inaction for a very long period and their rights have become stale. On the other hand, Pastor Makibalo who had been in possession of the whole of the eight

shares in both Lots 6080 and 6180, enjoying the fruits thereof exclusively, uninterruptedly, publicly, peacefully, and continuously from the death of Maria Yabo up to the filing of the complaint in Civil Case No. 5174 on October 8, 1976, or a period of 14 years, had acquired title to the whole of the eight shares in Lot 6080 and seven shares in Lot 6180 (the share of Procopio in Lot 6180 had been sold back to Alberto Yabo). IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered finding Pastor Makibalo, now Eulogio Salvador and Remedios Salvador the owner of eight (8) shares, equivalent to eight-ninth (8/9) of Lot No. 6080, and of seven (7) shares, equivalent to seven-ninth (7/9) of Lot No. 6180, and therefore, ordering the partition of Lot 6080 so that the one-ninth (1/9) alloted to Gaudencia Yabo will go to her heirs or their assigns, and the remaining eight-ninth (8/9) will go to the spouses Eulogio Salvador and Remedios Salvador, as successor of Pastor Makibalo, and the partition of Lot 6180 so that the seven-ninth (7/9) portion which formerly belonged to Baseliza, Victoriano, Jose, Lope, Maria, Francisca, and Pelagia will go to the spouses Eulogio and Remedios Salvador, the one-ninth (1/9) which formerly belonged to Procopio, will go to Alberto Yabo, and the remaining one-ninth (1/9) which formerly belonged to Gaudencia, will go to Gaudencia’s heirs or their assigns. 246 246 SUPREME COURT REPORTS ANNOTATED Salvador vs. Court of Appeals

Doc. No. 720, recorded on page 28 of Notarial Register No. VII, and acknowledged before Notary Public Isidro S. Baculio (Exh. E) [purportedly executed by Maria Yabo and Pastor Makibalo] is hereby declared null and void, and so the Office of the City Fiscal is directed to cause an investigation of this matter to find out the person or persons responsible for the falsification of the said document, and if the evidence warrants, to file the corresponding criminal action in court. The Office of the City Assessor of Cagayan de Oro City is, likewise, directed to cause the cancellation of Tax Declarations Nos. 33553, marked as Exh. H-3, 33557, marked as Exh. H-2, both in the name of Alberto Yabo, for having been issued on the basis of a falsified document. Let copies of this decision be furnished the Offices of the City Fiscal and City Assessor, both of Cagayan de Oro City. No pronouncement as to damages, attorney’s fees and costs. SO ORDERED.19OR (Civil Case No. 5000), 563-566; OR (Civil Case No. 5174), 155-159; Rollo, 44-48. The defendants in Civil Case No. 5000 and the plaintiffs in Civil Case No. 5174 appealed from the decision to the Court of Appeals on 19 August 1983.20OR (Civil Case No. 5000), 567. In its decision of 3 February 1993,21Annex “B” of Petition; Rollo, 15-26. Per Associate Justice Eduardo G. Montenegro, concurred in by Associate Justices Arturo B. Buena and Regina G. Ordoñez-Benitez. the Court of Appeals held that (a) Maria Yabo did not sell her share to Alberto and Elpia Yabo; (b) prescription and laches have not run against the private respondents with respect to the 1/9 share of Maria Yabo in the estate of her father and to her conjugal share in the portions acquired from her brothers and sisters; and (c) Procopio never

sold his share in Lot No. 6080 to Pastor Makibalo. More specifically it stated: Exh. E is the document found by the lower court to be a falsification. This finding appellants do not dispute and have not raised an error. ... While acknowledging that upon the death of Maria Yabo on March 17, 1962, one-half (1/2) of the share of Maria Yabo in Lots 6080 and 6180 and one-half (1/2) of Maria Yabo’s conjugal share in the _______________ 19 OR (Civil Case No. 5000), 563-566; OR (Civil Case No. 5174), 155-159; Rollo, 44-48. 20 OR (Civil Case No. 5000), 567. 21 Annex “B” of Petition; Rollo, 15-26. Per Associate Justice Eduardo G. Montenegro, concurred in by Associate Justices Arturo B. Buena and Regina G. Ordoñez-Benitez. 247 VOL. 243, APRIL 5, 1995 247 Salvador vs. Court of Appeals portions bought from Baseliza, Victoriano, Jose, Lope, Pelagia and Francisca should go to the children of the brothers and sisters of Maria in accordance with Article 1001 of the Civil Code, the lower court rule that said children have lost their rights by laches “for their inaction for a very long period and their rights have become stale” (Decision, p. 16; Record, Vol. 2, p. 158).

Appellants in their second assignment of error aver that this is an error. We agree that the lower court erred. While between March 17, 1962 when Maria Yabo died and October 8, 1976, when Civil Case No. 5174 for partition was filed, was a period of more than fourteen (14) years, that alone to our mind would not suffice to establish laches or prescription. Upon the death of Maria Yabo, appellee Pastor Makibalo and appellants and the other children of the brothers and sisters of Maria, by operation of law become co-owners of the one-ninth (1/9) share of Maria as heir of her father Alipio and the conjugal share of Maria in the portions acquired from Baseliza, Victoriano, Jose, Lope, Pelagia and Francisca. Time alone is not a decisive factor. Appellee Pastor Makibalo, it must be remembered, is the husband of Maria and, therefore, an uncle-in-law of appellants. In our culture, a demand by an heir or heirs for partition immediately upon the death of a relative is more often taken not as a legitimate assertion of a right but of something else, like greed. It must also be noted that the spouses, the appellee Pastor Makibalo and his deceased wife Maria, were childless and, therefore, appellants and the other children of the brothers and sisters of Maria must have felt that at any rate the property would go to them in the course of time. This probably explains why appellants started asserting their right over the property only after appellee Pastor Makibalo sold the same to the spouses Eulogio and Remedios Salvador. Besides, Lots 6080 and 6180 have a combined area only of 5,083 square meters and before the development of Northern Mindanao, and even in 1962 when Maria Yabo died,

were not that valuable. This is shown by the fact that each heir sold his or her share only for P110.00. As we have said not time alone. In the early case of Cortes v. Oliva, 33 Phil. 480, it was held that “(o)rdinarily, possession by one joint owner will not be presumed to be adverse to the others, but will, as a rule, be held to be for the benefit of all. Much stronger evidence is required to show an adverse holding by one of several joint owners than by a stranger; and in such cases, to sustain a plea of prescription, it must always clearly appear that one who was originally a joint owner has repudiated the claims of his co-owners, and that his co-owners were apprised or should have been apprised of his claim of adverse and exclusive ownership before the alleged prescription began to run (at 248 248 SUPREME COURT REPORTS ANNOTATED Salvador vs. Court of Appeals page 484). This ruling on prescription should apply with equal force to laches. The third assignment of error challenges the finding of the lower court that “there is nothing to show that Pastor Makibalo also sold back Procopio’s share in Lot 6080” (Decision, p. 16; Records, Vol. 2, p. 158). Exhibits 1 and 2 cover only Procopio’s share in Lot 6180. In other words, Exhibits 1 and 2 conveyed back to Alberto Yabo only his father, Procopio’s share in Lot 6180. There is indeed no evidence that Pastor Makibalo also sold back to Alberto, his father Procopio’s share in Lot 6080.

But from the evidence it appears that Procopio Yabo never sold his share in Lot 6080 to Pastor Makibalo. So there was no need to convey back Procopio’s share in Lot 6080. This fact is evident from the Affidavit of Confirmation of Sale (Exh. M) dated April 22, 1970, executed by Alberto Yabo, which is the very document relied upon by the lower court (Decision, p. 11; Record, Vol. 2, p. 153) in finding that “Alberto Yabo admitted that the share of his father Procopio Yabo was previously bought by Pastor Makibalo.” A look at Exh. M, particularly par. 3 thereof, reveals that Alberto Yabo merely acknowledged or confirmed the sale of his father’s share to Pastor Makibalo in Lot 6180. In effect, it at the same time proves that Lot 6080 was never sold by Procopio to appellee Pastor Makibalo; otherwise, it would have been included in the said Affidavit of Confirmation of Sale. The Deed of Absolute Sale (Exh. 2) subsequently executed by Pastor Makibalo in favor of Alberto Yabo on April 23, 1970, further proves this point, since the latter merely bought back what was previously sold, his father’s share in Lot 6180.22Rollo, 22-25. The respondent court then concluded and held as follows: In summary, appellee Pastor Makibalo and his assigns, the spouses Eulogio and Remedios Salvador, are entitled only to one-half (1/2) of the one-ninth (1/9) share of Maria and threefourths (3/4) of the six-ninth (6/9) shares acquired from Baseliza, Victoriano, Jose, Lope, Pelagia and Francisca. Accordingly, the partition should be done as follows: (1) 1/9 of Lots 6080 and 6180 should be given to the heirs of Gaudencia Yabo or their successors and assigns;

(2) 1/9 of Lot 6180 should go to Alberto Yabo and his wife Elpia Yabo; _______________ 22 Rollo, 22-25. 249 VOL. 243, APRIL 5, 1995 249 Salvador vs. Court of Appeals (3) 1/9 of Lot 6080 should be given to the heirs of Procopio Yabo and their successors and assigns, including Alberto Yabo; (4) The 1/9 share of Maria Yabo in Lots 6080 and 6180 should be partitioned: One-half (1/2) for the surviving spouse Pastor Makibalo (now the spouses Eulogio Salvador and Remedios Salvador) and the other half for the children of the brothers and sisters of Maria Yabo in equal shares. (5) The remaining 6/9, one-half (1/2) of which is conjugal between Maria Yabo and appellee Pastor Makibalo should be partitioned three-fourths (3/4) for Pastor Makibalo (now the spouses Eulogio Salvador and Remedios Salvador) and onefourth (1/4) for the children of the brothers and sisters of Maria Yabo in equal shares. (6) Jose Yabo if he is still alive should participate in the partition as heir of Maria; otherwise he shall be represented by his children. WHEREFORE, premises considered, subject to the modification in the partition, as indicated above, the decision appealed from is AFFIRMED, without pronouncement as to costs. The lower court is directed if necessary to fully effect the

partition, to conduct further hearings and determine whether Jose Yabo is still alive and who are the children of the brothers and sisters of Maria Yabo.23Rollo, 25-26. Unable to obtain a reconsideration of the said decision, Remedios Salvador, together with her daughter, Ma. Gracia Salvador, as one of the successors-in-interest of Eulogio M. Salvador who died during the pendency of the appeal,24Annex “A” of Petition; Id., 14. elevated the case to this Court contending that the respondent court erred in ruling that: (1) the shares of Pelagia Yabo should be included in the partition; (2) prescription and laches have not run against the private respondents in relation to the 1/9 share of Maria Yabo in the estate of her father and to her 1/2 conjugal share in those acquired by purchase; (3) Procopio Yabo never sold to Pastor Makibalo his share in Lot No. 6080; and (4) Jose Yabo should be allowed to participate as heir of Maria even as he had openly rejected this option by refusing to participate in both civil cases.25Petition, 6-8; Id., 8-10. _______________ 23 Rollo, 25-26. 24 Annex “A” of Petition; Id., 14. 25 Petition, 6-8; Id., 8-10. 250 250 SUPREME COURT REPORTS ANNOTATED Salvador vs. Court of Appeals Article 160 of the Civil Code provides that all property of the marriage is presumed to belong to the conjugal partnership, unless it be proved that it pertains exclusively to the husband or

to the wife. Since the shares of Jose, Victoriano, Lope, Baseliza, Procopio, and Francisca in Lot No. 6180 and Lot No. 6080 had been purchased by Pastor during his marriage with Maria, and there is no proof that these were acquired with his exclusive money, the same are deemed conjugal properties. Not forming part of the conjugal partnership are: (1) the 1/9 share inherited by Maria which remained as her exclusive property pursuant to Article 148(2) of the Civil Code; (2) the 1/9 share of Gaudencia which was not sold to Pastor; and (3) the 1/9 share of Pelagia which was acquired by Pastor in 1967 or five years after the death of his wife and which was therefore his exclusive property. There is, thus, merit in the petitioners’ first assigned error. The Court of Appeals should have excluded from the conjugal partnership the share of Pelagia which Pastor had acquired after his wife’s death. Upon Maria’s death in 1962, the conjugal partnership of gains was dissolved.26Article 175(1), The Civil Code of the Philippines. Half of the conjugal properties, together with Maria’s 1/9 hereditary share in the disputed lots, constituted Maria’s estate and should thus go to her surviving heirs.27Article 185, Id. Under Article 1001 of the Civil Code, her heirs are her spouse, Pastor Makibalo, who shall be entitled to one-half (1/2) of her estate, her brother, Jose, and the children of her other brothers and sisters, who shall inherit the other half. There having been no actual partition of the estate yet, the said heirs became co-owners thereof by operation of law.28Article 1078, Id. We now determine whether prescription and laches can be applied against the co-heirs of Pastor Makibalo.

It has been said that Article 494 of the Civil Code which provides that each co-owner may demand at any time the partition of the common property implies that an action to demand partition is imprescriptible or cannot be barred by laches.29Del Banco vs. Intermediate Appellate Court, 156 SCRA 55 The _______________ 26 Article 175(1), The Civil Code of the Philippines. 27 Article 185, Id. 28 Article 1078, Id. 29 Del Banco vs. Intermediate Appellate Court, 156 SCRA 55 251 VOL. 243, APRIL 5, 1995 251 Salvador vs. Court of Appeals imprescriptibility of the action cannot, however, be invoked when one of the co-owners has possessed the property as exclusive owner and for a period sufficient to acquire it by prescription.30De Castro vs. Echarri, 20 Phil. 23 [1911]; Bicarme vs. Court of Appeals, 186 SCRA 294 [1990]. What needs to be addressed first is whether or not Pastor Makibalo has acquired by prescription the shares of his other co-heirs or co-owners. Prescription as a mode of acquiring ownership requires a continuous, open, peaceful, public, and adverse possession for a period of time fixed by law. This Court has held that the possession of a co-owner is like that of a trustee and shall not be regarded as adverse to the other co-owners but in fact as beneficial to all of them.31Pangan vs. Court of Appeals, 166 SCRA 375 [1988].

Acts which may be considered adverse to strangers may not be considered adverse insofar as co-owners are concerned. A mere silent possession by a co-owner, his receipt of rents, fruits or profits from the property, the erection of buildings and fences and the planting of trees thereon, and the payment of land taxes, cannot serve as proof of exclusive ownership, if it is not borne out by clear and convincing evidence that he exercised acts of possession which unequivocably constituted an ouster or deprivation of the rights of the other co-owners.32Bicarme vs. Court of Appeals, supra, note 30. Thus, in order that a co-owner’s possession may be deemed adverse to the cestui que trust or the other co-owners, the following elements must concur: (1) that he has performed unequivocal acts of repudiation amounting to an ouster of the cestui que trust or the other co-owners; (2) that such positive acts of repudiation have been made known to the cestui que trust or the other co-owners; and (3) that the evidence thereon must be clear and convincing.33Delima vs. Court of Appeals, 201 SCRA 641 [1991]. In Pangan vs. Court of Appeals,34Supra, note 30, at 382-383 (citations omitted). this Court had occasion to lay down specific acts which are considered as acts of repudia_______________ [1987], citing Budlong vs. Pundoc, 79 SCRA 24 [1977]. 30 De Castro vs. Echarri, 20 Phil. 23 [1911]; Bicarme vs. Court of Appeals, 186 SCRA 294 [1990]. 31 Pangan vs. Court of Appeals, 166 SCRA 375 [1988]. 32 Bicarme vs. Court of Appeals, supra, note 30. 33 Delima vs. Court of Appeals, 201 SCRA 641 [1991]. 34 Supra, note 30, at 382-383 (citations omitted).

252 252 SUPREME COURT REPORTS ANNOTATED Salvador vs. Court of Appeals tion: Filing by a trustee of an action in court against the trustor to quiet title to property, or for recovery of ownership thereof, held in possession by the former, may constitute an act of repudiation of the trust reposed on him by the latter. Theissuance of the certificate of title would constitute an open and clear repudiation of any trust, and the lapse of more than 20 years, open and adverse possession as owner would certainly suffice to vest title by prescription. An action for the reconveyance of land based on implied or constructive trust prescribes within 10 years. And it is from the date of the issuance of such title that the effective assertion of adverse title for purposes of the statute of limitation is counted. The prescriptive period may only be counted from the time petitioners repudiated the trust relation in 1955 upon the filing of the complaint for recovery of possession against private respondents so that the counterclaim of the private respondents contained in their amended answer wherein they asserted absolute ownership of the disputed realty by reason of the continuous and adverse possession of the same is well within the 10-year prescriptive period. There is clear repudiation of a trust when one who is an apparent administrator of property causes the cancellation of the title thereto in the name of the apparent beneficiaries and gets a new certificate of title in his own name.

It is only when the defendants, alleged co-owners of the property in question, executed a deed of partition and on the strength thereof obtained the cancellation of the title in the name of their predecessor and the issuance of a new one wherein they appear as the new owners of a definite area each, thereby in effect denying or repudiating the ownership of one of the plaintiffs over his alleged share in the entire lot, that the statute of limitations started to run for the purposes of the action instituted by the latter seeking a declaration of the existence of the co-ownership and of their rights thereunder. The records do not show that Pastor Makibalo adjudicated to himself the whole estate of his wife by means of an affidavit filed with the Office of the Register of Deeds as allowed under Section 1, Rule 74 of the Rules of Court, or that he caused the issuance of a certificate of title in his name or the cancellation of the tax declaration in Alipio’s name and the issuance of a new one in his own name. The only act which may be deemed as a repudiation by Pastor of the co-ownership over the lots is his filing on 28 April 253 VOL. 243, APRIL 5, 1995 253 Salvador vs. Court of Appeals 1976 of an action to quiet title (Civil Case No. 5000). The period of prescription started to run only from this repudiation. However, this was tolled when his co-heirs, the private respondents herein, instituted on 8 October 1976 an action for partition (Civil Case No. 5174) of the lots. Hence, the adverse possession by Pastor being for only about six months would

not vest in him exclusive ownership of his wife’s estate, and absent acquisitive prescription of ownership, laches and prescription of the action for partition will not lie in favor of Pastor.35Bicarme vs. Court of Appeals, supra, note 29. The issue presented by the petitioners in their third assigned error involves a question of fact. This Court is not ordinarily a trier of facts, its jurisdiction being limited to errors of law. Thus, the findings of facts of the Court of Appeals are as a rule deemed conclusive. However, when the findings of facts of the appellate court vary with those of the trial court, this Court has to review the evidence in order to arrive at the correct findings.36Roman Catholic Bishop of Malolos, Inc. vs. Intermediate Appellate Court, 191 SCRA 411 [1990]; Gaw vs. Intermediate Appellate Court, 220 SCRA 405 [1993]; Geronimo vs. Court of Appeals, 224 SCRA 494 [1993]. In the instant case, a conflict in the findings of facts of the lower courts exists. The trial court found that Pastor was the owner of Procopio’s share in Lot No. 6080, as there was nothing to show that he sold it back to Alberto Yabo. The respondent court, on the other hand, held that Procopio Yabo never sold his share in Lot No. 6080 to Pastor, thus, there was no need to convey it back to Procopio’s son, Alberto. At this juncture, it is worthy to quote pertinent portions of the testimony of Pastor Makibalo: COURT: (To the witness.) Q Where is Alberto Yabo living? A It is there in their house at Bulua. ATTY. JARAULA: (Continuing.) Q In whose land? A Alipio Yabo’s land.

Q What relation has that land to the two (2) parcels of land under litigation? _______________ 35 Bicarme vs. Court of Appeals, supra, note 29. 36 Roman Catholic Bishop of Malolos, Inc. vs. Intermediate Appellate Court, 191 SCRA 411 [1990]; Gaw vs. Intermediate Appellate Court, 220 SCRA 405 [1993]; Geronimo vs. Court of Appeals, 224 SCRA 494 [1993]. 254 254 SUPREME COURT REPORTS ANNOTATED Salvador vs. Court of Appeals A I bought already. Q So, will you please tell the Honorable Court, why Alberto Yabo is staying on that land when you said you have bought that land already? A So, I sold back a portion to them because they requested me. COURT: (To the witness.) Q When was that when you said that Alberto Yabo requested a portion? A In 1967. COURT: Q Did you give that portion which they requested? A Their share being inherited from their father Procopio was the portion they requested. COURT: Q Yes. Did you grant that? A Yes.

Q That is the area you sold to Alberto Yabo, pursuant to his request? A Because that was the land they inherited from their father that was what they requested. Q All right. So that, the area now being occupied by Alberto Yabo? A Yes. That land in the Centro. Q This is now identified as Lot No. 6180? A Yes, Your Honor. ATTY. JARAULA: (Continuing.) Q Where did you sign a document ceding that portion requested by Alberto Yabo? A We did not make any receipt in favor of Alberto Yabo because they got only the receipt of that of his father. COURT: (To the witness.) Q You mean to say, that the receipt which Procopio signed when he sold his share for [sic] the document which Alberto got? A Yes. COURT: All right. ATTY. JARAULA (Continuing.) Q Now, for how much did you buy the shares of each of the brothers and sisters of your wife? A One Hundred Ten (P110.00) Pesos. Q When you sold back to Alberto Yabo, the portion corresponding to the share of his father Procopio in the Poblacion,

255 VOL. 243, APRIL 5, 1995 255 Salvador vs. Court of Appeals how much did he pay you? A The same. Q By the same, you are referring by the same amount of One Hundred Ten (P110.00) Pesos? A Yes, Sir. The same amount.37TSN, 18 January 1978, 303306. The petitioners contend that the sales or conveyances made by Alipio’s heirs were for their consolidated shares in the two lots. If this was so, and the receipt which Procopio signed when he sold his consolidated share to Pastor was turned over to Alberto, the inevitable conclusion is that Alberto redeemed his father’s share in both lots, not only in Lot No. 6180. This conclusion is further buttressed by the above-quoted testimony of Pastor that he bought the shares (consolidated) of each of Alipio’s heirs for P110.00 and that when he sold back to Alberto the former share of Procopio, Alberto paid him the same amount of P110.00. However, since the share of Procopio in the two litigated parcels of land was purchased by Pastor during his marriage with Maria, the same became conjugal property, and half of it formed part of Maria’s estate upon her death in 1962. Accordingly, Pastor’s resale in favor of Alberto could only be valid with respect to Pastor’s one-half (1/2) conjugal share and one-fourth (1/4) hereditary share as heir of Maria.38Paulmitan vs. Court of Appeals, 215 SCRA 866 [1992]. The remaining

one-fourth (1/4) should go to Pastor’s co-heirs, the private respondents herein. Now on the fourth assigned error. Section 1, Rule 69 of the Rules of Court requires that all persons interested in the land sought to be partitioned must be joined as defendants in the complaints. All co-owners and persons having an interest in the property are considered indispensable parties and an action for partition will not lie without the joinder of said persons.39VICENTE J. FRANCISCO, The Revised Rules of Court in the Philippines, 1973 ed., vol. 1, 267, citing Ruguian vs. Ruguian, 9 Phil. 527 [1904] and Garcia de Lara vs. Gonzales de Lara, 2 Phil. 294 [1903]; MANUEL V. MORAN, Comments on the Rules of Court, 1980 ed... It has been held that the absence of an _______________ 37 TSN, 18 January 1978, 303-306. 38 Paulmitan vs. Court of Appeals, 215 SCRA 866 [1992]. 39 VICENTE J. FRANCISCO, The Revised Rules of Court in the Philippines, 1973 ed., vol. 1, 267, citing Ruguian vs. Ruguian, 9 Phil. 527 [1904] and Garcia de Lara vs. Gonzales de Lara, 2 Phil. 294 [1903]; MANUEL V. MORAN, Comments on the Rules of Court, 1980 ed., vol. 3, 293, citing Garcia de Lara vs. Gonzales de Lara, supra; Araullo vs. 256 256 SUPREME COURT REPORTS ANNOTATED Salvador vs. Court of Appeals

indispensable party in a case renders ineffective all the proceedings subsequent to the filing of the complaint including the judgment.40Galarosa vs. Valencia, 227 SCRA 728 [1993]. It must be recalled that in Civil Case No. 5174 the private respondents sought the partition of the two lots based on the co-ownership which arose from the right of succession to Alipio’s estate. Since Jose Yabo confirmed, through his thumbmark in the verification of the complaint, that he had already parted with his share in Alipio’s estate, he in effect admitted that he had ceased to be a co-owner of the two lots which comprised his father’s estate. Thus, his non-joinder as a party-plaintiff in the complaint would appear to be proper. He does not, as well, appear to be an indispensable party in Civil Case No. 5000. As it turned out, however, the evidence and the issues which cropped up rendered imperative the determination of the conjugal assets of Pastor Makibalo and Maria Yabo and the partition of the latter’s estate among her heirs. Her estate consists of one-half (1/ 2) of the conjugal properties, which should then be divided pursuant to Article 1001 of the Civil Code since the marriage produced no child; thus: one-half (1/2) to Pastor, and the other half to her brother, Jose, and to her nephews and nieces. Insofar as the partition of Maria Yabo’s estate is concerned, Jose is an indispensable party. Strictly, the rule on indispensable parties may bar a partition of Maria’s estate. Considering, however, that such estate or its partition are but incidents in Civil Case No. 5000 and Civil Case No. 5174, and the parties have not offered any objection to the propriety of the determination and partition of her estate, then in the light of

Section 11 of Rule 341It provides:SEC.11.Misjoinder and nonjoinder of parties.—Misjoinder of parties is not ground for dismissal of an action. Parties may be dropped or added by order of the court on motion of any party or on its own initiative at any stage of the action... _______________ Araullo, 3 Phil. 567 [1904]; Ruguian vs. Ruguian, supra; Gulib vs. Bucquio, 16 Phil. 444 [1910]; Reyes vs. Cordero, 46 Phil. 658 [1920]. 40 Galarosa vs. Valencia, 227 SCRA 728 [1993]. 41 It provides: SEC.11.Misjoinder and non-joinder of parties.—Misjoinder of parties is not ground for dismissal of an action. Parties may be dropped or added by order of the court on motion of any party or on its own initiative at any stage of the action and on such terms as are just. Any claim against a party may be severed and proceeded with separately. 257 VOL. 243, APRIL 5, 1995 257 Salvador vs. Court of Appeals and Sections 1 and 5, Rule 1042They provide:SEC.1.Amendments in general.—Pleadings may be amended by adding or striking out an allegation or the name of any party, or by correcting a mistake in the name of a party or a mistaken or inadequate allegation or description in any other ... of the Rules of Court, and following the rulings of this Court in the 1910 case of Alonso vs. Villamor4316 Phil. 315, 320 [1910]. and the 1947 case of Cuyugan vs. Dizon,4479 Phil. 80,

91 [1947]. an amendment of the complaint in Civil Case No. 5174 to implead Jose Yabo as party plaintiff would be in order. InAlonso, it was held that under Section 110 of the Code of Civil Procedure—whose first paragraph is substantially the same as the aforesaid Section 1 of Rule 10—and Section 503 thereof, this Court “has full power, apart from that power and authority which is inherent, to amend the process, pleadings, proceedings, and decision in this case by substituting, as party plaintiff, the real party in interest.” Our ruling in Cuyugan states: 42 They provide: SEC.1.Amendments in general.—Pleadings may be amended by adding or striking out an allegation or the name of any party, or by correcting a mistake in the name of a party or a mistaken or inadequate allegation or description in any other respect, so that the actual merits of the controversy may speedily be determined, without regard to technicalities, and in the most expeditious and inexpensive manner. xxx 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. If evidence is objected to at the trial on the ground that it is not within the issues made by the pleadings, the court may allow the

pleadings to be amended and shall do so freely when the presentation of the merits of the action will be subserved thereby and the objecting party fails to satisfy the court that the admission of such evidence would prejudice him in maintaining his action or defense upon the merits. The court may grant a continuance to enable the objecting party to meet such evidence. 43 16 Phil. 315, 320 [1910]. 44 79 Phil. 80, 91 [1947]. 258 258 SUPREME COURT REPORTS ANNOTATED Salvador vs. Court of Appeals We, however, do not believe that the case should be dismissed for plaintiff’s failure to join her husband. (Sec. 11, Rule 2, Rules of Court). Nor should the case be remanded to the court below and a new trial ordered on this account. The complaint may and should be amended here, to cure the defect of party plaintiffs, after final decision is rendered. Section 11, Rule 2, and Section 2, Rule 17, explicitly authorize such procedure. As this Court had occasion to say in Quison vs. Salud, (12 Phil., 109, 116), “a second action would be but a repetition of the first and would involve both parties, plaintiffs and defendant, in much additional expense and would cause much delay, in that way defeating the purpose of the section, which is expressly stated to be ‘that the actual merits of the controversy may speedily be determined without regard to technicalities and in the most expeditious and inexpensive manner.’” (See also Diaz vs. De la Rama, 73 Phil., 104)

To avoid further delay in the disposition of this case, we declare Civil Case No. 5174 as thus duly amended. Consequently, Jose Yabo may participate in the partition of the estate of Maria Yabo. The fourth assigned error must then be rejected. In view of the foregoing disquisitions, the appealed judgment should be modified as follows: (a) the former 1/9 share of Pelagia Yabo in Lots No. 6180 and 6080 which she sold to Pastor should be treated as the latter’s exclusive property which should now pertain to the petitioners, his successors-ininterest; and (b) the former 1/9 share of Procopio Yabo in both lots should be divided as follows: 3/4 (respondent Pastor’s 1/2 conjugal share and 1/4 representing his share therein as Maria’s heir) for the spouses Alberto and Elpia Yabo, and 1/4 (representing the share therein of Maria’s collateral relatives as Maria’s heirs) for the private respondents, including Alberto and Jose Yabo. The partition of the two lots in controversy should therefore be made in this wise: (1) 1/9 share of Gaudencia Yabo should be allotted to her heirs or successors-in-interest; (2) 1/9 share formerly belonging to Pelagia Yabo—to the petitioners as successors-in-interest of Pastor Makibalo; (3) 1/9 hereditary share of Maria Yabo to be divided as follows: (a) 1/2 for the petitioners (as successors-in-interest of Pastor Makibalo), and (b) 1/2 for the private respondents, including Jose Yabo or his heirs; 259

VOL. 243, APRIL 5, 1995 259 Salvador vs. Court of Appeals (4) 1/9 share formerly belonging to Procopio Yabo to be divided thus: (a) 3/4 for Spouses Alberto and Elpia Yabo, and (b) 1/4 for the other private respondents, including Jose Yabo or his heirs; (5) 5/9 shares which became the conjugal properties of Pastor Makibalo and Maria Yabo to be divided thus: (a) 3/4 for the petitioners (as successors-in-interest of Pastor Makibalo), and (b) 1/4 for the private respondents, including Jose Yabo or his heirs. In sum, Lots Nos. 6180 and 6080 should be partitioned as follows: 1/9 or 4/36—to Gaudencia Yabo’s heirs or successors-ininterest; 3/4 of 1/9 or 3/36—to the spouses Alberto and Elpia Yabo; 8/36—to the private respondents, including Jose Yabo or his heirs; 21/36—to the petitioners as successors-in-interest of Pastor Makibalo. WHEREFORE, the challenged decision of the Court of Appeals of 8 February 1993 in CA-G.R. CV No. 12839 is AFFIRMED, subject to the modifications indicated above. Upon the finality of this decision, let this case be forthwith remanded to the court a quo for further proceedings on the partition of Lots Nos. 6180 and 6080 in conformity with this decision. No pronouncement as to costs. SO ORDERED.

Padilla (Chairman), Bellosillo, Quiason and Kapunan, JJ., concur. Judgment affirmed with modifications. Note.—Where there are two or more heirs, the whole estate of the decedent is before its partition, owned in common by such heirs. (Mendoza vs. Court of Appeals, 199 SCRA 778 [1991]) ——o0o—— [Salvador vs. Court of Appeals, 243 SCRA 239(1995)]

No. L-63575. January 20, 1988.*FIRST DIVISION. ROSA GICANO and NENITA GEOLLEGUE, petitioners, vs. ROSA GEGATO, RESURRECCION GEGATO and CATALINA GEGATO, respondents. Civil Law; Land Titles; Property; Prescription; Constructive Trust; An action to recover an immovable from a defendant allegedly holding it under a constructive trust prescribes in 10 years from issuance of title to the defendant.—An action to recover an immovable from a defendant allegedly holding it under a constructive trust prescribes in ten (10) years, counted from the issuance of title to said defendant; so we have ruled in a number of cases; and so we rule in this case. Same; Same; Same; Same; Same; The action to recover property which was filed only after 23 years from the issuance of the title to the property on the supposedly fraudulent sale, had been extinguished by prescription.—But the action instituted by the plaintiffs Rosa Gegato, et al. was not one to declare the deed of sale of August 23, 1952, void ab initio, for lack of cause or object in accordance with Article 1409 of the Civil Code, which is really imprescriptible, but to annul it on account of fraud, on the theory of constructive trust, which prescribes in ten (10) years. In the case at bar, Rosa Gegato and her minor children by her deceased husband, Maximo Juanico (said children being represented by their judicial guardian, Raymundo Pundon) had executed a deed of sale and acknowledged it before a notary public which, upon its face, transferred the entirety of Maximo Juanico’s right, share and interest in Lot 181 to Rosa Gicano. Now, if it be true that they were deceived into executing that deed of sale by Rosa Gicano, who taking advantage of their ignorance had made them

believe that the deed conveyed only 1/3 of the children’s share in their inheritance from their father, they certainly had the right to sue Rosa Gicano, and after presenting evidence of the fraud perpetrated upon them, recover so much of the property as they had never intended to transfer and recover the damages thereby suffered by them. But they certainly did not have all the time in the world to bring that suit. They had to do it within ten (10) years from the issuance to Rosa Gicano of title to the property on the strength of the supposedly fraudulent deed of sale. They did not file their action within this statutory period. They filed it only after twenty-three (23) years. When filed, their action had already been extinguished by prescription. They had slept on their rights. Time eroded their right _______________ * FIRST DIVISION. 141 VOL. 157, JANUARY 20, 1988 141 Gicano vs. Gegato of action and ultimately erased it, as a sand castle on a shore is slowly and inexorably obliterated by the rising tide. Same; Same; Same; Same; Same; Motion to dismiss on ground of prescription; Trial courts have authority and discretion to dismiss an action on the ground of prescription when the parties’ pleadings or other facts on record shows it to be indeed time-barred.—Their action was therefore correctly dismissed, even without a trial on the merits being first had. We have ruled that trial courts have authority and discretion to dismiss an action on the ground of prescription when the parties’ pleadings or other facts on record show it to be indeed time-

barred; (Francisco v. Robles, Feb. 15, 1954; Sison v. McQuaid, 50 O.G. 97; Bambao v. Lednicky, Jan. 28, 1961; Cordova vs. Cordova, Jan. 14, 1958; Convets, Inc. v. NDC, Feb. 28, 1958, 32 SCRA 529; Sinaon v. Sorongan, 136 SCRA 408); and it may do so on the basis of a motion to dismiss, or an answer which sets up such ground as an affirmative defense; or even if the ground is alleged after judgment on the merits, as in a motion for reconsideration; or even if the defense has not been asserted at all, as where no statement thereof is found in the pleadings, or where a defendant had been declared in default. What is essential only, to repeat, is that the facts demonstrating the lapse of the prescriptive period, be otherwise sufficiently and satisfactorily apparent on the record; either in the averments of the plaintiffs complaint, or otherwise established by the evidence. PETITION to review the decision of the Court of Appeals. The facts are stated in the opinion of the Court. NARVASA, J.: An action to recover an immovable from a defendant allegedly holding it under a constructive trust prescribes in ten (10) years, counted from the issuance of title to said defendant: so we have ruled in a number of cases;1Sinaon v. Sorongan, 136 SCRA 40; Amerol, et al. v. Bagumbaran, G.R. No. L-33621, Sept. 30, 1987; Guerrero v. C.A., 126 SCRA 109; Vda. de Pama v. Pama, 124 SCRA 377, citing Diaz v. Gorricho, 103 Phil. 261; Candelaria v. Romero, 109 Phil. 500 and J.M. Tuason... and so We rule in this case. _______________

1 Sinaon v. Sorongan, 136 SCRA 40; Amerol, et al. v. Bagumbaran, G.R. No. L-33621, Sept. 30, 1987; Guerrero v. C.A., 126 SCRA 109; Vda. de Pama v. Pama, 124 SCRA 377, citing Diaz v. Gorricho, 103 Phil. 261; Candelaria v. Romero, 109 Phil. 500 and J.M. Tuason v. Magdangal, 114 Phil. 42; Tongoy v. C.A., 123 SCRA 99, citing Tongoy v. C.A., supra; J.M. Tuason v. Magdangal, supra; Escay, v. C.A., 61 SCRA 370 and Bonaga v. Soler, 2 SCRA 755. 142 142 SUPREME COURT REPORTS ANNOTATED Gicano vs. Gegato This case concerns a rather large tract of land, with an area of 225,322 square meters, situated in Hinigaran, Negros Occidental. The land, known as Lot 818, was originally owned, at least as far as this case is concerned, by two co-owners in equal shares: (1) Maximo Juanico, married to Rosa Gegato, and (2) Matilde Geolingo, married to Dionisio Mongcal. Their co-ownership was so set out in their certificate of title, TCT No. 30009.2Rollo, p. 25. Maximo Juanico died on May 21, 1942, survived by his wife, the aforenamed Rosa Gegato, and three (3) minor children: Presentacion, Resurreccion, and Catalina.3Id., p. 26. The other co-owner, Matilde Geolingo, and her husband, Dionisio Mongcal, also died; and their only child, Loreto Mongcal, executed an affidavit adjudicating to herself, as sole heir, her mother’s one-half (1/2) share in Lot 818.4Sec. 1, Rule 74 of the Rules of Court. That share she sold on December 14, 1951 to Rosa Gicano. In virtue thereof, TCT No. 30009 of the

original co-owners was cancelled and a new one, TCT No. 8878, was issued in the names of (1) Maximo Juanico, married to Rosa Gegato (1/2 share) and (2) Rosa Gicano, married to Gorgonio Geollegue (1/2 share).5Id., pp. 25-26. On August 23, 1952, a document was executed which gave rise to the controversy at bar. That document purported to be a Deed of Sale, or more properly, a deed of dacion en pago de deuda, intended to satisfy a debt of P2,333.33 of the late Maximo Juanico to Rosa Gicano by the conveyance, according to the express terms of the document, of said Maximo Juanico’s one-half (1/2) share in Lot 818. It was signed by Rosa Gegato and her second husband, Raymundo Pundon. The latter took part in the transaction as judicial guardian of two (2) of Rosa’s surviving minor children, Resurreccion and Catalina—the third, Presentacion, having earlier died without issue. It was acknowledged by them before Notary Public Vicente T. Remitio. The sale was registered, TCT No. 8878 was cancelled, and on September 8, 1952 the Register of Deeds issued TCT No. 10189, covering the entirety of Lot 818, solely in the name of Rosa Gicano, married to Gorgonio Geollegue.6Id., pp. 26-27. _______________ 2 Rollo, p. 25. 3 Id., p. 26. 4 Sec. 1, Rule 74 of the Rules of Court. 5 Id., pp. 25-26. 6 Id., pp. 26-27. 143 VOL. 157, JANUARY 20, 1988 143

Gicano vs. Gegato Twenty-three (23) years afterwards, or on February 13, 1976, Rosa Gegato and her daughters, Resurreccion and Catalina, brought an action in the Court of First Instance of Negros Occidental against Rosa Gicano and her husband, Gorgonio Geollegue, to compel the latter to reconvey Lot No. 818 to them and/ or pay damages.7Id., p. 19. Rosa Gegato and her daughters alleged that it had never been their intention to transfer the entire one-half (1/2) share in Lot No. 818 to Rosa Gicano in payment of Maximo Juanico’s debt in the sum of P2,333.33, but only one-third of the share of the minors in said undivided half of the property; that they were deceived into believing that it was only this one-third interest which was really being conveyed by the Deed of Sale of August 23, 1952, and it was on that understanding that Rosa Gegato and her minor children’s judicial guardian, Raymundo Pundon, had signed the deed, both of them being unable to read and write English; that they discovered the fraud perpetrated on them only in 1975, when they hired a surveyor to partition the property and the latter informed them that title to Lot No. 818 had long since issued solely in the name of Nenita Geollegue, who had purchased it from her mother, Rosa Gegato Geollegue and had in due course obtained title in her name, TCT 31543, on June 23, 1964; and that on October 17, 1974, said Nenita Geollegue had mortgaged the lot to the Philippine Commercial and Industrial Bank as security for a loan of P156,000.00.8Id., p. 27. Rosa Gicano and her co-defendants filed a motion to dismiss the complaint alleging as grounds therefor, plaintiffs’ lack of

cause of action, laches, estoppel, and prescription.9Id., p. 25. The Trial court denied the motion in so far as it was based on the first ground, lack of cause of action.10The proper ground, of course, is not that plaintiffs have no cause of action, but that their complaint fails to state a cause of action. Sec. 1, g, Rule 16, Rules of Court. It deferred resolution thereon as regards the other grounds until after trial on the merits.11Rollo, p. 25, N.B. Sec. 3, Rule 16, states that “After hearing, the Court may deny or grant the motion to allow amendment of pleading or may defer the hearing and determination of the motion until the trial if the ground alleged therein does not appe... _______________ 7 Id., p. 19. 8 Id., p. 27. 9 Id., p. 25. 10 The proper ground, of course, is not that plaintiffs have no cause of action, but that their complaint fails to state a cause of action. Sec. 1, g, Rule 16, Rules of Court. 11 Rollo, p. 25, N.B. Sec. 3, Rule 16, states that “After hearing, the Court may deny or grant the motion to allow amendment of pleading or may defer the hearing and determination of the motion until the trial if the ground alleged therein does not appear to be indubitable.” 144 144 SUPREME COURT REPORTS ANNOTATED Gicano vs. Gegato Subsequently, however, after considering the pre-trial briefs and memoranda submitted by the parties in connection with the

pre-trial, and without scheduling the case for trial on the merits any longer, the Trial Court promulgated an Order dismissing the complaint on the ground of prescription and laches.12Rollo, p. 25. It opined that the action, being one for reconveyance predicated on an implied trust, prescribed in 10 years, commencing from the date that the initial document of transfer was registered and title issued; and since 23 years had already elapsed on the day of the institution of the action at bar, reckoned from the registration of the deed of sale and issuance of title, the suit was time-barred. The Trial Court’s Order was however reversed by the Court of Appeals, on an appeal taken by Rosa Gegato, et al., and the case was remanded with instructions that a full dress trial on the merits be conducted. In its Decision promulgated on May 26, 1982,13Sison, P., J., ponente. the Appellate Court declared that the outright dismissal of complaint on the ground of prescription was premature and violative of due process because it denied the parties the opportunity to prove their claims and defenses. It also held that the action was not in truth time-barred. The Appellate Court’s reasoning does not however appear persuasive. It said that absent any proof to the contrary, the one-half (1/2) share of the deceased Maximo Juanico in Lot 818, originally owned in common by him with Matilde Geolingo, must be presumed to be conjugal in character; hence, only one-half (1/2) of said half constituted the estate of Maximo Juanico upon his death, the other half pertaining in ownership to his widow, Rosa Gegato, as her conjugal share; hence, Rosa Gegato’s conjugal share could not have been meant to be included in the Deed of Sale of August 23, 1952, there being nothing in its language in fact to show

this, and that deed was valid only in so far as concerned the transfer of 1/3 of her children’s inheritance, but void as regards the remaining 2/3 for lack of cause or object in accordance with Article 1409 of the Civil Code, the action to declare its illegality being imprescriptible under Article 1410 of the same Code. But the action instituted by the plaintiffs Rosa Gegato, et al. was not one to declare the deed of sale of August 23, 1952 void ab _______________ 12 Rollo, p. 25. 13 Sison, P., J., ponente. 145 VOL. 157, JANUARY 20, 1988 145 Gicano vs. Gegato initio, for lack of cause or object in accordance with Article 1409 of the Civil Code, which is really imprescriptible, but to annul it on account of fraud, on the theory of constructive trust, which prescribes in ten (10) years. In the case at bar, Rosa Gegato and her minor children by her deceased husband, Maximo Juanico (said children being represented by their judicial guardian, Raymundo Pundon) had executed a deed of sale and acknowledged it before a notary public which, upon its face, transferred the entirety of Maximo Juanico’s right, share and interest in Lot 181 to Rosa Gicano. Now, if it be true that they were deceived into executing that deed of sale by Rosa Gicano, who taking advantage of their ignorance had made them believe that the deed conveyed only 1/3 of the

children’s share in their inheritance from their father, they certainly had the right to sue Rosa Gicano, and after presenting evidence of the fraud perpetrated upon them, recover so much of the property as they had never intended to transfer, and recover the damages thereby suffered by them. But they certainly did not have all the time in the world to bring that suit. They had to do it within ten (10) years from the issuance to Rosa Gicano of title to the property on the strength of the supposedly fraudulent deed of sale.14See cases collated at footnote 1, supra. They did not file their action within this statutory period. They filed it only after twenty-three (23) years. When filed, their action had already been extinguished by prescription. They had slept on their rights. Time eroded their right of action and ultimately erased it, as a sand castle on a shore is slowly and inexorably obliterated by the rising tide. Their action was therefore correctly dismissed, even without a trial on the merits being first had. We have ruled that trial courts have authority and discretion to dismiss an action on the ground of prescription when the parties’ pleadings or other facts on record show it to be indeed time-barred; (Francisco v. Robles, Feb. 15, 1954; Sison v. McQuaid, 50 O.G. 97; Bambao v. Lednicky, Jan. 28, 1961; Cordova v. Cordova, Jan. 14, 1958; Convets, Inc. v. NDC, Feb. 28, 1958, 32 SCRA 529; Sinaon v. Sorongan, 136 SCRA 408); and it may do so on the basis of a motion to dismiss,15Sec. 1, f, Rule 16, Rules of Court. or an answer which sets up such ground as an affirmative de_______________ 14 See cases collated at footnote 1, supra. 15 Sec. 1, f, Rule 16, Rules of Court.

146 146 SUPREME COURT REPORTS ANNOTATED Gicano vs. Gegato fense;16Sec. 5, Rule 16. or even if the ground is alleged after judgment on the merits, as in a motion for reconsideration;17Ferrer v. Ericta, 84 SCRA 705. or even if the defense has not been asserted at all, as where no statement thereof is found in the pleadings,18Garcia v. Mathis, 100 SCRA 250; PNB v. Pacific Commission House, 27 SCRA 766; Chua Lamco v. Dioso, et al., 97 Phil. 821. or where a defendant has been declared in default.19PNB v. Perez, 16 SCRA 270. What is essential only, to repeat, is that the facts demonstrating the lapse of the prescriptive period, be otherwise sufficiently and satisfactorily apparent on the record: either in the averments of the plaintiffs complaint, or otherwise established by the evidence. WHEREFORE, the Decision of the Court of Appeals promulgated on May 26, 1982 is REVERSED, and the Order of the Trial Court dated October 29, 1976 dismissing the action for reconveyance and damages instituted by respondents Rosa Gegato, et al. on the ground of prescription is REINSTATED and AFFIRMED as being in accord with the relevant facts and the law. Costs against respondents. Teehankee (C.J.), Cruz, Paras**Designated a Special Member of the First Division. and Gancayco, JJ., concur. Decision reversed. Order reinstated and affirmed. Notes.—Reliance on certificate of title sufficient, even if the sale was void, as the functionings of the Torrens system of registration is involved. (Duran vs. IAC, 138 SCRA 489).

Ten years of adverse possession of the land is required under Section 41 of the Code of Civil Procedure. (Espiritu vs. C.A., 137 SCRA 50). ——o0o—— [Gicano vs. Gegato, 157 SCRA 140(1988)]

G.R. No. 82680. August 15, 1994.*FIRST DIVISION. NICANOR SOMODIO, petitioner, vs. COURT OF APPEALS, EBENECER PURISIMA and FELOMINO AYCO, respondents. Appeals; Findings of fact of the Court of Appeals are generally binding on the Supreme Court; When the factual findings of the Court of Appeals and the trial court are contrary to each other, the Supreme Court may scrutinize the evidence on record.—The procedural issue raised by private respondents should first be resolved. The issue is whether the instant petition is proper considering that petitioner “merely touch(es) upon questions of fact which had been carefully considered” by the Court of Appeals (Rollo, p. 92). As a general rule, the findings of fact of the Court of Appeals are binding on this Court. This rule, however, is not without exceptions, one of which is when the factual findings of the Court of Appeals and the trial court are contrary to each other. In such a case, this Court may scrutinize the evidence on record in order to arrive at the correct findings based on the record (Valenzuela v. Court of Appeals, 191 SCRA 1 [1990] Roman Catholic Bishop of Malolos, Inc. v. Intermediate Appellate Court, 191 SCRA 411 [1990]). Ejectment; Possession; Ownership; The only issue for resolution in ejectment cases is who is entitled to the physical or material possession of the property involved, independent of any claim of ownership.—In ejectment cases, the only issue for resolution is who is entitled to the physical or material possession of the property involved, independent of any claim of ownership set forth by any of the party-litigants. Anyone of them who can prove prior possession de facto may recover

such possession even from the owner himself. This rule holds true regardless of the character of a party’s possession, provided that he has in his favor priority of time which entitles him to stay on the property until he is lawfully ejected by a person having a better right by either accion publiciana or accion reivindicatoria (De Luna v. Court of Appeals, 212 SCRA 276 [1992]). Same; Same; Same; Possession in the eyes of the law does not mean that a man has to have his feet on every square meter of ground before it can be said that he is in possession.— Petitioner took possession of the property sometime in 1974 when he planted the property to coconut trees, ipil-ipil trees and fruit trees. In 1976, he started the _______________ * FIRST DIVISION. 308 308 SUPREME COURT REPORTS ANNOTATED Somodio vs. Court of Appeals construction of a building on the property. It is immaterial that the building was unfinished and that he left for Kidapawan for employment reasons and visited the property only intermittently. Possession in the eyes of the law does not mean that a man has to have his feet on every square meter of ground before it can be said that he is in possession (Ramos v. Director of Lands, 39 Phil. 175 [1918]). It is sufficient that petitioner was able to subject the property to the action of his will. Same; Same; Same; Forcible entry is merely a quieting process and never determines the actual title to an estate.—Petitioner’s prior possession over the property, however, is not

synonymous with his right of ownership over the same. As earlier stated, resolution of the issue of possession is far from the resolution of the issue of ownership. Forcible entry is merely a quieting process and never determines the actual title to an estate (German Management & Services, Inc. v. Court of Appeals, 177 SCRA 495 [1989]; Manuel v. Court of Appeals, 199 SCRA 603 [1991]). PETITION for review on certiorari to reverse and set aside a decision of the Court of Appeals. The facts are stated in the opinion of the Court. Jose V. Panes for petitioner. Vencer, Purisima & Associates for private respondents. QUIASON, J.: This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court to reverse and set aside the Decision dated September 29, 1987 and the Resolution dated February 2, 1988 of the Court of Appeals in CA-G.R. SP No. 11602. I On October 21, 1974, Jose Ortigas executed an instrument designated as a Transfer of Rights, conveying to Wilfredo Mabugat the possession of a residential lot situated at Rajah Muda, Bula, General Santos City and described in the said instrument as: “Lot No. (Unnumbered), bounded on the North by Temporary Road, on the South by Customs Zone (Sarangani Bay), on the East by Public Land, and on the West by Public Land.” Nicanor Somodio, herein petitioner, contributed one-half of the purchase price. On October 22, 1974, Mabugat executed an 309

VOL. 235, AUGUST 15, 1994 309 Somodio vs. Court of Appeals Affidavit of Trust expressly recognizing the right of petitioner over one-half undivided portion of the lot. Later, petitioner discovered in the District Land Office that the lot was numbered “6328-X, Csd 2281-D.” Thereafter, petitioner and Mabugat partitioned the property into two portions, with petitioner taking the western part. Immediately after the partition, petitioner took possession of his portion and planted thereon ipil-ipil trees, coconut trees and other fruit-bearing trees. In 1976, petitioner began construction of a structure with a dimension of 22-by-18 feet on his lot. His employment, however, took him to Kidapawan, North Cotabato, and he left the unfinished structure to the care of his uncle. He would visit the property every three months or on weekends when he had time. Sometime in October 1977, petitioner allowed respondent Felomino Ayco, to transfer his hut to petitioner’s lot. About six years later, petitioner demanded that Ayco vacate the premises but such demand proved futile. Hence, on August 23, 1983, petitioner filed an action for unlawful detainer with damages against respondent Ayco before the Municipal Trial Court, Branch I, General Santos, docketed as Civil Case No. 2032-II. Meanwhile, on June 26, 1983, respondent Ebenecer Purisima entered the land and constructed a house thereon. Four days later, petitioner filed against respondent Purisima a complaint for forcible entry before the same court docketed as Civil Case

No. 2013-I. Said case was later consolidated with Civil Case No. 2032-II. In his answer, respondent Purisima averred that the lot was a portion of the land subject of his application for miscellaneous sales patent with the Bureau of Lands. Purisima described the lot in question as: “Lot No. 6328-Y, CSD-2281-D, Bula, General Santos, Cotabato. Bounded on the North by 6328-X; on the South by Sarangani Bay; on the East by a Municipal Road; and on the West by Lot No. 6328-W, containing an area of 1,095 square meters and covered by Tax Declaration No. 9647” (Rollo, p. 36; Italics supplied). Respondent Purisima contended that his father, a geodetic engineer, had surveyed the parcel of land comprising of Lots Nos. 6427 and 6328 for the Small Farmers Fishpond Association, Inc. in February 1958, and that his father’s survey plan was approved 310 310 SUPREME COURT REPORTS ANNOTATED Somodio vs. Court of Appeals by the Director of Lands in 1960. Respondent Ayco, on the other hand, did not present any evidence but merely anchored his right to possess the property on the evidence of Purisima. On April 30, 1986, the trial court rendered a decision finding that respondent Purisima built his house “almost on the spot where Somodio’s unfinished house” stood “thru stealth and strategy,” not knowing that the house was built on Lot No.

6328-X and not on Lot No. 6328-Y, the lot said respondent was claiming (Rollo, p. 43). The court went on to state that: “x x x. He (private respondent Purisima) was a frequent visitor in Rajah Muda and had sometimes stayed with Mrs. Maturan in Judge Purisima’s house on the adjoining lots, and could not have remained unaware of the possession of Somodio. He must have depended on the thought that it was his father who made the subdivision survey and had fenced an area which he had claimed. He did not exactly verify that the area fenced by his father had an area of only 1,095 square meters, which did not include the area Lot No. 6328-X. As the situation exists, there is no expectation on his part that his house on Lot No. 6328-X could eventually be standing on his property, for Lot No. 6328X is not claimed by him and has not been applied for even by his father. His father has been abroad and has not taken steps to apply for Lot No. 6328-X. This lot is not declared for taxation purposes in the name of any claimant-applicant. Unless and until there would be an administrative proceedings and the title ultimately issued in favor of an applicant, the possession of the actual claimant and occupant has to be respected and maintained in the interest of public order x x x” (Rollo, pp. 4344). The Municipal Trial Court further held that petitioner was the actual possessor of Lot No. 6328-X. The court did not believe respondent Ayco’s claim that the administratrix of the estate of respondent Purisima’s father authorized him to build a hut on Lot No. 6328-X in 1976. At any rate, the court said that respondent Ayco was willing to vacate the premises provided he be given financial assistance to do so (Rollo, pp. 43-44).

Noting that the ocular inspection of the area showed that the houses of respondents Purisima and Ayco were “inside Lot No. 6328-X” and not on Lot No. 6328-Y, the Municipal Trial Court held that the case became one which entailed mere removal of the houses from the lot in question. Accordingly, the court ordered private respondents to remove their respective houses, to deliver the land to petitioner, and to pay attorney’s fees and 311 VOL. 235, AUGUST 15, 1994 311 Somodio vs. Court of Appeals litigation expenses. On appeal, the Regional Trial Court, Branch 22, General Santos City, affirmed in toto the decision of the Municipal Trial Court. Respondents then elevated the cases on a petition for review to the Court of Appeals, which, in its decision dated September 27, 1987, set aside the decisions of the two trial courts and ordered the dismissal of the two complaints filed by petitioner. The Court of Appeals held that herein petitioner had not “clearly and conclusively established physical, prior possession over Lot No. 6328-X.” Petitioner’s motion for the reconsideration of the decision of the Court of Appeals having been denied, he filed the instant petition for review on certiorari. We grant the petition. II The procedural issue raised by private respondents should first be resolved. The issue is whether the instant petition is proper

considering that petitioner “merely touch(es) upon questions of fact which had been carefully considered” by the Court of Appeals (Rollo, p. 92). As a general rule, the findings of fact of the Court of Appeals are binding on this Court. This rule, however, is not without exceptions, one of which is when the factual findings of the Court of Appeals and the trial court are contrary to each other. In such a case, this Court may scrutinize the evidence on record in order to arrive at the correct findings based on the record (Valenzuela v. Court of Appeals, 191 SCRA 1 [1990]; Roman Catholic Bishop of Malolos, Inc. v. Intermediate Appellate Court, 191 SCRA 411 [1990]). Upon a review of the records, we are convinced that petitioner indeed enjoyed priority of possession over Lot No. 6328-X, notwithstanding respondent Purisima’s claim to the contrary. In ejectment cases, the only issue for resolution is who is entitled to the physical or material possession of the property involved, independent of any claim of ownership set forth by any of the party-litigants. Anyone of them who can prove prior possession de facto may recover such possession even from the owner himself. This rule holds true regardless of the character of a party’s possession, provided that he has in his favor priority of 312 312 SUPREME COURT REPORTS ANNOTATED Somodio vs. Court of Appeals time which entitles him to stay on the property until he is lawfully ejected by a person having a better right by either accion publiciana or accion reivindicatoria (De Luna v. Court

of Appeals, 212 SCRA 276 [1992]). Petitioner took possession of the property sometime in 1974 when he planted the property to coconut trees, ipil-ipil trees and fruit trees. In 1976, he started the construction of a building on the property. It is immaterial that the building was unfinished and that he left for Kidapawan for employment reasons and visited the property only intermittently. Possession in the eyes of the law does not mean that a man has to have his feet on every square meter of ground before it can be said that he is in possession (Ramos v. Director of Lands, 39 Phil. 175 [1918]). It is sufficient that petitioner was able to subject the property to the action of his will. Article 531 of the Civil Code of the Philippines provides: “Possession is acquired by the material occupation of a thing or the exercise of a right, or by the fact that it is subject to the action of our will, or by the proper acts and legal formalities established for acquiring such right.” Even if the Court of Appeals is correct in its finding that petitioner started introducing improvements on the land only in 1981, he still enjoyed priority of possession because respondent Purisima entered the premises only in 1983. It should be emphasized that the Court of Appeals noted that none of the parties had produced tax declarations or applications as public land claimants. As such, what should have been scrutinized is who between the claimants had priority of possession. Moreover, neither is the fact that respondent Purisima’s father surveyed the property of help to his cause. As the Court of Appeals found, respondent Purisima’s father surveyed the land for the Small Farmers Fishpond Association, Inc., not for

himself. Although respondent Purisima now claims that Lot No. 6328-X was in payment of his fee for the services of his father and that he caused the construction of a perimeter wall in the area, these facts do not mean that respondent Purisima himself had prior possession. He did not present any proof that his father had authorized him to enter the land as his successorin-interest. 313 VOL. 235, AUGUST 15, 1994 313 Somodio vs. Court of Appeals Neither did he present proof that between 1958, when his father allegedly took possession of the land, and 1983, when said respondent himself entered the land, his father ever exercised whatever right of possession he should have over the property. Under these circumstances, priority in time should be the pivotal cog in resolving the issue of possession. The Court of Appeals opined that petitioner had not properly identified the lot he had occupied. The matter of identification of the land, however, had been resolved by respondent Purisima’s admission in his pleadings, as well as by two ocular inspections. In his answer to the complaint, respondent Purisima claimed possession over Lot No. 6328-Y, while petitioner identified the lot adjacent to it, Lot No. 6328-X, as the area where private respondents built their houses. That these two lots are distinct from one another was resolved by the ocular inspection conducted by a Senior Geodetic Engineer of the Office of the City Engineer, who found that “south of lot 6328-H across a

10-meter wide road is lot 6328-Y and from thence to the south is lot 6328-X.” On June 13, 1985, the Municipal Trial Court judge himself went to the premises in question and discovered that aside from the houses of respondents Purisima and Ayco, five other houses had been built on Lot No. 6328-X. Petitioner’s prior possession over the property, however, is not synonymous with his right of ownership over the same. As earlier stated, resolution of the issue of possession is far from the resolution of the issue of ownership. Forcible entry is merely a quieting process and never determines the actual title to an estate (German Management & Services, Inc. v. Court of Appeals, 177 SCRA 495 [1989]; Manuel v. Court of Appeals, 199 SCRA 603 [1991]). WHEREFORE, the decision of the Court of Appeals is REVERSED and SET ASIDE and that of the trial courts REINSTATED. Costs against private respondents. SO ORDERED. Davide, Jr., Bellosillo and Kapunan, JJ., concur. Cruz (Chairman), J., On official leave. Judgment reversed and set aside, and that of the trial court reinstated. 314 314 SUPREME COURT REPORTS ANNOTATED Policarpio vs. RTC of Quezon City, Br. 83 Note.—The rule is that pendency of an action for annulment of sale and reconveyance may not be successfully pleaded in abatement of an action for unlawful detainer or forcible entry.

(Asset Privatization Trust vs. Court of Appeals, 229 SCRA 627 [1994]) [Somodio vs. Court of Appeals, 235 SCRA 307(1994)]

G.R. No. 155634. August 16, 2004.*THIRD DIVISION. REPUBLIC OF THE PHILIPPINES, represented by the SOCIAL SECURITY SYSTEM, petitioner, vs. JERRY V. DAVID, respondent. Civil Law; Contracts; In construing a contract, it is a fundamental task to ascertain the intention of the contracting parties.—In construing a contract, it is a fundamental task to ascertain the intention of the contracting parties. As a rule, such intention is determined by looking at the words used—at all the words rather than at a particular word or two; and at words in context rather than just words standing alone. _______________ * THIRD DIVISION. 578 578 SUPREME COURT REPORTS ANNOTATED Republic vs. David Same; Same; The ascertained intention of the parties is deemed an integral part of the contract, as though it has been originally expressed in unequivocal terms; The reasonableness of the result obtained, after analysis and construction of a contract, must also be carefully considered.—Under Article 1374 of the Civil Code, “the various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly.” The ascertained intention of the parties is deemed an integral part of the contract, as though it has been originally expressed in unequivocal terms. And the reasonableness of the result obtained, after analysis and construction of a contract, must also be carefully considered.

Same; Same; The primary intention behind the stipulation is to restrict the sale, the use and the benefit of the housing units to SSS employees and their immediate families only.—Plainly, the primary intention behind the above-quoted stipulations is to restrict the sale, the use and the benefit of the housing units to SSS employees and their immediate families only. This objective is in line with that of the SSS housing loan program—to aid its employees in acquiring their own dwelling units at a low cost. Such intent, draws life also from the social justice policy of RA 1161, as amended, otherwise known as the “Social Security System Law” granting direct housing loans to covered employees and giving priority to lowincome groups. Same; Same; Both actual occupancy and possession at all times, not just one or the other, were imposed as conditions upon respondent.—It is easily discernible, therefore, that both “actual occupancy” and “possession at all times”—not just one or the other—were imposed as conditions upon respondent. The word and—whether it is used to connect words, phrases or full sentences—must be accepted in its common and usual meaning as “binding together and as relating to one another.” And implies a conjunction, joinder or union. Thus, respondent had to comply with not one, but two, concurring conditions— actual occupancy and possession at all times. Same; Same; Adhesion; A contract of adhesion—wherein one party imposes a ready-made form of contract on the other—is not strictly against the law.—Neither can respondent assail the validity of the Contract as a one-sided “take it or leave it” agreement. To begin with, a contract of ad-hesion—wherein one party imposes a ready-made form of contract on the other—is not strictly against the law. The terms of the

agreement cannot be modified, but can be freely rejected in its entirety, by the other party. On the other hand, the latter’s adherence thereto would mean consent. Same; Same; Rescission; The rescission contemplated under Article 1191 is a principal action for “resolution,” which is based on a breach by a party of its reciprocal obligations.—As noted in previous cases, the rescis579 VOL. 436, AUGUST 16, 2004 579 Republic vs. David sion contemplated under Article 1191 is a principal action for “resolution,” which is based on a breach by a party of its reciprocal obligations. Same; Same; Same; Mutual restitution must follow rescission.— Doctrinally, mutual restitution must follow rescission. Under Article 1385 of the Civil Code, “rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interests x x x.” Moreover, “[t]o rescind is to declare a contract void at its inception and to put an end to it as though it never was.” Hence, rescission restores the parties to their relative positions, as if no contract has been made. Paragraph 11, cited above, supports the mutual restitution required in rescission. PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. The Solicitor General for petitioner. Fregillana, Jr. D.D. for respondent. PANGANIBAN, J.:

Under the terms of the subject Contract, “actual possession” cannot be equated with “actual occupancy.” Inasmuch as the housing unit was physically occupied by parties other than those intended to be benefited by the housing program of the Social Security System, there was a clear violation of the Contract. Since respondent did not comply with his obligations, rescission is proper. The Case Before us is a Petition for Review1Rollo, pp. 18-63. under Rule 45 of the Rules of Court, assailing the October 9, 2002 Decision2Id., pp. 65-70. Penned by Justice Elvi John S. Asuncion and concurred in by Justices Portia AliñoHormachuelos (Division chair) and Juan Q. Enriquez, Jr. (member). of the Court of Appeals (CA) in CA-G.R. CV No. 61374. The appellate court disposed as follows: _______________ 1 Rollo, pp. 18-63. 2 Id., pp. 65-70. Penned by Justice Elvi John S. Asuncion and concurred in by Justices Portia Aliño-Hormachuelos (Division chair) and Juan Q. Enriquez, Jr. (member). 580 580 SUPREME COURT REPORTS ANNOTATED Republic vs. David “WHEREFORE, the instant appeal is DENIED for lack of merit. The decision of the Regional Trial Court, Quezon City, Branch 105, in Civil Case No. Q-96-27031 is hereby AFFIRMED.”3CA Decision, p. 5; Rollo, p. 69. The Facts

The CA narrated the facts thus: “x x x [Respondent] Jerry V. David is an employee of the SSS, formerly assigned at its Membership (Backroom) Department. Pursuant to its Employees’ Housing Loan Program, SSS awarded David a house and lot located at North Fairview, Quezon City. A Deed of Conditional Sale over the subject property was thereafter executed between the parties. “On reports that numerous violations have been committed by some of the housing awardees in connection with the conditions governing their sales, SSS conducted an investigation on the matter. The investigation revealed that in the case of [Respondent] David, he committed two (2) violations of his deed of conditional sale, to wit: (1) neither the [respondent] nor his immediate family resided and/or occupied the said housing unit, and (2) he allowed a certain Buenaventura Penus to possess and occupy the property. “As a consequence of these violations, SSS sent a letter to David formally revoking, terminating and/or rescinding the deed of conditional sale. However, the latter refused to vacate and surrender possession of the subject property, prompting SSS to institute a complaint with the Quezon City RTC on March 28, 1996 revoking the deed of conditional sale and likewise praying for the issuance of a writ of possession in its favor. “During the pre-trial of the case, the court observed that while the complaint was captioned ‘Petition for Recovery of Possession with [P]rayer for Issuance of a Writ of Possession,’ an examination of its body shows that the prayer was actually for the rescission of the deed of conditional sale. For this reason, the court ordered the amendment of the complaint and

in compliance thereto, [petitioner] submitted its amended complaint on March 19, 1997. “[Respondent] David denied the alleged violations of the deed of conditional sale, stating that Buenaventura Penus, alluded to by the [petitioner] as possessor-occupant of the subject property, was in fact a caretaker until and after the necessary renovations and modifications on the house were made. “In a [D]ecision dated July 1, 1998, the court a quo dismissed the complaint and adjudged the [petitioner] liable for costs. The dispositive portion of the trial court’s decision reads: _______________ 3 CA Decision, p. 5; Rollo, p. 69. 581 VOL. 436, AUGUST 16, 2004 581 Republic vs. David ‘WHEREFORE, in the light of the foregoing, the Amended Complaint is dismissed, with costs against the plaintiff. ‘SO ORDERED.’ “In dismissing the complaint, the court ruled that the [petitioner] failed to prove that the [respondent] purchased the subject property for the use and benefit of another undisclosed party and not for his exclusive use, or that the defendant sold, assigned, encumbered, mortgaged, leased, subleased or in any manner altered or disposed of the subject property or his rights thereto at any other time. In arriving at its [D]ecision, the lower court considered the testimony of the [respondent] that when the subject property was delivered to him on October 23, 1992, the unit was not habitable so he had to make a few

constructions thereon. He secured the services of his cousin, Buenaventura Penus, to be the caretaker while construction on the house was going on. With this, the court concluded that possession, as a condition of the deed of sale between the parties, was sufficiently satisfied. “Aggrieved, [Petitioner] SSS brought [an] appeal [to the CA], arguing that the court a quo erred in holding that [respondent] did not violate the terms and conditions of the Deed of Conditional Sale and in consequently dismissing the case.”4Id., pp. 1-3 & 65-67. Ruling of the Court of Appeals Affirming the trial court, the CA ruled that while other persons had been found occupying the subject property, no proof was adduced by petitioner to prove that they had taken possession of it on their own behalf and not merely as respondent’s caretakers. The appellate court added that because of the squalid condition of the property when it was delivered, respondent had to make improvements thereon as well as ask Penus, and later on Oden Domingo, to stay there as caretakers. Through his caretakers, respondent was deemed to have occupied and possessed the property as required by the Deed of Sale between him and petitioner. The CA concluded that the property had clearly been subject to respondent’s will, a fact equivalent to possession under Article 5315Article 531 of the Civil Code provides:“Art. 531. Possession is acquired by the material occupation of a thing or the exercise of a right, or by the fact that it is subject to of the Civil Code. _______________ 4 Id., pp. 1-3 & 65-67. 5 Article 531 of the Civil Code provides:

“Art. 531. Possession is acquired by the material occupation of a thing or the exercise of a right, or by the fact that it is subject to 582 582 SUPREME COURT REPORTS ANNOTATED Republic vs. David Hence, this Petition.6The Petition was deemed submitted for decision on October 27, 2003, upon the Court’s receipt of petitioner’s Memorandum, signed by Solicitor General Alfredo L. Benipayo, Assistant Solicitor General Fernanda Lampas Peralta and Solicitor Elma M. ... Issues In its Memorandum, petitioner raises this sole issue: “whether the Court of Appeals committed reversible error in affirming the Decision of the trial court holding that respondent did not violate the terms and conditions of the Deed of Conditional Sale.”7Petitioner’s Memorandum, p. 10; Rollo, p. 307. Original in upper case. The Court’s Ruling The Petition is meritorious. Sole Issue: Violation of the Terms and Conditions of the Deed of Conditional Sale Petitioner avers that respondent violated the terms and conditions of the Deed of Conditional Sale, when he failed to “actually occupy and possess the property at all times”8Condition 10(c) of the Conditional Deed of Sale; Rollo,

p. 79. and allowed other persons to do so.9This allegedly violated subparagraph (a) of paragraph (10); Ibid. It argues that contrary to the rulings of the trial and the appellate courts, the Deed of Conditional Sale required “actual physical possession at all times,” not just simple possession. It contends that the material occupation of the property by other persons ran counter to the objective of the Social Security System (SSS) housing program to restrict the use and enjoyment of the housing units to SSS employees and their immediate families only. Petitioner likewise submits that the appellate court erred in believing the claim of respondent that the house was uninhabitable _______________ the action of our will, or by the proper acts and legal formalities established for acquiring such right.” 6 The Petition was deemed submitted for decision on October 27, 2003, upon the Court’s receipt of petitioner’s Memorandum, signed by Solicitor General Alfredo L. Benipayo, Assistant Solicitor General Fernanda Lampas Peralta and Solicitor Elma M. Rafallo-Lingan. Respondent’s Memorandum, received on September 29, 2003, was signed by Atty. D. D. Fregillana, Jr. 7 Petitioner’s Memorandum, p. 10; Rollo, p. 307. Original in upper case. 8 Condition 10(c) of the Conditional Deed of Sale; Rollo, p. 79. 9 This allegedly violated subparagraph (a) of paragraph (10); Ibid.

583 VOL. 436, AUGUST 16, 2004 583 Republic vs. David when it was delivered to him in 1992. His claim was belied by his acceptance of the property without protest, as well as by the fact that his alleged caretakers had lived there from 1992 to 1996. Petitioner adds that he should have used his available money to improve the property, if the unit was indeed unlivable, instead of fully settling in advance in December 1992 the unpaid balance of its purchase price. Propriety of Review At the outset, the Court stresses that a question of law has arisen from petitioner’s contention that simple possession under Article 531 of the Civil Code is not the same as “actual occupancy and possession at all times,” as required of respondent under the Deed. Such question—of what law, rule or principle is to govern a given state of facts—is decidedly one of law.10Western Shipyard Services, Inc. v. Court of Appeals, 358 SCRA 257, 264, May 28, 2001; China Road and Bridge Corporation v. Court of Appeals, 348 SCRA 401, 408, December 15, 2000; Spouses Santos v. Court of Appeals, 391 Phil. 739, 748; 337 SCRA 67, August 1... It may be raised in this appeal by certiorari under Rule 45 of the Rules of Court. Rules of Contract Interpretation Certain rules of contract interpretation come to mind at this point. First, in construing a contract, it is a fundamental task to ascertain the intention of the contracting parties.11American Home Assurance Company v. Tantuco Enterprises, Inc., 419 Phil. 201, 211; 366 SCRA 740, October 8, 2001; University

Physicians Services, Inc. v. Court of Appeals, 381 Phil. 54, 72; 324 SCRA 52, January 31, 2000; Cruz v. Court of Appeals, 354 Phil. ... As a rule, such intention is determined by looking at the words used—at all the words rather than at a particular word or two; and at words in context rather than just words standing alone.12Limson v. Court of Appeals , 357 SCRA 209, 216, April 20, 2001; China Banking Corporation v. Court of Appeals, 333 Phil. 158, 168; 265 SCRA 327, 338, December 5, 1996. Indeed, under Article 1374 of the Civil Code, “the various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them _______________ 10 Western Shipyard Services, Inc. v. Court of Appeals, 358 SCRA 257, 264, May 28, 2001; China Road and Bridge Corporation v. Court of Appeals, 348 SCRA 401, 408, December 15, 2000; Spouses Santos v. Court of Appeals, 391 Phil. 739, 748; 337 SCRA 67, August 1, 2000. 11 American Home Assurance Company v. Tantuco Enterprises, Inc., 419 Phil. 201, 211; 366 SCRA 740, October 8, 2001; University Physicians Services, Inc. v. Court of Appeals, 381 Phil. 54, 72; 324 SCRA 52, January 31, 2000; Cruz v. Court of Appeals, 354 Phil. 1036, 1050; 293 SCRA 239, July 27, 1998. See also §12, Rule 130 of the Rules of Court. 12 Limson v. Court of Appeals , 357 SCRA 209, 216, April 20, 2001; China Banking Corporation v. Court of Appeals, 333 Phil. 158, 168; 265 SCRA 327, 338, December 5, 1996.

584 584 SUPREME COURT REPORTS ANNOTATED Republic vs. David taken jointly.” Second, the ascertained intention of the parties is deemed an integral part of the contract, as though it has been originally expressed in unequivocal terms.13Carceller v. Court of Appeals, 362 Phil. 332, 340; 302 SCRA 718, 725, February 10, 1999. And third, the reasonableness of the result obtained, after analysis and construction of a contract, must also be carefully considered.14Id., p. 339. The conditions that were allegedly violated by respondent are contained in paragraph 10 of the Deed of Conditional Sale, as follows: “10. The Contract shall further [provide] the following terms and conditions: (a) The VENDEE is making this purchase for his/her own exclusive use and benefit and not for the use and benefit of another undisclosed party/parties; (b) The purpose of the sale shall be to aid the VENDEE in acquiring a house and lot for himself/herself and/or his/her immediate family, and not to provide him/her with a means for speculation or profit by a future assignment of his/her right herein acquired or the resale of the PROPERTY subject of this Contract. Therefore, the VENDEE, within the first FIVE (5) years of the existence of this contract agrees not to sell, assign, encumber, mortgage, lease, sub-let or in any manner alter or dispose of the property subject hereof, or his rights thereto, at any time, in whole or in part. After the FIVE (5) year period, VENDEE shall have the right to the full disposal of the

property, provided that, VENDEE has been able to fully pay all of his/her obligations herein. However, the foregoing notwithstanding, the VENDEE may x x x at any time with prior consent of the VENDOR transfer his right to the PROPERTY to any eligible employee of the VENDOR, subject, however, to the right of first refusal by the VENDOR who may refund to the VENDEE all of his/her installment payments and the value of substantial improvements introduced by him/her if any, as appraised by the VENDOR; (c) The VENDEE, and his heirs and/or successors, shall actually occupy and be in possession of the PROPERTY at all times; (d) The VENDEE shall not obstruct or interfere in any manner whatsoever with the right of the VENDOR or any of its duly authorized representatives to inspect, survey, repair, lay water pipes, gas, electric and telephone lines or other works of similar purposes; (e) The VENDEE shall abide by and comply with the Vendor’s Occupancy Rules and Regulations the terms and conditions of _______________ 13 Carceller v. Court of Appeals, 362 Phil. 332, 340; 302 SCRA 718, 725, February 10, 1999. 14 Id., p. 339. 585 VOL. 436, AUGUST 16, 2004 585 Republic vs. David which are made an integral part hereof by reference, as well as that issued by any other governmental authority which may,

from time to time, be promulgated in regard to the use and preservation of the house and lot; (f) The VENDEE warrants in full the truth of the representation made in his/her Application For EMPLOYEE HOUSING LOAN, the terms of which are likewise made an integral part hereof by reference. “The violation of any of the conditions herein stipulated shall be considered as a breach of this Contract, and shall subject the VENDEE to the penalties provided for in paragraphs (11) and (12) hereof, including administrative sanctions, when warranted, in the event x x x the VENDEE has been found to have committed a misrepresentation/falsification in his/her application for an Employee Housing Loan.”15Deed of Conditional Sale, p. 3; Rollo, p. 79. Actual Occupancy and Possession at All Times Plainly, the primary intention behind the above-quoted stipulations is to restrict the sale, the use and the benefit of the housing units to SSS employees and their immediate families only. This objective is in line with that of the SSS housing loan program—to aid its employees in acquiring their own dwelling units at a low cost.16The objective is stated in the Report of the SSS Internal Audit Service dated May 29, 1995, Audit Findings No. 1(b); Id., p. 83. Such intent, draws life also from the social justice policy of RA 1161, as amended, otherwise known as the “Social Security System Law” granting direct housing loans to covered employees and giving priority to lowincome groups.17§26(d) of the SSS Law, as amended. The “Proposed Investment in Housing Project for SSS Employees” was approved by four members of the Social Security

Commission in their meeting on August 27, 1987, per Resolution No. 487-Series of 1987; Id... Indeed, the above goal is confirmed by the requirement that respondent-vendee and his heirs or assigns must actually occupy and possess the property at all times; by the proscription that he must not sell, assign, encumber, mortgage, lease, sublet or in any manner alter or dispose of the property for the first five (5) years; and by the further proviso that he may alienate or transfer his rights thereto at any time prior to full payment, but only to petitioner _______________ 15 Deed of Conditional Sale, p. 3; Rollo, p. 79. 16 The objective is stated in the Report of the SSS Internal Audit Service dated May 29, 1995, Audit Findings No. 1(b); Id., p. 83. 17 §26(d) of the SSS Law, as amended. The “Proposed Investment in Housing Project for SSS Employees” was approved by four members of the Social Security Commission in their meeting on August 27, 1987, per Resolution No. 487Series of 1987; Id., pp. 72-73. 586 586 SUPREME COURT REPORTS ANNOTATED Republic vs. David under its right of first refusal or to any other eligible SSS employee. These restrictive covenants are undeniably valid under Article 130618Article 1306 of the Civil Code provides:“Art. 1306. The contracting parties may establish

such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or publi... of the Civil Code. The use of the conjunctive and in subparagraph (c) is not by any chance a surplusage. Neither is it meant to be without any legal signification. Its use is confirmatory of the restrictive intent that the houses provided by petitioner should be for the exclusive use and benefit of the SSS employee-beneficiary. It is easily discernible, therefore, that both “actual occupancy” and “possession at all times”—not just one or the other—were imposed as conditions upon respondent. The word and— whether it is used to connect words, phrases or full sentences— must be accepted in its common and usual meaning as “binding together and as relating to one another.”19Kintanar v. Bell Telecommunication Philippines, Inc., 271 SCRA 790, 808, April 30, 1997, per Hermosisima Jr., J. And implies a conjunction, joinder or union.20Solanda Enterprises, Inc. v. Court of Appeals, 365 Phil. 194, 206; 305 SCRA 645, 655, April 14, 1999; Philippine Constitution Association, Inc. v. Mathay, 124 Phil. 890, 924; 18 SCRA 300, 330, October 4, 1966, per the Concurring Opinion of Castro, J. Thus, respondent had to comply with not one, but two, concurring conditions—actual occupancy and possession at all times. The question is, did he? We rule that he did not. No Actual Occupancy First, actual possession is not the same as actual occupancy. Hence, it was an error on the part of the lower courts to hold that the requirement of possession alone was a sufficient

compliance with the conditions under subparagraphs (a) and (c). Under the law,21Article 531 of the Civil Code. “[p]ossession is acquired by the material occupation of a thing or the exercise of a right, or by the fact that it is sub_______________ 18 Article 1306 of the Civil Code provides: “Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy.” 19 Kintanar v. Bell Telecommunication Philippines, Inc., 271 SCRA 790, 808, April 30, 1997, per Hermosisima Jr., J. 20 Solanda Enterprises, Inc. v. Court of Appeals, 365 Phil. 194, 206; 305 SCRA 645, 655, April 14, 1999; Philippine Constitution Association, Inc. v. Mathay, 124 Phil. 890, 924; 18 SCRA 300, 330, October 4, 1966, per the Concurring Opinion of Castro, J. 21 Article 531 of the Civil Code. 587 VOL. 436, AUGUST 16, 2004 587 Republic vs. David ject to the action of our will, or by the proper acts and legal formalities established for acquiring such right.” As such, actual possession consists in the manifestation of acts of dominion over property of such a nature as a party would naturally exercise over his own22Republic v. Court of Appeals, 390 Phil. 1041, 1050; 335 SCRA 693, 701-702, July 14, 2000;

Reyes v. Court of Appeals, 374 Phil. 236, 242-243; 315 SCRA 626, 632-633, September 30, 1999.—as when respondent himself is physically in occupation of the property, or even when another person who recognizes the former’s rights as owner is in occupancy.23Ibid. In short, possession can be either “actual” or merely constructive. On the other hand, actual occupancy connotes “something real, or actually existing, as opposed to something merely possible, or to something which is presumptive or constructive.”24Manacop v. Court of Appeals, 342 Phil. 735, 744; 277 SCRA 57, 65-66, August 11, 1997, per Panganiban, J. Unlike possession, it can only be actual or real, not constructive. Second, the uncontroverted fact remains that it was not respondent and/or his immediate family, but Penus and his wife, who had lived in the property since 1992; and that it was from Penus that Domingo took over possession in 1996. Thus, while it may be conceded that respondent “possessed” the property through his caretakers, there is no escaping the fact that he and/or his immediate family did not “actually occupy” it; and that he allowed other persons to benefit from its use. In his letter to SSS Assistant Administrator Amador Monteiro on January 24, 1996,25Rollo, p. 91. respondent admitted as much, but tried to justify his noncompliance by saying that the property was not in a habitable condition at the time of delivery. This line of defense was sustained by the trial court on the ground of respondent’s allegedly “uncontroverted or unrebutted evidence.”26RTC Decision, p. 6; Rollo, p. 139. The RTC’s finding, however, is neither borne out by the records nor by substantial evidence. Hence, it constitutes an

exception to the rule that this Court cannot review factual findings.27Potenciano v. Reynoso, 401 SCRA 391, 398, April 22, 2003; Milestone Realty and Co., Inc. v. Court of Appeals, 381 SCRA 406, 415, April _______________ 22 Republic v. Court of Appeals, 390 Phil. 1041, 1050; 335 SCRA 693, 701-702, July 14, 2000; Reyes v. Court of Appeals, 374 Phil. 236, 242-243; 315 SCRA 626, 632-633, September 30, 1999. 23 Ibid. 24 Manacop v. Court of Appeals, 342 Phil. 735, 744; 277 SCRA 57, 65-66, August 11, 1997, per Panganiban, J. 25 Rollo, p. 91. 26 RTC Decision, p. 6; Rollo, p. 139. 27 Potenciano v. Reynoso, 401 SCRA 391, 398, April 22, 2003; Milestone Realty and Co., Inc. v. Court of Appeals, 381 SCRA 406, 415, April 588 588 SUPREME COURT REPORTS ANNOTATED Republic vs. David Indeed, a thorough review of the records reveals that the averments of respondent were ably controverted by denials made by petitioner. Negating his claim that the house was located adjacent to a creek,28Petitioner’s Memorandum to the trial court, p. 5; Rollo, p. 117. it lengthily argued against it in the Memorandum it submitted to the trial court. Likewise, it must be stressed that under the Rules of Court,29Under §10 of Rule 6 of the Rules of Court, all the new matters alleged in the

answer are deemed controverted even if a party does not file a reply. The said Section reads:“SEC. 10. Reply.—A reply is a pleading, the office or function of wh... the defense alleged in his Answer is deemed controverted, whether or not petitioner filed a reply. Moreover, it is a basic rule of evidence that the party asserting an affirmative allegation must prove it.30Philippine Fruit & Vegetable Industries, Inc. v. National Labor Relations Commission, 369 Phil. 929, 938; 310 SCRA 673, 682, July 20, 1999. However, all that there is to back up the defense of respondent in this case is his self-serving testimony and that of his witness, Domingo. As to the latter’s testimony, it suffices to say that he could not have affirmed the alleged condition of the unit in 1992, as he took possession of it only in 1996, four years after it had lain exposed to the elements with no improvements whatsoever. For four years, respondent likewise kept his silence about the purported condition of the unit. He accepted it without any whimper of protest on October 23, 1992, and even paid the housing loan in full in December of the same year. If it was indeed uninhabitable, he should have refused to accept it or immediately protested its condition. On the other hand, there is enough documentary evidence to debunk his claim. The report of petitioner’s Internal Audit Service31Rollo, pp. 82-87. significantly established that 509 of the 728 awardees—presumably situated similarly as he was— had occupied their units _______________

19, 2002. For other exceptions, see also Lagon v. Hooven Comalco Industries, Inc., 349 SCRA 363, 371, January 17, 2001. 28 Petitioner’s Memorandum to the trial court, p. 5; Rollo, p. 117. 29 Under §10 of Rule 6 of the Rules of Court, all the new matters alleged in the answer are deemed controverted even if a party does not file a reply. The said Section reads: “SEC. 10. Reply.—A reply is a pleading, the office or function of which is to deny or allege facts in denial or avoidance of new matters alleged by way of defense in the answer and thereby join or make issue as to such new matters. If a party does not file such reply, all the new matters alleged in the answer are deemed controverted. x x x.” 30 Philippine Fruit & Vegetable Industries, Inc. v. National Labor Relations Commission, 369 Phil. 929, 938; 310 SCRA 673, 682, July 20, 1999. 31 Rollo, pp. 82-87. 589 VOL. 436, AUGUST 16, 2004 589 Republic vs. David in compliance with the assailed requirement. The Interview Slip32Id., p. 89. submitted in evidence by petitioner also showed that Penus and his wife, and later Domingo, had lived in the unit since 1992. In the face of these facts, it is difficult to believe the defense of respondent. For how could the units be habitable to many others, but not to him?

Likewise, this Court takes judicial notice of the fact that lowcost houses such as those offered by petitioner33This is clearly provided under the second Whereas clause of the Deed of Conditional Sale, which reads:“Whereas, Pursuant to Development Permit No. 8-0334 issued by the Housing and Land Use Regulatory Board (HLURB) dated July 7, 1988, the VENDOR has d... are usually core or shell units without adequate divisions, ceilings, cabinets, paint and, in some cases, electrical connections—features that have to be installed, completed or refurbished by the awardees. The idea, of course, is to provide immediate but affordable living spaces that they can work at improving, according to their needs and finances and while living therein. Certainly, at P172,978.85 (the cost of the house and lot in this case), it is but fair to accept the lack of amenities. Neither can respondent assail the validity of the Contract as a one-sided “take it or leave it” agreement. To begin with, a contract of adhesion—wherein one party imposes a readymade form of contract on the other—is not strictly against the law.34National Development Company v. Madrigal Wan-Hai Lines Corporation, G.R. No. 148332, September 30, 2003, 412 SCRA 375; Pan American World Airways, Inc. v. Intermediate Appellate Court, 164 SCRA 268, 274, August 11, 1988; Ong Yiu v. Court of Appeals, 91 SCR... The terms of the agreement cannot be modified, but can be freely rejected in its entirety, by the other party. On the other hand, the latter’s adherence thereto would mean consent.35Ibid. We need only to remind respondent that contractual obligations between the parties have the force of law and must be complied with in good faith.36San Antonio v. Court of Appeals, 371 SCRA 536, 543,

December 7, 2001; Rizal Commercial Banking Corporation v. Alfa RTW Manufacturing _______________ 32 Id., p. 89. 33 This is clearly provided under the second Whereas clause of the Deed of Conditional Sale, which reads: “Whereas, Pursuant to Development Permit No. 8-0334 issued by the Housing and Land Use Regulatory Board (HLURB) dated July 7, 1988, the VENDOR has developed the foregoing property to serve as a low cost housing project site, exclusively for qualified SSS employees, x x x.” (Italics supplied) 34 National Development Company v. Madrigal Wan-Hai Lines Corporation, G.R. No. 148332, September 30, 2003, 412 SCRA 375; Pan American World Airways, Inc. v. Intermediate Appellate Court, 164 SCRA 268, 274, August 11, 1988; Ong Yiu v. Court of Appeals, 91 SCRA 223, 231, June 29, 1979. 35 Ibid. 36 San Antonio v. Court of Appeals, 371 SCRA 536, 543, December 7, 2001; Rizal Commercial Banking Corporation v. Alfa RTW Manufacturing 590 590 SUPREME COURT REPORTS ANNOTATED Republic vs. David We therefore do not see any reason to discuss respondent’s added arguments, other than to say that the objectives of lowcost housing—mandated under the social justice provisions of the Constitution37§9 of Article XIII (Social Justice and Human Rights) of the Constitution mandates:“Sec. 9. The State shall,

by law, and for the common good, undertake, in cooperation with the private sector, a continuing program of urban land reform and housing...—are too important to be sidetracked by lame, untimely and unfounded excuses. Such excuses do nothing but harm to the salutary efforts of providing the underprivileged and the homeless with cheap but decent houses. It is for this reason that we regard this case as no ordinary skirmish over contractual relations. Rescission In view of the foregoing discussion, we rule that rescission of the Contract is the proper recourse. Article 1191 of the Civil Code provides: “Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. “The injured party may choose between fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission even after he has chosen fulfillment, if the latter should become impossible.” As noted in previous cases, the rescission contemplated under Article 1191 is a principal action for “resolution,” which is based on a breach by a party of its reciprocal obligations.38Ong v. Court of Appeals, 369 Phil. 243, 252; 310 SCRA 1, 9, July 6, 1999; Uy v. Court of Appeals, 314 SCRA 69, 81, September 9, 1999; Romero v. Court of Appeals, 320 Phil. 269, 283; 250 SCRA 223, 235, November 23, 1995. The present Contract is one of conditional sale—oftentimes referred to as a contract _______________

Corp., 368 SCRA 611, 618, November 14, 2001; Laureano v. Court of Appeals, 381 Phil 403, 412-413; 324 SCRA 414, February 2, 2000. 37 §9 of Article XIII (Social Justice and Human Rights) of the Constitution mandates: “Sec. 9. The State shall, by law, and for the common good, undertake, in cooperation with the private sector, a continuing program of urban land reform and housing which will make available at affordable cost decent housing and basic services to underprivileged and homeless citizens in urban centers and resettlement areas. x x x.” 38 Ong v. Court of Appeals, 369 Phil. 243, 252; 310 SCRA 1, 9, July 6, 1999; Uy v. Court of Appeals, 314 SCRA 69, 81, September 9, 1999; Romero v. Court of Appeals, 320 Phil. 269, 283; 250 SCRA 223, 235, November 23, 1995. 591 VOL. 436, AUGUST 16, 2004 591 Republic vs. David to sell, wherein ownership or title is retained by the vendor39This is provided under paragraph 15, which reads: “15. Title to the property subject of this contract remains with the VENDOR and shall pass to, and be transferred in the name of the VENDEE only upon the execution of the final deed of absolute sale m... until “full payment by the VENDEE of the full purchase price of the PROPERTY, with all the interest due thereon, as well as taxes and other charges AND upon their faithful compliance with all the conditions of this Contract x x

x.”40Paragraph 16 of the Deed of Conditional Sale; Rollo, p. 79. Although a transfer of ownership or title from the seller to the buyer is normally predicated upon the payment of the purchase price, the parties are nevertheless free to stipulate other lawful conditions by which they bind themselves and upon which transfer of ownership depends.41Gomez v. Court of Appeals, 340 SCRA 720, 727-728, September 21, 2000. In this case, that other obligation was faithful compliance with the conditions of the Contract. Respondent did not faithfully comply with the conditions under subparagraphs (10)(a) and (c). His noncompliance also constituted a breach of his reciprocal obligations under the Deed. The Deed itself provides for its annulment and cancellation by reason of a breach of the terms and conditions stipulated therein. Paragraphs 11 and 12 provide thus: “11. Should the VENDEE violate, refuse or fail to comply with any of the terms and conditions stipulated herein, for whatever reason, or is found to have committed any misrepresentation in his/her application for EMPLOYEE HOUSING LOAN, this Contract shall be deemed annulled and cancelled without prejudice of the rights of the parties under Republic Act No. 6652, otherwise known as the Maceda Law, and shall entitle the VENDOR to immediately repossess the property as if this Contract was never made; for this purpose, the VENDEE shall be considered and treated as a tenant holding the property without the permission of the VENDOR, and must peacefully vacate the premises immediately upon repossession thereof by the VENDOR. The annulment and cancellation of this Contract and the right of the VENDOR to repossess the property shall

become effective upon mere written notice thereof to the VENDEE. “12. In addition to the consequences stated in the immediately preceding paragraph, the VENDEE shall forfeit in favor of the VENDOR all _______________ 39 This is provided under paragraph 15, which reads: “15. Title to the property subject of this contract remains with the VENDOR and shall pass to, and be transferred in the name of the VENDEE only upon the execution of the final deed of absolute sale mentioned in the next succeeding paragraph.” 40 Paragraph 16 of the Deed of Conditional Sale; Rollo, p. 79. 41 Gomez v. Court of Appeals, 340 SCRA 720, 727-728, September 21, 2000. 592 592 SUPREME COURT REPORTS ANNOTATED Republic vs. David the installments made, to stand as rent for his/her occupation of the property, likewise subject to the provisions of Republic Act No. 6552.”42Rollo, p. 79. (Italics supplied) However, this Court holds that the forfeiture provision under paragraph 12 does not apply to the payment made by respondent. The plain and simple reason is that he did not pay the purchase price by installment, but instead paid it in full in December 1992—two months after the delivery of the unit. Hence, that payment was beyond the ambit of Republic Act 6552, otherwise known as the Realty Installment Buyer Act or the Maceda Law.

Doctrinally, mutual restitution must follow rescission. Under Article 1385 of the Civil Code, “rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interests x x x.”43See also Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., 421 Phil. 709, 733; 370 SCRA 56, 73, November 21, 2001; Velarde v. Court of Appeals, 413 Phil. 360, 375; 361 SCRA 56, 69, July 11, 2001. Moreover, “[t]o rescind is to declare a contract void at its inception and to put an end to it as though it never was.”44Velarde v. Court of Appeals, supra, p. 375, per Panganiban, J. Hence, rescission restores the parties to their relative positions, as if no contract has been made. Paragraph 11, cited above, supports the mutual restitution required in rescission. Respondent is thus obliged to return the house and lot sold, as well as rental payments he may have earned, if any. On the other hand, petitioner is mandated to refund to him his full payment of P172,978.85 plus legal interest of 6 percent per annum, as well as the value of substantial improvements introduced by him, as appraised by petitioner. Indeed, stipulated in the Deed is such appraisal by the vendor,4510(b) of Deed of Conditional Sale; Rollo, p. 79. upon transfer of the property to petitioner or to any of its eligible employees. This condition is reasonably and justly applicable and proper in the present case. WHEREFORE, this Petition is hereby GRANTED and the assailed Decision SET ASIDE. The Deed of Conditional Sale is CANCELLED. Petitioner is ORDERED to pay respondent P172,978.85, plus the legal interest and the value of any

substantial improvements thereon. Respondent is ORDERED to vacate immediately _______________ 42 Rollo, p. 79. 43 See also Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., 421 Phil. 709, 733; 370 SCRA 56, 73, November 21, 2001; Velarde v. Court of Appeals, 413 Phil. 360, 375; 361 SCRA 56, 69, July 11, 2001. 44 Velarde v. Court of Appeals, supra, p. 375, per Panganiban, J. 45 10(b) of Deed of Conditional Sale; Rollo, p. 79. 593 VOL. 436, AUGUST 17, 2004 593 Seriña vs. Caballero Block 18, Lot 8, SSS Housing, North Fairview, Quezon City; and to surrender possession thereof to petitioner. No costs. SO ORDERED. Corona and Carpio-Morales, JJ., concur. Sandoval-Gutierrez, J., On Leave. Petition granted, assailed decision set aside. The Deed of Conditional Sale cancelled. Note.—Non-payment of the purchase price constitutes a very good reason to rescind a contract of sale. (Central Bank of the Philippines vs. Bichara, 328 SCRA 807 [2000]) [Republic vs. David, 436 SCRA 577(2004)]

A.M. No. P-05-2046. September 17, 2009.* (Formerly No. 05-6-159-MCTC) OFFICE OF THE COURT ADMINISTRATOR, complainant, vs. CLERK OF COURT FE P. GANZAN, MCTC, JASAANCLAVERIA, MISAMIS ORIENTAL, respondent. Administrative Law; Court Orders; A resolution of the Supreme should not be construed as a mere request, and should be complied with promptly and completely.—With her obstinate defiance and incessant refusal to submit her compliance to this Court, despite the latter’s repeated directives and stern admonitions, Ganzan exposed her insolence and disrespect for the lawful orders of the Court. A resolution of the Supreme Court should not be construed as a mere request, and should be complied with promptly and completely. Such failure to comply betrays, not only a recalcitrant streak in character, but also a disrespect for the lawful order and directive of the Court. Furthermore, this contumacious conduct of refusing to abide by the lawful directives issued by the Court has likewise been considered as an utter lack of interest to remain with, if not contempt of, the system. Ganzan’s transgression is highlighted even more by the fact that she is an employee of the Judiciary, who, more than an ordinary _______________ * EN BANC. 18 18SUPREME COURT REPORTS ANNOTATED Office of the Court Administrato vs. Ganzan citizen, should be aware of her duty to obey the orders and processes of the Supreme Court without delay. Her willful

disobedience to and disregard for the Resolutions of this Court constitute grave and serious misconduct, which cannot be tolerated. Court Personnel; Clerks of Courts; Clerks of Court perform a very delicate function as the custodians of the funds and revenues, records, property, and premises of the court.—Clerks of Court are important officers in our judicial system. Their office is the nucleus of all court activities, adjudicative and administrative. Their administrative functions are as vital to the prompt and proper administration of justice as their judicial duties. Clerks of Court perform a very delicate function as the custodians of the funds and revenues, records, property, and premises of the court. Being the custodians thereof, they are liable for any loss, shortage, destruction, or impairment of said funds and property. Same; Same; Supreme Court Circular No. 13-92 mandates that all fiduciary collections “shall be deposited immediately by the Clerk of Court concerned, upon receipt thereof, with an authorized depository bank.”—Supreme Court Circulars No. 13-92 and No. 5-93 provide the guidelines for the proper administration of court funds. Supreme Court Circular No. 1392 mandates that all fiduciary collections “shall be deposited immediately by the Clerk of Court concerned, upon receipt thereof, with an authorized depository bank.” In Supreme Court Circular No. 5-93, the Land Bank was designated as the authorized government depository. Same; Same; The Court, in Office of the Court Administrator v. Galo, 373 Phil. 483 [1999], pointed out that it had always reminded Clerks of Court that, as custodians of court funds and revenues, they have the duty to immediately deposit the various

funds received by them with the authorized government depositories, for Clerks of Court are not supposed to keep funds in their custody.—The Court, in Office of the Court Administrator v. Galo, 314 SCRA 705 (1999), pointed out that it had always reminded Clerks of Court that, as custodians of court funds and revenues, they have the duty to immediately deposit the various funds received by them with the authorized government depositories, for Clerks of Court are not supposed to keep funds in their custody. 19 VOL. 600, SEPTEMBER 17, 200919 Office of the Court Administrato vs. Ganzan Same; Public Officers; The failure of a public officer to remit funds, upon demand by an authorized officer, shall be prima facie evidence that the public officer has put such missing funds or property to personal use.—Ganzan’s refusal to face head-on the charges against her is contrary to the principle that the first impulse of an innocent person, when accused of wrongdoing, is to express his/her innocence at the first opportune time. Ganzan’s silence and non-participation in the present administrative proceedings, despite due notice and directives of this Court for her to submit documents in her defense, i.e., a written explanation, an accounting, and missing receipts, strongly indicate her guilt. Moreover, the failure of a public officer to remit funds, upon demand by an authorized officer, shall be prima facie evidence that the public officer has put such missing funds or property to personal use. In the total absence of rebutting or contrary evidence, then the Court can

only conclude that Ganzan has misappropriated the unaccounted/unremitted court funds in her care and custody. Same; On court employees who have fallen short of their accountabilities, particularly, Clerks of Court who are the custodians of court funds and properties, the Court has not hesitated to impose the ultimate penalty.—The conduct or behavior of all court personnel is circumscribed with the heavy burden of responsibility. Time and again, the High Court affirms the practical reality that the image of the court as a true temple of justice is mirrored by the conduct of everyone who works therein, from the judge to the lowest clerk. It is therefore imperative that those involved in the administration of justice must live up to the highest standard of honesty and integrity in the public service. On court employees who have fallen short of their accountabilities, particularly, Clerks of Court who are the custodians of court funds and properties, the Court has not hesitated to impose the ultimate penalty. This Court has never tolerated or condoned any conduct that would violate the norms of public accountability and diminish, or even tend to diminish, the faith of the people in the justice system. Same; Clerks of Court; Ganzan’s failure to remit her collections amounting to P256,530.25 and to report/collect fines totaling P50,050.00, constitutes gross neglect of duty, dishonesty, and grave misconduct.—Ganzan’s failure to remit her collections, amounting to P256,530.25 and to report/collect fines totaling P50,050.00, constitutes gross neglect of duty, dishonesty, and grave misconduct. She 20 20SUPREME COURT REPORTS ANNOTATED Office of the Court Administrato vs. Ganzan

has transgressed the trust reposed in her as cashier and disbursement officer of the Court. Therefore, the Court is left with no other recourse but to declare Ganzan guilty of dishonesty and gross misconduct. Under Section 23, Rule XIV of the Omnibus Rules Implementing Book V of Executive Order No. 292 and other pertinent Civil Service Laws, dishonesty and grave misconduct are considered grave offenses, for which the penalty of dismissal is prescribed even at the first instance. Section 9 of said Rules additionally provides: “The penalty of dismissal shall carry with it cancellation of eligibility and retirement benefits, and the disqualification of re-employment in the government service. This penalty is without prejudice to criminal liability of the respondent.” ADMINISTRATIVE MATTER in the Supreme Court. Gross Dishonesty and Grave Misconduct. The facts are stated in the opinion of the Court. PER CURIAM: This administrative case arose from the Report dated 15 June 2005, submitted by an Audit Team of the Office of the Court Administrator (OCA), containing the results of its financial audit of the 5th Municipal Circuit Trial Court (MCTC) of Jasaan-Claveria, Misamis Oriental, conducted on 11 March 2005. The said financial audit covered the accountability period of Clerk of Court II Fe P. Ganzan (Ganzan) from July 1994 to 28 February 2005. The OCA Audit Team made the following recommendations in its Report:

1. This report be docketed as a regular administrative matter against Clerk of Court Fe P. Ganzan; 2. Clerk of Court Fe P. Ganzan be DIRECTED within ten (10) days from notice to: a. Pay and Deposit to the respective account the following amounts incurred as shortages, and Submit to this office the validated deposit slips as proof of payment of the same; 21 VOL. 600, SEPTEMBER 17, 200921 Office of the Court Administrato vs. Ganzan FUNDAMOUNTSEE SCHEDULES Special Allowance for the JudiciaryP 4,351.10A General Fund5,039.80B Judiciary Development Fund108,639.35C Fiduciary Fund138,500.00D Total256,530.25 b. Explain why she should not be held accountable for the uncollected/unreported fines enumerated in Annex “B” amounting to P50,050.00 and cash bonds of undetermined amount on cases enumerated in Annex “E.” The amount was not part of the reported collections. c. Account for the missing Official Receipts which were not presented for inventory as neither unissued nor included in the Monthly Reports as issued: 95905519590600 95907019590750

95909019590950 95909519591000 d. Submit the triplicate copies of the following official receipts issued for the particular collections. FromToExplanation 53781015378118Included in the Monthly Reports but the triplicate copies were not presented in 22 22SUPREME COURT REPORTS ANNOTATED Office of the Court Administrato vs. Ganzan audit. 537811953781150Not included in the Monthly Reports and the triplicate copies were likewise not presented in audit. GENERAL FUND PeriodFromTo Jan. 6 to Jan. 21, 20052024820120248250 May 5 to June 20, 20031784380117843850 JUDICIARY DEVELOPMENT FUND PeriodFromTo Jan. 6 to Jan. 21, 20052024820120248250 May 5 to June 20, 20031784380117843850 Mar. 1991 to July 199478632017863500

e. Submit the original and duplicate copies of cancelled Official Receipts Nos. 4264861, 20247681 and 20247454 or proofs that the same were submitted with the Monthly Reports to the Accounting Division-OCA. 3. Pending resolution of this administrative matter, Ms. Fe P. Ganzan be SUSPENDED in order to prevent her from interfering with the court transactions as well as to avoid the commission of similar infraction in the future; 4. A Hold Departure Order be issued against Clerk of Court Fe P. Ganzan to prevent her from leaving the country. 5. The designated Officer-in-Charge be DIRECTED to: a. Withdraw all fiduciary fund collections still deposited with the Municipal Treasurer’s Office and deposit/transfer the same to the Fiduciary Fund LBP Savings Account No. 0151-1096-91 pursuant to SC Circular No. 50-95. 23 VOL. 600, SEPTEMBER 17, 200923 Office of the Court Administrato vs. Ganzan b. Withdraw the net interest earned from the Fiduciary Fund Account in the amount of P1,153.34 and deposit the same with the JDF Account. 6. Presiding Judge, MCTC, Jasaan, Misamis Oriental, be DIRECTED to strictly monitor the designated Officer-inCharge and Collecting officer in the strict adherence to the circulars and issuances of the Court particularly in the handling of judiciary funds. On 15 June 2005, then Court Administrator, now Supreme Court Associate Justice Presbitero J. Velasco, Jr. issued a Memorandum adopting the recommendations of the OCA

Audit Team, and recommending to the Court the approval of the same recommendations. The Court, in a Resolution1 dated 27 July 2005, approved and adopted the recommendations of the Court Administrator. Ganzan filed on 24 August 2005 a Manifestation2 in which she prayed for the Court to order the OCA to furnish her with copies of the Schedule/Annex “A” and Schedule/Annex “C” of the Audit Report, and to give her an extension of at least 60 days, reckoned from her receipt of copies of said schedules, within which to file her explanation for the same, as she had a hard time looking for a lawyer to represent her in the case, given her financial constraints. Acting on Ganzan’s Manifestation, the Court issued a Resolution3 on 5 December 2005 ordering the OCA to furnish Ganzan copies of the documents she prayed for and granting her a 60-day extension for the filing of her explanation. Although she was already duly furnished copies of the pertinent schedules/annexes of the Audit Report, Ganzan failed to comply with the Resolution dated 27 July 2005 of this Court requiring her to submit her explanation, accounting, and receipts. _______________ 1 Rollo, pp. 39-41. 2 Id., at pp. 42-43. 3 Id., at p. 44. 24 24SUPREME COURT REPORTS ANNOTATED Office of the Court Administrato vs. Ganzan

Thus, the Court issued another Resolution dated 12 March 2007, requiring Ganzan to show cause why she should not be held in contempt of court for such failure and to comply with the earlier Resolution dated 27 July 2005, both within 10 days from notice. Ganzan, however, still failed to submit to the Court the explanation, accounting, and receipts required by the Resolution dated 27 July 2005, as well as to comply with the show-cause directive under the Resolution dated 12 March 2007. Consequently, the Court issued a Resolution dated 16 January 2008 imposing upon Ganzan a fine of P500.00 and again requiring her to comply with the Resolution dated 27 July 2005 within 10 days from notice. In the interim, Honorable Marites Filomena Rana-Bernales (Judge Rana-Bernales), Presiding Judge, 5th MCTC of JasaanClaveria, Misamis Oriental, wrote the Court a Letter dated 18 March 2008, relaying her perception that Ganzan, based on the latter’s actuations, had no intention at all to comply with the Resolutions of the Court. In the same Letter, Judge RanaBernales also requested the early resolution of the instant administrative case, since Ganzan had been on preventive suspension since July 2005, and the interest of justice required a regular Clerk of Court to already be appointed in Ganzan’s place. The Court noted Judge Rana-Bernales’ aforementioned letter. For Ganzan’s continued failure to comply with its directives, the Court issued yet another Resolution4 dated 9 July 2008 imposing upon her a fine of P1,000.00, in addition to the fine of P500.00 previously imposed upon her under the Resolution dated 16 January 2008. Ganzan was further ordered to comply

with the Resolution dated 16 January 2008, with a warning that should she still fail to pay the fines imposed and comply with the directives of the Court, she would be ordered arrested and detained by the National Bureau of Investiga_______________ 4 Id., at p. 57. 25 VOL. 600, SEPTEMBER 17, 200925 Office of the Court Administrato vs. Ganzan tion (NBI) until her compliance or until such time as the Court may order. On 30 March 2009, the Court referred to the OCA the matter of Ganzan’s non-compliance with the Resolution dated 9 July 2008 and required the said office to submit its Report within 30 days from notice.5 The OCA submitted its Report6 on 4 June 2009, bearing the following recommendations: “IN VIEW OF ALL THE FOREGOING, it is most respectfully recommended for the consideration of the Honorable Court as follows: a) Respondent FE P. GANZAN, Clerk of Court, Municipal Circuit Trial Court of Jasaan, Misamis Oriental be found GUILTY of DISHONESTY and the penalty of DISMISSAL from the service with forfeiture of all retirement benefits except leave credits and disqualification for re-employment in any government office including government-owned or controlled corporations be imposed upon her;

b) Respondent be ordered to RESTITUTE the following amounts incurred as shortages within thirty (30) days from notice: FUNDAMOUNT Special Allowance for the Judiciary P 4,351.10 General Fund 5,039.80 Judiciary Development Fund 108,639.35 Fiduciary Fund 138,500.00 or a total of Two Hundred Fifty-Six Thousand Five Hundred Thirty Pesos and Twenty-five centavos (P256,530.25) plus additional amount of Fifty Thousand And Fifty Pesos (P50,050.00) representing the uncollected/unreported fines; _______________ 5 Id., at p. 59. 6 Id., at pp. 60-72. 26 26SUPREME COURT REPORTS ANNOTATED Office of the Court Administrato vs. Ganzan c) Respondent be ORDERED to PAY the fines of P500.00 and P1,000.00 per Court Resolutions dated 16 January 2008 and 9 July 2008, respectively, within ten (10) days from notice hereof; d) The Fiscal Management Office, OCA be ORDERED to compute whatever benefits due to the Respondent including the money value of her leave credits dispensing with the usual documentary requirements and apply the same to the shortages in the following order of preference: Fiduciary Fund, Judiciary

Development Fund, Special Allowance for the Judiciary and Court General Fund; and e) The Office of the Court Administrator be DIRECTED to coordinate with the prosecuting arm of the government for the filing of the appropriate criminal action against respondent Fe P. Ganzan.” The Court has already given Ganzan more than enough opportunity to explain her side. It granted Ganzan’s motion for extension of time to comply with the Resolution dated 27 July 2005 ordering her to submit her explanation, accounting, and receipts, but Ganzan still failed to comply with the directive of the Court during the extended period. Ganzan persistently ignored the subsequent Resolutions of this Court, i.e., the Resolution dated 12 March 2007, which directed her to show cause why she should not be held in contempt for her noncompliance with the Resolution dated 27 July 2007 and to finally comply therewith; the Resolution dated 16 January 2008, which imposed upon her a fine of P500.00 for her failure to comply with the Show-Cause Resolution of 16 January 2008; and the Resolution dated 9 July 2008, which imposed upon her an additional fine of P1,000.00 for continuing to disregard the Resolution dated 16 January 2008. Ganzan has managed to drag this case for over four years now. Up until the resolution of the instant administrative case against her, Ganzan has not complied with any of the Resolutions of the Court. With her obstinate defiance and incessant refusal to submit her compliance to this Court, despite the latter’s repeated directives and stern admonitions, Ganzan exposed her insolence and disrespect for the lawful orders of the Court. A

27 VOL. 600, SEPTEMBER 17, 200927 Office of the Court Administrato vs. Ganzan resolution of the Supreme Court should not be construed as a mere request, and should be complied with promptly and completely. Such failure to comply betrays, not only a recalcitrant streak in character, but also a disrespect for the lawful order and directive of the Court.7 Furthermore, this contumacious conduct of refusing to abide by the lawful directives issued by the Court has likewise been considered as an utter lack of interest to remain with, if not contempt of, the system.8 Ganzan’s transgression is highlighted even more by the fact that she is an employee of the Judiciary, who, more than an ordinary citizen, should be aware of her duty to obey the orders and processes of the Supreme Court without delay.9 Her willful disobedience to and disregard for the Resolutions of this Court constitute grave and serious misconduct,10 which cannot be tolerated. The Court shall no longer wait for Ganzan, who has clearly forfeited her chance to be heard on the charges against her. It must now proceed to resolve this administrative case against her based on the present contents of the record, the most significant of which are the report and recommendations of the Audit Team and their annexes, as adopted by the OCA. Clerks of Court are important officers in our judicial system. Their office is the nucleus of all court activities, adjudicative and administrative. Their administrative functions are as vital to the prompt and proper administration of justice as their judicial duties.11

_______________ 7 Tugot v. Judge Coliflores, 467 Phil. 391, 402-403; 423 SCRA 1, 10 (2004). 8 Parane v. Reloza, A.M. No. MTJ-92-718, 7 November 1994, 238 SCRA 1, 4. 9 Teopicio Tan v. Salvacion D. Sermonia, Clerk of Court IV, MTCC, Iloilo City, A.M. No. P-08-2436, 4 August 2009, 595 SCRA 1. 10 Longboan v. Polig, A.M. No. R-704-RTJ, 14 June 1990, 186 SCRA 557, 561. 11 Re: Report on the Financial Audit Conducted in the RTC, Br. 34, Balaoan, La Union, 480 Phil. 484, 492; 437 SCRA 72, 79 (2004), 28 28SUPREME COURT REPORTS ANNOTATED Office of the Court Administrato vs. Ganzan Clerks of Court perform a very delicate function as the custodians of the funds and revenues, records, property, and premises of the court. Being the custodians thereof, they are liable for any loss, shortage, destruction, or impairment of said funds and property.12 Supreme Court Circulars No. 13-92 and No. 5-93 provide the guidelines for the proper administration of court funds. Supreme Court Circular No. 13-92 mandates that all fiduciary collections “shall be deposited immediately by the Clerk of Court concerned, upon receipt thereof, with an authorized depository bank.” In Supreme Court Circular No. 5-93, the Land Bank was designated as the authorized government depository.

In Office of the Court Administrator v. Fortaleza,13 the Court expounded on the responsibility and accountability of Clerks of Court for the collected legal fees in their custody, thus: “Clerks of Court are the chief administrative officers of their respective courts; with regard to the collection of legal fees, they perform a delicate function as judicial officers entrusted with the correct and effective implementation of regulations thereon. Even the undue delay in the remittances of amounts collected by them at the very least constitutes misfeasance. On the other hand, a vital administrative function of a judge is the effective management of his court and this includes control of the conduct of the court’s ministerial officers. It should be brought home to both that the safekeeping of funds and collections is essential to the goal of an orderly administration of justice and no protestation of good faith can override the mandatory _______________ citing Dizon v. Bawalan, 453 Phil. 125, 133; 405 SCRA 236, 242 (2003). 12 Office of the Court Administrator v. Fortaleza, 434 Phil. 511, 522; 385 SCRA 293; 303 (2002), citing Office of the Court Administrator v. Bawalan, A.M. No. P-93-945, 24 March 1994, 231 SCRA 408, 411. 13 Id., at p. 522; p. 303. 29 VOL. 600, SEPTEMBER 17, 200929 Office of the Court Administrato vs. Ganzan nature of the Circulars designed to promote full accountability for government funds.”

The Court, in Office of the Court Administrator v. Galo,14 pointed out that it had always reminded Clerks of Court that, as custodians of court funds and revenues, they have the duty to immediately deposit the various funds received by them with the authorized government depositories, for Clerks of Court are not supposed to keep funds in their custody. Ganzan’s refusal to face head-on the charges against her is contrary to the principle that the first impulse of an innocent person, when accused of wrongdoing, is to express his/her innocence at the first opportune time.15 Ganzan’s silence and non-participation in the present administrative proceedings, despite due notice and directives of this Court for her to submit documents in her defense, i.e., a written explanation, an accounting, and missing receipts, strongly indicate her guilt. Moreover, the failure of a public officer to remit funds, upon demand by an authorized officer, shall be prima facie evidence that the public officer has put such missing funds or property to personal use.16 In the total absence of rebutting or contrary evidence, then the Court can only conclude that Ganzan has misappropriated the unaccounted/unremitted court funds in her care and custody. The conduct or behavior of all court personnel is circumscribed with the heavy burden of responsibility.17 Time and again, the High Court affirms the practical reality that the _______________ 14 373 Phil. 483, 491; 314 SCRA 705, 711 (1999). 15 Re: Report on the Financial Audit Conducted in the Regional Trial Court, Branch 34, Balaoan, La Union, supra note 11; Office of the Court Administrator v. Bernardino, 490 Phil. 500, 531; 450 SCRA 88, 119 (2005).

16 Office of the Court Administrator v. Besa, 437 Phil. 372, 380; 388 SCRA 558, 565 (2002). 17 Re: Dropping from the Rolls of Ms. Carolyn C. Arcangel, A.M. No. 2005-27-SC, 31 March 2006, 486 SCRA 27, 30. 30 30SUPREME COURT REPORTS ANNOTATED Office of the Court Administrato vs. Ganzan image of the court as a true temple of justice is mirrored by the conduct of everyone who works therein, from the judge to the lowest clerk.18 It is therefore imperative that those involved in the administration of justice must live up to the highest standard of honesty and integrity in the public service.19 On court employees who have fallen short of their accountabilities, particularly, Clerks of Court who are the custodians of court funds and properties, the Court has not hesitated to impose the ultimate penalty. This Court has never tolerated or condoned any conduct that would violate the norms of public accountability and diminish, or even tend to diminish, the faith of the people in the justice system.20 Ganzan’s failure to remit her collections, amounting to P256,530.25 and to report/collect fines totaling P50,050.00, constitutes gross neglect of duty, dishonesty, and grave misconduct.21 She has transgressed the trust reposed in her as cashier and disbursement officer of the Court.22 Therefore, the Court is left with no other recourse but to declare Ganzan guilty of dishonesty and gross misconduct. Under Section 23, Rule XIV of the Omnibus Rules Implementing Book V of Executive Order No. 292 and other pertinent Civil Service Laws, dishonesty and grave misconduct

are considered grave offenses, for which the penalty of dismissal is prescribed even at the first instance. Section 9 of said Rules additionally provides: “The penalty of dismissal shall carry with it cancellation of eligibility and retirement benefits, and _______________ 18 Mutia v. Pacariem, A.M. No. P-06-2170, 11 July 2006, 494 SCRA 448, 454-455. 19 Reyes v. Cabrera, A.M. No. P-05-2027, 27 January 2006, 480 SCRA 257, 263. 20 Office of the Court Administrator v. Galo, supra note 14. 21 Re: Report on the Judicial and Financial Audit of RTC-Br. 4, Panabo, Davao del Norte, 351 Phil. 1, 20; 287 SCRA 510, 529 (1998). 22 Office of the Court Administrator v. Clerk of Court Bernardino, supra note 15. 31 VOL. 600, SEPTEMBER 17, 200931 Office of the Court Administrato vs. Ganzan the disqualification of re-employment in the government service. This penalty is without prejudice to criminal liability of the respondent.” WHEREFORE, the Court finds respondent Fe P. Ganzan, Clerk of Court II, 5th Municipal Circuit Trial Court of JasaanClaveria, Misamis Oriental, GUILTY of gross dishonesty and grave misconduct and imposes on her the penalty of DISMISSAL from the service with FORFEITURE of retirement benefits, except her accrued leave credits, and with prejudice to re-employment in any government agency,

including government-owned and controlled corporations. The Civil Service Commission is ordered to cancel her civil service eligibility, if any, in accordance with Section 9, Rule XIV of the Omnibus Rules Implementing Book V of Executive Order No. 292. The Court further orders: 1. Respondent Fe P. Ganzan to RESTITUTE the following amounts incurred as shortages within thirty (30) days from notice: FUNDAMOUNT Special Allowance for the JudiciaryP 4,351.10 General Fund 5,039.80 Judiciary Development Fund 108,639.35 Fiduciary Fund 138,500.00 or a total of Two Hundred Fifty-Six Thousand Five Hundred Thirty Pesos and Twenty-five Centavos (P256,530.25), plus the additional amount of Fifty Thousand and Fifty Pesos (P50,050.00) representing the uncollected/unreported fines; 2. Respondent Fe P. Ganzan to PAY the fines of P500.00 and P1,000.00 per Court Resolutions dated 16 January 2008 and 9 July 2008, respectively, within ten (10) days from notice hereof; 32 32SUPREME COURT REPORTS ANNOTATED Office of the Court Administrato vs. Ganzan 3. The Fiscal Management Office of the Office of the Court Administrator to COMPUTE whatever benefits are due to Ganzan including the money value of her leave credits,

dispensing with the usual documentary requirements, and APPLY the same to the shortages in the following order of preference: Fiduciary Fund, Judiciary Development Fund, Special Allowance for the Judiciary and Court General Fund; and 4) The Office of the Court Administrator to COORDINATE with the prosecution arm of the government for the filing of the appropriate criminal action against respondent Fe P. Ganzan. SO ORDERED. Puno (C.J.), Ynares-Santiago, Corona, Carpio-Morales, ChicoNazario, Velasco, Jr., Nachura, Leonardo-De Castro, Brion, Peralta, Bersamin, Del Castillo and Abad, JJ., concur. Quisumbing and Carpio, JJ., On Official Leave. Fe P. Ganzan dismissed, with prejudice to re-employment in government service. Note.—Clerks of Court perform a delicate function as designated custodians of the court’s funds, revenues, records, properties and premises—as such, they are generally regarded as treasurer, accountant, guard and physical plant manager thereof. (Office of the Court Administrator vs. Paredes, 521 SCRA 365 [2007]) –——o0o—— [Office of the Court Administrato vs. Ganzan, 600 SCRA 17(2009)]

G.R. No. 152319. October 28, 2009.* HEIRS OF THE LATE JOAQUIN LIMENSE, namely: CONCESA LIMENSE, Surviving Spouse; and DANILO and JOSELITO, both surnamed LIMENSE, children, petitioners, vs. RITA VDA. DE RAMOS, RESTITUTO RAMOS, VIRGILIO DIAZ, IRENEO RAMOS, BENJAMIN RAMOS, WALDY-TRUDES RAMOS-BASILIO, TRINIDAD RAMOSBRAVO, PAZ RAMOS-PASCUA, FELICISIMA RAMOSREYES, and JACINTA RAMOS, respondents. Civil Law; Land Titles; Land Registration; Section 32 of Presidential Decree (PD) 1529 provides that “upon the expiration of said period of one year, the decree of registration and the certificate of title shall become incontrovertible. Any person aggrieved by such decree of registration in any case may pursue his remedy by action for damages against the applicant or other persons responsible for the fraud.”—It has been held that a certificate of title, once registered, should not thereafter be impugned, altered, changed, modified, enlarged or diminished, except in a direct proceeding permitted by law. Otherwise, the reliance on registered titles would be lost. The title became inde-feasible and incontrovertible after the lapse of one year from the time of its registration and issuance. Section 32 of PD 1529 provides that “upon the expiration of said period of one year, the decree of registration and the certificate of title shall become incontrovertible. Any person aggrieved by such decree of registration in any case may pursue his remedy by action for damages against the applicant or other persons responsible for the fraud.” It has, therefore, become an ancient rule that the issue on the validity of title, i.e., whether or not it was fraudulently issued, can only be

raised in an action expressly instituted for that purpose. In the present case, TCT No. 96886 was registered in 1969 and respondents never instituted any direct proceeding or action to assail Joaquin Limense’s title. Same; Property; Easements; An easement is a real right on another’s property, corporeal and immovable, whereby the owner of the latter must refrain from doing or allowing somebody else to do or something to be done on his property, for the benefit of another person _______________ * THIRD DIVISION. 600 600SUPREME COURT REPORTS ANNOTATED Heirs of the Late Joaquin Limense vs. Vda. De Ramos or tenement.—An easement is a real right on another’s property, corporeal and immovable, whereby the owner of the latter must refrain from doing or allowing somebody else to do or something to be done on his property, for the benefit of another person or tenement. Same; Possession; The essence of good faith lies in an honest belief in the validity of one’s right, ignorance of a superior claim, and absence of intension to overreach another. Applied to possession, one is considered in good faith if he is not aware that there exists in his title or mode of acquisition any flaw which invalidates it.—Good faith is an intangible and abstract quality with no technical meaning or statutory definition; and it encompasses, among other things, an honest belief, the absence of malice and the absence of a design to defraud or to seek an unconscionable advantage. An individual’s personal good faith

is a concept of his own mind and, therefore, may not conclusively be determined by his protestations alone. It implies honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry. The essence of good faith lies in an honest belief in the validity of one’s right, ignorance of a superior claim, and absence of intention to overreach another. Applied to possession, one is considered in good faith if he is not aware that there exists in his title or mode of acquisition any flaw which invalidates it. PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. M.B. Tomacruz Law Office for petitioners. M.S. Meneses for respondents. PERALTA, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to annul and set aside the Decision1 _______________ 1 Penned by Associate Justice Rebecca De Guia-Salvador, with Associate Justices Eugenio S. Labitoria and Teodoro P. Regino, concurring; Rollo, pp. 29-35. 601 VOL. 604, OCTOBER 28, 2009601 Heirs of the Late Joaquin Limense vs. Vda. De Ramos of the Court of Appeals dated December 20, 2001 in CA-G.R. CV No. 33589 affirming in toto the Decision2 of the Regional Trial Court of Manila, Branch 15, dated September 21, 1990 in Civil Case No. 83-16128. The antecedent facts are as follows:

Dalmacio Lozada was the registered owner of a parcel of land identified as Lot No. 12, Block No. 1074 of the cadastral survey of the City of Manila covered by Original Certificate of Title (OCT) No. 7036 issued at the City of Manila on June 14, 1927,3 containing an area of 873.80 square meters, more or less, located in Beata Street, Pandacan, Manila. Dalmacio Lozada subdivided his property into five (5) lots, namely: Lot Nos. 12-A, 12-B, 12-C, 12-D and 12-E. Through a Deed of Donation dated March 9, 1932,4 he donated the subdivided lots to his daughters, namely: Isabel, Salud, Catalina, and Felicidad, all surnamed Lozada. The Deed of Donation was registered with the office of the Register of Deeds of Manila on March 15, 1932. Under the said Deed of Donation, the lots were adjudicated to Dalmacio’s daughters in the following manner: a. Lot No. 12-A in favor of Isabel Lozada, married to Isaac Limense; b. Lot No. 12-B in favor of Catalina Lozada, married to Sotero Natividad; c. Lot No. 12-C in favor of Catalina Lozada, married to Sotero Natividad; Isabel Lozada, married to Isaac Limense; and Salud Lozada, married to Francisco Ramos, in equal parts; d. Lot No. 12-D in favor of Salud Lozada, married to Francisco Ramos; and _______________ 2 Id., at pp. 52-55. 3 Records, p. 231. 4 Id., at pp. 14-19. 602 602SUPREME COURT REPORTS ANNOTATED

Heirs of the Late Joaquin Limense vs. Vda. De Ramos e. Lot No. 12-E in favor of Isabel Lozada, married to Isaac Limense, and Felicidad Lozada, married to Galicano Centeno. By virtue of the Deed of Donation executed by Dalmacio Lozada, OCT No. 7036, which was registered in his name, was cancelled and, in lieu thereof, Transfer Certificates of Title (TCTs) bearing Nos. 40041, 40042, 40043, 40044, and 40045 were issued in favor of the donees, except TCT No. 40044, which remained in his name. These new TCTs were annotated at the back of OCT No. 7036.5 TCT No. 40043, which covered Lot No. 12-C, was issued in the name of its co-owners Catalina Lozada, married to Sotero Natividad; Isabel Lozada, married to Isaac Limense; and Salud Lozada, married to Francisco Ramos. It covered an area of 68.60 square meters, more or less, was bounded on the northeast by Lot No. 12-A, on the southwest by Calle Beata, and on the northwest by Lot No. 12-D of the subdivision plan. In 1932, respondents’ predecessor-in-interest constructed their residential building on Lot No. 12-D, adjacent to Lot No. 12-C. On May 16, 1969, TCT No. 968866 was issued in the name of Joaquin Limense covering the very same area of Lot No. 12-C. On October 1, 1981, Joaquin Limense secured a building permit for the construction of a hollow block fence on the boundary line between his aforesaid property and the adjacent parcel of land located at 2759 Beata Street, Pandacan, Manila, designated as Lot No. 12-D, which was being occupied by respondents. The fence, however, could not be constructed because a substantial portion of respondents’ residential

building in Lot No. 12-D encroached upon portions of Joaquin Limense’s property in Lot No. 12-C. _______________ 5 Id., at pp. 231. 6 Id., at p. 183. 603 VOL. 604, OCTOBER 28, 2009603 Heirs of the Late Joaquin Limense vs. Vda. De Ramos Joaquin Limense demanded the removal of the encroached area; however, respondent ignored both oral and written demands. The parties failed to amicably settle the differences between them despite referral to the barangay. Thus, on March 9, 1983, Joaquin Limense, duly represented by his Attorney-inFact, Teofista L. Reyes, instituted a Complaint7 against respondents before the Regional Trial Court (RTC) of Manila, Branch 15, for removal of obstruction and damages. Joaquin Limense prayed that the RTC issue an order directing respondents, jointly and severally, to remove the portion which illegally encroached upon his property on Lot No. 12-C and, likewise, prayed for the payment of damages, attorney’s fees and costs of suit. Respondents, on the other hand, averred in their Answer8 that they were the surviving heirs of Francisco Ramos,9 who, during his lifetime, was married to Salud Lozada, one of the daughters of Dalmacio Lozada, the original owner of Lot No. 12. After subdividing the said lot, Dalmacio Lozada donated Lot No. 12-C in favor of his daughters Catalina, married to Sotero Natividad; Isabel, married to Isaac Limense; and Salud, married to Francisco Ramos. Being the surviving heirs of

Francisco Ramos, respondents later became co-owners of Lot No. 12-C. Lot No. 12-C has served as right of way or common alley of all the heirs of Dalmacio Lozada since 1932 up to the present. As a common alley, it could not be closed or fenced by Joaquin Limense without causing damage and prejudice to respondents. After trial on the merits, the RTC rendered a Decision10 dated September 21, 1990 dismissing the complaint of Joaquin Limense. It ruled that an apparent easement of right of _______________ 7 Id., at pp. 1-5. 8 Id., at pp. 10-13. 9 In their answer, respondents referred to Francisco Ramos as “Francisco Ramos, Sr.” 10 Records, pp. 311-314. 604 604SUPREME COURT REPORTS ANNOTATED Heirs of the Late Joaquin Limense vs. Vda. De Ramos way existed in favor of respondents. Pertinent portions of the decision read as follows: “The Court finds that an apparent easement of right of way exists in favor of the defendants under Article 624 of the Civil Code. It cannot be denied that there is an alley which shows its existence. It is admitted that this alley was established by the original owner of Lot 12 and that in dividing his property, the alley established by him continued to be used actively and passively as such. Even when the division of the property occurred, the non-existence of the easement was not expressed

in the corresponding titles nor were the apparent sign of the alley made to disappear before the issuance of said titles. The Court also finds that when plaintiff acquired the lot (12-C) which forms the alley, he knew that said lot could serve no other purpose than as an alley. That is why even after he acquired it in 1969, the lot continued to be used by defendants and occupants of the other adjoining lots as an alley. The existence of the easement of right of way was therefore known to plaintiff who must respect the same in spite of the fact that his transfer certificate of title does not mention the lot of defendants as among those listed therein as entitled to such right of way. It is an established principle that actual notice or knowledge is as binding as registration.”11 Aggrieved by said decision, Joaquin Limense filed a notice of appeal. The records of the case were transmitted to the Court of Appeals (CA). During the pendency of the appeal with the CA, Joaquin Limense died in 1999.12 The CA, Seventh Division, in CA-G.R. CV No. 33589, in its Decision13 dated December 20, 2001 dismissed the appeal and affirmed in toto the decision of the RTC. Frustrated by this turn of events, petitioners, as surviving heirs of Joaquin Limense, elevated the case to this Court via a Petition for Review on Certiorari14 raising the following issues: _______________ 11 Id., at p. 314. 12 Rollo, p. 27. 13 Id., at pp. 29-35. 14 Id., at pp. 9-25. 605

VOL. 604, OCTOBER 28, 2009605 Heirs of the Late Joaquin Limense vs. Vda. De Ramos 1. DID THE HONORABLE COURT OF APPEALS COMMIT A GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION, IN HOLDING, LIKE THE TRIAL COURT DID, THAT RESPONDENTS’ LOT 12-D HAS AN EASEMENT OF RIGHT OF WAY OVER JOAQUIN LIMENSE’S LOT 12-C? 2. DID THE HONORABLE COURT OF APPEALS COMMIT A GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION, IN FAILING TO HOLD, LIKE THE TRIAL COURT DID, THAT THE PROTRUDING PORTIONS OF RESPONDENTS’ HOUSE ON LOT 12-D EXTENDING INTO JOAQUIN LIMENSE’S LOT 12-C CONSTITUTE A NUISANCE AND, AS SUCH, SHOULD BE REMOVED? Petitioners aver that the CA erred in ruling that since Lot No. 12-C was covered by two TCT’s, i.e., TCT Nos. 40043 and 96886, and there was no evidence on record to show how Joaquin Limense was able to secure another title over an already titled property, then one of these titles must be of dubious origin. According to the CA, TCT No. 96886, issued in the name of Joaquin Limense, was spurious because the Lozada sisters never disposed of the said property covered by TCT No. 40043. The CA further ruled that a co-ownership existed over Lot No. 12-C between petitioners and respondents. Petitioners countered that TCT No. 96886, being the only and best legitimate proof of ownership over Lot No. 12-C, must prevail over TCT No. 40043.

Respondents allege that it was possible that TCT No. 96886, in the name of Joaquin Limense, was obtained thru fraud, misrepresentation or falsification of documents because the donees of said property could not possibly execute any valid transfer of title to Joaquin Limense, as they were already dead prior to the issuance of TCT No. 96886 in 1969. Respondents further allege that petitioners failed to produce proof substantiating the issuance of TCT No. 96886 in the name of Joaquin Limense. 606 606SUPREME COURT REPORTS ANNOTATED Heirs of the Late Joaquin Limense vs. Vda. De Ramos Apparently, respondents are questioning the legality of TCT No. 96886, an issue that this Court cannot pass upon in the present case. It is a rule that the validity of a torrens title cannot be assailed collaterally.15 Section 48 of Presidential Decree (PD) No. 1529 provides that: [a] certificate of title shall not be subject to collateral attack. It cannot be altered, modified, or cancelled except in a direct proceeding in accordance with law. In the case at bar, the action filed before the RTC against respondents was an action for removal of obstruction and damages. Respondents raised the defense that Joaquin Limense’s title could have been obtained through fraud and misrepresentation in the trial proceedings before the RTC. Such defense is in the nature of a collateral attack, which is not allowed by law. Further, it has been held that a certificate of title, once registered, should not thereafter be impugned, altered, changed,

modified, enlarged or diminished, except in a direct proceeding permitted by law. Otherwise, the reliance on registered titles would be lost. The title became indefeasible and incontrovertible after the lapse of one year from the time of its registration and issuance. Section 32 of PD 1529 provides that “upon the expiration of said period of one year, the decree of registration and the certificate of title shall become incontrovertible. Any person aggrieved by such decree of registration in any case may pursue his remedy by action for damages against the applicant or other persons responsible for the fraud.”16 It has, therefore, become an ancient rule that the issue on the validity of title, i.e., whether or not it was fraudulently issued, can only be raised in an action expressly insti_______________ 15 Vda. de Gualberto v. Go, G.R. No. 139843, July 21, 2005, 463 SCRA 671, 677. 16 Seville v. National Development Company, 403 Phil. 843, 859; 351 SCRA 112, 125 (2001). 607 VOL. 604, OCTOBER 28, 2009607 Heirs of the Late Joaquin Limense vs. Vda. De Ramos tuted for that purpose.17 In the present case, TCT No. 96886 was registered in 1969 and respondents never instituted any direct proceeding or action to assail Joaquin Limense’s title. Additionally, an examination of TCT No. 40043 would readily show that there is an annotation that it has been “CANCELLED.”18 A reading of TCT No. 96886 would also reveal that said title is a transfer from TCT No. 4886619 and

not TCT 40043. Thus, it is possible that there was a series of transfers effected from TCT No. 40043 prior to the issuance of TCT No. 96886. Hence, respondents’ position that the issuance of TCT No. 96886 in the name of Joaquin Limense is impossible, because the registered owners of TCT No. 40043 were already dead prior to 1969 and could not have transferred the property to Joaquin Limense, cannot be taken as proof that TCT No. 96886 was obtained through fraud, misrepresentation or falsification of documents. Findings of fact of the CA, although generally deemed conclusive, may admit review by this Court if the CA failed to notice certain relevant facts that, if properly considered, would justify a different conclusion, and if the judgment of the CA is premised on a misapprehension of facts.20 As with the present case, the CA’s observation that TCT No. 96886 is of dubious origin, as TCT No. 40043 does not appear to have been disposed of by Catalina, Isabel and Salud Lozada, is improper and constitutes an indirect attack on TCT No. 96886. As we see it, TCT No. 96886, at present, is the best proof of Joaquin Limense’s ownership over Lot No. 12-C. Thus, the CA erred in ruling that respondents and petitioners co-owned Lot No. 12-C, as said lot is now registered exclusively in the name of Joaquin Limense. _______________ 17 Tanenglian v. Lorenzo, G.R. No. 173415, March 28, 2008, 550 SCRA 348, 380. 18 Records, p. 239. 19 Id., at p. 183. 20 Fuentes v. Court of Appeals, 335 Phil. 1163, 1168; 268 SCRA 703, 708 (1997).

608 608SUPREME COURT REPORTS ANNOTATED Heirs of the Late Joaquin Limense vs. Vda. De Ramos Due to the foregoing, Joaquin Limense, as the registered owner of Lot 12-C, and his successors-in-interest, may enclose or fence his land or tenements by means of walls, ditches, live or dead hedges, or by any other means without detriment to servitudes constituted thereon.21 However, although the owner of the property has the right to enclose or fence his property, he must respect servitudes constituted thereon. The question now is whether respondents are entitled to an easement of right of way. Petitioners contend that respondents are not entitled to an easement of right of way over Lot No. 12-C, because their Lot No. 12-D is not duly annotated at the back of TCT No. 96886 which would entitle them to enjoy the easement, unlike Lot Nos. 12-A-1, 12-A-2, 12-A-3, 12-A-4, 12-A-5, and 12-A-6. Respondents, on the other hand, allege that they are entitled to an easement of right of way over Lot No. 12-C, which has been continuously used as an alley by the heirs of Dalmacio Lozada, the residents in the area and the public in general from 1932 up to the present. Since petitioners are fully aware of the long existence of the said alley or easement of right of way, they are bound to respect the same. As defined, an easement is a real right on another’s property, corporeal and immovable, whereby the owner of the latter must refrain from doing or allowing somebody else to do or something to be done on his property, for the benefit of another person or tenement.22

Easements may be continuous or discontinuous, apparent or non-apparent. Continuous easements are those the use of which is or may be incessant, without the intervention of any act of man. Discontinuous easements are those which are used at intervals and depend upon the acts of man. Apparent easements are _______________ 21 New Civil Code, Art. 430. 22 Quimen v. Court of Appeals, 326 Phil. 969, 976; 257 SCRA 163, 168-169 (1996), citing 3 Sanchez Roman 472. 609 VOL. 604, OCTOBER 28, 2009609 Heirs of the Late Joaquin Limense vs. Vda. De Ramos those which are made known and are continually kept in view by external signs that reveal the use and enjoyment of the same. Non-apparent easements are those which show no external indication of their existence.23 In the present case, the easement of right of way is discontinuous and apparent. It is discontinuous, as the use depends upon the acts of respondents and other persons passing through the property. Being an alley that shows a permanent path going to and from Beata Street, the same is apparent. Being a discontinuous and apparent easement, the same can be acquired only by virtue of a title.24 In the case at bar, TCT No. 96886, issued in the name of Joaquin Limense, does not contain any annotation that Lot No. 12-D was given an easement of right of way over Lot No. 12C. However, Joaquin Limense and his successors-in-interests are fully aware that Lot No. 12-C has been continuously used

and utilized as an alley by respondents and residents in the area for a long period of time. Joaquin Limense’s Attorney-in-Fact, Teofista L. Reyes, testified that respondents and several other residents in the area have been using the alley to reach Beata Street since 1932. Thus: Atty. Manuel B. Tomacruz: Q: Mrs. Witness, by virtue of that Deed of Donation you claim that titles were issued to the children of Dalmacio Lozada namely Salud Lozada, Catalina Lozada and Isabel Lozada, is that right? A: Yes, sir. Q: And after the said property was adjudicated to his said children the latter constructed their houses on their lots. A: Yes, sir. _______________ 23 New Civil Code, Art. 615. 24 New Civil Code, Art. 622. 610 610SUPREME COURT REPORTS ANNOTATED Heirs of the Late Joaquin Limense vs. Vda. De Ramos Q: As a matter of fact, the herein defendants have constructed their houses on the premises alloted to them since the year 1932? A: Yes, sir, they were able to construct their house fronting Beata Street. Q: And that house they have constructed on their lot in 1932 is still existing today?

A: Yes, sir and they still used the alley in question and they are supposed to use Beata Street but they are not using Beata Street. Q: They are using the alley? A: Yes, sir, they are using the alley and they do not pass through Beata Street. Q:And they have been using the alley since 1932 up to the present? A:Yes, sir they have been using the alley since that time. That was their mistake and they should be using Beata Street because they are fronting Beata Strret. Q: As a matter of fact, it is not only herein defendants who have been using that alley since 1932 up to the present? A: Yes, sir they are using the alley up to now. Q: As a matter of fact, in this picture marked as Exh. “C-1” the alley is very apparent. This is the alley? A: Yes, sir. Q: And there are houses on either side of this alley? A: Yes, sir. Q: As a matter of fact, all the residents on either side of the alley are passing through this alley? A: Yes, sir, because the others have permit to use this alley and they are now allowed to use the alley but the Ramos’s family are now [not] allowed to use this alley.25 In Mendoza v. Rosel,26 this Court held that: _______________ 25 TSN, May 9, 1990, pp. 13-15. 26 74 Phil. 84 (1943). (Emphasis supplied). 611 VOL. 604, OCTOBER 28, 2009611

Heirs of the Late Joaquin Limense vs. Vda. De Ramos “Petitioners claim that inasmuch as their transfer certificates of title do not mention any lien or encumbrance on their lots, they are purchasers in good faith and for value, and as such have a right to demand from respondents some payment for the use of the alley. However, the Court of Appeals found, as a fact, that when respondents acquired the two lots which form the alley, they knew that said lots could serve no other purpose than as an alley. The existence of the easement of right of way was therefore known to petitioners who must respect the same, in spite of the fact that their transfer certificates of title do not mention any burden or easement. It is an established principle that actual notice or knowledge is as binding as registration.” Every buyer of a registered land who takes a certificate of title for value and in good faith shall hold the same free of all encumbrances except those noted on said certificate. It has been held, however, that “where the party has knowledge of a prior existing interest that was unregistered at the time he acquired a right to the same land, his knowledge of that prior unregistered interest has the effect of registration as to him.”27 In the case at bar, Lot No. 12-C has been used as an alley ever since it was donated by Dalmacio Lozada to his heirs. It is undisputed that prior to and after the registration of TCT No. 96886, Lot No. 12-C has served as a right of way in favor of respondents and the public in general. We quote from the RTC’s decision: “x x x It cannot be denied that there is an alley which shows its existence. It is admitted that this alley was established by the original owner of Lot 12 and that in dividing his property the

alley established by him continued to be used actively and passively as such. Even when the division of the property occurred, the non-existence of the easement was not expressed in the corresponding titles nor were _______________ 27 Private Development Corporation of the Philippines v. Court of Appeals, G.R. No. 136897, November 22, 2005, 475 SCRA 591, 607. 612 612SUPREME COURT REPORTS ANNOTATED Heirs of the Late Joaquin Limense vs. Vda. De Ramos the apparent sign of the alley made to disappear before the issuance of said titles. The Court also finds that when plaintiff acquired the lot (12-C) which forms the alley, he knew that said lot could serve no other purpose than as an alley. That is why even after he acquired it in 1969 the lot continued to be used by defendants and occupants of the other adjoining lots as an alley. x x x”28 Thus, petitioners are bound by the easement of right of way over Lot No. 12-C, even though no registration of the servitude has been made on TCT No. 96886. However, respondents’ right to have access to the property of petitioners does not include the right to continually encroach upon the latter’s property. It is not disputed that portions of respondents’ house on Lot No. 12-D encroach upon Lot No. 12-C. Geodetic Engineer Jose Agres, Jr. testified on the encroachment of respondents’ house on Lot No. 12-C, which he surveyed.29 In order to settle the rights of the parties

relative to the encroachment, We should determine whether respondents were builders in good faith. Good faith is an intangible and abstract quality with no technical meaning or statutory definition; and it encompasses, among other things, an honest belief, the absence of malice and the absence of a design to defraud or to seek an unconscionable advantage. An individual’s personal good faith is a concept of his own mind and, therefore, may not conclusively be determined by his protestations alone. It implies honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry. The essence of good faith lies in an honest belief in the validity of one’s right, ignorance of a superior claim, and absence of intention to overreach another. Applied to possession, one is considered in _______________ 28 Rollo, p. 55. 29 TSN, May 21, 1986. 613 VOL. 604, OCTOBER 28, 2009613 Heirs of the Late Joaquin Limense vs. Vda. De Ramos good faith if he is not aware that there exists in his title or mode of acquisition any flaw which invalidates it.30 Good faith is always presumed, and upon him who alleges bad faith on the part of the possessor rests the burden of proof.31 It is a matter of record that respondents’ predecessor-in-interest constructed their residential building on Lot No. 12-D, adjacent to Lot No. 12-C, in 1932.32 Respondents’ predecessor-ininterest owned the 1/3 portion of Lot No. 12-C at the time the property was donated to them by Dalmacio Lozada in 1932.

The Deed of Donation executed by the late Dalmacio Lozada, dated March 9, 1932, specifically provides that: “I hereby grant, cede and donate in favor of Catalina Lozada married to Sotero Natividad, Isabel Lozada married to Isaac “Limense and Salud Lozada married to Francisco Ramos, all Filipinos, of legal age, the parcel of land known as Lot No. 12C, in equal parts.33 The portions of Lot No. 12-D, particularly the overhang, covering 1 meter in width and 17 meters in length; the stairs; and the concrete structures are all within the 1/3 share al_______________ 30 Elvira T. Arangote v. Spouses Martin and Lourdes S. Mag-lunob, and Romeo Salido, G.R No. 178906, February 18, 2009, 579 SCRA 620, 640-645; Heirs of Marcelino Cabal v. Cabal, G.R. No. 153625, July 31, 2006, 497 SCRA 301, 315316. 31 New Civil Code, Art. 527; Ballatan v. Court of Appeals, 363 Phil. 408, 419; 304 SCRA 34, 45 (1999). 32 Direct Examination of Ms. Rita Vda. de Ramos by Atty. Meneses, TSN, October 12, 1987, p. 11. Q: How about the land which was donated to the defendants therein, namely Lot No. 12-D, what happened to this land? A: That is where our house is located. Q: When did you construct your house on that land? A: Sometime in 1932. Q: And that house is still existing today? A: Yes, sir. 33 Records, p. 228. (Emphasis supplied.) 614

614SUPREME COURT REPORTS ANNOTATED Heirs of the Late Joaquin Limense vs. Vda. De Ramos loted to them by their donor Dalmacio Lozada and, hence, there was absence of a showing that respondents acted in bad faith when they built portions of their house on Lot No. 12-C. Using the above parameters, we are convinced that respondents’ predecessors-in-interest acted in good faith when they built portions of their house on Lot 12-C. Respondents being builders in good faith, we shall now discuss the respective rights of the parties relative to the portions encroaching upon respondents’ house. Articles 448 and 546 of the New Civil Code provide: “Art. 448. The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in Articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of the lease and, in case of disagreement, the court shall fix the terms thereof. Art. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain the thing until he has been reimbursed therefor.

Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the person who has defeated him in the possession having the option of refunding the amount of the expenses or of paying the increase in value which the thing may have acquired by reason thereof.” In Spouses Del Campo v. Abesia,34 this provision was applied to one whose house, despite having been built at the time he was still co-owner, overlapped with the land of another. In that case, this Court ruled: _______________ 34 No. L-49219, April 15, 1988, 160 SCRA 379. 615 VOL. 604, OCTOBER 28, 2009615 Heirs of the Late Joaquin Limense vs. Vda. De Ramos “The court a quo correctly held that Article 448 of the Civil Code cannot apply where a co-owner builds, plants or sows on the land owned in common for then he did not build, plant or sow upon the land that exclusively belongs to another but of which he is a 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 house of defendants overlaps or occupies a portion of 5 square meters of the land pertaining to plaintiffs which the defendants obviously built in good faith, then the provisions of Article 448 of the new Civil Code should apply. x x x”35 In other words, when the co-ownership is terminated by a partition, and it appears that the house of an erstwhile co-owner

has encroached upon a portion pertaining to another co-owner, but the encroachment was in good faith, then the provisions of Article 448 should apply to determine the respective rights of the parties. In this case, the co-ownership was terminated due to the transfer of the title of the whole property in favor of Joaquin Limense. Under the foregoing provision, petitioners have the right to appropriate said portion of the house of respondents upon payment of indemnity to respondents, as provided for in Article 546 of the Civil Code. Otherwise, petitioners may oblige respondents to pay the price of the land occupied by their house. However, if the price asked for is considerably much more than the value of the portion of the house of respondents built thereon, then the latter cannot be obliged to buy the land. Respondents shall then pay the reasonable rent to petitioners upon such terms and conditions that they may agree. In case of disagreement, the trial court shall fix the terms thereof. Of course, respondents may demolish or remove the said portion of their house, at their own expense, if they so decide.36 _______________ 35 Spouses Del Campo v. Abesia, supra, at 382-383. 36 Id., at p. 383. 616 616SUPREME COURT REPORTS ANNOTATED Heirs of the Late Joaquin Limense vs. Vda. De Ramos The choice belongs to the owner of the land, a rule that accords with the principle of accession that the accessory follows the principal and not the other way around.37 Even as the option lies with the landowner, the grant to him,

never-the-less, is preclusive. He must choose one. He cannot, for instance, compel the owner of the building to instead remove it from the land.38 The obvious benefit to the builder under this article is that, instead of being outrightly ejected from the land, he can compel the landowner to make a choice between two options: (1) to appropriate the building by paying the indemnity required by law, or (2) to sell the land to the builder.39 The raison d’être for this provision has been enunciated, thus: “Where the builder, planter or sower has acted in good faith, a conflict of rights arises between the owners, and it becomes necessary to protect the owner of the improvements without causing injustice to the owner of the land. In view of the impracticability of creating a state of forced co-ownership, the law has provided a just solution by giving the owner of the land the option to acquire the improvements after payment of the proper indemnity, or to oblige the builder or planter to pay for the land and the sower the proper rent. He cannot refuse to exercise either option. It is the owner of the land who is authorized to exercise the option, because his right is older, and because, by the principle of accession, he is entitled to the ownership of the accessory thing.”40 _______________ 37 Ochoa v. Apeta, G.R. No. 146259, September 13, 2007, 533 SCRA 235, 241. 38 Philippine National Bank v. De Jesus, 458 Phil. 454, 459; 411 SCRA 557, 560-561 (2003). 39 Technogas Philippines Manufacturing Corp. v. Court of Appeals, 335 Phil. 471, 482; 268 SCRA 5, 16-17 (1997).

40 Rosales v. Castelltort, G.R No. 157044, October 5, 2005, 472 SCRA 144, 161. 617 VOL. 604, OCTOBER 28, 2009617 Heirs of the Late Joaquin Limense vs. Vda. De Ramos In accordance with Depra v. Dumlao,41 this case must be remanded to the trial court to determine matters necessary for the proper application of Article 448 in relation to Article 546. Such matters include the option that petitioners would take and the amount of indemnity that they would pay, should they decide to appropriate the improvements on the lots. Anent the second issue, although it may seem that the portions encroaching upon respondents’ house can be considered a nuisance, because it hinders petitioners’ use of their property, it cannot simply be removed at respondents’ expense, as prayed for by petitioner. This is because respondents built the subject encroachment in good faith, and the law affords them certain rights as discussed above. WHEREFORE, the petition is DENIED, the Decision of the Court of Appeals dated December 20, 2001 in CA-G.R. CV No. 33589 is AFFIRMED with the following MODIFICATIONS: 1. No co-ownership exists over Lot No. 12-C, covered by TCT No. 96886, between petitioners and respondents. 2. The case is REMANDED to the Regional Trial Court, Branch 15, Manila, for further proceedings without further delay to determine the facts essential to the proper application of Articles 448 and 546 of the Civil Code. SO ORDERED.

Quisumbing,** Carpio (Chairperson), Chico-Nazario and Abad ,*** JJ., concur. [Heirs of the Late Joaquin Limense vs. Vda. De Ramos, 604 SCRA 599(2009)]

G.R. No. 91889. August 27, 1993.*SECOND DIVISION. MANUEL R. DULAY ENTERPRISES, INC., VIRGILIO E. DULAY AND NEPOMUCENO REDOVAN, petitioners, vs. THE HONORABLE COURT OF APPEALS, EDGARDO D. PABALAN, MANUEL A. TORRES, JR., MARIA THERESA V. VELOSO and CASTRENSE C. VELOSO, respondents. Corporation Law; Petitioner corporation is classified as a close corporation and consequently a board resolution authorizing the sale or mortgage of the subject property is not necessary to bind the Corporation for the action of its President.—In the instant case, petitioner corporation is classified as a close corporation and consequently a board resolution authorizing the sale or mortgage of the subject property is not necessary to bind the corporation for the action of its president. At any rate, a corporate action taken at a board meeting without proper call or notice in a close corporation is deemed ratified by the absent director unless the latter promptly files his written objection with the secretary of the corporation after having knowledge of the meeting which, in this case, petitioner Virgilio Dulay failed to do. Same; Piercing the veil of corporate fiction; When the corporation is used merely as an alter ego or business conduit of a person, the law will regard the corporation as the act of that person.—It is relevant to note that although a corporation is an entity which has a personality distinct and separate from its individual stockholders or members, the veil of corporate fiction may be pierced when it is used to defeat public convenience, justify wrong, protect fraud or defend crime. The privilege of being treated as an entity distinct and separate from its stockholders or members is therefore confined to its

legitimate uses and is subject to certain limitations to prevent the commission of fraud or other illegal or unfair act. When the corporation is used merely as an alter ego or business conduit of a person, the law will regard the corporation as the act of that person. The Supreme Court had repeatedly disregarded the separate personality of the corporation where the corporate entity was used to annul a valid contract executed by one of its members. Civil Law; Sale; The mere execution of the deed of sale in a public document is equivalent to the delivery of the property; Prior physical delivery or possession not legally required.— Under the aforementioned _______________ * SECOND DIVISION. 679 VOL. 225, AUGUST 27, 1993 679 Manuel R. Dulay Enterprises, Inc. vs. Court of Appeals article, the mere execution of the deed of sale in a public document is equivalent to the delivery of the property. x x x x x x Therefore, prior physical delivery or possession is not legally required since the execution of the Deed of Sale is deemed equivalent to delivery. PETITION for review on certiorari of the decision of the Court of Appeals. The facts are stated in the opinion of the Court. Virgilio E. Dulay for petitioners. Torres, Tobias, Azura & Jocson for private respondents. NOCON, J.:

This is a petition for review on certiorari to annul and set aside the decision1Penned by Justice Jorge S. Imperial with the concurrence of Justice Reynato S. Puno and Justice Cezar D. Francisco. of the Court of Appeals affirming the decision2Penned by Judge Fermin Martin, Jr. of the Regional Trial Court of Pasay, Branch 114 in Civil Cases Nos. 8198-P, 8278-P and 2880-P, the dispositive portion of which reads, as follows: “WHEREFORE, in view of all the foregoing considerations, this Court hereby renders judgment, as follows: “In Civil Case No. 2880-P, the petition filed by Manuel R. Dulay Enterprises, Inc. and Virgilio E. Dulay for annulment or declaration of nullity of the decision of the Metropolitan Trial Court, Branch 46, Pasay City, in its Civil Case No. 38-81 entitled ‘Edgardo D. Pabalan, et al., vs. Spouses Florentino Manalastas, et al.,’ is dismissed for lack of merit; “In Civil Case No. 8278-P, the complaint filed by Manuel R. Dulay Enterprises, Inc. for cancellation of title of Manuel A. Torres, Jr. (TCT No. 24799 of the Register of Deeds of Pasay City) and reconveyance, is dismissed for lack of merit; and, “In Civil Case No. 8198-P, defendants Manuel R. Dulay Enterprises, Inc. and Virgilio E. Dulay are ordered to surrender and deliver possession of the parcel of land, together with all the improvements thereon, described in Transfer Certificate of Title No. 24799 of the Register of Deeds of Pasay City, in favor of therein plaintiffs Manuel A. Torres, Jr. as owner and Edgardo D. Pabalan as real estate administra_______________ 1 Penned by Justice Jorge S. Imperial with the concurrence of Justice Reynato S. Puno and Justice Cezar D. Francisco.

2 Penned by Judge Fermin Martin, Jr. 680 680 SUPREME COURT REPORTS ANNOTATED Manuel R. Dulay Enterprises, Inc. vs. Court of Appeals tor of said Manuel A. Torres, Jr.; to account for and return to said plaintiffs the rentals from dwelling unit No. 8-A of the apartment building (Dulay Apartment) from June 1980 up to the present; to indemnify plaintiffs, jointly and severally, expenses of litigation in the amount of P4,000.00 and attorney’s fees in the sum of P6,000.00, for all the three (3) cases. Co-defendant Nepomuceno Redovan is ordered to pay the current and subsequent rentals on the premises leased by him to plaintiffs. “The counterclaim of defendants Virgilio E. Dulay and Manuel R. Dulay Enterprises, Inc. and N. Redovan, is dismissed for lack of merit. With costs against the three (3) aforenamed defendants.”3Rollo, p. 77. The facts as found by the trial court are as follows: Petitioner Manuel R. Dulay Enterprises, Inc., a domestic corporation with the following as members of its Board of Directors: Manuel R. Dulay with 19,960 shares and designated as president, treasurer and general manager; Atty. Virgilio E. Dulay with 10 shares and designated as vice-president; Linda E. Dulay with 10 shares; Celia Dulay-Mendoza with 10 shares; and Atty. Plaridel C. Jose with 10 shares and designated as secretary, owned a property covered by TCT No. 178804Exhibit “1”, Records/Index of Exhibits, p. 30. and known as Dulay Apartment consisting of sixteen (16)

apartment units on a six hundred eighty-nine (689) square meter lot, more or less, located at Seventh Street (now Buendia Extension) and F.B. Harrison Street, Pasay City. Petitioner corporation through its president, Manuel Dulay, obtained various loans for the construction of its hotel project, Dulay Continental Hotel (now Frederick Hotel). It even had to borrow money from petitioner Virgilio Dulay to be able to continue the hotel project. As a result of said loan, petitioner Virgilio Dulay occupied one of the unit apartments of the subject property since 1973 while at the same time managing the Dulay Apartment as his shareholdings in the corporation was subsequently increased by his father.5Rollo, pp. 31-32. On December 23, 1976, Manuel Dulay by virtue of Board Resolution No. 186Exhibit “C”, Records/Index of Exhibits, p. 5. of petitioner corporation sold the subject _______________ 3 Rollo, p. 77. 4 Exhibit “1”, Records/Index of Exhibits, p. 30. 5 Rollo, pp. 31-32. 6 Exhibit “C”, Records/Index of Exhibits, p. 5. 681 VOL. 225, AUGUST 27, 1993 681 Manuel R. Dulay Enterprises, Inc. vs. Court of Appeals property to private respondents spouses Maria Theresa and Castrense Veloso in the amount of P300,000.00 as evidenced by the Deed of Absolute Sale.7Exhibit “A”, Records/Index of Exhibits, pp. 1-2. Thereafter, TCT No. 17880 was cancelled and TCT No. 23225 was issued to private respondent Maria

Theresa Veloso.8Exhibit “B”, Records/Index of Exhibits, p. 3. Subsequently, Manuel Dulay and private respondents spouses Veloso executed a Memorandum to the Deed of Absolute Sale of December 23, 19769Exhibit “17-C”, Records/Index of Exhibits, pp. 96-97. dated December 9, 1977 giving Manuel Dulay within two (2) years or until December 9, 1979 to repurchase the subject property for P200,000.00 which was, however, not annotated either in TCT No. 17880 or TCT No. 23225. On December 24, 1976, private respondent Maria Veloso, without the knowledge of Manuel Dulay, mortgaged the subject property to private respondent Manuel A. Torres for a loan of P250,000.00 which was duly annotated as Entry No. 68139 in TCT No. 23225.10Exhibit “B”, Records/Index of Exhibits, p. 4. Upon the failure of private respondent Maria Veloso to pay private respondent Torres, the subject property was sold on April 5, 1978 to private respondent Torres as the highest bidder in an extrajudicial foreclosure sale as evidenced by the Certificate of Sheriffs Sale11Exhibit “F”, Records/Index of Exhibits, pp. 11-12. issued on April 20, 1978. On July 20, 1978, private respondent Maria Veloso executed a Deed of Absolute Assignment of the Right to Redeem12Exhibit “H”, Records/Index of Exhibits, pp. 14-15. in favor of Manuel Dulay assigning her right to repurchase the subject property from private respondent Torres as a result of the extrajudicial sale held on April 25, 1978. As neither private respondent Maria Veloso nor her assignee Manuel Dulay was able to redeem the subject property within the one year statutory period for redemption, private

respondent Torres filed an Affidavit of Consolidation of Ownership13Exhibit “G”, Records/Index of Exhibits, p. 13. with the Registry of Deeds of Pasay City and TCT No. 2479914Exhibit “I”, Records/Index of Exhibits, p. 16. was subse________________ 7 Exhibit “A”, Records/Index of Exhibits, pp. 1-2. 8 Exhibit “B”, Records/Index of Exhibits, p. 3. 9 Exhibit “17-C”, Records/Index of Exhibits, pp. 96-97. 10 Exhibit “B”, Records/Index of Exhibits, p. 4. 11 Exhibit “F”, Records/Index of Exhibits, pp. 11-12. 12 Exhibit “H”, Records/Index of Exhibits, pp. 14-15. 13 Exhibit “G”, Records/Index of Exhibits, p. 13. 14 Exhibit “I”, Records/Index of Exhibits, p. 16. 682 682 SUPREME COURT REPORTS ANNOTATED Manuel R. Dulay Enterprises, Inc. vs. Court of Appeals quently issued to private respondent Manuel Torres on April 23, 1979. On October 1, 1979, private respondent Torres filed a petition for the issuance of a writ of possession against private respondents spouses Veloso and Manuel Dulay in LRC Case No. 1742-P. However, when petitioner Virgilio Dulay appeared in court to intervene in said case alleging that Manuel Dulay was never authorized by the petitioner corporation to sell or mortgage the subject property, the trial court ordered private respondent Torres to implead petitioner corporation as an

indispensable party but the latter moved for the dismissal of his petition which was granted in an Order dated April 8, 1980. On June 20, 1980, private respondent Torres and Edgardo Pabalan, real estate administrator of Torres, filed an action against petitioner corporation, Virgilio Dulay and Nepomuceno Redovan, a tenant of Dulay Apartment Unit No. 8-A for the recovery of possession, sum of money and damages with preliminary injunction in Civil Case No. 8198-P with the then Court of First Instance of Rizal. On July 21, 1980, petitioner corporation filed an action against private respondents spouses Veloso and Torres for the cancellation of the Certificate of Sheriffs Sale and TCT No. 24799 in Civil Case No. 8278-P with the then Court of First Instance of Rizal. On January 29, 1981, private respondents Pabalan and Torres filed an action against spouses Florentino and Elvira Manalastas, a tenant of Dulay Apartment Unit No. 7-B, with petitioner corporation as intervenor for ejectment in Civil Case No. 38-81 with the Metropolitan Trial Court of Pasay City which rendered a decision on April 25, 1985, the dispositive portion of which reads, as follows: “WHEREFORE, judgment is hereby rendered in favor of the plaintiff (herein private respondents) and against the defendants: “1. Ordering the defendants and all persons claiming possession under them to vacate the premises; “2. Ordering the defendants to pay the rents in the sum of P500.00 a month from May, 1979 until they shall have vacated the premises with interest at the legal rate;

“3. Ordering the defendants to pay attorney’s fees in the sum of P2,000.00 and P1,000.00 as other expenses of litigation and for them to 683 VOL. 225, AUGUST 27, 1993 683 Manuel R. Dulay Enterprises, Inc. vs. Court of Appeals pay the costs of the suit.”15Original Records of Civil Case No. 2880-P, p. 84. Thereafter or on May 17, 1985, petitioner corporation and Virgilio Dulay filed an action against the presiding judge of the Metropolitan Trial Court of Pasay City, private respondents Pabalan and Torres for the annulment of said decision with the Regional Trial Court of Pasay in Civil Case No. 2880-P. Thereafter, the three (3) cases were jointly tried and the trial court rendered a decision in favor of private respondents. Not satisfied with said decision, petitioners appealed to the Court of Appeals which rendered a decision on October 23, 1989, the dispositive portion of which reads, as follows: “PREMISES CONSIDERED, the decision being appealed should be as it is hereby AFFIRMED in full.”16Rollo, p. 95. On November 8, 1989, petitioners filed a Motion for Reconsideration which was denied on January 26, 1990. Hence, this petition. During the pendency of this petition, private respondent Torres died on April 3, 1991 as shown in his death certificate17Id., p. 171. and named Torres-Pabalan Realty & Development Corporation as his heir in his holographic will18Id., p. 172. dated October 31, 1986.

Petitioners contend that the respondent court had acted with grave abuse of discretion when it applied the doctrine of piercing the veil of corporate entity in the instant case considering that the sale of the subject property between private respondents spouses Veloso and Manuel Dulay has no binding effect on petitioner corporation as Board Resolution No. 18 which authorized the sale of the subject property was resolved without the approval of all the members of the board of directors and said Board Resolution was prepared by a person not designated by the corporation to be its secretary. We do not agree. Section 101 of the Corporation Code of the Philippines pro________________ 15 Original Records of Civil Case No. 2880-P, p. 84. 16 Rollo, p. 95. 17 Id., p. 171. 18 Id., p. 172. 684 684 SUPREME COURT REPORTS ANNOTATED Manuel R. Dulay Enterprises, Inc. vs. Court of Appeals vides: “Sec. 101. When board meeting is unnecessary or improperly held. Unless the by-laws provide otherwise, any action by the directors of a close corporation without a meeting shall nevertheless be deemed valid if: “1. Before or after such action is taken, written consent thereto is signed by all the directors; or

“2. All the stockholders have actual or implied knowledge of the action and make no prompt objection thereto in writing; or “3. The directors are accustomed to take informal action with the express or implied acquiesce of all the stockholders; or “4. All the directors have express or implied knowledge of the action in question and none of them makes prompt objection thereto in writing. “If a directors’ meeting is held without proper call or notice, an action taken therein within the corporate powers is deemed ratified by a director who failed to attend, unless he promptly files his written objection with the secretary of the corporation after having knowledge thereof.” In the instant case, petitioner corporation is classified as a close corporation and consequently a board resolution authorizing the sale or mortgage of the subject property is not necessary to bind the corporation for the action of its president. At any rate, a corporate action taken at a board meeting without proper call or notice in a close corporation is deemed ratified by the absent director unless the latter promptly files his written objection with the secretary of the corporation after having knowledge of the meeting which, in this case, petitioner Virgilio Dulay failed to do. It is relevant to note that although a corporation is an entity which has a personality distinct and separate from its individual stockholders or members,19Good Earth Emporium, Inc. vs. Court of Appeals, 194 SCRA 544 [1991]. the veil of corporate fiction may be pierced when it is used to defeat public convenience, justify wrong, protect fraud or defend crime.20Philippine Veterans Investment Development

Corporation vs. Court of Appeals, 181 SCRA 678 [1990]. The privilege of being ________________ 19 Good Earth Emporium, Inc. vs. Court of Appeals, 194 SCRA 544 [1991]. 20 Philippine Veterans Investment Development Corporation vs. Court of Appeals, 181 SCRA 678 [1990]. 685 VOL. 225, AUGUST 27, 1993 685 Manuel R. Dulay Enterprises, Inc. vs. Court of Appeals treated as an entity distinct and separate from its stockholders or members is therefore confined to its legitimate uses and is subject to certain limitations to prevent the commission of fraud or other illegal or unfair act. When the corporation is used merely as an alter ego or business conduit of a person, the law-will regard the corporation as the act of that person.21Cagayan Valley Enterprises, Inc. vs. Court of Appeals, 179 SCRA 218 [1989]. The Supreme Court had repeatedly disregarded the separate personality of the corporation where the corporate entity was used to annul a valid contract executed by one of its members. Petitioners’ claim that the sale of the subject property by its president, Manuel Dulay, to private respondents spouses Veloso is null and void as the alleged Board Resolution No. 18 was passed without the knowledge and consent of the other members of the board of directors cannot be sustained. As correctly pointed out by the respondent Court of Appeals:

“Appellant Virgilio E. Dulay’s protestations of complete innocence to the effect that he never participated nor was even aware of any meeting or resolution authorizing the mortgage or sale of the subject premises (see par. 8, affidavit of Virgilio E. Dulay, dated May 31, 1984, p. 14, Exh. “21”) is difficult to believe. On the contrary, he is very much privy to the transactions involved. To begin with, he is an incorporator and one of the board of directors designated at the time of the organization of Manuel R. Dulay Enterprises, Inc. In ordinary parlance, the said entity is loosely referred to as a ‘family corporation’. The nomenclature, if imprecise, however, fairly reflects the cohesiveness of a group and the parochial instincts of the individual members of such an aggrupation of which Manuel R. Dulay Enterprises, Inc. is typical: four-fifths of its incorporators being close relatives namely, three (3) children and their father whose name identifies their corporation (Articles of Incorporation of Manuel R. Dulay Enterprises, Inc., Exh. “31-A”).”22Rollo, p. 89. Besides, the fact that petitioner Virgilio Dulay on June 24, 1975 executed an affidavit23Exhibit “24”, Records/Index of Exhibits, p. 155. that he was a signatory witness to the execution of the post-dated Deed of Absolute Sale of the subject property in favor of private respondent Torres indicates _______________ 21 Cagayan Valley Enterprises, Inc. vs. Court of Appeals, 179 SCRA 218 [1989]. 22 Rollo, p. 89. 23 Exhibit “24”, Records/Index of Exhibits, p. 155. 686

686 SUPREME COURT REPORTS ANNOTATED Manuel R. Dulay Enterprises, Inc. vs. Court of Appeals that he was aware of the transaction executed between his father and private respondents and had, therefore, adequate knowledge about the sale of the subject property to private respondents. Consequently, petitioner corporation is liable for the act of Manuel Dulay and the sale of the subject property to private respondents by Manuel Dulay is valid and binding. As stated by the trial court: “x x x the sale between Manuel R. Dulay Enterprises, Inc. and the spouses Maria Theresa V. Veloso and Castrense C. Veloso, was a corporate act of the former and not a personal transaction of Manuel R. Dulay. This is so because Manuel R. Dulay was not only president and treasurer but also the general manager of the corporation. The corporation was a closed family corporation and the only non-relative in the board of directors was Atty. Plaridel C. Jose who appeared on paper as the secretary. There is no denying the fact, however, that Maria Socorro R. Dulay at times acted as secretary. x x x, the Court can not lose sight of the fact that the Manuel R. Dulay Enterprises, Inc. is a closed family corporation where the incorporators and directors belong to one single family. It cannot be concealed that Manuel R. Dulay as president, treasurer and general manager almost had absolute control over the business and affairs of the corporation.”24Rollo, p. 74. Moreover, the appellate courts will not disturb the findings of the trial judge unless he has plainly overlooked certain facts of substance and value that, if considered, might affect the result

of the case,25People vs. Pirreras, 179 SCRA 33 [1989]. which is not present in the instant case. Petitioners’ contention that private respondent Torres never acquired ownership over the subject property since the latter was never in actual possession of the subject property nor was the property ever delivered to him is also without merit. Paragraph 1, Article 1498 of the New Civil Code provides: “When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred.” _______________ 24 Rollo, p. 74. 25 People vs. Pirreras, 179 SCRA 33 [1989]. 687 VOL. 225, AUGUST 27, 1993 687 Manuel R. Dulay Enterprises, Inc. vs. Court of Appeals Under the aforementioned article, the mere execution of the deed of sale in a public document is equivalent to the delivery of the property. Likewise, this Court had held that: “It is settled that the buyer in a foreclosure sale becomes the absolute owner of the property purchased if it is not redeemed during the period of one year after the registration of the sale. As such, he is entitled to the possession of the said property and can demand it at any time following the consolidation of ownership in his name and the issuance to him of a new transfer certificate of title. The buyer can in fact demand possession of the land even during the redemption period

except that he has to post a bond in accordance with Section 7 of Act No. 3133 as amended. No such bond is required after the redemption period if the property is not redeemed. Possession of the land then becomes an absolute right of the purchaser as confirmed owner.”26F. David Enterprises vs. Insular Bank of Asia and America, 191 SCRA 516 [1990]. Therefore, prior physical delivery or possession is not legally required since the execution of the Deed of Sale is deemed equivalent to delivery. Finally, we hold that the respondent appellate court did not err in denying petitioner’s motion for reconsideration despite the fact that private respondents failed to submit their comment to said motion as required by the respondent appellate court. There is nothing in the Revised Rules of Court which prohibits the respondent appellate court from resolving petitioners’ motion for reconsideration without the comment of the private respondent which was required merely to aid the court in the disposition of the motion. The courts are as much interested as the parties in the early disposition of cases before them. To require otherwise would unnecessarily clog the courts’ dockets. WHEREFORE, the petition is DENIED and the decision appealed from is hereby AFFIRMED. SO ORDERED. Narvasa (C.J., Chairman), Padilla and Regalado, JJ., concur. Puno, J., No part. _______________ 26 F. David Enterprises vs. Insular Bank of Asia and America, 191 SCRA 516 [1990]. 688

688 SUPREME COURT REPORTS ANNOTATED Junio vs. Rivera, Jr. Petition denied. Appealed decision affirmed. Note.—Piercing the veil of corporate entity is not a proper remedy when the corporation employed fraud in the foreclosure proceedings (Umali vs. Court of Appeals, 189 SCRA 529). [Manuel R. Dulay Enterprises, Inc. vs. Court of Appeals, 225 SCRA 678(1993)]

G.R. No. 167195. May 8, 2009.* ASSET PRIVATIZATION TRUST, petitioner, vs. T.J. ENTERPRISES, respondent. Sales; As a general rule, when the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred; In order for the execution of a public instrument to effect tradition, the purchaser must be placed in control of the thing sold; A person who does not have actual possession of the thing sold cannot transfer constructive possession by the execution and delivery of a public instrument.—The ownership of a thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. The thing sold shall be understood as delivered when it is placed in the control and possession of the vendee. As a general rule, when the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred. And with regard to movable property, its delivery may also be made by the delivery of the keys of the place or depository where it is stored or kept. In order for the execution of a public instrument to effect tradition, the purchaser must be placed in control of the thing sold. However, the execution of a public instrument only gives rise to a prima facie presumption of delivery. Such presumption is destroyed when the delivery is not effected because of a legal impediment. It is necessary that the vendor shall have control over the thing sold that, at the moment of sale, its material delivery could have been made. Thus, a

person who does not have actual possession of the thing sold cannot transfer constructive possession by the execution and delivery of a public instrument. Same; Words and Phrases; The phrase as-is where-is basis pertains solely to the physical condition of the thing sold, not to its legal situation.—Petitioner posits that the sale being in an as-is-where-is basis, respondent agreed to take possession of the things sold in the condition where they are found and from the place where they are located. The phrase as-is where-is basis pertains solely to the physi_______________ * SECOND DIVISION. 482 482SUPREME COURT REPORTS ANNOTATED Asset Privatization Trust vs. T.J. Enterprises cal condition of the thing sold, not to its legal situation. It is merely descriptive of the state of the thing sold. Thus, the as-is where-is basis merely describes the actual state and location of the machinery and equipment sold by petitioner to respondent. The depiction does not alter petitioner’s responsibility to deliver the property to respondent. Same; The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing which is the object of the sale.—The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing which is the object of the sale. Ownership of the thing sold is acquired by the vendee from the moment it its delivered to him in any of the ways specified in articles 1497 to 1501, or in any other manner signifying an agreement that the possession is transferred from

the vendor to the vendee. A perusal of the deed of absolute sale shows that both the vendor and the vendee represented and warranted to each other that each had all the requisite power and authority to enter into the deed of absolute sale and that they shall perform each of their respective obligations under the deed of absolute sale in accordance with the terms thereof. As previously shown, there was no actual or constructive delivery of the things sold. Thus, petitioner has not performed its obligation to transfer ownership and possession of the things sold to respondent. Same; Fortuitous Events; Elements; A fortuitous event may either be an act of God, or natural occurrences such as floods or typhoons, or an act of man such as riots, strikes or wars, but when the loss is found to be partly the result of a person’s participation—whether by active intervention, neglect or failure to act—the whole occurrence is humanized and removed from the rules applicable to a fortuitous event.—The matter of fortuitous events is governed by Art. 1174 of the Civil Code which provides that except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires assumption of risk, no person shall be responsible for those events which could not be foreseen, or which though foreseen, were inevitable. The elements of a fortuitous event are: (a) the cause of the unforeseen and unexpected occurrence, must have been independent of human will; (b) the event that constituted the caso fortuito must have been impossible to foresee or, if foreseeable, impossible to avoid; (c) the occurrence must have been such as to render it impossible for the debtors to fulfill 483

VOL. 587, MAY 8, 2009483 Asset Privatization Trust vs. T.J. Enterprises their obligation in a normal manner, and; (d) the obligor must have been free from any participation in the aggravation of the resulting injury to the creditor. A fortuitous event may either be an act of God, or natural occurrences such as floods or typhoons, or an act of man such as riots, strikes or wars. However, when the loss is found to be partly the result of a person’s participation—whether by active intervention, neglect or failure to act—the whole occurrence is humanized and removed from the rules applicable to a fortuitous event. Same; The risk of loss or deterioration of the goods sold does not pass to the buyer until there is actual or constructive delivery thereof.—Article 1504 of the Civil Code provides that where actual delivery has been delayed through the fault of either the buyer or seller the goods are at the risk of the party in fault. The risk of loss or deterioration of the goods sold does not pass to the buyer until there is actual or constructive delivery thereof. As previously discussed, there was no actual or constructive delivery of the machinery and equipment. Thus, the risk of loss or deterioration of property is borne by petitioner. Thus, it should be liable for the damages that may arise from the delay. PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. The Solicitor General for petitioner. Evelyn V. Lucero Gutierrez for respondent. Tinga, J.:

This is a Rule 45 petition1 which seeks the reversal of the Court of Appeals’ decision2 and resolution3 affirming the _______________ 1 Rollo, pp. 27-64. 2 Dated 31 August 2004. Penned by Associate Justice Magdangal M. De Leon and concurred in by Associate Justices Romeo A. Brawner and Mariano C. Del Castillo; Id., at pp. 1424. 3 Dated 17 February 2005. Penned by Associate Justice Magdangal M. De Leon and concurred in by Associate Justices Romeo A. Brawner and Mariano C. Del Castillo. Id., at pp. 1113. 484 484SUPREME COURT REPORTS ANNOTATED Asset Privatization Trust vs. T.J. Enterprises RTC’s decision4 holding petitioner liable for actual damages for breach of contract. Petitioner Asset Privatization Trust5 (petitioner) was a government entity created for the purpose to conserve, to provisionally manage and to dispose assets of government institutions.6 Petitioner had acquired from the Development Bank of the Philippines (DBP) assets consisting of machinery and refrigeration equipment which were then stored at Golden City compound, Pasay City. The compound was then leased to and in the physical possession of Creative Lines, Inc., (Creative Lines). These assets were being sold on an as-is-where-is basis. On 7 November 1990, petitioner and respondent entered into an absolute deed of sale over certain machinery and refrigeration equipment identified as Lots Nos. 2, 3 and 5.

Respondent paid the full amount of P84,000.00 as evidenced by petitioner’s Receipt No. 12844. After two (2) days, respondent demanded the delivery of the machinery it had purchased. Sometime in March 1991, petitioner issued Gate Pass No. 4955. Respondent was able to pull out from the compound the properties designated as Lots Nos. 3 and 5. However, during the hauling of Lot No. 2 consisting of sixteen (16) items, only nine (9) items were pulled out by respondent. The seven (7) items that were left behind consisted of the following: (1) one _______________ 4 Dated 21 September 1998. Penned by Judge Francisco B. Ibay; Id., at pp. 79-86. 5 R.A. No. 7886 extended the term of APT up to December 31, 1999. 6 Proclamation No. 50, Sec. 9. Sec. 9. Creation.—There is hereby created a public trust to be known as the Asset Privatization Trust, hereinafter referred to as the Trust, which shall, for the benefit of the National Government, take title to and possession of, conserve, provisionally manage and dispose the assets as defined in Section 2 herein which have been identified for privatization or disposition and transferred to the Trust for the purpose, pursuant to Section 23 of this Proclamation. 485 VOL. 587, MAY 8, 2009485 Asset Privatization Trust vs. T.J. Enterprises (1) Reefer Unit 1; (2) one (1) Reefer Unit 2; (3) one (1) Reefer Unit 3; (4) one (1) unit blast freezer with all accessories; (5)

one (1) unit chest freezer; (6) one (1) unit room air-conditioner; and (7) one (1) unit air compressor. Creative Lines’ employees prevented respondent from hauling the remaining machinery and equipment. Respondent filed a complaint for specific performance and damages against petitioner and Creative Lines.7 During the pendency of the case, respondent was able to pull out the remaining machinery and equipment. However, upon inspection it was discovered that the machinery and equipment were damaged and had missing parts. Petitioner argued that upon the execution of the deed of sale it had complied with its obligation to deliver the object of the sale since there was no stipulation to the contrary. It further argued that being a sale on an as-is-where-is basis, it was the duty of respondent to take possession of the property. Petitioner claimed that there was already a constructive delivery of the machinery and equipment. The RTC ruled that the execution of the deed of absolute sale did not result in constructive delivery of the machinery and equipment. It found that at the time of the sale, petitioner did not have control over the machinery and equipment and, thus, could not have transferred ownership by constructive delivery. The RTC ruled that petitioner is liable for breach of contract and should pay for the actual damages suffered by respondent. On petitioner’s appeal, the Court of Appeals affirmed in toto the decision of the RTC. Hence this petition. Before this Court, petitioner raises issues by attributing the following errors to the Court of Appeals, to wit: _______________

7 Records, pp. 1-5. 486 486SUPREME COURT REPORTS ANNOTATED Asset Privatization Trust vs. T.J. Enterprises I. The Court of Appeals erred in not finding that petitioner had complied with its obligation to make delivery of the properties subject of the contract of sale. II. The Court of Appeals erred in not considering that the sale was on an “as-is-where-is” basis wherein the properties were sold in the condition and in the place where they were located. III. The Court of Appeals erred in not considering that respondent’s acceptance of petitioner’s disclaimer of warranty forecloses respondent’s legal basis to enforce any right arising from the contract. IV. The reason for the failure to make actual delivery of the properties was not attributable to the fault and was beyond the control of petitioner. The claim for damages against petitioner is therefore bereft of legal basis.8 The first issue hinges on the determination of whether there was a constructive delivery of the machinery and equipment upon the execution of the deed of absolute sale between petitioner and respondent. The ownership of a thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof.9 The thing

sold shall be understood as delivered when it is placed in the control and possession of the vendee.10 As a general rule, when the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred. And with regard to movable property, its delivery _______________ 8 Rollo, pp. 40-41. 9 Civil Code, Art. 1477. 10 Civil Code, Art. 1497. 487 VOL. 587, MAY 8, 2009487 Asset Privatization Trust vs. T.J. Enterprises may also be made by the delivery of the keys of the place or depository where it is stored or kept.11 In order for the execution of a public instrument to effect tradition, the purchaser must be placed in control of the thing sold.12 However, the execution of a public instrument only gives rise to a prima facie presumption of delivery. Such presumption is destroyed when the delivery is not effected because of a legal impediment.13 It is necessary that the vendor shall have control over the thing sold that, at the moment of sale, its material delivery could have been made.14 Thus, a person who does not have actual possession of the thing sold cannot transfer constructive possession by the execution and delivery of a public instrument.15

In this case, there was no constructive delivery of the machinery and equipment upon the execution of the deed of absolute sale or upon the issuance of the gate pass since it was not petitioner but Creative Lines which had actual possession of the property. The presumption of constructive delivery is not applicable as it has to yield to the reality that the purchaser was not placed in possession and control of the property. On the second issue, petitioner posits that the sale being in an as-is-where-is basis, respondent agreed to take possession of the things sold in the condition where they are found and from the place where they are located. The phrase as-is where-is basis pertains solely to the physical condition of the _______________ 11 Civil Code, Art. 1498. 12 Santos v. Santos, 418 Phil. 681, 690-691; 366 SCRA 395, 404 (2001), citing Danguilan v. Intermediate Appellate Court, 168 SCRA 22 (1988). 13 Ten Forty Realty and Development Corp. v. Cruz, 457 Phil. 603; 410 SCRA 484 (2003), citing Equatorial Realty Development Inc. v. Mayfair Theater, Inc., 370 SCRA 56, November 21, 2001. 14 Baviera, Araceli. Sales. U.P. Law Complex ©2005 p. 67. 15 Id., citing Masallo v. Cesar, 39 Phil. 134 (1918). 488 488SUPREME COURT REPORTS ANNOTATED Asset Privatization Trust vs. T.J. Enterprises thing sold, not to its legal situation.16 It is merely descriptive of the state of the thing sold. Thus, the as-is where-is basis merely describes the actual state and location of the machinery

and equipment sold by petitioner to respondent. The depiction does not alter petitioner’s responsibility to deliver the property to respondent. Anent the third issue, petitioner maintains that the presence of the disclaimer of warranty in the deed of absolute sale absolves it from all warranties, implied or otherwise. The position is untenable. The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing which is the object of the sale.17 Ownership of the thing sold is acquired by the vendee from the moment it its delivered to him in any of the ways specified in articles 1497 to 1501, or in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee.18 A perusal of the deed of absolute sale shows that both the vendor and the vendee represented and warranted to each other that each had all the requisite power and authority to enter into the deed of absolute sale and that they shall perform each of their respective obligations under the deed of absolute sale in accordance with the terms thereof.19 As previously shown, there was no actual or constructive delivery of the things sold. Thus, petitioner has not performed its obligation to transfer ownership and possession of the things sold to respondent. As to the last issue, petitioner claims that its failure to make actual delivery was beyond its control. It posits that the refusal of Creative Lines to allow the hauling of the machin_______________ 16 National Development Company v. Madrigal Wan Hai Lines Corporation, 458 Phil. 1038, 1054; 412 SCRA 375, 387 (2003).

17 Civil Code, Art. 1495. 18 Civil Code, Art. 1496. 19 Item no. 2 of the terms and conditions of the Deed of Absolute Sale. C.A. Records p. 525. 489 VOL. 587, MAY 8, 2009489 Asset Privatization Trust vs. T.J. Enterprises ery and equipment was unforeseen and constituted a fortuitous event. The matter of fortuitous events is governed by Art. 1174 of the Civil Code which provides that except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires assumption of risk, no person shall be responsible for those events which could not be foreseen, or which though foreseen, were inevitable. The elements of a fortuitous event are: (a) the cause of the unforeseen and unexpected occurrence, must have been independent of human will; (b) the event that constituted the caso fortuito must have been impossible to foresee or, if foreseeable, impossible to avoid; (c) the occurrence must have been such as to render it impossible for the debtors to fulfill their obligation in a normal manner, and; (d) the obligor must have been free from any participation in the aggravation of the resulting injury to the creditor.20 A fortuitous event may either be an act of God, or natural occurrences such as floods or typhoons, or an act of man such as riots, strikes or wars.21 However, when the loss is found to be partly the result of a person’s participation—whether by active intervention, neglect or failure to act—the whole occur-

_______________ 20 Lea Mer Industries, Inc. v. Malayan Insurance Co., Inc., G.R. No. 161745, 30 September 2005, 471 SCRA 698, 708 citing Mindex Resources Development v. Morillo, 428 Phil. 934, 944; 379 SCRA 144, 153 (2002); Philippine American General Insurance Co., Inc. v. MGG Marine Services, Inc., 428 Phil. 705, 714; 378 SCRA 650, 658 (2008); Metal Forming Corp. v. Office of the President, 317 Phil. 853, 859; 247 SCRA 731, 738 (1995); Vasquez v. Court of Appeals, 138 SCRA 553, 557, September 13, 1985; Republic v. Luzon Stevedoring Corp., 128 Phil. 313, 318; 21 SCRA 279, 283-283 (1967). 21 Philippine Communications Satellite Corporation v. Globe Telecom, Inc., G.R. Nos. 147324 and 147334, 25 May 2005, 429 SCRA 153, 163. 490 490SUPREME COURT REPORTS ANNOTATED Asset Privatization Trust vs. T.J. Enterprises rence is humanized and removed from the rules applicable to a fortuitous event.22 We quote with approval the following findings of the Court of Appeals, to wit: “We find that Creative Lines’ refusal to surrender the property to the vendee does not constitute force majeure which exculpates APT from the payment of damages. This event cannot be considered unavoidable or unforeseen. APT knew for a fact that the properties to be sold were housed in the premises leased by Creative Lines. It should have made arrangements with Creative Lines beforehand for the smooth and orderly removal of the equipment. The principle embodied

in the act of God doctrine strictly requires that the act must be one occasioned exclusively by the violence of nature and all human agencies are to be excluded from creating or entering into the cause of the mischief. When the effect, the cause of which is to be considered, is found to be in part the result of the participation of man, whether it be from active intervention or neglect, or failure to act, the whole occurrence is thereby humanized, as it were, and removed from the rules applicable to the acts of God.”23 Moreover, Art. 1504 of the Civil Code provides that where actual delivery has been delayed through the fault of either the buyer or seller the goods are at the risk of the party in fault. The risk of loss or deterioration of the goods sold does not pass to the buyer until there is actual or constructive delivery thereof. As previously discussed, there was no actual or constructive delivery of the machinery and equipment. Thus, the risk of loss or deterioration of property is borne by petitioner. Thus, it should be liable for the damages that may arise from the delay. _______________ 22 Sicam v. Jorge, G.R. No. 159617, 8 August 2007, 529 SCRA 443, 460, citing Mindex v. Resources Development Corporation v. Morillo, 482 Phil. 934, 944; 379 SCRA 144, 153 (2002). 23 Rollo, pp. 21-22, citing National Power Corporation v. Court of Appeals, 222 SCRA 415 (1993). 491 VOL. 587, MAY 8, 2009491 Asset Privatization Trust vs. T.J. Enterprises

Assuming arguendo that Creative Lines’ refusal to allow the hauling of the machinery and equipment is a fortuitous event, petitioner will still be liable for damages. This Court agrees with the appellate court’s findings on the matter of damages, thus: “Article 1170 of the Civil Code states: “Those who in the performance of their obligations are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof are liable for damages.” In contracts and quasicontracts, the damages for which the obligor who acted in good faith is liable shall be those that are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted.24 The trial court correctly awarded actual damages as pleaded and proven during trial.”25 WHEREFORE, the Court AFFIRMS in toto the Decision of the Court of Appeals dated 31 August 2004. Cost against petitioner. SO ORDERED. Carpio-Morales,** Velasco, Jr., Leonardo-De Castro*** and Brion, JJ., concur. Judgment affirmed in toto. Notes.—If the negligence or fault of the obligor coincided with the occurrence of the fortuitous event, and caused the loss or damage or the aggravation thereof, the fortuitous event cannot shield the obligor from liability for his negli- [Asset Privatization Trust vs. T.J. Enterprises, 587 SCRA 481(2009)]

G.R. No. 80298. April 26, 1990.*FIRST DIVISION. EDCA PUBLISHING & DISTRIBUTING CORP., petitioner, vs. THE SPOUSES LEONOR and GERARDO SANTOS, doing business under the name and style of “SANTOS BOOKSTORE,” and THE COURT OF APPEALS, respondents. Civil Law; Property; Sales; Possession of movable property acquired in good faith is equivalent to a title.—It is the contention of the petitioner that the private respondents have not established their ownership of the disputed books because they have not even produced a receipt to prove they had bought the stock. This is unacceptable. Precisely, the first sentence of Article 559 provides that “the possession of movable property acquired in good faith is equivalent to a title,” thus dispensing with further proof. Same; Same; Contract of sale is consensual; Ownership shall pass from the vendor to the vendee upon the actual or constructive delivery of the thing sold.—The contract of sale is consensual and is perfected once agreement is reached between the parties on the subject matter and the consideration. x x x It is clear from the above provisions, particularly the last quoted, that ownership in the thing sold shall not pass to the buyer until full payment of the purchase price only if there is a stipulation to that effect. Otherwise, the rule is that such ownership shall pass from the vendor to the vendee upon the actual or constructive delivery of the thing sold even if the purchase price has not yet been paid. Same; Same; Same; Non-payment creates a right to demand payment or to rescind the contract, or to criminal prosecution.—Non-payment only creates a right to demand

payment or to rescind the contract, or to criminal prosecution in the case of bouncing checks. But absent the stipulation above noted, delivery of the thing sold will effectively transfer ownership to the buyer who can in turn transfer it to another. Same; Same; Same; Same; It would be unfair to make the respondents who acted in good faith, bear the prejudice sustained by EDCA as a result of its own negligence.—It would certainly be unfair now to make the private respondents bear the prejudice sustained by EDCA as a result of its own negligence. We cannot see the justice in transfer_______________ * FIRST DIVISION. 615 VOL. 184, APRIL 26, 1990 615 EDCA Publishing & Distributing Corp. vs. Santos ring EDCA’s loss to the Santoses who had acted in good faith, and with proper care, when they bought the books from Cruz. PETITION to review the decision of the Court of Appeals. Buena, J. The facts are stated in the opinion of the Court. Emiliano S. Samson, R. Balderrama-Samson, Mary Anne B. Samson for petitioner. Cendaña, Santos, Delmundo & Cendaña for private respondents. CRUZ, J.: The case before us calls for the interpretation of Article 559 of the Civil Code and raises the particular question of when a person may be deemed to have been “unlawfully deprived” of

movable property in the hands of another. The article runs in full as follows: ART. 559. The possession of movable property acquired in good faith is equivalent to a title. Nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may recover it from the person in possession of the same. If the possessor of a movable lost or of which the owner has been unlawfully deprived has acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor. The movable property in this case consists of books, which were bought from the petitioner by an impostor who sold it to the private respondents. Ownership of the books was recognized in the private respondents by the Municipal Trial Court,1Presided by Judge Jose B. Herrera. which was sustained by the Regional Trial Court,2Presided by Judge Ernesto S. Tengco. which was in turn sustained by the Court of Appeals.3Buena, J., with Castro-Bartolome and Cacdac, Jr., JJ., concurring. The petitioner asks us to declare that all these courts have erred and should be reversed. _____________ 1 Presided by Judge Jose B. Herrera. 2 Presided by Judge Ernesto S. Tengco. 3 Buena, J., with Castro-Bartolome and Cacdac, Jr., JJ., concurring. 616 616 SUPREME COURT REPORTS ANNOTATED EDCA Publishing & Distributing Corp. vs. Santos

This case arose when on October 5, 1981, a person identifying himself as Professor Jose Cruz placed an order by telephone with the petitioner company for 406 books, payable on delivery.4Rollo, pp. 9-10. EDCA prepared the corresponding invoice and delivered the books as ordered, for which Cruz issued a personal check covering the purchase price of P8,995.65.5Ibid., p. 10. On October 7, 1981, Cruz sold 120 of the books to private respondent Leonor Santos who, after verifying the seller’s ownership from the invoice he showed her, paid him P1,700.00.6Id., p. 37; TSN, Orig. Records, pp. 215-219. Meanwhile, EDCA having become suspicious over a second order placed by Cruz even before clearing of his first check, made inquiries with the De la Salle College where he had claimed to be a dean and was informed that there was no such person in its employ. Further verification revealed that Cruz had no more account or deposit with the Philippine Amanah Bank, against which he had drawn the payment check.7Rollo, p. 10. EDCA then went to the police, which set a trap and arrested Cruz on October 7, 1981. Investigation disclosed his real name as Tomas de la Peña and his sale of 120 of the books he had ordered from EDCA to the private respondents.8Ibid., p. 11. On the night of the same date, EDCA sought the assistance of the police in Precinct 5 at the UN Avenue, which forced their way into the store of the private respondents and threatened Leonor Santos with prosecution for buying stolen property. They seized the 120 books without warrant, loading them in a van belonging to EDCA, and thereafter turned them over to the petitioner.9Id., p. 37.

Protesting this high-handed action, the private respondents sued for recovery of the books after demand for their return was rejected by EDCA. A writ of preliminary attachment was issued and the petitioner, after initial refusal, finally surrendered the books to the private respondents.10Id., p. 38. As previously stated, the _____________ 4 Rollo, pp. 9-10. 5 Ibid., p. 10. 6 Id., p. 37; TSN, Orig. Records, pp. 215-219. 7 Rollo, p. 10. 8 Ibid., p. 11. 9 Id., p. 37. 10 Id., p. 38. 617 VOL. 184, APRIL 26, 1990 617 EDCA Publishing & Distributing Corp. vs. Santos petitioner was successively rebuffed in the three courts below and now hopes to secure relief from us. To begin with, the Court expresses its disapproval of the arbitrary action of the petitioner in taking the law into its own hands and forcibly recovering the disputed books from the private respondents. The circumstance that it did so with the assistance of the police, which should have been the first to uphold legal and peaceful processes, has compounded the wrong even more deplorably. Questions like the one at bar are decided not by policemen but by judges and with the use not of brute force but of lawful writs.

Now to the merits. It is the contention of the petitioner that the private respondents have not established their ownership of the disputed books because they have not even produced a receipt to prove they had bought the stock. This is unacceptable. Precisely, the first sentence of Article 559 provides that “the possession of movable property acquired in good faith is equivalent to a title,” thus dispensing with further proof. The argument that the private respondents did not acquire the books in good faith has been dismissed by the lower courts, and we agree. Leonor Santos first ascertained the ownership of the books from the EDCA invoice showing that they had been sold to Cruz, who said he was selling them for a discount because he was in financial need. Private respondents are in the business of buying and selling books and often deal with hardup sellers who urgently have to part with their books at reduced prices. To Leonor Santos, Cruz must have been only one of the many such sellers she was accustomed to dealing with. It is hardly bad faith for any one in the business of buying and selling books to buy them at a discount and resell them for a profit. But the real issue here is whether the petitioner has been unlawfully deprived of the books because the check issued by the impostor in payment therefor was dishonored. In its extended memorandum, EDCA cites numerous cases holding that the owner who has been unlawfully deprived of personal property is entitled to its recovery except only where the property was purchased at a public sale, in which event its return is subject to reimbursement of the purchase price. The

618 618 SUPREME COURT REPORTS ANNOTATED EDCA Publishing & Distributing Corp. vs. Santos petitioner is begging the question. It is putting the cart before the horse. Unlike in the cases invoked, it has yet to be established in the case at bar that EDCA has been unlawfully deprived of the books. The petitioner argues that it was, because the impostor acquired no title to the books that he could have validly transferred to the private respondents. Its reason is that as the payment check bounced for lack of funds, there was a failure of consideration that nullified the contract of sale between it and Cruz. The contract of sale is consensual and is perfected once agreement is reached between the parties on the subject matter and the consideration. According to the Civil Code: ART. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts. xxx ART. 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. ART. 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price.

It is clear from the above provisions, particularly the last one quoted, that ownership in the thing sold shall not pass to the buyer until full payment of the purchase price only if there is a stipulation to that effect. Otherwise, the rule is that such ownership shall pass from the vendor to the vendee upon the actual or constructive delivery of the thing sold even if the purchase price has not yet been paid. Non-payment only creates a right to demand payment or to rescind the contract, or to criminal prosecution in the case of bouncing checks. But absent the stipulation above noted, delivery of the thing sold will effectively transfer ownership to the buyer who can in turn transfer it to another. In Asiatic Commercial Corporation v. Ang,11Vol. 40, O.G. S. No. 15, p. 102. the plaintiff sold ______________ 11 Vol. 40, O.G. S. No. 15, p. 102. 619 VOL. 184, APRIL 26, 1990 619 EDCA Publishing & Distributing Corp. vs. Santos some cosmetics to Francisco Ang, who in turn sold them to Tan Sit Bin. Asiatic not having been paid by Ang, it sued for the recovery of the articles from Tan, who claimed he had validly bought them from Ang, paying for the same in cash. Finding that there was no conspiracy between Tan and Ang to deceive Asiatic, the Court of Appeals declared: Yet the defendant invoked Article 46412Substantially reproduced in what is now Article 559. of the Civil Code providing, among other things that “one who has been

unlawfully deprived of personal property may recover it from any person possessing it.” We do not believe that the plaintiff has been unlawfully deprived of the cartons of Gloco Tonic within the scope of this legal provision. It has voluntarily parted with them pursuant to a contract of purchase and sale. The circumstance that the price was not subsequently paid did not render illegal a transaction which was valid and legal at the beginning. In Tagatac v. Jimenez,13Vol. 53, O.G. No. 12, p. 3792. the plaintiff sold her car to Feist, who sold it to Sanchez, who sold it to Jimenez. When the payment check issued to Tagatac by Feist was dishonored, the plaintiff sued to recover the vehicle from Jimenez on the ground that she had been unlawfully deprived of it by reason of Feist’s deception. In ruling for Jimenez, the Court of Appeals held: The point of inquiry is whether plaintiff-appellant Trinidad C. Tagatac has been unlawfully deprived of her car. At first blush, it would seem that she was unlawfully deprived thereof, considering that she was induced to part with it by reason of the chicanery practiced on her by Warner L. Feist. Certainly, swindling, like robbery, is an illegal method of deprivation of property. In a manner of speaking, plaintiff-appellant was “illegally deprived” of her car, for the way by which Warner L. Feist induced her to part with it is illegal and is punished by law. But does this “unlawful deprivation” come within the scope of Article 559 of the New Civil Code? xxx x x x The fraud and deceit practiced by Warner L. Feist earmarks this sale as a voidable contract (Article 1390 N.C.C.). Being a voidable contract, it is susceptible of either ratification

or annulment. If the contract is ratified, the action to annul it is extinguished (Article 1392, ______________ 12 Substantially reproduced in what is now Article 559. 13 Vol. 53, O.G. No. 12, p. 3792. 620 620 SUPREME COURT REPORTS ANNOTATED EDCA Publishing & Distributing Corp. vs. Santos N.C.C.) and the contract is cleansed from all its defects (Article 1396, N.C.C.); if the contract is annulled, the contracting parties are restored to their respective situations before the contract and mutual restitution follows as a consequence (Article 1398, N.C.C.). However, as long as no action is taken by the party entitled, either that of annulment or of ratification, the contract of sale remains valid and binding. When plaintiff-appellant Trinidad C. Tagatac delivered the car to Feist by virtue of said voidable contract of sale, the title to the car passed to Feist. Of course, the title that Feist acquired was defective and voidable. Nevertheless, at the time he sold the car to Felix Sanchez, his title thereto had not been avoided and he therefore conferred a good title on the latter, provided he bought the car in good faith, for value and without notice of the defect in Feist’s title (Article 1506, N.C.C.). There being no proof on record that Felix Sanchez acted in bad faith, it is safe to assume that he acted in good faith. The above rulings are sound doctrine and reflect our own interpretation of Article 559 as applied to the case before us.

Actual delivery of the books having been made, Cruz acquired ownership over the books which he could then validly transfer to the private respondents. The fact that he had not yet paid for them to EDCA was a matter between him and EDCA and did not impair the title acquired by the private respondents to the books. One may well imagine the adverse consequences if the phrase “unlawfully deprived” were to be interpreted in the manner suggested by the petitioner. A person relying on the seller’s title who buys a movable property from him would have to surrender it to another person claiming to be the original owner who had not yet been paid the purchase price therefor. The buyer in the second sale would be left holding the bag, so to speak, and would be compelled to return the thing bought by him in good faith without even the right to reimbursement of the amount he had paid for it. It bears repeating that in the case before us, Leonor Santos took care to ascertain first that the books belonged to Cruz before she agreed to purchase them. The EDCA invoice Cruz showed her assured her that the books had been paid for on delivery. By contrast, EDCA was less than cautious—in fact, too trusting—in dealing with the impostor. Although it had never transacted with him before, it readily delivered the books he 621 VOL. 184, APRIL 26, 1990 621 EDCA Publishing & Distributing Corp. vs. Santos had ordered (by telephone) and as readily accepted his personal check in payment. It did not verify his identity although it was

easy enough to do this. It did not wait to clear the check of this unknown drawer. Worse, it indicated in the sales invoice issued to him, by the printed terms thereon, that the books had been paid for on delivery, thereby vesting ownership in the buyer. Surely, the private respondent did not have to go beyond that invoice to satisfy herself that the books being offered for sale by Cruz belonged to him; yet she did. Although the title of Cruz was presumed under Article 559 by his mere possession of the books, these being movable property, Leonor Santos nevertheless demanded more proof before deciding to buy them. It would certainly be unfair now to make the private respondents bear the prejudice sustained by EDCA as a result of its own negligence. We cannot see the justice in transferring EDCA’s loss to the Santoses who had acted in good faith, and with proper care, when they bought the books from Cruz. While we sympathize with the petitioner for its plight, it is clear that its remedy is not against the private respondents but against Tomas de la Peña, who has apparently caused all this trouble. The private respondents have themselves been unduly inconvenienced, and for merely transacting a customary deal not really unusual in their kind of business. It is they and not EDCA who have a right to complain. WHEREFORE, the challenged decision is AFFIRMED and the petition is DENIED, with costs against the petitioner. Narvasa (Chairman), Gancayco, Griño-Aquino and Medialdea, JJ., concur. Decision affirmed. Petition denied. Note.—Conveyance of property which is manifestly fraudulent, to defeat a judgment in favor of the judgment

creditors, is null and void. (Tanchoco vs. Aquino, 154 SCRA 1.) [EDCA Publishing & Distributing Corp. vs. Santos, 184 SCRA 614(1990)]

G.R. No. 165443. April 16, 2009.* CALATAGAN GOLF CLUB, INC., petitioner, vs. SIXTO CLEMENTE, JR., respondent. Civil Law; Corporation Law; Actions; Prescription; Section 69 of the Code refers specifically to unpaid subscriptions to capital stock, the sale of which is governed by Section 68.— Section 69 of the Code provides that an action to recover delinquent stock sold must be commenced by the filing of a complaint within six (6) months from the date of sale. As correctly pointed out by the Court of Appeals, Section 69 is part of Title VIII of the Code entitled “Stocks and Stockholders” and refers specifically to unpaid subscriptions to capital stock, the sale of which is governed by the immediately preceding Section 68. Same; Same; Same; Same; There are fundamental differences that defy equivalence or even analogy between the sale of delinquent stock under Section 68 and the sale that occurred in this case.—There are fundamental differences that defy equivalence or even analogy between the sale of delinquent stock under Section 68 and the sale that occurred in this case. At the root of the sale of delinquent stock is the non-payment of the subscription price for the share of stock itself. The stockholder or subscriber has yet to fully pay for the value of the share or shares subscribed. In this case, Clemente had already fully paid for the share in Calatagan and no longer had any outstanding obligation to deprive him of full title to his share. Perhaps the analogy could have been made if Clemente had not yet fully paid for his share and the non-stock corporation, pursuant to an article or by-law provision designed to address that situation, decided to sell such share as a

consequence. But that is not the case here, and there is no purpose for us to apply Section 69 to the case at bar. Same; Same; Same; Same; Neither Article 1146 nor Article 1149 is applicable but Article 1140 of the Civil Code which provides that an action to recover movables shall prescribe in eight (8) years.—Calatagan argues in the alternative that Clemente’s suit is barred by Article 1146 of the Civil Code which establishes four (4) years as the _______________ * SECOND DIVISION. 301 VOL. 585, APRIL 16, 2009301 Calatagan Golf Club, Inc. vs. Clemento, Jr. prescriptive period for actions based upon injury to the rights of the plaintiff on the hypothesis that the suit is purely for damages. As a second alternative still, Calatagan posits that Clemente’s action is governed by Article 1149 of the Civil Code which sets five (5) years as the period of prescription for all other actions whose prescriptive periods are not fixed in the Civil Code or in any other law. Neither article is applicable but Article 1140 of the Civil Code which provides that an action to recover movables shall prescribe in eight (8) years. Calatagan’s action is for the recovery of a share of stock, plus damages. Same; Same; Damages; Petitioner failed to duly observe both the spirit and letter of its own by-laws.—The petition must fail because Calatagan had failed to duly observe both the spirit and letter of its own by-laws. The by-law provisions was clearly conceived to afford due notice to the delinquent member of the impending sale, and not just to provide an

intricate façade that would facilitate Calatagan’s sale of the share. But then, the bad faith on Calatagan’s part is palpable. As found by the Court of Appeals, Calatagan very well knew that Clemente’s postal box to which it sent its previous letters had already been closed, yet it persisted in sending that final letter to the same postal box. What for? Just for the exercise, it appears, as it had known very well that the letter would never actually reach Clemente. Same; Same; Same; The utter bad faith exhibited by Calatagan brings into operation Articles 19, 20 and 21 of the Civil Code under the Chapter on Human Relations; The obligation of a corporation to treat every person honestly and in good faith extends even to its shareholders or members, even if the latter find themselves contractually bound to perform certain obligations to the corporation.—The utter bad faith exhibited by Calatagan brings into operation Articles 19, 20 and 21 of the Civil Code, under the Chapter on Human Relations. These provisions, which the Court of Appeals did apply, enunciate a general obligation under law for every person to act fairly and in good faith towards one another. A non-stock corporation like Calatagan is not exempt from that obligation in its treatment of its members. The obligation of a corporation to treat every person honestly and in good faith extends even to its shareholders or members, even if the latter find themselves contractually bound to perform 302 302SUPREME COURT REPORTS ANNOTATED Calatagan Golf Club, Inc. vs. Clemento, Jr.

certain obligations to the corporation. A certificate of stock cannot be a charter of dehumanization. Same; Same; Same; Respondent was able to duly prove that he had sustained mental anguish, serious anxiety and wounded feelings by reason of Calatagan’s acts, thereby entitling him to moral damages under Article 2217 of the Civil Code.—The Court of Appeals cited Calatagan for violation of Article 32 of the Civil Code, which allows recovery of damages from any private individual “who directly or indirectly obstructs, defeats, violates or in any manner impedes or impairs” the right “against deprivation of property without due process of laws.” The plain letter of the provision squarely entitles Clemente to damages from Calatagan. Even without Article 32 itself, Calatagan will still be bound to pay moral and exemplary damages to Clemente. The latter was able to duly prove that he had sustained mental anguish, serious anxiety and wounded feelings by reason of Calatagan’s acts, thereby entitling him to moral damages under Article 2217 of the Civil Code. Moreover, it is evident that Calatagan’s bad faith as exhibited in the course of its corporate actions warrants correction for the public good, thereby justifying exemplary damages under Article 2229 of the Civil Code. PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. Melanie T. Chua for petitioner. Augusto San Pedro for respondent. Tinga, J.:

Seeking the reversal of the Decision1 dated 1 June 2004 of the Court of Appeals in CA-G.R. SP No. 62331 and the reinstatement of the Decision dated 15 November 2000 of the _______________ 1 Rollo, pp. 47-64; Penned by Associate Justice Arturo D. Brion (now a member of this Court, with Associate Justices Ruben T. Reyes (later appointed to and retired from this Court) and Eliezer De Los Santos, concurring. 303 VOL. 585, APRIL 16, 2009303 Calatagan Golf Club, Inc. vs. Clemento, Jr. Securities and Exchange Commission (SEC) in SEC Case No. 04-98-5954, petitioner Calatagan Golf Club, Inc. (Calatagan) filed this Rule 45 petition against respondent Sixto Clemente, Jr. (Clemente). The key facts are undisputed. Clemente applied to purchase one share of stock of Calatagan, indicating in his application for membership his mailing address at “Phimco Industries, Inc. – P.O. Box 240, MCC,” complete residential address, office and residence telephone numbers, as well as the company (Phimco) with which he was connected, Calatagan issued to him Certificate of Stock No. A01295 on 2 May 1990 after paying P120,000.00 for the share.2 Calatagan charges monthly dues on its members to meet expenses for general operations, as well as costs for upkeep and improvement of the grounds and facilities. The provision on monthly dues is incorporated in Calatagan’s Articles of Incorporation and By-Laws. It is also reproduced at the back of

each certificate of stock.3 As reproduced in the dorsal side of Certificate of Stock No. A-01295, the provision reads: “5. The owners of shares of stock shall be subject to the payment of monthly dues in an amount as may be prescribed in the by-laws or by the Board of Directors which shall in no case be less that [sic] P50.00 to meet the expenses for the general operations of the club, and the maintenance and improvement of its premises and facilities, in addition to such fees as may be charged for the actual use of the facilities x x x” When Clemente became a member the monthly charge stood at P400.00. He paid P3,000.00 for his monthly dues on 21 March 1991 and another P5,400.00 on 9 December 1991. Then he ceased paying the dues. At that point, his balance amounted to P400.00.4 _______________ 2 Rollo, pp. 47-48, 145. 3 Id., at pp. 48, 145. 4 Id., at pp. 48, 145-146. 304 304SUPREME COURT REPORTS ANNOTATED Calatagan Golf Club, Inc. vs. Clemento, Jr. Ten (10) months later, Calatagan made the initial step to collect Clemente’s back accounts by sending a demand letter dated 21 September 1992. It was followed by a second letter dated 22 October 1992. Both letters were sent to Clemente’s mailing address as indicated in his membership application but were sent back to sender with the postal note that the address had been closed.5

Calatagan declared Clemente delinquent for having failed to pay his monthly dues for more than sixty (60) days, specifically P5,600.00 as of 31 October 1992. Calatagan also included Clemente’s name in the list of delinquent members posted on the club’s bulletin board. On 1 December 1992, Calatagan’s board of directors adopted a resolution authorizing the foreclosure of shares of delinquent members, including Clemente’s; and the public auction of these shares. On 7 December 1992, Calatagan sent a third and final letter to Clemente, this time signed by its Corporate Secretary, Atty. Benjamin Tanedo, Jr. The letter contains a warning that unless Clemente settles his outstanding dues, his share would be included among the delinquent shares to be sold at public auction on 15 January 1993. Again, this letter was sent to Clemente’s mailing address that had already been closed.6 On 5 January 1993, a notice of auction sale was posted on the Club’s bulletin board, as well as on the club’s premises. The auction sale took place as scheduled on 15 January 1993, and Clemente’s share sold for P64,000.7 According to the Certificate of Sale issued by Calatagan after the sale, Clemente’s share was purchased by a Nestor A. Virata.8 At the time of the sale, Clemente’s accrued monthly dues amounted to _______________ 5 Id., at pp. 48, 146. 6 Id., at pp. 48-49, 146-147. 7 Rollo, p. 49. 8 Records, p. 250. 305 VOL. 585, APRIL 16, 2009305 Calatagan Golf Club, Inc. vs. Clemento, Jr.

P5,200.00.9 A notice of foreclosure of Clemente’s share was published in the 26 May 1993 issue of the Business World.10 Clemente learned of the sale of his share only in November of 1997.11 He filed a claim with the Securities and Exchange Commission (SEC) seeking the restoration of his shareholding in Calatagan with damages. On 15 November 2000, the SEC rendered a decision dismissing Clemente’s complaint. Citing Section 69 of the Corporation Code which provides that the sale of shares at an auction sale can only be questioned within six (6) months from the date of sale, the SEC concluded that Clemente’s claim, filed four (4) years after the sale, had already prescribed. The SEC further held that Calatagan had complied with all the requirements for a valid sale of the subject share, Clemente having failed to inform Calatagan that the address he had earlier supplied was no longer his address. Clemente, the SEC ruled, had acted in bad faith in assuming as he claimed that his non-payment of monthly dues would merely render his share “inactive.” Clemente filed a petition for review with the Court of Appeals. On 1 June 2004, the Court of Appeals promulgated a decision reversing the SEC. The appellate court restored Clemente’s one share with a directive to Calatagan to issue in his a new share, and awarded to Clemente a total of P400,000.00 in damages, less the unpaid monthly dues of P5,200.00. In rejecting the SEC’s finding that the action had prescribed, the Court of Appeals cited the SEC’s own ruling in SEC Case No. 4160, Caram v. Valley Golf Country Club, Inc., that Section 69 of the Corporation Code specifically refers to

unpaid subscriptions to capital stock, and not to any other debt of stockholders. With the insinuation that Section 69 _______________ 9 Id. 10 Records, p. 250. 11 Rollo, pp. 49, 147. 306 306SUPREME COURT REPORTS ANNOTATED Calatagan Golf Club, Inc. vs. Clemento, Jr. does not apply to unpaid membership dues in non-stock corporations, the appellate court employed Article 1140 of the Civil Code as the proper rule of prescription. The provision sets the prescription period of actions to recover movables at eight (8) years. The Court of Appeals also pointed out that since that Calatagan’s first two demand letters had been returned to it as sender with the notation about the closure of the mailing address, it very well knew that its third and final demand letter also sent to the same mailing address would not be received by Clemente. It noted the by-law requirement that within ten (10) days after the Board has ordered the sale at auction of a member’s share of stock for indebtedness, the Corporate Secretary shall notify the owner thereof and advise the Membership Committee of such fact. Finally, the Court of Appeals ratiocinated that “a person who is in danger of the imminent loss of his property has the right to be notified and be given the chance to prevent the loss.”12 Hence, the present appeal.

Calatagan maintains that the action of Clemente had prescribed pursuant to Section 69 of the Corporation Code, and that the requisite notices under both the law and the by-laws had been rendered to Clemente. Section 69 of the Code provides that an action to recover delinquent stock sold must be commenced by the filing of a complaint within six (6) months from the date of sale. As correctly pointed out by the Court of Appeals, Section 69 is part of Title VIII of the Code entitled “Stocks and Stockholders” and refers specifically to unpaid subscriptions to capital stock, the sale of which is governed by the immediately preceding Section 68. The Court of Appeals debunked both Calatagan’s and the SEC’s reliance on Section 69 by citing another SEC ruling in the case of Caram v. Valley Golf. In connection with Section _______________ 12 Id., at p. 13. 307 VOL. 585, APRIL 16, 2009307 Calatagan Golf Club, Inc. vs. Clemento, Jr. 69, Calatagan raises a peripheral point made in the SEC’s Caram ruling. In Caram, the SEC, using as take-off Section 6 of the Corporation Code which refers to “such rights, privileges or restrictions as may be stated in the articles of incorporation,” pointed out that the Articles of Incorporation of Valley Golf does not “impose any lien, liability or restriction on the Golf Share [of Caram],” but only its (Valley Golf’s) By-Laws does. Here, Calatagan stresses that its own Articles of Incorporation does provide that the monthly dues assessed on owners of

shares of the corporation, along with all other obligations of the shareholders to the club, “shall constitute a first lien on the shares… and in the event of delinquency such shares may be ordered sold by the Board of Directors in the manner provided in the By-Laws to satisfy said dues or other obligations of the shareholders.”13 With its illative but incomprehensible logic, Calatagan concludes that the prescriptive period under Section 69 should also apply to the sale of Clemente’s share as the lien that Calatagan perceives to be a restriction is stated in the articles of incorporation and not only in the by-laws. We remain unconvinced. There are fundamental differences that defy equivalence or even analogy between the sale of delinquent stock under Section 68 and the sale that occurred in this case. At the root of the sale of delinquent stock is the non-payment of the subscription price for the share of stock itself. The stockholder or subscriber has yet to fully pay for the value of the share or shares subscribed. In this case, Clemente had already fully paid for the share in Calatagan and no longer had any outstanding obligation to deprive him of full title to his share. Perhaps the analogy could have been made if Clemente had not yet fully paid for his share and the non-stock corporation, pursuant to an article or by-law provision designed to address that situation, decided to sell such share as a consequence. _______________ 13 Rollo, p. 20. 308 308SUPREME COURT REPORTS ANNOTATED Calatagan Golf Club, Inc. vs. Clemento, Jr.

But that is not the case here, and there is no purpose for us to apply Section 69 to the case at bar. Calatagan argues in the alternative that Clemente’s suit is barred by Article 1146 of the Civil Code which establishes four (4) years as the prescriptive period for actions based upon injury to the rights of the plaintiff on the hypothesis that the suit is purely for damages. As a second alternative still, Calatagan posits that Clemente’s action is governed by Article 1149 of the Civil Code which sets five (5) years as the period of prescription for all other actions whose prescriptive periods are not fixed in the Civil Code or in any other law. Neither article is applicable but Article 1140 of the Civil Code which provides that an action to recover movables shall prescribe in eight (8) years. Calatagan’s action is for the recovery of a share of stock, plus damages. Calatagan’s advertence to the fact that the constitution of a lien on the member’s share by virtue of the explicit provisions in its Articles of Incorporation and By-Laws is relevant but ultimately of no help to its cause. Calatagan’s Articles of Incorporation states that the “dues, together with all other obligations of members to the club, shall constitute a first lien on the shares, second only to any lien in favor of the national or local government, and in the event of delinquency such shares may be ordered sold by the Board of Directors in the manner provided in the By-Laws to satisfy said dues or other obligations of the stockholders.”14 In turn, there are several provisions in the By-laws that govern the payment of dues, the lapse into delinquency of the member, and the constitution and execution on the lien. We quote these provisions: ARTICLE XII – MEMBER’S ACCOUNT

SEC. 31. (a) Billing Members, Posting of Delinquent Members.—The Treasurer shall bill al members monthly. As soon as possible after the end of every month, a statement showing the _______________ 14 See Rollo, pp. 79-80. 309 VOL. 585, APRIL 16, 2009309 Calatagan Golf Club, Inc. vs. Clemento, Jr. account of bill of a member for said month will be prepared and sent to him. If the bill of any member remains unpaid by the 20th of the month following that in which the bill was incurred, the Treasurer shall notify him that if his bill is not paid in full by the end of the succeeding month his name will be posted as delinquent the following day at the Clubhouse bulletin board. While posted, a member, the immediate members of his family, and his guests, may not avail of the facilities of the Club. (b) Members on the delinquent list for more than 60 days shall be reported to the Board and their shares or the shares of the juridical entities they represent shall thereafter be ordered sold by the Board at auction to satisfy the claims of the Club as provided for in Section 32 hereon. A member may pay his overdue account at any time before the auction sale. Sec. 32. Lien on Shares; Sale of Share at Auction.—The club shall have a first lien on every share of stock to secure debts of the members to the Club. This lien shall be annotated on the certificates of stock and may be enforced by the Club in the following manner:

(a) Within ten (10) days after the Board has ordered the sale at auction of a member’s share of stock for indebtedness under Section 31(b) hereof, the Secretary shall notify the owner thereof, and shall advise the Membership Committee of such fact. (b) The Membership Committee shall then notify all applicants on the Waiting List and all registered stockholders of the availability of a share of stock for sale at auction at a specified date, time and place, and shall post a notice to that effect in the Club bulletin board for at least ten (10) days prior to the auction sale. (c) On the date and hour fixed, the Membership Committee shall proceed with the auction by viva voce bidding and award the sale of the share of stock to the highest bidder. (d) The purchase price shall be paid by the winning bidder to the Club within twenty-four (24) hours after the bidding. The winning bidder or the representative in the case of a juridical entity shall become a Regular Member upon payment of the purchase price and issuance of a new stock certificate in his name or in the name of the juridical entity he represents. The proceeds of the sale shall be paid by the Club to the selling stockholder after deducting his obligations to the Club. 310 310SUPREME COURT REPORTS ANNOTATED Calatagan Golf Club, Inc. vs. Clemento, Jr. (e) If no bids be received or if the winning bidder fails to pay the amount of this bid within twenty-four (24) hours after the bidding, the auction procedures may be repeated from time to

time at the discretion of the Membership Committee until the share of stock be sold. (f) If the proceeds from the sale of the share of stock are not sufficient to pay in full the indebtedness of the member, the member shall continue to be obligated to the Club for the unpaid balance. If the member whose share of stock is sold fails or refuse to surrender the stock certificate for cancellation, cancellation shall be effected in the books of the Club based on a record of the proceedings. Such cancellation shall render the unsurrendered stock certificate null and void and notice to this effect shall be duly published.” It is plain that Calatagan had endeavored to install a clear and comprehensive procedure to govern the payment of monthly dues, the declaration of a member as delinquent, and the constitution of a lien on the shares and its eventual public sale to answer for the member’s debts. Under Section 91 of the Corporation Code, membership in a non-stock corporation “shall be terminated in the manner and for the causes provided in the articles of incorporation or the by-laws.” The By-law provisions are elaborate in explaining the manner and the causes for the termination of membership in Calatagan, through the execution on the lien of the share. The Court is satisfied that the By-Laws, as written, affords due protection to the member by assuring that the member should be notified by the Secretary of the looming execution sale that would terminate membership in the club. In addition, the By-Laws guarantees that after the execution sale, the proceeds of the sale would be returned to the former member after deducting the outstanding obligations. If followed to the letter, the

termination of membership under this procedure outlined in the By-Laws would accord with substantial justice. Yet, did Calatagan actually comply with the by-law provisions when it sold Clemente’s share? The appellate court’s finding on this point warrants our approving citation, thus: 311 VOL. 585, APRIL 16, 2009311 Calatagan Golf Club, Inc. vs. Clemento, Jr. “In accordance with this provision, Calatagan sent the third and final demand letter to Clemente on December 7, 1992. The letter states that if the amount of delinquency is not paid, the share will be included among the delinquent shares to be sold at public auction. This letter was signed by Atty. Benjamin Tanedo, Jr., Calatagan Golf’s Corporate Secretary. It was again sent to Clemente’s mailing address—Phimco Industries Inc., P.O. Box 240, MCC Makati. As expected, it was returned because the post office box had been closed. Under the By-Laws, the Corporate Secretary is tasked to “give or cause to be given, all notices required by law or by these ByLaws... and … keep a record of the addresses of all stockholders. As quoted above, Sec. 32 (a) of the By-Laws further provides that “within ten (10) days after the Board has ordered the sale at auction of a member’s share of stock for indebtedness under Section 31 (b) hereof, the Secretary shall notify the owner thereof and shall advise the Membership Committee of such fact.,” The records do not disclose what report the Corporate Secretary transmitted to the Membership Committee to comply with Section 32(a). Obviously, the reason for this mandatory requirement is to give the

Membership Committee the opportunity to find out, before the share is sold, if proper notice has been made to the shareholder member. We presume that the Corporate Secretary, as a lawyer is knowledgeable on the law and on the standards of good faith and fairness that the law requires. As custodian of corporate records, he should also have known that the first two letters sent to Clemente were returned because the P.O. Box had been closed. Thus, we are surprised—given his knowledge of the law and of corporate records—that he would send the third and final letter—Clemente’s last chance before his share is sold and his membership lost—to the same P.O. Box that had been closed. Calatagan argues that it “exercised due diligence before the foreclosure sale” and “sent several notices to Clemente’s specified mailing address.” We do not agree; we cannot label as due diligence Calatagan’s act of sending the December 7, 1992 letter to Clemente’s mailing address knowing fully well that the P.O. Box had been closed. Due diligence or good faith imposes upon the Corporate Secretary—the chief repository of all corporate records—the obligation to check Clemente’s other address which, under the By-Laws, have to be kept on file and are in fact on file. One obvious purpose of 312 312SUPREME COURT REPORTS ANNOTATED Calatagan Golf Club, Inc. vs. Clemento, Jr. giving the Corporate Secretary the duty to keep the addresses of members on file is specifically for matters of this kind, when the member cannot be reached through his or her mailing

address. Significantly, the Corporate Secretary does not have to do the actual verification of other addressees on record; a mere clerk can do the very simple task of checking the files as in fact clerks actually undertake these tasks. In fact, one telephone call to Clemente’s phone numbers on file would have alerted him of his impending loss.” Ultimately, the petition must fail because Calatagan had failed to duly observe both the spirit and letter of its own by-laws. The by-law provisions was clearly conceived to afford due notice to the delinquent member of the impending sale, and not just to provide an intricate façade that would facilitate Calatagan’s sale of the share. But then, the bad faith on Calatagan’s part is palpable. As found by the Court of Appeals, Calatagan very well knew that Clemente’s postal box to which it sent its previous letters had already been closed, yet it persisted in sending that final letter to the same postal box. What for? Just for the exercise, it appears, as it had known very well that the letter would never actually reach Clemente. It is noteworthy that Clemente in his membership application had provided his residential address along with his residence and office telephone numbers. Nothing in Section 32 of Calatagan’s By-Laws requires that the final notice prior to the sale be made solely through the member’s mailing address. Clemente cites our aphorism-like pronouncement in Rizal Commercial Banking Corporation v. Court of Appeals15 that “[a] simple telephone call and an ounce of good faith x x x could have prevented this present controversy.” That memorable observation is quite apt in this case. Calatagan’s bad faith and failure to observe its own By-Laws had resulted not merely in the loss of Clemente’s privilege to

play golf at its golf course and avail of its amenities, but also in significant pecuniary damage to him. For that loss, _______________ 15 G.R. No. 133107, 25 March 1999, 305 SCRA 449. 313 VOL. 585, APRIL 16, 2009313 Calatagan Golf Club, Inc. vs. Clemento, Jr. the only blame that could be thrown Clemente’s way was his failure to notify Calatagan of the closure of the P.O. Box. That lapse, if we uphold Calatagan would cost Clemente a lot. But, in the first place, does he deserve answerability for failing to notify the club of the closure of the postal box? Indeed, knowing as he did that Calatagan was in possession of his home address as well as residence and office telephone numbers, he had every reason to assume that the club would not be at a loss should it need to contact him. In addition, according to Clemente, he was not even aware of the closure of the postal box, the maintenance of which was not his responsibility but his employer Phimco’s. The utter bad faith exhibited by Calatagan brings into operation Articles 19, 20 and 21 of the Civil Code,16 under the Chapter on Human Relations. These provisions, which the Court of Appeals did apply, enunciate a general obligation under law for every person to act fairly and in good faith towards one another. A non-stock corporation like Calatagan is not exempt from that obligation in its treatment of its members. The obligation of a corporation to treat every person honestly and in good faith extends even to its shareholders or members, even if the latter find themselves contractually bound to perform

certain obligations to the corporation. A certificate of stock cannot be a charter of dehumanization. We turn to the matter of damages. The award of actual damages is of course warranted since Clemente has sustained _______________ 16 Art. 19. Every person must in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. Art. 20. Every person who, contrary to law, willfully or negligently causes damage to another, shall indemnify the latter for the same. Art. 21. Any person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage. 314 314SUPREME COURT REPORTS ANNOTATED Calatagan Golf Club, Inc. vs. Clemento, Jr. pecuniary injury by reason of Calatagan’s wrongful violation of its own By-Laws. It would not be feasible to deliver Clemente’s original Certificate of Stock because it had already been cancelled and a new one issued in its place in the name of the purchases at the auction who was not impleaded in this case. However, the Court of Appeals instead directed that Calatagan to issue to Clemente a new certificate of stock. That sufficiently redresses the actual damages sustained by Clemente. After all, the certificate of stock is simply the evidence of the share. The Court of Appeals also awarded Clemente P200,000.00 as moral damages, P100,000.00 as exemplary damages, and

P100,000.00 as attorney’s fees. We agree that the award of such damages is warranted. The Court of Appeals cited Calatagan for violation of Article 32 of the Civil Code, which allows recovery of damages from any private individual “who directly or indirectly obstructs, defeats, violates or in any manner impedes or impairs” the right “against deprivation of property without due process of laws.” The plain letter of the provision squarely entitles Clemente to damages from Calatagan. Even without Article 32 itself, Calatagan will still be bound to pay moral and exemplary damages to Clemente. The latter was able to duly prove that he had sustained mental anguish, serious anxiety and wounded feelings by reason of Calatagan’s acts, thereby entitling him to moral damages under Article 2217 of the Civil Code. Moreover, it is evident that Calatagan’s bad faith as exhibited in the course of its corporate actions warrants correction for the public good, thereby justifying exemplary damages under Article 2229 of the Civil Code. WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals is AFFIRMED. Costs against petitioner. SO ORDERED. [Calatagan Golf Club, Inc. vs. Clemento, Jr., 585 SCRA 300(2009)]

No. L-44428. September 30, 1977.*FIRST DIVISION. AVELINO BALURAN, petitioner, vs. HON. RICARDO Y. NAVARRO, Presiding Judge, Court of First Instance of Ilocos Norte, Branch I and ANTONIO OBEDENCIO, respondents. Contracts; Barter; The courts are not bound by the name contracting parties given to their contracts.—It is a settled rule that to determine the nature of a contract courts are not bound by the name or title given to it by the contracting parties. This Court has held that contracts are not what the parties may see fit to call them but what they really are as determined by the principles of law. Thus, in the instant case, the use of the term “barter” in describing the agreement of February 2, 1964, is not controlling. Same; Same; Usurfruct; No barter agreement for purposes of transferring ownership of lands can be inferred when it is clear that the parties merely intended to transfer material possession thereof.—The stipulations in said document are clear enough to indicate that there was no intention at all on the part of the signatories thereto to convey the ownership of their respective properties; all that was intended, and it was so provided in the agreement, was to transfer the material possession thereof. (condition No. 1, see page 1 of this Decision) In fact, under condition No. 3 of the agreement, the parties retained the right to alienate their respective properties which right is an element of ownership. With the material possession being the only one transferred, all that the parties acquired was the right of usufruct which in essence is the right to enjoy the _____________ * FIRST DIVISION. 310

310 SUPREME COURT REPORTS ANNOTATED Baluran vs. Navarro property of another. Under the document in question, spouses Paraiso would harvest the crop of the unirrigated riceland while the other party, Avelino Baluran, could build a house on the residential lot, subject, however, to the condition, that when any of the children of Natividad Paraiso Obedencio, daughter of spouses Paraiso, shall choose to reside in the municipality and build his house on the residential lot, Avelino Baluran shall be obliged to return the lot to said children “with damages to be incurred.” (Condition No. 2 of the Agreement) Thus, the mutual agreement—each party enjoying “material possession” of the other’s property—was subject to a resolutory condition the happening of which would terminate the right of possession and use. Same; Same; Same; Same; The manner of terminating the right of usufruct is primarily determined by the stipulation of the parties, such as the happening of a resolutory condition.— Usufruct may be constituted by the parties for any period of time and under such conditions as they may deem convenient and beneficial subject to the provisions of the Civil Code, Book II, Title VI on Usufruct. The manner of terminating or extinguishing the right of usufruct is primarily determined by the stipulations of the parties which in this case now before Us is the happening of the event agreed upon. Necessarily, the plaintiff or respondent Obedencio could not demand for the recovery of possession of the residential lot in question, not until he acquired that right from his mother, Natividad Obedencio, and which he did acquire when his mother donated

to him the residential lot on October 4, 1974. Even if We were to go along with petitioner in his argument that the fulfillment of the condition cannot be left to an indefinite, uncertain period, nonetheless, in the case at bar, the respondent, in whose favor the resolutory condition was constituted, took immediate steps to terminate the right of petitioner herein to the use of the lot. Obedencio’s present complaint was filed in May of 1975, barely several months after the property was donated to him. Same; Same; Same; Usufructuary may remove improvements on property subject of usufruct as provided for in Article 579 of the new Civil Code.—However, We apply Art. 579 of the Civil Code and hold that petitioner will not forfeit the improvement he built on the lot but may remove the same without causing damage to the property. 311 VOL. 79, SEPTEMBER 30, 1977 311 Baluran vs. Navarro PETITION for review the decision of the Court of First Instance of Ilocos Norte. Navarro, J. The facts are stated in the opinion of the Court. Alipio V. Flores for petitioner. Rafael B. Ruiz for private respondent. MUÑOZ PALMA, J.: Spouses Domingo Paraiso and Fidela Q. Paraiso were the owners of a residential lot of around 480 square meters located in Sarrat, Ilocos Norte. On or about February 2, 1964, the Paraisos executed an agreement entitled “BARTER” whereby as party of the first part they agreed to “barter and exchange”

with spouses Avelino and Benilda Baluran their residential lot with the latter’s unirrigated riceland situated in Sarrat, Ilocos Norte, of approximately 223 square meters without any permanent improvements, under the following conditions: “1. That both the Party of the First Part and the Party of the Second Part shall enjoy the material possession of their respective properties; the Party of the First Part shall reap the fruits of the unirrigated riceland and the Party of the Second Part shall have a right to build his own house in the residential lot. “2. Nevertheless, in the event any of the children of Natividad P. Obedencio, daughter of the First Part, shall choose to reside in this municipality and build his own house in the residential lot, the Party of the Second Part shall be obliged to return the lot such children with damages to be incurred. “3. That neither the Party of the First Part nor the Party of the Second Part shall encumber, alienate or dispose of in any manner their respective properties as bartered without the consent of the other. “4. That inasmuch as the bartered properties are not yet registered in accordance with Act No. 496 or under the Spanish Mortgage Law, they finally agreed and covenant that this deed be registered in the Office of the Register of Deeds of Ilocos Norte pursuant to the provisions of Act No. 3344 as amended.” (P. 28, rollo) On May 6, 1975 Antonio Obendencio filed with the Court of First Instance of Ilocos Norte the present complaint to recover the above-mentioned residential lot from Avelino Baluran claiming

312 312 SUPREME COURT REPORTS ANNOTATED Baluran vs. Navarro that he is the rightful owner of said residential lot having acquired the same from his mother, Natividad Paraiso Obedencio, and that he needed the property for purposes of constructing his house thereon inasmuch as he had taken residence in his native town, Sarrat. Obedencio accordingly prayed that he be declared owner of the residential lot and that defendant Baluran be ordered to vacate the same forfeiting his (Obedencio) favor the improvements defendant Baluran had built in bad faith.1pp. 21-22, rollo Answering the complaint, Avelino Baluran alleged inter alia (1) that the “barter agreement” transferred to him the ownership of the residential lot in exchange for the unirrigated riceland conveyed to plaintiff’s predecessor-in-interest, Natividad Obedencio, who in fact is still in possession thereof; and (2) that the plaintiff’s cause of action if any had prescribed.2p. 23, ibid. At the pre-trial, the parties agreed to submit the case for decision on the basis of their stipulation of facts. It was likewise admitted that the aforementioned residential lot was donated on October 4, 1974 by Natividad Obedencio to her son Antonio Obedencio, and that since the execution of the agreement of February 2, 1964 Avelino Baluran was in possession of the residential lot, paid the taxes of the property, and constructed a house thereon with an assessed value of P250.00.3pp. 26-27, ibid. On November 8, 1975, the trial

Judge Ricardo Y. Navarro rendered a decision the dispositive portion of which reads as follows: “Consequently, the plaintiff is hereby declared owner of the property in question, the defendant is hereby ordered to vacate the same. With costs against defendant.” Avelino Baluran to whom We shall refer as petitioner, now seeks a review of that decision under the following assignment of errors: “I—The lower Court erred in holding that the barter agreement did not transfer ownership of the lot in suit to the petitioner. “II—The lower Court erred in not holding that the right to rebarter or re-exchange of respondent Antonio Obedencio had been barred by the statute of limitation.” (p. 14, ibid.) The resolution of this appeal revolves on the nature of the undertaking or contract of February 2, 1964 which is entitled “Barter Agreement.” ____________ 1 pp. 21-22, rollo 2 p. 23, ibid. 3 pp. 26-27, ibid. 313 VOL. 79, SEPTEMBER 30, 1977 313 Baluran vs. Navarro It is a settled rule that to determine the nature of a contract courts are not bound by the name or title given to it by the contracting parties.4Shell Co. of the Philippines Ltd. vs. Firemen’s Insurance Co. of Newark, N.J., et al., 100 Phil. 757, 764 (1957) This Court has held that contracts are not what the

parties may see fit to call them but what they really are as determined by the principles of law.5Borromeo vs. Court of Appeals, et al., 47 SCRA 65 (1972) Thus, in the instant case, the use of the term “barter” in describing the agreement of February 2, 1964, is not controlling. The stipulations in said document are clear enough to indicate that there was no intention at all on the part of the signatories thereto to convey the ownership of their respective properties; all that was intended, and it was so provided in the agreement, was to transfer the material possession thereof. (condition No. 1, see page 1 of this Decision) In fact, under condition No. 3 of the agreement, the parties retained the right to alienate their respective properties which right is an element of ownership. With the material possession being the only one transferred, all that the parties acquired was the right of usufruct which in essence is the right to enjoy the property of another.6Art. 562 of the Civil Code provides: “ART. 562 Usufruct gives a right to enjoy the property of another with the obligation of preserving its form and substance, unless the title constituting it or the law otherwise provides.... Under the document in question, spouses Paraiso would harvest the crop of the unirrigated riceland while the other party, Avelino Baluran, could build a house on the residential lot, subject, however, to the condition, that when any of the children of Natividad Paraiso Obedencio, daughter of spouses Paraiso, shall choose to reside in the municipality and build his house on the residential lot, Avelino Baluran shall be obliged to return the lot to said children “with damages to be incurred.” (Condition No. 2 of the Agreement) Thus, the mutual agreement—each party enjoying “material possession” of the other’s property—

was subject to a resolutory condition the happening of which would terminate the right of possession and use. A resolutory condition is one which extinguishes rights and obligations already existing.7Tolentino, Commentaries on the Civil Code of the Philippines, Vol. IV, pp. 140, 143 1973 ed. The right of “material possession” ______________ 4 Shell Co. of the Philippines Ltd. vs. Firemen’s Insurance Co. of Newark, N.J., et al., 100 Phil. 757, 764 (1957) 5 Borromeo vs. Court of Appeals, et al., 47 SCRA 65 (1972) 6 Art. 562 of the Civil Code provides: “ART. 562 Usufruct gives a right to enjoy the property of another with the obligation of preserving its form and substance, unless the title constituting it or the law otherwise provides.” 7 Tolentino, Commentaries on the Civil Code of the Philippines, Vol. IV, pp. 140, 143 1973 ed. 314 314 SUPREME COURT REPORTS ANNOTATED Baluran vs. Navarro granted in the agreement of February 2, 1964, ends if and when any of the children of Natividad Paraiso Obedencio (daughter of spouses Paraiso, party of the First Part) would reside in the municipality and build his house on the property. Inasmuch as the condition imposed is not dependent solely on the will of one of the parties to the contract—the spouses Paraiso—but is partly dependent on the will of third persons—Natividad Obedencio and any of her children—the same is valid.8Ibid., pp. 148-149

When there is nothing contrary to law, morals, and good customs or public policy in the stipulations of a contract, the agreement constitutes the law between the parties and the latter are bound by the terms thereof.9Iñigo vs. National Abaca & Other Fibers Corp., 95 Phil. 875; Ramos vs. Central Bank of the Phil. 41 SCRA 565; Rodrigo Enriquez et al. vs. Socorro A. Ramos, L-23616, September 30, 1976, 73 SCRA 116. Art. 1306 of the Civil Code states: “Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.” “Contracts which are the private laws of the contracting parties, should be fulfilled according to the literal sense of their stipulations, if their terms are clear and leave no room for doubt as to the intention of the contracting parties, for contracts are obligatory, no matter what their form may be, whenever the essential requisites for their validity are present.” (Philippine American General Insurance Co., Inc. vs. Mutuc, 61 SCRA 22) The trial court therefore correctly adjudged that Antonio Obedencio is entitled to recover the possession of the residential lot pursuant to the agreement of February 2, 1964. Petitioner submits under the second assigned error that the cause of action if any of respondent Obedencio had prescribed after the lapse of four years from the date of execution of the document of February 2, 1964. It is argued that the remedy of plaintiff, now respondent, was to ask for re-barter or reexchange of the properties subject of the agreement which could be exercised only within four years from the date of the contract under Art. 1606 of the Civil Code.

_____________ 8 Ibid., pp. 148-149 9 Iñigo vs. National Abaca & Other Fibers Corp., 95 Phil. 875; Ramos vs. Central Bank of the Phil. 41 SCRA 565; Rodrigo Enriquez et al. vs. Socorro A. Ramos, L-23616, September 30, 1976, 73 SCRA 116. 315 VOL. 79, SEPTEMBER 30, 1977 315 Baluran vs. Navarro The submission of petitioner is untenable. Art. 1606 of the Civil Code refers to conventional redemption which petitioner would want to apply to the present situation. However, as We stated above, the agreement of the parties of February 2, 1964, is not one of barter, exchange or even sale with right to repurchase, but is one of or akin the other is the use or material possession or enjoyment of each other’s real property. Usufruct may be constituted by the parties for any period of time and under such conditions as they may deem convenient and beneficial subject to the provisions of the Civil Code, Book II, Title VI on Usufruct. The manner of terminating or extinguishing the right of usufruct is primarily determined by the stipulations of the parties which in this case now before Us is the happening of the event agreed upon. Necessarily, the plaintiff or respondent Obedencio could not demand for the recovery of possession of the residential lot in question, not until he acquired that right from his mother, Natividad Obedencio, and which he did acquire when his mother donated to him the residential lot on October 4, 1974. Even if We were

to go along with petitioner in his argument that the fulfillment of the condition cannot be left to an indefinite, uncertain period, nonetheless, in the case at bar, the respondent, in whose favor the resolutory condition was constituted, took immediate steps to terminate the right of petitioner herein to the use of the lot. Obedencio’s present complaint was filed in May of 1975, barely several months after the property was donated to him. One last point raised by petitioner is his alleged right to recover damages under the agreement of February 2, 1964. In the absence of evidence, considering that the parties agreed to submit the case for decision on a stipulation of facts, We have no basis for awarding damages to petitioner. However, We apply Art. 579 of the Civil Code and hold that petitioner will not forfeit the improvement he built on the lot but may remove the same without causing damage to the property. “Art. 579. The usufructuary may make on the property held in usufruct such useful improvements or expenses for mere pleasure as he may deem proper, provided he does not alter its form or substance; but he shall have no right to be indemnified therefor. He may, however, removed such improvements, should it be possible to do so without damage to the property.” (Italics supplied) 316 316 SUPREME COURT REPORTS ANNOTATED Baluran vs. Navarro

Finally, We cannot close this case without touching on the unirrigated riceland which admittedly is in the possession of Natividad Obedencio. In view of our ruling that the “barter agreement” of February 2. 1964, did not transfer the ownership of the respective properties mentioned therein, it follows that petitioner Baluran remains the owner of the unirrigated riceland and is now entitled to its possession. With the happening of the resolutory condition provided for in the agreement, the right of usufruct of the parties is extinguished and each is entitled to a return of his property. It is true that Natividad Obedencio who is now in possession of the property and who has been made a party to this case cannot be ordered in this proceeding to surrender the riceland. But inasmuch as reciprocal rights and obligations have arisen between the parties to the so-called “barter agreement”, We hold that the parties and/or their successors-ininterest are duty bound to effect a simultaneous transfer of the respective properties if substantial justice is to be effected. WHEREFORE, judgment is hereby rendered: 1) declaring the petitioner Avelino Baluran and respondent Antonio Obedencio the respective owners of the unirrigated riceland and residential lot mentioned in the “Barter Agreement” of February 2, 1964; 2) ordering Avelino Baluran to vacate the residential lot and remove the improvements built by him thereon, provided, however, that he shall not be compelled to do so unless the unirrigated riceland shall have been restored to his possession either on volition of the party concerned or through judicial proceedings which he may institute for the purpose. Without pronouncement as to costs. So Ordered.

Teehankee (Chairman), Makasiar, Martin, Fernandez and Guerrero, JJ., concur. Notes.—Where respondent executed an affidavit naming the petitioner the sole owner of the property by permitting her to register the same in her name not only for purposes of the real estate tax, but, also, in the language of said affidavit “at ano mang hakbang na kinakailangang tungkol sa lupang ito” constitutes 317 VOL. 79, SEPTEMBER 30, 1977 317 Baluran vs. Navarro ownership. (San Buenaventura vs. Court of Appeals, 22 SCRA 462). The possession of property by the widow of the deceased she being the residuary legatee is in the concept of ownership. (Castro vs. Court of Appeals, 27 SCRA 1076). Under Section 2, Rule 12 of the Rules of Court, it is permissible for a person claiming ownership over properties preliminary attached or levied upon in execution not only to file a 3rd-party claim with the sheriff, but also to intervene in the action to ask that the writ of attachment or levy be quashed. (Zulueta vs. Muñoz, 17 SCRA 972). A contract of sale of personal property does not serve to transfer ownership where the vendee took possession of the subject matter thereof by stealing the same while it was in the custody of the vendor’s agent. (Aznar vs. Yapdiangco, 13 SCRA 486).

There is accretion among the usufructuaries who are constituted at the same time when one of them dies before the end of the usufruct. (Policarpio vs. Salamat, 16 SCRA 154). That the testator meant his widow to have no more than usufructuary rights in the properties bequeathed to her is evident by the expression used by the testator, “uso y posesion mientras viva,” in which the first half of the phrase “uso y posesion” reinforces the second “mientras viva.” (Vda. de Villanueva vs. Juicio, L-15737, Feb. 28, 1962). Where a usufruct was created on the land and the building constructed thereon, the usufruct is not deemed extinguished by the destruction of the building, for under the law usufruct is extiguished only by the total loss of the thing subject of the encumbrance. Hence, where the usufruct is for life, it is but fair that the usufructurary continue to enjoy use of the land and the usufructuary enjoy the use of the new building that may be constructed on the land. (Albar vs. Carangdang, 57 O. G. 6418). ——o0o—— [Baluran vs. Navarro, 79 SCRA 309(1977)]

G.R. No. 152319. October 28, 2009.* HEIRS OF THE LATE JOAQUIN LIMENSE, namely: CONCESA LIMENSE, Surviving Spouse; and DANILO and JOSELITO, both surnamed LIMENSE, children, petitioners, vs. RITA VDA. DE RAMOS, RESTITUTO RAMOS, VIRGILIO DIAZ, IRENEO RAMOS, BENJAMIN RAMOS, WALDY-TRUDES RAMOS-BASILIO, TRINIDAD RAMOSBRAVO, PAZ RAMOS-PASCUA, FELICISIMA RAMOSREYES, and JACINTA RAMOS, respondents. Civil Law; Land Titles; Land Registration; Section 32 of Presidential Decree (PD) 1529 provides that “upon the expiration of said period of one year, the decree of registration and the certificate of title shall become incontrovertible. Any person aggrieved by such decree of registration in any case may pursue his remedy by action for damages against the applicant or other persons responsible for the fraud.”—It has been held that a certificate of title, once registered, should not thereafter be impugned, altered, changed, modified, enlarged or diminished, except in a direct proceeding permitted by law. Otherwise, the reliance on registered titles would be lost. The title became inde-feasible and incontrovertible after the lapse of one year from the time of its registration and issuance. Section 32 of PD 1529 provides that “upon the expiration of said period of one year, the decree of registration and the certificate of title shall become incontrovertible. Any person aggrieved by such decree of registration in any case may pursue his remedy by action for damages against the applicant or other persons responsible for the fraud.” It has, therefore, become an ancient rule that the issue on the validity of title, i.e., whether or not it was fraudulently issued, can only be

raised in an action expressly instituted for that purpose. In the present case, TCT No. 96886 was registered in 1969 and respondents never instituted any direct proceeding or action to assail Joaquin Limense’s title. Same; Property; Easements; An easement is a real right on another’s property, corporeal and immovable, whereby the owner of the latter must refrain from doing or allowing somebody else to do or something to be done on his property, for the benefit of another person _______________ * THIRD DIVISION. 600 600SUPREME COURT REPORTS ANNOTATED Heirs of the Late Joaquin Limense vs. Vda. De Ramos or tenement.—An easement is a real right on another’s property, corporeal and immovable, whereby the owner of the latter must refrain from doing or allowing somebody else to do or something to be done on his property, for the benefit of another person or tenement. Same; Possession; The essence of good faith lies in an honest belief in the validity of one’s right, ignorance of a superior claim, and absence of intension to overreach another. Applied to possession, one is considered in good faith if he is not aware that there exists in his title or mode of acquisition any flaw which invalidates it.—Good faith is an intangible and abstract quality with no technical meaning or statutory definition; and it encompasses, among other things, an honest belief, the absence of malice and the absence of a design to defraud or to seek an unconscionable advantage. An individual’s personal good faith

is a concept of his own mind and, therefore, may not conclusively be determined by his protestations alone. It implies honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry. The essence of good faith lies in an honest belief in the validity of one’s right, ignorance of a superior claim, and absence of intention to overreach another. Applied to possession, one is considered in good faith if he is not aware that there exists in his title or mode of acquisition any flaw which invalidates it. PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. M.B. Tomacruz Law Office for petitioners. M.S. Meneses for respondents. PERALTA, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to annul and set aside the Decision1 _______________ 1 Penned by Associate Justice Rebecca De Guia-Salvador, with Associate Justices Eugenio S. Labitoria and Teodoro P. Regino, concurring; Rollo, pp. 29-35. 601 VOL. 604, OCTOBER 28, 2009601 Heirs of the Late Joaquin Limense vs. Vda. De Ramos of the Court of Appeals dated December 20, 2001 in CA-G.R. CV No. 33589 affirming in toto the Decision2 of the Regional Trial Court of Manila, Branch 15, dated September 21, 1990 in Civil Case No. 83-16128. The antecedent facts are as follows:

Dalmacio Lozada was the registered owner of a parcel of land identified as Lot No. 12, Block No. 1074 of the cadastral survey of the City of Manila covered by Original Certificate of Title (OCT) No. 7036 issued at the City of Manila on June 14, 1927,3 containing an area of 873.80 square meters, more or less, located in Beata Street, Pandacan, Manila. Dalmacio Lozada subdivided his property into five (5) lots, namely: Lot Nos. 12-A, 12-B, 12-C, 12-D and 12-E. Through a Deed of Donation dated March 9, 1932,4 he donated the subdivided lots to his daughters, namely: Isabel, Salud, Catalina, and Felicidad, all surnamed Lozada. The Deed of Donation was registered with the office of the Register of Deeds of Manila on March 15, 1932. Under the said Deed of Donation, the lots were adjudicated to Dalmacio’s daughters in the following manner: a. Lot No. 12-A in favor of Isabel Lozada, married to Isaac Limense; b. Lot No. 12-B in favor of Catalina Lozada, married to Sotero Natividad; c. Lot No. 12-C in favor of Catalina Lozada, married to Sotero Natividad; Isabel Lozada, married to Isaac Limense; and Salud Lozada, married to Francisco Ramos, in equal parts; d. Lot No. 12-D in favor of Salud Lozada, married to Francisco Ramos; and _______________ 2 Id., at pp. 52-55. 3 Records, p. 231. 4 Id., at pp. 14-19. 602 602SUPREME COURT REPORTS ANNOTATED

Heirs of the Late Joaquin Limense vs. Vda. De Ramos e. Lot No. 12-E in favor of Isabel Lozada, married to Isaac Limense, and Felicidad Lozada, married to Galicano Centeno. By virtue of the Deed of Donation executed by Dalmacio Lozada, OCT No. 7036, which was registered in his name, was cancelled and, in lieu thereof, Transfer Certificates of Title (TCTs) bearing Nos. 40041, 40042, 40043, 40044, and 40045 were issued in favor of the donees, except TCT No. 40044, which remained in his name. These new TCTs were annotated at the back of OCT No. 7036.5 TCT No. 40043, which covered Lot No. 12-C, was issued in the name of its co-owners Catalina Lozada, married to Sotero Natividad; Isabel Lozada, married to Isaac Limense; and Salud Lozada, married to Francisco Ramos. It covered an area of 68.60 square meters, more or less, was bounded on the northeast by Lot No. 12-A, on the southwest by Calle Beata, and on the northwest by Lot No. 12-D of the subdivision plan. In 1932, respondents’ predecessor-in-interest constructed their residential building on Lot No. 12-D, adjacent to Lot No. 12-C. On May 16, 1969, TCT No. 968866 was issued in the name of Joaquin Limense covering the very same area of Lot No. 12-C. On October 1, 1981, Joaquin Limense secured a building permit for the construction of a hollow block fence on the boundary line between his aforesaid property and the adjacent parcel of land located at 2759 Beata Street, Pandacan, Manila, designated as Lot No. 12-D, which was being occupied by respondents. The fence, however, could not be constructed because a substantial portion of respondents’ residential

building in Lot No. 12-D encroached upon portions of Joaquin Limense’s property in Lot No. 12-C. _______________ 5 Id., at pp. 231. 6 Id., at p. 183. 603 VOL. 604, OCTOBER 28, 2009603 Heirs of the Late Joaquin Limense vs. Vda. De Ramos Joaquin Limense demanded the removal of the encroached area; however, respondent ignored both oral and written demands. The parties failed to amicably settle the differences between them despite referral to the barangay. Thus, on March 9, 1983, Joaquin Limense, duly represented by his Attorney-inFact, Teofista L. Reyes, instituted a Complaint7 against respondents before the Regional Trial Court (RTC) of Manila, Branch 15, for removal of obstruction and damages. Joaquin Limense prayed that the RTC issue an order directing respondents, jointly and severally, to remove the portion which illegally encroached upon his property on Lot No. 12-C and, likewise, prayed for the payment of damages, attorney’s fees and costs of suit. Respondents, on the other hand, averred in their Answer8 that they were the surviving heirs of Francisco Ramos,9 who, during his lifetime, was married to Salud Lozada, one of the daughters of Dalmacio Lozada, the original owner of Lot No. 12. After subdividing the said lot, Dalmacio Lozada donated Lot No. 12-C in favor of his daughters Catalina, married to Sotero Natividad; Isabel, married to Isaac Limense; and Salud, married to Francisco Ramos. Being the surviving heirs of

Francisco Ramos, respondents later became co-owners of Lot No. 12-C. Lot No. 12-C has served as right of way or common alley of all the heirs of Dalmacio Lozada since 1932 up to the present. As a common alley, it could not be closed or fenced by Joaquin Limense without causing damage and prejudice to respondents. After trial on the merits, the RTC rendered a Decision10 dated September 21, 1990 dismissing the complaint of Joaquin Limense. It ruled that an apparent easement of right of _______________ 7 Id., at pp. 1-5. 8 Id., at pp. 10-13. 9 In their answer, respondents referred to Francisco Ramos as “Francisco Ramos, Sr.” 10 Records, pp. 311-314. 604 604SUPREME COURT REPORTS ANNOTATED Heirs of the Late Joaquin Limense vs. Vda. De Ramos way existed in favor of respondents. Pertinent portions of the decision read as follows: “The Court finds that an apparent easement of right of way exists in favor of the defendants under Article 624 of the Civil Code. It cannot be denied that there is an alley which shows its existence. It is admitted that this alley was established by the original owner of Lot 12 and that in dividing his property, the alley established by him continued to be used actively and passively as such. Even when the division of the property occurred, the non-existence of the easement was not expressed

in the corresponding titles nor were the apparent sign of the alley made to disappear before the issuance of said titles. The Court also finds that when plaintiff acquired the lot (12-C) which forms the alley, he knew that said lot could serve no other purpose than as an alley. That is why even after he acquired it in 1969, the lot continued to be used by defendants and occupants of the other adjoining lots as an alley. The existence of the easement of right of way was therefore known to plaintiff who must respect the same in spite of the fact that his transfer certificate of title does not mention the lot of defendants as among those listed therein as entitled to such right of way. It is an established principle that actual notice or knowledge is as binding as registration.”11 Aggrieved by said decision, Joaquin Limense filed a notice of appeal. The records of the case were transmitted to the Court of Appeals (CA). During the pendency of the appeal with the CA, Joaquin Limense died in 1999.12 The CA, Seventh Division, in CA-G.R. CV No. 33589, in its Decision13 dated December 20, 2001 dismissed the appeal and affirmed in toto the decision of the RTC. Frustrated by this turn of events, petitioners, as surviving heirs of Joaquin Limense, elevated the case to this Court via a Petition for Review on Certiorari14 raising the following issues: _______________ 11 Id., at p. 314. 12 Rollo, p. 27. 13 Id., at pp. 29-35. 14 Id., at pp. 9-25. 605

VOL. 604, OCTOBER 28, 2009605 Heirs of the Late Joaquin Limense vs. Vda. De Ramos 1. DID THE HONORABLE COURT OF APPEALS COMMIT A GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION, IN HOLDING, LIKE THE TRIAL COURT DID, THAT RESPONDENTS’ LOT 12-D HAS AN EASEMENT OF RIGHT OF WAY OVER JOAQUIN LIMENSE’S LOT 12-C? 2. DID THE HONORABLE COURT OF APPEALS COMMIT A GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION, IN FAILING TO HOLD, LIKE THE TRIAL COURT DID, THAT THE PROTRUDING PORTIONS OF RESPONDENTS’ HOUSE ON LOT 12-D EXTENDING INTO JOAQUIN LIMENSE’S LOT 12-C CONSTITUTE A NUISANCE AND, AS SUCH, SHOULD BE REMOVED? Petitioners aver that the CA erred in ruling that since Lot No. 12-C was covered by two TCT’s, i.e., TCT Nos. 40043 and 96886, and there was no evidence on record to show how Joaquin Limense was able to secure another title over an already titled property, then one of these titles must be of dubious origin. According to the CA, TCT No. 96886, issued in the name of Joaquin Limense, was spurious because the Lozada sisters never disposed of the said property covered by TCT No. 40043. The CA further ruled that a co-ownership existed over Lot No. 12-C between petitioners and respondents. Petitioners countered that TCT No. 96886, being the only and best legitimate proof of ownership over Lot No. 12-C, must prevail over TCT No. 40043.

Respondents allege that it was possible that TCT No. 96886, in the name of Joaquin Limense, was obtained thru fraud, misrepresentation or falsification of documents because the donees of said property could not possibly execute any valid transfer of title to Joaquin Limense, as they were already dead prior to the issuance of TCT No. 96886 in 1969. Respondents further allege that petitioners failed to produce proof substantiating the issuance of TCT No. 96886 in the name of Joaquin Limense. 606 606SUPREME COURT REPORTS ANNOTATED Heirs of the Late Joaquin Limense vs. Vda. De Ramos Apparently, respondents are questioning the legality of TCT No. 96886, an issue that this Court cannot pass upon in the present case. It is a rule that the validity of a torrens title cannot be assailed collaterally.15 Section 48 of Presidential Decree (PD) No. 1529 provides that: [a] certificate of title shall not be subject to collateral attack. It cannot be altered, modified, or cancelled except in a direct proceeding in accordance with law. In the case at bar, the action filed before the RTC against respondents was an action for removal of obstruction and damages. Respondents raised the defense that Joaquin Limense’s title could have been obtained through fraud and misrepresentation in the trial proceedings before the RTC. Such defense is in the nature of a collateral attack, which is not allowed by law. Further, it has been held that a certificate of title, once registered, should not thereafter be impugned, altered, changed,

modified, enlarged or diminished, except in a direct proceeding permitted by law. Otherwise, the reliance on registered titles would be lost. The title became indefeasible and incontrovertible after the lapse of one year from the time of its registration and issuance. Section 32 of PD 1529 provides that “upon the expiration of said period of one year, the decree of registration and the certificate of title shall become incontrovertible. Any person aggrieved by such decree of registration in any case may pursue his remedy by action for damages against the applicant or other persons responsible for the fraud.”16 It has, therefore, become an ancient rule that the issue on the validity of title, i.e., whether or not it was fraudulently issued, can only be raised in an action expressly insti_______________ 15 Vda. de Gualberto v. Go, G.R. No. 139843, July 21, 2005, 463 SCRA 671, 677. 16 Seville v. National Development Company, 403 Phil. 843, 859; 351 SCRA 112, 125 (2001). 607 VOL. 604, OCTOBER 28, 2009607 Heirs of the Late Joaquin Limense vs. Vda. De Ramos tuted for that purpose.17 In the present case, TCT No. 96886 was registered in 1969 and respondents never instituted any direct proceeding or action to assail Joaquin Limense’s title. Additionally, an examination of TCT No. 40043 would readily show that there is an annotation that it has been “CANCELLED.”18 A reading of TCT No. 96886 would also reveal that said title is a transfer from TCT No. 4886619 and

not TCT 40043. Thus, it is possible that there was a series of transfers effected from TCT No. 40043 prior to the issuance of TCT No. 96886. Hence, respondents’ position that the issuance of TCT No. 96886 in the name of Joaquin Limense is impossible, because the registered owners of TCT No. 40043 were already dead prior to 1969 and could not have transferred the property to Joaquin Limense, cannot be taken as proof that TCT No. 96886 was obtained through fraud, misrepresentation or falsification of documents. Findings of fact of the CA, although generally deemed conclusive, may admit review by this Court if the CA failed to notice certain relevant facts that, if properly considered, would justify a different conclusion, and if the judgment of the CA is premised on a misapprehension of facts.20 As with the present case, the CA’s observation that TCT No. 96886 is of dubious origin, as TCT No. 40043 does not appear to have been disposed of by Catalina, Isabel and Salud Lozada, is improper and constitutes an indirect attack on TCT No. 96886. As we see it, TCT No. 96886, at present, is the best proof of Joaquin Limense’s ownership over Lot No. 12-C. Thus, the CA erred in ruling that respondents and petitioners co-owned Lot No. 12-C, as said lot is now registered exclusively in the name of Joaquin Limense. _______________ 17 Tanenglian v. Lorenzo, G.R. No. 173415, March 28, 2008, 550 SCRA 348, 380. 18 Records, p. 239. 19 Id., at p. 183. 20 Fuentes v. Court of Appeals, 335 Phil. 1163, 1168; 268 SCRA 703, 708 (1997).

608 608SUPREME COURT REPORTS ANNOTATED Heirs of the Late Joaquin Limense vs. Vda. De Ramos Due to the foregoing, Joaquin Limense, as the registered owner of Lot 12-C, and his successors-in-interest, may enclose or fence his land or tenements by means of walls, ditches, live or dead hedges, or by any other means without detriment to servitudes constituted thereon.21 However, although the owner of the property has the right to enclose or fence his property, he must respect servitudes constituted thereon. The question now is whether respondents are entitled to an easement of right of way. Petitioners contend that respondents are not entitled to an easement of right of way over Lot No. 12-C, because their Lot No. 12-D is not duly annotated at the back of TCT No. 96886 which would entitle them to enjoy the easement, unlike Lot Nos. 12-A-1, 12-A-2, 12-A-3, 12-A-4, 12-A-5, and 12-A-6. Respondents, on the other hand, allege that they are entitled to an easement of right of way over Lot No. 12-C, which has been continuously used as an alley by the heirs of Dalmacio Lozada, the residents in the area and the public in general from 1932 up to the present. Since petitioners are fully aware of the long existence of the said alley or easement of right of way, they are bound to respect the same. As defined, an easement is a real right on another’s property, corporeal and immovable, whereby the owner of the latter must refrain from doing or allowing somebody else to do or something to be done on his property, for the benefit of another person or tenement.22

Easements may be continuous or discontinuous, apparent or non-apparent. Continuous easements are those the use of which is or may be incessant, without the intervention of any act of man. Discontinuous easements are those which are used at intervals and depend upon the acts of man. Apparent easements are _______________ 21 New Civil Code, Art. 430. 22 Quimen v. Court of Appeals, 326 Phil. 969, 976; 257 SCRA 163, 168-169 (1996), citing 3 Sanchez Roman 472. 609 VOL. 604, OCTOBER 28, 2009609 Heirs of the Late Joaquin Limense vs. Vda. De Ramos those which are made known and are continually kept in view by external signs that reveal the use and enjoyment of the same. Non-apparent easements are those which show no external indication of their existence.23 In the present case, the easement of right of way is discontinuous and apparent. It is discontinuous, as the use depends upon the acts of respondents and other persons passing through the property. Being an alley that shows a permanent path going to and from Beata Street, the same is apparent. Being a discontinuous and apparent easement, the same can be acquired only by virtue of a title.24 In the case at bar, TCT No. 96886, issued in the name of Joaquin Limense, does not contain any annotation that Lot No. 12-D was given an easement of right of way over Lot No. 12C. However, Joaquin Limense and his successors-in-interests are fully aware that Lot No. 12-C has been continuously used

and utilized as an alley by respondents and residents in the area for a long period of time. Joaquin Limense’s Attorney-in-Fact, Teofista L. Reyes, testified that respondents and several other residents in the area have been using the alley to reach Beata Street since 1932. Thus: Atty. Manuel B. Tomacruz: Q: Mrs. Witness, by virtue of that Deed of Donation you claim that titles were issued to the children of Dalmacio Lozada namely Salud Lozada, Catalina Lozada and Isabel Lozada, is that right? A: Yes, sir. Q: And after the said property was adjudicated to his said children the latter constructed their houses on their lots. A: Yes, sir. _______________ 23 New Civil Code, Art. 615. 24 New Civil Code, Art. 622. 610 610SUPREME COURT REPORTS ANNOTATED Heirs of the Late Joaquin Limense vs. Vda. De Ramos Q: As a matter of fact, the herein defendants have constructed their houses on the premises alloted to them since the year 1932? A: Yes, sir, they were able to construct their house fronting Beata Street. Q: And that house they have constructed on their lot in 1932 is still existing today?

A: Yes, sir and they still used the alley in question and they are supposed to use Beata Street but they are not using Beata Street. Q: They are using the alley? A: Yes, sir, they are using the alley and they do not pass through Beata Street. Q:And they have been using the alley since 1932 up to the present? A:Yes, sir they have been using the alley since that time. That was their mistake and they should be using Beata Street because they are fronting Beata Strret. Q: As a matter of fact, it is not only herein defendants who have been using that alley since 1932 up to the present? A: Yes, sir they are using the alley up to now. Q: As a matter of fact, in this picture marked as Exh. “C-1” the alley is very apparent. This is the alley? A: Yes, sir. Q: And there are houses on either side of this alley? A: Yes, sir. Q: As a matter of fact, all the residents on either side of the alley are passing through this alley? A: Yes, sir, because the others have permit to use this alley and they are now allowed to use the alley but the Ramos’s family are now [not] allowed to use this alley.25 In Mendoza v. Rosel,26 this Court held that: _______________ 25 TSN, May 9, 1990, pp. 13-15. 26 74 Phil. 84 (1943). (Emphasis supplied). 611 VOL. 604, OCTOBER 28, 2009611

Heirs of the Late Joaquin Limense vs. Vda. De Ramos “Petitioners claim that inasmuch as their transfer certificates of title do not mention any lien or encumbrance on their lots, they are purchasers in good faith and for value, and as such have a right to demand from respondents some payment for the use of the alley. However, the Court of Appeals found, as a fact, that when respondents acquired the two lots which form the alley, they knew that said lots could serve no other purpose than as an alley. The existence of the easement of right of way was therefore known to petitioners who must respect the same, in spite of the fact that their transfer certificates of title do not mention any burden or easement. It is an established principle that actual notice or knowledge is as binding as registration.” Every buyer of a registered land who takes a certificate of title for value and in good faith shall hold the same free of all encumbrances except those noted on said certificate. It has been held, however, that “where the party has knowledge of a prior existing interest that was unregistered at the time he acquired a right to the same land, his knowledge of that prior unregistered interest has the effect of registration as to him.”27 In the case at bar, Lot No. 12-C has been used as an alley ever since it was donated by Dalmacio Lozada to his heirs. It is undisputed that prior to and after the registration of TCT No. 96886, Lot No. 12-C has served as a right of way in favor of respondents and the public in general. We quote from the RTC’s decision: “x x x It cannot be denied that there is an alley which shows its existence. It is admitted that this alley was established by the original owner of Lot 12 and that in dividing his property the

alley established by him continued to be used actively and passively as such. Even when the division of the property occurred, the non-existence of the easement was not expressed in the corresponding titles nor were _______________ 27 Private Development Corporation of the Philippines v. Court of Appeals, G.R. No. 136897, November 22, 2005, 475 SCRA 591, 607. 612 612SUPREME COURT REPORTS ANNOTATED Heirs of the Late Joaquin Limense vs. Vda. De Ramos the apparent sign of the alley made to disappear before the issuance of said titles. The Court also finds that when plaintiff acquired the lot (12-C) which forms the alley, he knew that said lot could serve no other purpose than as an alley. That is why even after he acquired it in 1969 the lot continued to be used by defendants and occupants of the other adjoining lots as an alley. x x x”28 Thus, petitioners are bound by the easement of right of way over Lot No. 12-C, even though no registration of the servitude has been made on TCT No. 96886. However, respondents’ right to have access to the property of petitioners does not include the right to continually encroach upon the latter’s property. It is not disputed that portions of respondents’ house on Lot No. 12-D encroach upon Lot No. 12-C. Geodetic Engineer Jose Agres, Jr. testified on the encroachment of respondents’ house on Lot No. 12-C, which he surveyed.29 In order to settle the rights of the parties

relative to the encroachment, We should determine whether respondents were builders in good faith. Good faith is an intangible and abstract quality with no technical meaning or statutory definition; and it encompasses, among other things, an honest belief, the absence of malice and the absence of a design to defraud or to seek an unconscionable advantage. An individual’s personal good faith is a concept of his own mind and, therefore, may not conclusively be determined by his protestations alone. It implies honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry. The essence of good faith lies in an honest belief in the validity of one’s right, ignorance of a superior claim, and absence of intention to overreach another. Applied to possession, one is considered in _______________ 28 Rollo, p. 55. 29 TSN, May 21, 1986. 613 VOL. 604, OCTOBER 28, 2009613 Heirs of the Late Joaquin Limense vs. Vda. De Ramos good faith if he is not aware that there exists in his title or mode of acquisition any flaw which invalidates it.30 Good faith is always presumed, and upon him who alleges bad faith on the part of the possessor rests the burden of proof.31 It is a matter of record that respondents’ predecessor-in-interest constructed their residential building on Lot No. 12-D, adjacent to Lot No. 12-C, in 1932.32 Respondents’ predecessor-ininterest owned the 1/3 portion of Lot No. 12-C at the time the property was donated to them by Dalmacio Lozada in 1932.

The Deed of Donation executed by the late Dalmacio Lozada, dated March 9, 1932, specifically provides that: “I hereby grant, cede and donate in favor of Catalina Lozada married to Sotero Natividad, Isabel Lozada married to Isaac “Limense and Salud Lozada married to Francisco Ramos, all Filipinos, of legal age, the parcel of land known as Lot No. 12C, in equal parts.33 The portions of Lot No. 12-D, particularly the overhang, covering 1 meter in width and 17 meters in length; the stairs; and the concrete structures are all within the 1/3 share al_______________ 30 Elvira T. Arangote v. Spouses Martin and Lourdes S. Mag-lunob, and Romeo Salido, G.R No. 178906, February 18, 2009, 579 SCRA 620, 640-645; Heirs of Marcelino Cabal v. Cabal, G.R. No. 153625, July 31, 2006, 497 SCRA 301, 315316. 31 New Civil Code, Art. 527; Ballatan v. Court of Appeals, 363 Phil. 408, 419; 304 SCRA 34, 45 (1999). 32 Direct Examination of Ms. Rita Vda. de Ramos by Atty. Meneses, TSN, October 12, 1987, p. 11. Q: How about the land which was donated to the defendants therein, namely Lot No. 12-D, what happened to this land? A: That is where our house is located. Q: When did you construct your house on that land? A: Sometime in 1932. Q: And that house is still existing today? A: Yes, sir. 33 Records, p. 228. (Emphasis supplied.) 614

614SUPREME COURT REPORTS ANNOTATED Heirs of the Late Joaquin Limense vs. Vda. De Ramos loted to them by their donor Dalmacio Lozada and, hence, there was absence of a showing that respondents acted in bad faith when they built portions of their house on Lot No. 12-C. Using the above parameters, we are convinced that respondents’ predecessors-in-interest acted in good faith when they built portions of their house on Lot 12-C. Respondents being builders in good faith, we shall now discuss the respective rights of the parties relative to the portions encroaching upon respondents’ house. Articles 448 and 546 of the New Civil Code provide: “Art. 448. The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in Articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of the lease and, in case of disagreement, the court shall fix the terms thereof. Art. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain the thing until he has been reimbursed therefor.

Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the person who has defeated him in the possession having the option of refunding the amount of the expenses or of paying the increase in value which the thing may have acquired by reason thereof.” In Spouses Del Campo v. Abesia,34 this provision was applied to one whose house, despite having been built at the time he was still co-owner, overlapped with the land of another. In that case, this Court ruled: _______________ 34 No. L-49219, April 15, 1988, 160 SCRA 379. 615 VOL. 604, OCTOBER 28, 2009615 Heirs of the Late Joaquin Limense vs. Vda. De Ramos “The court a quo correctly held that Article 448 of the Civil Code cannot apply where a co-owner builds, plants or sows on the land owned in common for then he did not build, plant or sow upon the land that exclusively belongs to another but of which he is a 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 house of defendants overlaps or occupies a portion of 5 square meters of the land pertaining to plaintiffs which the defendants obviously built in good faith, then the provisions of Article 448 of the new Civil Code should apply. x x x”35 In other words, when the co-ownership is terminated by a partition, and it appears that the house of an erstwhile co-owner

has encroached upon a portion pertaining to another co-owner, but the encroachment was in good faith, then the provisions of Article 448 should apply to determine the respective rights of the parties. In this case, the co-ownership was terminated due to the transfer of the title of the whole property in favor of Joaquin Limense. Under the foregoing provision, petitioners have the right to appropriate said portion of the house of respondents upon payment of indemnity to respondents, as provided for in Article 546 of the Civil Code. Otherwise, petitioners may oblige respondents to pay the price of the land occupied by their house. However, if the price asked for is considerably much more than the value of the portion of the house of respondents built thereon, then the latter cannot be obliged to buy the land. Respondents shall then pay the reasonable rent to petitioners upon such terms and conditions that they may agree. In case of disagreement, the trial court shall fix the terms thereof. Of course, respondents may demolish or remove the said portion of their house, at their own expense, if they so decide.36 _______________ 35 Spouses Del Campo v. Abesia, supra, at 382-383. 36 Id., at p. 383. 616 616SUPREME COURT REPORTS ANNOTATED Heirs of the Late Joaquin Limense vs. Vda. De Ramos The choice belongs to the owner of the land, a rule that accords with the principle of accession that the accessory follows the principal and not the other way around.37 Even as the option lies with the landowner, the grant to him,

never-the-less, is preclusive. He must choose one. He cannot, for instance, compel the owner of the building to instead remove it from the land.38 The obvious benefit to the builder under this article is that, instead of being outrightly ejected from the land, he can compel the landowner to make a choice between two options: (1) to appropriate the building by paying the indemnity required by law, or (2) to sell the land to the builder.39 The raison d’être for this provision has been enunciated, thus: “Where the builder, planter or sower has acted in good faith, a conflict of rights arises between the owners, and it becomes necessary to protect the owner of the improvements without causing injustice to the owner of the land. In view of the impracticability of creating a state of forced co-ownership, the law has provided a just solution by giving the owner of the land the option to acquire the improvements after payment of the proper indemnity, or to oblige the builder or planter to pay for the land and the sower the proper rent. He cannot refuse to exercise either option. It is the owner of the land who is authorized to exercise the option, because his right is older, and because, by the principle of accession, he is entitled to the ownership of the accessory thing.”40 _______________ 37 Ochoa v. Apeta, G.R. No. 146259, September 13, 2007, 533 SCRA 235, 241. 38 Philippine National Bank v. De Jesus, 458 Phil. 454, 459; 411 SCRA 557, 560-561 (2003). 39 Technogas Philippines Manufacturing Corp. v. Court of Appeals, 335 Phil. 471, 482; 268 SCRA 5, 16-17 (1997).

40 Rosales v. Castelltort, G.R No. 157044, October 5, 2005, 472 SCRA 144, 161. 617 VOL. 604, OCTOBER 28, 2009617 Heirs of the Late Joaquin Limense vs. Vda. De Ramos In accordance with Depra v. Dumlao,41 this case must be remanded to the trial court to determine matters necessary for the proper application of Article 448 in relation to Article 546. Such matters include the option that petitioners would take and the amount of indemnity that they would pay, should they decide to appropriate the improvements on the lots. Anent the second issue, although it may seem that the portions encroaching upon respondents’ house can be considered a nuisance, because it hinders petitioners’ use of their property, it cannot simply be removed at respondents’ expense, as prayed for by petitioner. This is because respondents built the subject encroachment in good faith, and the law affords them certain rights as discussed above. WHEREFORE, the petition is DENIED, the Decision of the Court of Appeals dated December 20, 2001 in CA-G.R. CV No. 33589 is AFFIRMED with the following MODIFICATIONS: 1. No co-ownership exists over Lot No. 12-C, covered by TCT No. 96886, between petitioners and respondents. 2. The case is REMANDED to the Regional Trial Court, Branch 15, Manila, for further proceedings without further delay to determine the facts essential to the proper application of Articles 448 and 546 of the Civil Code. SO ORDERED.

Quisumbing,** Carpio (Chairperson), Chico-Nazario and Abad ,*** JJ., concur. [Heirs of the Late Joaquin Limense vs. Vda. De Ramos, 604 SCRA 599(2009)]

G.R. No. 171072. April 7, 2009.* GOLDCREST REALTY CORPORATION, petitioner, vs. CYPRESS GARDENS CONDOMINIUM CORPORATION, respondent. Civil Law; Easements; Restrictions on the owner of the dominant estate on its rights on the servient estate.—The owner of the dominant estate cannot violate any of the following prescribed restrictions on its rights on the servient estate, to wit: (1) it can only exercise rights necessary for the use of the easement; (2) it cannot use the easement except for the benefit of the immovable originally contemplated; (3) it cannot exercise the easement in any other manner than that previously established; (4) it cannot construct anything on it which is not necessary for the use and preservation of the _______________ ** Per Special Order No. 607, dated 30 March 2009, signed by Chief Justice Reynato S. Puno, designating Associate Justice Leonardo A. Quisumbing to replace Associate Justice Ma. Alicia Austria-Martinez, who is on official leave. *** Associate Justice Conchita Carpio-Morales was designated to sit as additional member replacing Associate Justice Antonio Eduardo B. Nachura per Raffle dated 14 January 2008. * SECOND DIVISION. 436 436SUPREME COURT REPORTS ANNOTATED Goldcrest Realty Corporation vs. Cypress Gardens Condominium Corporation easement; (5) it cannot alter or make the easement more burdensome; (6) it must notify the servient estate owner of its

intention to make necessary works on the servient estate; and (7) it should choose the most convenient time and manner to build said works so as to cause the least convenience to the owner of the servient estate. Any violation of the above constitutes impairment of the easement. PETITION for review on certiorari of the decision and resolution of the Court of Appeals. The facts are stated in the opinion of the Court. Castillo, Layman, Tan, Pantaloon & San Jose for petitioner. Santiago, Cruz & Sartre Law Offices for respondent. QUISUMBING, J.: For review on certiorari are the Decision1 dated September 29, 2005 and the Resolution2 dated January 16, 2006 of the Court of Appeals in CA G.R. SP No. 79924. The antecedent facts in this case are as follows: Petitioner Goldcrest Realty Corporation (Goldcrest) is the developer of Cypress Gardens, a ten-storey building located at Herrera Street, Legaspi Village, Makati City. On April 26, 1977, Goldcrest executed a Master Deed and Declaration of Restrictions3 which constituted Cypress Gardens into a condominium project and incorporated respondent Cypress Gardens Condominium Corporation (Cypress) to manage the condominium project and to hold title to all the common areas. Title to the land on which the condominium stands was transferred to Cypress under Transfer Certificate of Title No. _______________ 1 Rollo, pp. 32-43. Penned by Associate Justice Rosmari D. Carandang, with Associate Justices Andres B. Reyes, Jr. and Monina Arevalo-Zenarosa, concurring. 2 Id., at pp. 45-46.

3 Id., at pp. 47-61. 437 VOL. 584, APRIL 7, 2009437 Goldcrest Realty Corporation Condominium Corporation

vs.

Cypress

Gardens

S-67513. But Goldcrest retained ownership of the two-level penthouse unit on the ninth and tenth floors of the condominium registered under Condominium Certificate of Title (CCT) No. S-1079 of the Register of Deeds of Makati City. Goldcrest and its directors, officers, and assigns likewise controlled the management and administration of the Condominium until 1995. Following the turnover of the administration and management of the Condominium to the board of directors of Cypress in 1995, it was discovered that certain common areas pertaining to Cypress were being occupied and encroached upon by Goldcrest. Thus, in 1998, Cypress filed a complaint with damages against Goldcrest before the Housing and Land Use Regulatory Board (HLURB), seeking to compel the latter to vacate the common areas it allegedly encroached on and to remove the structures it built thereon. Cypress sought to remove the door erected by Goldcrest along the stairway between the 8th and 9th floors, as well as the door built in front of the 9th floor elevator lobby, and the removal of the cyclone wire fence on the roof deck. Cypress likewise prayed that Goldcrest pay damages for its occupation of the said areas and for its refusal to remove the questioned structures. For its part, Goldcrest averred that it was granted the exclusive use of the roof deck’s limited common area by Section 4(c)4 of

the condominium’s Master Deed. It likewise argued that it constructed the contested doors for privacy and security purposes, and that, nonetheless, the common areas occu_______________ 4 Id., at pp. 49-50. Section 4. The Limited Common Areas.—Certain parts of the common areas are to be set aside and reserved for the exclusive use of certain units and each unit shall have appurtenant thereto as exclusive easement for the use of such limited areas: xxxx (c) Exclusive use of the portion of the roof deck (not shaded red in sheet 10 of Annex “B”) by the Penthouse unit on the roof deck. 438 438SUPREME COURT REPORTS ANNOTATED Goldcrest Realty Corporation vs. Cypress Gardens Condominium Corporation pied by it are unusable and inaccessible to other condominium unit owners. Upon the directive of HLURB Arbiter San Vicente, two ocular inspections5 were conducted on the condominium project. During the first inspection, it was found that Goldcrest enclosed and used the common area fronting the two elevators on the ninth floor as a storage room. It was likewise discovered that Goldcrest constructed a permanent structure which encroached 68.01 square meters of the roof deck’s common area.6

During the second inspection, it was noted that Goldcrest failed to secure an alteration approval for the said permanent structure. In his Decision7 dated December 2, 1999, Arbiter San Vicente ruled in favor of Cypress. He required Goldcrest, among other things, to: (1) remove the questioned structures, including all other structures which inhibit the free ingress to and egress from the condominium’s limited and unlimited common areas; (2) vacate the roof deck’s common areas and to pay actual damages for occupying the same; and (3) pay an administrative fine for constructing a second penthouse and for making an unauthorized alteration of the condominium plan. On review, the HLURB Special Division modified the decision of Arbiter San Vicente. It deleted the award for actual damages after finding that the encroached areas were not actually measured and that there was no evidentiary basis for the rate of compensation fixed by Arbiter San Vicente. It likewise held that Cypress has no cause of action regarding the use of the roof deck’s limited common area because only _______________ 5 Records, Vol. I, pp. 152 and 173-174. 6 No distinction, however, was made between the roof deck’s limited and unlimited common areas. 7 CA Rollo, pp. 86-99. 439 VOL. 584, APRIL 7, 2009439 Goldcrest Realty Corporation vs. Cypress Gardens Condominium Corporation

Goldcrest has the right to use the same. The dispositive portion of the decision reads: “WHEREFORE, in view of the foregoing, the decision of the office [is] modified as follows: 1. Directing respondent to immediately remove any or all structures which obstruct the use of the stairway from the eighth to tenth floor, the passage and use of the lobbies at the ninth and tenth floors of the Cypress Gardens Condominium; and to remove any or all structures that impede the use of the unlimited common areas. 2. Ordering the respondent to pay an administrative fine of P10,000.00 for its addition of a second penthouse and/or unauthorized alteration of the condominium plan. All other claims are hereby dismissed. SO ORDERED.”8 Aggrieved, Cypress appealed to the Office of the President. It questioned the deletion of the award for actual damages and argued that the HLURB Special Division in effect ruled that Goldcrest could erect structures on the roof deck’s limited common area and lease the same to third persons. The Office of the President dismissed the appeal. It ruled that the deletion of the award for actual damages was proper because the exact area encroached by Goldcrest was not determined. It likewise held that, contrary to the submissions of Cypress, the assailed decision did not favor the building of structures on either the condominium’s limited or unlimited common areas. The Office of the President stressed that the decision did not only order Goldcrest to remove the structures impeding the use of the unlimited common areas, but also fined it for making unauthorized alteration and construction of

structures on the condominium’s roof deck.9 The dispositive portion of the decision reads: _______________ 8 Id., at p. 107. 9 Id., at pp. 108-119. 440 440SUPREME COURT REPORTS ANNOTATED Goldcrest Realty Corporation vs. Cypress Gardens Condominium Corporation “WHEREFORE, premises considered, the appeal of Cypress Gardens Corporation is hereby dismissed and the decision of the Board a quo dated May 11, 2000 is hereby AFFIRMED. SO ORDERED.”10 Cypress thereafter elevated the matter to the Court of Appeals, which partly granted its appeal. The appellate court noted that the right of Goldcrest under Section 4(c) of the Master Deed for the exclusive use of the easement covering the portion of the roof deck appurtenant to the penthouse did not include the unrestricted right to build structures thereon or to lease such area to third persons. Thus the appellate court ordered the removal of the permanent structures constructed on the limited common area of the roof deck. The dispositive portion of the decision reads: “WHEREFORE, the petition is PARTIALLY GRANTED. The Decision of the Office of the President dated June 2, 2003 is hereby AFFIRMED with modification. Respondent Goldcrest Realty Corporation is further directed to remove the permanent structures constructed on the limited common area of the roof deck.

SO ORDERED.”11 The parties separately moved for partial reconsideration but both motions were denied. Hence this petition, raising the following issues: I. [WHETHER OR NOT] THE APPELLATE COURT ERRED IN RULING THAT GOLDCREST BUILT AN OFFICE STRUCTURE ON A SUPPOSED ENCROACHED AREA IN THE OPEN SPACE OF THE ROOF DECK. _______________ 10 Id., at p. 119. 11 Id., at p. 341. 441 VOL. 584, APRIL 7, 2009441 Goldcrest Realty Corporation vs. Cypress Gardens Condominium Corporation II. [WHETHER OR NOT] THE APPELLATE COURT ERRED IN RULING THAT PETITIONER IMPAIRED THE EASEMENT ON THE PORTION OF THE ROOF DECK DESIGNATED AS A LIMITED COMMON AREA.12 Anent the first issue, Goldcrest contends that since the areas it allegedly encroached upon were not actually measured during the previous ocular inspections, the finding of the Court of Appeals that it built an office structure on the roof deck’s limited common area is erroneous and that its directive “to remove the permanent structures13 constructed on the limited common area of the roof deck” is impossible to implement.

On the other hand, Cypress counters that the Court of Appeals’ finding is correct. It also argues that the absence of such measurement does not make the assailed directive impossible to implement because the roof deck’s limited common area is specifically identified by Section 4(c) of the Master Deed, which reads: “Section 4. The Limited Common Areas.—Certain parts of the common areas are to be set aside and reserved for the exclusive use of certain units and each unit shall have appurtenant thereto as exclusive easement for the use of such limited areas: xxxx (c) Exclusive use of the portion of the roof deck (not shaded red in sheet 10 of Annex “B”) by the Penthouse unit on the roof deck.14 x x x x” We rule in favor of Cypress. At this stage of the proceedings, the failure to measure the supposed encroached areas is no longer relevant because the award for actual damages is no longer in issue. Moreover, a perusal of the records shows that _______________ 12 Rollo, p. 21. 13 Referring to the office structure. 14 CA Rollo, pp. 37-38. 442 442SUPREME COURT REPORTS ANNOTATED Goldcrest Realty Corporation vs. Cypress Gardens Condominium Corporation

the finding of the Court of Appeals that Goldcrest built an office structure on the roof deck’s limited common area is supported by substantial evidence and established facts, to wit: (1) the ocular inspection reports submitted by HLURB Inspector Edwin D. Aquino; (2) the fact that the second ocular inspection of the roof deck was intended to measure the actual area encroached upon by Goldcrest;15 (3) the fact that Goldcrest had been fined for building a structure on the limited common area;16 and (4) the fact that Goldcrest neither denied the structure’s existence nor its encroachment on the roof deck’s limited common area. Likewise, there is no merit in Goldcrest’s submission that the failure to conduct an actual measurement on the roof deck’s encroached areas makes the assailed directive of the Court of Appeals impossible to implement. As aptly pointed out by Cypress, the limited common area of the roof deck is specifically identified by Section 4(c) of the Master Deed. Anent the second issue, Goldcrest essentially contends that since the roof deck’s common limited area is for its exclusive use, building structures thereon and leasing the same to third persons do not impair the subject easement. For its part, Cypress insists the said acts impair the subject easement because the same are already beyond the contemplation of the easement granted to Goldcrest. The question of whether a certain act impairs an easement is undeniably one of fact, considering that its resolution requires us to determine the act’s propriety in relation to the character and purpose of the subject easement.17 In this case, we find no cogent reason to overturn the similar finding of the _______________

15 Id., at pp. 173-174. 16 Rollo, p. 316. 17 See Breliant v. Preferred Equities Corp., No. 23737, 109 Nev. 842, 858 P.2d 1258 (1993) and Bijou Irr. Dist. v. Empire Club, 804 P.2d 175 21 Envtl. L. Rep. 21,461 (Colo. 1991), both cited in 25 Am. Jur. 2d Easements and Licenses § 71. 443 VOL. 584, APRIL 7, 2009443 Goldcrest Realty Corporation vs. Cypress Gardens Condominium Corporation HLURB, the Office of the President and the Court of Appeals that Goldcrest has no right to erect an office structure on the limited common area despite its exclusive right to use the same. We note that not only did Goldcrest’s act impair the easement, it also illegally altered the condominium plan, in violation of Section 2218 of Presidential Decree No. 957.19 The owner of the dominant estate cannot violate any of the following prescribed restrictions on its rights on the servient estate, to wit: (1) it can only exercise rights necessary for the use of the easement;20 (2) it cannot use the easement except for the benefit of the immovable originally contemplated;21 (3) it cannot exercise the easement in any other manner than that previously established;22 (4) it cannot construct anything on it which is not necessary for the use and preservation of the easement;23 (5) it cannot alter or make the easement more _______________ 18 SEC. 22. Alteration of Plans.—No owner or developer shall change or alter the roads, open spaces, infrastructures, facilities for public use and/or other form of subdivision

development as contained in the approved subdivision plan and/or represented in its advertisements, without the permission of the Authority and the written conformity or consent of the duly organized homeowners association, or in the absence of the latter, by the majority of the lot buyers in the subdivision. 19 The Subdivision and Condominium Buyers’ Protective Decree, done on July 12, 1976. 20 Civil Code, Art. 625. Upon the establishment of an easement, all the rights necessary for its use are considered granted. 21 Id., Art. 626. The owner of the dominant estate cannot use the easement except for the benefit of the immovable originally contemplated. Neither can he exercise the easement in any other manner than that previously established. 22 Id. 23 Id., Art. 627. The owner of the dominant estate may make, at his own expense, on the servient estate any works necessary for the use 444 444SUPREME COURT REPORTS ANNOTATED Goldcrest Realty Corporation vs. Cypress Gardens Condominium Corporation burdensome;24 (6) it must notify the servient estate owner of its intention to make necessary works on the servient estate;25 and (7) it should choose the most convenient time and manner to build said works so as to cause the least convenience to the

owner of the servient estate.26 Any violation of the above constitutes impairment of the easement. Here, a careful scrutiny of Goldcrest’s acts shows that it breached a number of the aforementioned restrictions. First, it is obvious that the construction and the lease of the office structure were neither necessary for the use or preservation of the roof deck’s limited area. Second, the weight of the office structure increased the strain on the condominium’s foundation and on the roof deck’s common limited area, making the easement more burdensome and adding unnecessary safety risk to all the condominium unit owners. Lastly, the construction of the said office structure clearly went beyond the intendment of the easement since it illegally altered the approved condominium project plan and violated Section 427 of the condominium’s Declaration of Restrictions.28 _______________ and preservation of the servitude, but without altering it or rendering it more burdensome. For this purpose he shall notify the owner of the servient estate, and shall choose the most convenient time and manner so as to cause the least inconvenience to the owner of the servient estate. 24 Id. 25 Id. 26 Id. 27 Section 4. Maintenance, Repairs and Alterations.—… xxxx Notwithstanding the foregoing provisions, the owner, tenant or occupant of a unit may not undertake any structural repairs or alterations, or any other work which would jeopardize the

safety of the Building, or another unit, or impair any easement, without the prior written approval of the Condominium Corporation and of the owners of the units directly affected by such work. xxxx 28 Rollo, pp. 51-58. [Goldcrest Realty Corporation vs. Cypress Gardens Condominium Corporation, 584 SCRA 440(2009)]

G.R. No. 173252. July 17, 2009.* UNISOURCE COMMERCIAL AND DEVELOPMENT CORPORATION, petitioner, vs. JOSEPH CHUNG, KIAT CHUNG and KLETO CHUNG, respondents. Easements; Words and Phrases; An easement is a real right on another’s property, corporeal and immovable, whereby the owner of the latter must refrain from doing or allowing somebody else to do or something to be done on his property, for the benefit of another person or tenement.—As defined, an easement is a real right on another’s property, corporeal and immovable, whereby the owner of the latter must refrain from doing or allowing somebody else to do or something to be done on his property, for the benefit of another person or tenement. Easements are established either by law or by the will of the owner. The former are called legal, and the latter, voluntary easements. Same; The opening of an adequate outlet to a highway can extinguish only legal or compulsory easements, not voluntary easements; The fact that an easement by grant may have also qualified as an easement of necessity does not detract from its permanency as a property right, which survives the termination of the necessity.—Having made such an admission, petitioner cannot now claim that what exists is a legal easement and that the same should be can_______________ * SECOND DIVISION. 231 VOL. 593, JULY 17, 2009231 Unisource Commercial and Development Corporation vs. Chung

celled since the dominant estate is not an enclosed estate as it has an adequate access to a public road which is Callejon Matienza Street. As we have said, the opening of an adequate outlet to a highway can extinguish only legal or compulsory easements, not voluntary easements like in the case at bar. The fact that an easement by grant may have also qualified as an easement of necessity does not detract from its permanency as a property right, which survives the termination of the necessity. A voluntary easement of right of way, like any other contract, could be extinguished only by mutual agreement or by renunciation of the owner of the dominant estate. Same; A voluntary easement of right of way is like any other contract—it is generally effective between the parties, their heirs and assigns, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law.—Neither can petitioner claim that the easement is personal only to Hidalgo since the annotation merely mentioned Sandico and Hidalgo without equally binding their heirs or assigns. That the heirs or assigns of the parties were not mentioned in the annotation does not mean that it is not binding on them. Again, a voluntary easement of right of way is like any other contract. As such, it is generally effective between the parties, their heirs and assigns, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. Petitioner cites City of Manila v. Entote (57 SCRA 497 [1974]) in justifying that the easement should bind only the parties mentioned therein and exclude those not so mentioned. However, that case is

inapplicable since the issue therein was whether the easement was intended not only for the benefit of the owners of the dominant estate but of the community and the public at large. In interpreting the easement, the Court ruled that the clause “any and all other persons whomsoever” in the easement embraces only “those who are privy to the owners of the dominant estate, Lots 1 and 2 Plan Pcs-2672” and excludes “the indiscriminate public from the enjoyment of the right-ofway easement.” Same; Land Titles; It is settled that the registration of the dominant estate under the Torrens system without the annotation of the voluntary easement in its favor does not extinguish the easement—it is the registration of the servient estate as free, that is, without the annotation of the voluntary easement, which extinguishes the 232 232SUPREME COURT REPORTS ANNOTATED Unisource Commercial and Development Corporation vs. Chung easement.—We also hold that although the easement does not appear in respondents’ title over the dominant estate, the same subsists. It is settled that the registration of the dominant estate under the Torrens system without the annotation of the voluntary easement in its favor does not extinguish the easement. On the contrary, it is the registration of the servient estate as free, that is, without the annotation of the voluntary easement, which extinguishes the easement. Same; If the dominant estate is divided between two or more persons, each of them may use the easement in its entirety,

without changing the place of its use, or making it more burdensome in any other way.—The mere fact that respondents subdivided the property does not extinguish the easement. Article 618 of the Civil Code provides that if the dominant estate is divided between two or more persons, each of them may use the easement in its entirety, without changing the place of its use, or making it more burdensome in any other way. PETITION for review on certiorari of the decision and resolution of the Court of Appeals. The facts are stated in the opinion of the Court. Puno and Associates Law Office for petitioner. Oliver O. Lozano for respondents. QUISUMBING, J.: The instant petition assails the Decision1 dated October 27, 2005 and the Resolution2 dated June 19, 2006 of the Court of Appeals in CA-G.R. CV No. 76213. The appellate court had _______________ 1 Rollo, pp. 26-34. Penned by Associate Justice Josefina Guevara-Salonga, with Associate Justices Delilah VidallonMagtolis and Fernanda Lampas-Peralta, concurring. 2 Id., at pp. 35-36. Penned by Associate Justice Josefina Guevara-Salonga, with Associate Justices Godardo A. Jacinto and Fernanda Lampas-Peralta, concurring. 233 VOL. 593, JULY 17, 2009233 Unisource Commercial and Development Corporation vs. Chung

reversed and set aside the Decision3 dated August 19, 2002 of the Regional Trial Court of Manila, Branch 49, in Civil Case No. 00-97526. The antecedent facts are as follows: Petitioner Unisource Commercial and Development Corporation is the registered owner of a parcel of land covered by Transfer Certificate of Title (TCT) No. 1762534 of the Register of Deeds of Manila. The title contains a memorandum of encumbrance of a voluntary easement which has been carried over from the Original Certificate of Title of Encarnacion S. Sandico. The certified English translation5 of the annotation reads: “By order dated 08 October 1924 of the Court of First Instance of Manila, Chamber IV (AP-7571/T-23046), it is declared that Francisco Hidalgo y Magnifico has the right to open doors in the course of his lot described as Lot No. 2, Block 2650 of the map that has been exhibited, towards the left of the Callejon that is used as a passage and that appears as adjacent to the said Lot 2 and to pass through the land of Encarnacion Sandico y Santana, until the bank of the estero that goes to the Pasig River, and towards the right of the other Callejon that is situated between the said Lot 2 and Lot 4 of the same Block N.”6 As Sandico’s property was transferred to several owners, the memorandum of encumbrance of a voluntary easement in favor of Francisco M. Hidalgo was consistently annotated at the back of every title covering Sandico’s property until TCT No. 176253 was issued in petitioner’s favor. On the other hand, Hidalgo’s property was eventually transferred to re_______________

3 Records, pp. 233-238. Penned by Judge Concepcion S. Alarcon-Vergara. 4 Id., at p. 10. 5 Id., at pp. 11-12. 6 Id., at p. 12. 234 234SUPREME COURT REPORTS ANNOTATED Unisource Commercial and Development Corporation vs. Chung spondents Joseph Chung, Kiat Chung and Cleto Chung under TCT No. 121488.7 On May 26, 2000, petitioner filed a Petition to Cancel the Encumbrance of Voluntary Easement of Right of Way8 on the ground that the dominant estate has an adequate access to a public road which is Matienza Street. The trial court dismissed the petition on the ground that it is a land registration case. Petitioner moved for reconsideration. Thereafter, the trial court conducted an ocular inspection of the property. In an Order9 dated November 24, 2000, the trial court granted the motion and made the following observations: “1. The dominant estate is a property enclosed with a concrete fence with no less than three (3) doors in it, opening to an alley belonging to the servient estate owned by the petitioner. The alley is leading to Matienza St.; 2. The dominant estate has a house built thereon and said house has a very wide door accessible to Matienza St. without any obstruction. Said street is perpendicular to J.P. Laurel St. It is therefore found that the dominant estate has an egress to Matienza St. and does not have to use the servient estate.”10

In their Answer,11 respondents countered that the extinguishment of the easement will be of great prejudice to the locality and that petitioner is guilty of laches since it took petitioner 15 years from acquisition of the property to file the petition. In a Decision dated August 19, 2002, the trial court ordered the cancellation of the encumbrance of voluntary easement of right of way in favor of the dominant estate owned by respondents. It found that the dominant estate has no more use for _______________ 7 Id., at p. 50. 8 Id., at pp. 1-8. 9 Id., at p. 34. 10 Id. 11 Id., at pp. 42-47. 235 VOL. 593, JULY 17, 2009235 Unisource Commercial and Development Corporation vs. Chung the easement since it has another adequate outlet to a public road which is Matienza Street. The dispositive portion of the decision reads: “IN VIEW OF ALL THE FOREGOING, the Court hereby orders the cancellation of the Memorandum of Encumbrance annotated in TCT No. 176253 which granted a right of way in favor of the person named therein and, upon the finality of this decision, the Register of Deeds of the City of Manila is hereby directed to cancel said encumbrance.

With respect to the other prayers in the petition, considering that the same are mere incidents to the exercise by the owners of right of their ownership which they could well do without the Court’s intervention, this Court sees no need to specifically rule thereon. The Court cannot award plaintiff’s claims for damages and attorney’s fees for lack of sufficient bases therefor. SO ORDERED.”12 Respondents appealed to the Court of Appeals. On October 27, 2005, the appellate court reversed the decision of the trial court and dismissed the petition to cancel the encumbrance of voluntary easement of right of way. The appellate court ruled that when petitioner’s petition was initially dismissed by the executive judge, the copy of the petition and the summons had not yet been served on respondents. Thus, when petitioner moved to reconsider the order of dismissal, there was no need for a notice of hearing and proof of service upon respondents since the trial court has not yet acquired jurisdiction over them. The trial court acquired jurisdiction over the case and over respondents only after the summons was served upon them and they were later given ample opportunity to present their evidence. The appellate court also held that the trial court erred in canceling the encumbrance of voluntary easement of right of way. The appellate court ruled that Article 631(3)13 of the _______________ 12 Id., at pp. 237-238. 13 ART. 631. Easements are extinguished: 236 236SUPREME COURT REPORTS ANNOTATED

Unisource Commercial and Development Corporation vs. Chung Civil Code, which was cited by the trial court, is inapplicable since the presence of an adequate outlet to a highway extinguishes only legal or compulsory easements but not voluntary easements like in the instant case. There having been an agreement between the original parties for the provision of an easement of right of way in favor of the dominant estate, the same can be extinguished only by mutual agreement or by renunciation of the owner of the dominant estate. The decretal portion of the decision reads: “WHEREFORE, the foregoing considered, the appeal is hereby GRANTED and the assailed decision is REVERSED and SET ASIDE. Accordingly, the petition to cancel the encumbrance of right of way is dismissed for lack of merit. No costs. SO ORDERED.”14 Before us, petitioner alleges that the Court of Appeals erred in: I. … BRUSHING ASIDE PETITIONER’S CONTENTION THAT THE EASEMENT IS PERSONAL SINCE THE ANNOTATION DID NOT PROVIDE THAT IT IS BINDING ON THE HEIRS OR ASSIGNS OF SANDICO. II. … NOT CONSIDERING THAT THE EASEMENT IS PERSONAL SINCE NO COMPENSATION WAS GIVEN TO PETITIONER. _______________ xxxx

(3) When either or both of the estates fall into such condition that the easement cannot be used; but it shall revive if the subsequent condition of the estates or either of them should again permit its use, unless when the use becomes possible, sufficient time for prescription has elapsed, in accordance with the provisions of the preceding number; 14 Rollo, p. 33. 237 VOL. 593, JULY 17, 2009237 Unisource Commercial and Development Corporation vs. Chung III. … DISREGARDING THE CIVIL CODE PROVISION ON UNJUST ENRICHMENT. IV. … TREATING THE EASEMENT AS PREDIAL.15 Petitioner contends that the fact that Sandico and Hidalgo resorted to judicial intervention only shows that they contested the existence of the requisite factors establishing a legal easement. Besides, the annotation itself provides that the easement is exclusively confined to the parties mentioned therein, i.e., Sandico and Hidalgo. It was not meant to bind their heirs or assigns; otherwise, they would have expressly provided for it. Petitioner adds that it would be an unjust enrichment on respondents’ part to continue enjoying the easement without adequate compensation to petitioner. Petitioner also avers that to say that the easement has attached to Hidalgo’s property is erroneous since such property no longer exists after it has been subdivided and registered in

respondents’ respective names.16 Petitioner further argues that even if it is bound by the easement, the same can be cancelled or revoked since the dominant estate has an adequate outlet without having to pass through the servient estate. Respondents adopted the disquisition of the appellate court as their counter-arguments. The petition lacks merit. As defined, an easement is a real right on another’s property, corporeal and immovable, whereby the owner of the latter must refrain from doing or allowing somebody else to do or something to be done on his property, for the benefit of _______________ 15 Id., at pp. 17-18. 16 Id., at pp. 37-39. On May 3, 2005, the property was divided and TCT Nos. 267948, 267949 and 267950 were issued to respondents. 238 238SUPREME COURT REPORTS ANNOTATED Unisource Commercial and Development Corporation vs. Chung another person or tenement. Easements are established either by law or by the will of the owner. The former are called legal, and the latter, voluntary easements.17 In this case, petitioner itself admitted that a voluntary easement of right of way exists in favor of respondents. In its petition to cancel the encumbrance of voluntary easement of right of way, petitioner alleged that “[t]he easement is personal. It was voluntarily constituted in favor of a certain Francisco Hidalgo y Magnifico, the owner of [the lot] described as Lot No. 2,

Block 2650.”18 It further stated that “the voluntary easement of the right of way in favor of Francisco Hidalgo y Magnifico was constituted simply by will or agreement of the parties. It was not a statutory easement and definitely not an easement created by such court order because ‘[the] Court merely declares the existence of an easement created by the parties.”19 In its Memorandum20 dated September 27, 2001, before the trial court, petitioner reiterated that “[t]he annotation found at the back of the TCT of Unisource is a voluntary easement.”21 Having made such an admission, petitioner cannot now claim that what exists is a legal easement and that the same should be cancelled since the dominant estate is not an enclosed estate as it has an adequate access to a public road which is Callejon Matienza Street.22 As we have said, the opening of an adequate outlet to a highway can extinguish only legal or compulsory easements, not voluntary easements like in the case at bar. The fact that an easement by grant may have also qualified as an easement of necessity does not _______________ 17 Private Development Corporation of the Philippines v. Court of Appeals, G.R. No. 136897, November 22, 2005, 475 SCRA 591, 602. 18 Records, p. 2. 19 Id., at pp. 3-4. 20 Id., at pp. 132-142. 21 Id., at p. 135. 22 Id., at p. 4. 239 VOL. 593, JULY 17, 2009239

Unisource Commercial and Development Corporation vs. Chung detract from its permanency as a property right, which survives the termination of the necessity.23 A voluntary easement of right of way, like any other contract, could be extinguished only by mutual agreement or by renunciation of the owner of the dominant estate.24 Neither can petitioner claim that the easement is personal only to Hidalgo since the annotation merely mentioned Sandico and Hidalgo without equally binding their heirs or assigns. That the heirs or assigns of the parties were not mentioned in the annotation does not mean that it is not binding on them. Again, a voluntary easement of right of way is like any other contract. As such, it is generally effective between the parties, their heirs and assigns, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law.25 Petitioner cites City of Manila v. Entote26 in justifying that the easement should bind only the parties mentioned therein and exclude those not so mentioned. However, that case is inapplicable since the issue therein was whether the easement was intended not only for the benefit of the owners of the dominant estate but of the community and the public at large.27 In interpreting the easement, the Court ruled that the clause “any and all other persons whomsoever” in the easement embraces only “those who are privy to the owners of the dominant estate, Lots 1 and 2 Plan Pcs-2672” and excludes “the indiscriminate public from the enjoyment of the right-of-way easement.”28

We also hold that although the easement does not appear in respondents’ title over the dominant estate, the same sub_______________ 23 La Vista Association, Inc. v. Court of Appeals, G.R. No. 95252, September 5, 1997, 278 SCRA 498, 514. 24 Id., at p. 513. 25 Civil Code, Art. 1311. 26 No. L-24776, June 28, 1974, 57 SCRA 497. 27 Id., at p. 504. 28 Id., at p. 507. 240 240SUPREME COURT REPORTS ANNOTATED Unisource Commercial and Development Corporation vs. Chung sists. It is settled that the registration of the dominant estate under the Torrens system without the annotation of the voluntary easement in its favor does not extinguish the easement. On the contrary, it is the registration of the servient estate as free, that is, without the annotation of the voluntary easement, which extinguishes the easement.29 Finally, the mere fact that respondents subdivided the property does not extinguish the easement. Article 61830of the Civil Code provides that if the dominant estate is divided between two or more persons, each of them may use the easement in its entirety, without changing the place of its use, or making it more burdensome in any other way. WHEREFORE, the instant petition is DENIED. The Decision dated October 27, 2005 and the Resolution dated June 19, 2006

of the Court of Appeals in CA-G.R. CV No. 76213 are AFFIRMED. SO ORDERED. Carpio-Morales, Chico-Nazario,** Leonardo-De Castro*** and Brion, JJ., concur. Petition denied, judgment and resolution affirmed. [Unisource Commercial and Development Corporation vs. Chung, 593 SCRA 230(2009)]

G.R. No. 147957. July 22, 2009.* PRIVATIZATION AND MANAGEMENT OFFICE, petitioner, vs. LEGASPI TOWERS 300, INC., respondent. Easements; Words and Phrases; An easement or servitude is “a real right constituted on another’s property, corporeal and immovable, by virtue of which the owner of the same has to abstain from doing or to allow somebody else to do something on his property for the benefit of another thing or person.”— An easement or servitude is “a real right constituted on another’s property, corporeal and immovable, by virtue of which the owner of the same has to abstain from doing or to allow somebody else to do something on his property for the benefit of another thing or person.” The statutory basis of this right is Article 613 of the Civil Code, which provides: Art. 613. An easement or servitude is an encumbrance imposed upon an immov_______________ * THIRD DIVISION. 383 VOL. 593, JULY 22, 2009383 Privatization and Management Office vs. Legaspi Towers 300, Inc. able for the benefit of another immovable belonging to a different owner. The immovable in favor of which the easement is established is called the dominant estate; that which is subject thereto, the servient estate. Same; There was no true easement constituted where both properties were owned by the same person at the time of the alleged creation of the easement.—There are two sources of

easements: by law or by the will of the owners. Article 619 of the Civil Code states: Art. 619. Easements are established either by law or by the will of the owners. The former are called legal and the latter voluntary easements. In the present case, neither type of easement was constituted over the subject property. In its allegations, respondent claims that Caruff constituted a voluntary easement when it constructed the generating set and sump pumps over the disputed portion of the subject property for its benefit. However, it should be noted that when the appurtenances were constructed on the subject property, the lands where the condominium was being erected and the subject property where the generating set and sump pumps were constructed belonged to Caruff. Therefore, Article 613 of the Civil Code does not apply, since no true easement was constituted or existed, because both properties were owned by Caruff. Same; When the owner of two properties alienates one of them and an apparent sign of easement exists between the two estates, entitlement to it continues, unless there is a contrary agreement, or the indication that the easement exists is removed before the execution of the deed.—Article 624 of the Civil Code is controlling, as it contemplates a situation where there exists an apparent sign of easement between two estates established or maintained by the owner of both. The law provides: Art. 624. The existence of an apparent sign of easement between two estates, established or maintained by the owner of both, shall be considered, should either of them be alienated, as a title in order that the easement may continue actively and passively, unless, at the time the ownership of the two estates is divided, the contrary should be provided in the

title of conveyance of either of them, or the sign aforesaid should be removed before the execution of the deed. This provision shall also apply in case of the division of a thing owned in common by two or more persons. From the foregoing, it can be inferred that when the owner of two properties alienates one of them and an apparent sign of easement exists 384 384SUPREME COURT REPORTS ANNOTATED Privatization and Management Office vs. Legaspi Towers 300, Inc. between the two estates, entitlement to it continues, unless there is a contrary agreement, or the indication that the easement exists is removed before the execution of the deed. Thus, when the subject property was assigned to the National Government thru the APT, no easement arose or was voluntarily created from the transfer of ownership, considering that the parties, more particularly, Caruff, pledged that it was assigning, transferring, and conveying the subject property in favor of the National Government thru the APT “free from any and all liens and encumbrances.” Same; Contracts; Compromise Agreements; As a contract, when the terms of the compromise agreement are clear and explicit, they do not justify an attempt to read into it any alleged intention of the parties—the terms are to be understood literally, just as they appear on the face of the contract.— Compromise agreements are contracts, whereby the parties undertake reciprocal obligations to resolve their differences, thus, avoiding litigation, or put an end to one already

commenced. As a contract, when the terms of the agreement are clear and explicit that they do not justify an attempt to read into it any alleged intention of the parties; the terms are to be understood literally, just as they appear on the face of the contract. Considering that Caruff never intended to transfer the subject property to PMO, burdened by the generating set and sump pumps, respondent should remove them from the subject property. Solutio Indebiti; Unjust Enrichment; The principle of unjust enrichment under Article 22 of the Civil Code requires two conditions: (1) that a person is benefited without a valid basis or justification, and (2) that such benefit is derived at another’s expense or damage.—We have held that “[t]here is unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience.” Article 22 of the Civil Code provides that “[e]very person who, through an act or performance by another, or any other means, acquires or comes into possession of something at the expense of the latter, without just or legal ground, shall return the same to him.” The principle of unjust enrichment under Article 22 of the Civil Code requires two conditions: (1) that a person is benefited without a valid basis or justification, and (2) that such benefit is derived at another’s expense or damage. 385 VOL. 593, JULY 22, 2009385 Privatization and Management Office vs. Legaspi Towers 300, Inc.

PETITION for review on certiorari of the decision and resolution of the Court of Appeals. The facts are stated in the opinion of the Court. Reginald I. Bacolor for petitioner. Gimenez Law Offices for respondent. PERALTA, J.: This is a petition for review on certiorari seeking to annul and set aside the Decision1 dated February 16, 2001, of the Court of Appeals (CA) in CA-G.R. CV No. 48984, affirming the Decision of the Regional Trial Court (RTC). The factual and procedural antecedents are as follows: Caruff Development Corporation owned several parcels of land along the stretch of Roxas Boulevard, Manila. Among them were contiguous lots covered by Transfer Certificate of Title (TCT) Nos. 120311, 120312, 120313, and 127649 (now TCT No. 200760). Sometime in December 1975, Caruff obtained a loan from the Philippine National Bank (PNB) to finance the construction of a 21-storey condominium along Roxas Boulevard.2 The loan accommodation was secured by a real estate mortgage over three (3) parcels of land covered by TCT Nos. 120311, 120312, and 120313,3 where Caruff planned to erect the condominium. In 1979, Caruff started constructing a multi-storey building on the mortgaged parcels of land. Along with the other appurtenances of the building constructed by Caruff, it built a powerhouse (generating set) and two sump pumps in the _______________ 1 Penned by Associate Justice Oswaldo D. Agcaoili, with Associate Justices Cancio C. Garcia (now a retired member of

this Court) and Elvi John S. Asuncion, concurring; Rollo, pp. 41-48. 2 Id., at p. 18. 3 Records, pp. 133-134. 386 386SUPREME COURT REPORTS ANNOTATED Privatization and Management Office vs. Legaspi Towers 300, Inc. adjacent lot covered by TCT No. 127649 (now TCT No. 200760). After the completion of the condominium project, it was constituted pursuant to the Condominium Act (Republic Act No. 4726), as the Legaspi Towers 300, Inc. However, for Caruff’s failure to pay its loan with PNB, the latter foreclosed the mortgage and acquired some of the properties of Caruff at the sheriff’s auction sale held on January 30, 1985.4 Thereafter, Proclamation No. 505 was issued. It was aimed to promote privatization “for the prompt disposition of the large number of non-performing assets of the government financial institutions, and certain government-owned and controlled corporations, which have been found unnecessary or inappropriate for the government sector to maintain.” It also provided for the creation of the Asset Privatization Trust (APT). By virtue of Administrative Order No. 14 and the Deed of Transfer executed by PNB, the National Government, thru the APT, became the assignee and transferee of all its rights and titles to and interests in its receivables with Caruff, including

the properties it acquired from the foreclosure of Caruff’s mortgage. Meanwhile, Caruff filed a case against PNB before the RTC of Manila, Branch 2, whereby Caruff sought the nullification of PNB’s foreclosure of its properties.6 The case was docketed as Civil Case No. 85-29512. _______________ 4 Id., at p. 134. 5 Proclaiming and Launching a Program for the Expeditious Disposition and Privatization of Certain Government Corporations and/or the Assets Thereof, and Creating the Committee on Privatization and the Asset Privatization Trust; 82 O.G. No. 51, pp. 5954-5966. 6 Rollo, p. 20. 387 VOL. 593, JULY 22, 2009387 Privatization and Management Office vs. Legaspi Towers 300, Inc. A Compromise Agreement7 dated August 31, 1988 was later entered into by Caruff, PNB, and the National Government thru APT. The parties agreed, among other things, that Caruff would transfer and convey in favor of the National Government, thru the APT, the lot covered by TCT No. 127649 (now TCT No. 200760), where it built the generating set and sump pumps. On September 9, 1988, the RTC rendered a Decision approving the Compromise Agreement executed and submitted by the parties. The dispositive portion of said Decision reads:

“x x x and finding the foregoing compromise agreement to be well-taken, the Court hereby approves the same and renders judgment in accordance with the terms and conditions set forth [sic] therein and enjoins the parties to comply strictly therewith. SO ORDERED.”8 Thus, by virtue of the Decision, the subject property was among those properties that were conveyed by Caruff to PNB and the National Government thru APT. On July 5, 1989, respondent filed a case for Declaration of the existence of an easement before the RTC of Manila, docketed as Spec. Proc. No. 89-49563. Respondent alleged that the act of Caruff of constructing the powerhouse and sump pumps on its property constituted a voluntary easement in favor of the respondent. It prayed, among other things, that judgment be rendered declaring the existence of an easement over the portion of the property covered by TCT No. 127649 (now TCT No. 200760) that was being occupied by the powerhouse and the sump pumps in its favor, and that the Register of Deeds of Manila annotate the easement at the back of said certificate of title.9 _______________ 7 Records, pp. 46-51. 8 Id., at pp. 135-136. 9 Rollo, p. 42. 388 388SUPREME COURT REPORTS ANNOTATED Privatization and Management Office vs. Legaspi Towers 300, Inc.

In its Answer with Counterclaim and Cross-claim,10 APT alleged that respondent had no cause of action against it, because it was but a mere transferee of the land. It acquired absolute ownership thereof by virtue of the Compromise Agreement in Civil Case No. 85-2952, free from any liens and/or encumbrances. It was not a privy to any transaction or agreement entered into by and between Caruff, respondent, and the bank. It further alleged that the continued use of the subject property by respondent and the condominium owners without its consent was an encroachment upon its rights as absolute owner and for which it should be properly compensated. On January 12, 1995, after trial on the merits, the RTC rendered a Decision11 declaring the existence of an easement over the portion of the land covered by TCT No. 127649 (TCT No. 200760), the decretal portion of which reads: “WHEREFORE, judgment is hereby rendered in favor of the petitioner and against the respondents hereby declaring the existence of an easement over the portion of land covered by TCT No. 200760 (previously No. 127649) occupied at present [by the] powerhouse and sump pumps nos. 1 and 2 only, of Legaspi Towers 300, in favor of Legaspi Towers 300, Incorporated. The Register of Deeds of Manila is, likewise, hereby directed to annotate this easement at the back of the said certificate of title. The counterclaim and cross-claim are dismissed accordingly. SO ORDERED.” Aggrieved, APT sought recourse before the CA in CA-G.R. CV No. 48984. Subsequently, the term of existence of APT expired and, pursuant to Section 2, Article III of Executive Order No. 323,

the powers, functions, duties and responsibilities of APT, as well as all the properties, real or personal assets, equipments and records held by it and its obligations and liabilities that _______________ 10 Records, pp. 155-161. 11 Id., at pp. 334-336. 389 VOL. 593, JULY 22, 2009389 Privatization and Management Office vs. Legaspi Towers 300, Inc. were incurred, was transferred to petitioner Privatization and Management Office (PMO). Thus, the PMO substituted APT in its appeal. On February 16, 2001, finding no reversible error on the part of the RTC, the CA rendered a Decision12 affirming the decision appealed from. PMO filed a Motion for Reconsideration, but it was denied in the Resolution13 dated May 3, 2001. Hence, the present petition assigning the following errors: I THE PUBLIC RESPONDENT COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE COURT A QUO IN FINDING THAT [THE] PRESENCE OF THE GENERATOR SET (GENERATING SET) AND SUMP PUMPS CONSTITUES AN EASEMENT. II THE PUBLIC RESPONDENT COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE COURT A QUO IN DECLARING THE EXISTENCE OF AN EASEMENT OVER THE PORTION OF LAND COVERED

BY TCT NO. [200760] OCCUPIED BY THE GENERATOR SET AND SUMP PUMPS NOS. 1 AND 2, PURSUANT TO ARTICLE 688 OF THE CIVIL CODE. III THE PUBLIC RESPONDENT COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE COURT A QUO IN NOT REQUIRING THE RESPONDENTPETITIONER TO PAY ANY COMPENSATION TO PETITIONER, THE OWNER OF THE LAND, FOR THE USE OF ITS PROPERTY.14 Petitioner argues that the presence of the generator set and sump pumps does not constitute an easement. They are mere improvements and/or appurtenances complementing the condominium complex, which has not attained the character _______________ 12 Supra note 1. 13 Rollo, p. 50. 14 Id., at p. 22. 390 390SUPREME COURT REPORTS ANNOTATED Privatization and Management Office vs. Legaspi Towers 300, Inc. of immovability. They were placed on the subject property as accessories or improvements for the general use and comfort of the occupants of the condominium complex. Petitioner maintains that, as the generator set and sump pumps are improvements of the condominium, the same should have been removed after Caruff undertook to deliver the subject property free from any liens and encumbrances by virtue of the

Decision of the RTC in Civil Case No. 85-29512 approving the parties’ Compromise Agreement. It adds that, in alienating the property in favor of APT/PMO, Caruff could not have intended to include as encumbrance the voluntary easement. Petitioner posits that respondent failed to present any evidence to prove the existence of the necessary requisites for the establishment of an easement. There is no concrete evidence to show that Caruff had a clear and unequivocal intention to establish the placing of the generator set and sump pumps on the subject property as an easement in favor of respondent. Lastly, petitioner contends that respondent is a “squatter” for having encroached on the former’s property without its consent and without paying any rent or indemnity. Petitioner submits that respondent’s presence on the subject property is an encroachment on ownership and, thus, cannot be properly considered an easement. It adds that an easement merely produces a limitation on ownership, but the general right of ownership of the servient tenement must not be impaired so as to amount to a taking of property. When the benefit being imposed is so great as to impair usefulness of the servient estate, it would amount to a cancellation of the rights of the latter. Petitioner insists that, for having unjustly enriched itself at the expense of the National Government and for encroaching on the latter’s rights as the absolute owner, respondent should rightfully compensate the National Government for the use of the subject property which dates back to August 28, 1989 up to the present. 391 VOL. 593, JULY 22, 2009391

Privatization and Management Office vs. Legaspi Towers 300, Inc. For its part, respondent argues that it was the intention of Caruff to have a voluntary easement in the subject property and for it to remain as such even after the property was subsequently assigned to APT. It was Caruff who constructed the generating set and sump pumps on its adjacent property for the use and benefit of the condominium adjoining it. Also, the manner in which the sump pumps were installed is permanent in nature, since their removal and transfer to another location would render the same worthless and would cut off the supply of electricity and water to the condominium and its owners. Respondent maintains that petitioner cannot assume that Caruff intended to renounce the voluntary easement over the subject property by virtue of the Compromise Agreement, since such defense can only be presented by Caruff and not the petitioner. It added that petitioner had actual notice of the presence of the generating set and sump pumps when they were negotiating with Caruff regarding the compromise agreement and at the time the subject property was transferred to petitioner. Also, petitioner cannot claim the payment of rent, considering that there was no written demand for respondent to pay rent or indemnity. Respondent submits that the mandate of petitioner to privatize or dispose of the non-performing assets transferred to it does not conflict with the issue of the declaration of the easement over the subject property, considering that petitioner is not prevented from privatizing the same despite the presence of the voluntary easement.

The petition is meritorious. An easement or servitude is “a real right constituted on another’s property, corporeal and immovable, by virtue of which the owner of the same has to abstain from doing or to allow somebody else to do something on his property for the benefit 392 392SUPREME COURT REPORTS ANNOTATED Privatization and Management Office vs. Legaspi Towers 300, Inc. of another thing or person.”15 The statutory basis of this right is Article 613 of the Civil Code, which provides: “Art. 613. An easement or servitude is an encumbrance imposed upon an immovable for the benefit of another immovable belonging to a different owner. The immovable in favor of which the easement is established is called the dominant estate; that which is subject thereto, the servient estate.” There are two sources of easements: by law or by the will of the owners. Article 619 of the Civil Code states: “Art. 619. Easements are established either by law or by the will of the owners. The former are called legal and the latter voluntary easements.” In the present case, neither type of easement was constituted over the subject property. In its allegations, respondent claims that Caruff constituted a voluntary easement when it constructed the generating set and sump pumps over the disputed portion of the subject property for its benefit. However, it should be noted that when the

appurtenances were constructed on the subject property, the lands where the condominium was being erected and the subject property where the generating set and sump pumps were constructed belonged to Caruff. Therefore, Article 613 of the Civil Code does not apply, since no true easement was constituted or existed, because both properties were owned by Caruff. Also, Article 624 of the Civil Code is controlling, as it contemplates a situation where there exists an apparent sign of easement between two estates established or maintained by the owner of both. The law provides: _______________ 15 Valdez v. Tabisura, G.R. No. 175510, July 28, 2008, 560 SCRA 332, 337-338, citing 3 Sanchez Roman 572. 393 VOL. 593, JULY 22, 2009393 Privatization and Management Office vs. Legaspi Towers 300, Inc. “Art. 624. The existence of an apparent sign of easement between two estates, established or maintained by the owner of both, shall be considered, should either of them be alienated, as a title in order that the easement may continue actively and passively, unless, at the time the ownership of the two estates is divided, the contrary should be provided in the title of conveyance of either of them, or the sign aforesaid should be removed before the execution of the deed. This provision shall also apply in case of the division of a thing owned in common by two or more persons.”16

From the foregoing, it can be inferred that when the owner of two properties alienates one of them and an apparent sign of easement exists between the two estates, entitlement to it continues, unless there is a contrary agreement, or the indication that the easement exists is removed before the execution of the deed. In relation thereto, the Compromise Agreement, as approved by the court, clearly states, among other things, that: “x x x x 2.0 That in consideration of the covenants hereunder stipulated, plaintiff [Caruff] Development Corporation (CDC), hereby terminates the instant case against defendants Philippine National Bank (PNB) and the National Government/APT, and hereby: 2.1 Assigns, transfers and conveys in favor of defendant National Government thru APT, CDC’s rights, title and interest in the Maytubig property, situated at the back of the Legaspi Towers 300 Condominium, consisting of seven (7) contiguous lots with an aggregate area of 1,504.90 square meters, covered by the following Transfer Certificate of Title, viz.: TCT No. 23663—Pasay City Registry; TCT No. 142497 – Metro Manila 1 Registry; TCT No. 142141—Metro Manila 1 Registry; TCT No. 127649—Metro Manila 1 Registry; x x x; all titles, free from any and all liens and encumbrances, to be delivered, and the necessary papers and documents to be turned over/executed to effect transfer in favor of the National Government/APT, upon approval of this Compromise Agreement; _______________ 16 Emphasis ours.

394 394SUPREME COURT REPORTS ANNOTATED Privatization and Management Office vs. Legaspi Towers 300, Inc. x x x x.”17 Thus, when the subject property was assigned to the National Government thru the APT, no easement arose or was voluntarily created from the transfer of ownership, considering that the parties, more particularly, Caruff, pledged that it was assigning, transferring, and conveying the subject property in favor of the National Government thru the APT “free from any and all liens and encumbrances.” Compromise agreements are contracts, whereby the parties undertake reciprocal obligations to resolve their differences, thus, avoiding litigation, or put an end to one already commenced.18 As a contract, when the terms of the agreement are clear and explicit that they do not justify an attempt to read into it any alleged intention of the parties; the terms are to be understood literally, just as they appear on the face of the contract.19 Considering that Caruff never intended to transfer the subject property to PMO, burdened by the generating set and sump pumps, respondent should remove them from the subject property. As regards PMO’s claim for rent, respondent has been enjoying the use of the subject property for free from the time the rights over the property were transferred and conveyed by Caruff to the National Government. We have held that “[t]here is unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a

person retains money or property of another against the fundamental principles of justice, equity and good conscience.” Article 22 of the Civil Code provides that “[e]very person who, through an act or performance by another, or any other means, acquires or comes into possession of something _______________ 17 Records, p. 133. (Emphasis ours.) 18 Alonzo v. San Juan, G.R. No. 137549, February 11, 2005, 451 SCRA 45, 58-59. 19 First Fil-Sin Lending Corporation v. Padillo, G.R. No. 160533, January 12, 2005, 448 SCRA 71, 76. 395 VOL. 593, JULY 22, 2009395 Privatization and Management Office vs. Legaspi Towers 300, Inc. at the expense of the latter, without just or legal ground, shall return the same to him.” The principle of unjust enrichment under Article 22 of the Civil Code requires two conditions: (1) that a person is benefited without a valid basis or justification, and (2) that such benefit is derived at another’s expense or damage.20 In the present case, there is no dispute as to who owns the subject property and as to the fact that the National Government has been deprived of the use thereof for almost two decades. Thus, it is but just and proper that respondent should pay reasonable rent for the portion of the subject property occupied by the generating set and sump pumps, from the time respondent deprived the lawful owner of the use thereof up to the present. To rule otherwise would be unjust

enrichment on the part of respondent at the expense of the Government. From the records, APT/PMO submitted, as part of its evidence, a letter21 dated June 18, 1992, wherein it fixed the monthly rental fee per square meter of the entire property at P56.25, or P1.81 per square meter per day. Hence, respondent should pay the National Government reasonable rent in the amount of P56.25 per square meter per month, to be reckoned from August 28, 1989 up to the time when the generating set and sump pumps are completely removed therefrom. WHEREFORE, premises considered, the Decision of the Regional Trial Court in Spec. Proc. No. 89-49563 dated January 12, 1995, and the Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 48984 dated February 16, 2001 and May 3, 2001, respectively, are REVERSED and SET ASIDE. _______________ 20 Car Cool Philippines, Inc. v. Ushio Realty and Development Corporation, G.R. No. 138088, January 23, 2006, 479 SCRA 404, 412-413. 21 Records, pp. 299-300. 396 396SUPREME COURT REPORTS ANNOTATED Privatization and Management Office vs. Legaspi Towers 300, Inc. Legaspi Towers 300, Inc. is DIRECTED to REMOVE the generating set and sump pumps 1 and 2 from the property covered by TCT No. 200760 and to PAY reasonable rent at the

rate of P56.25 per square meter/per month from August 28, 1989 until the same are completely removed. SO ORDERED. Ynares-Santiago (Chairperson), Chico-Nazario, Velasco, Jr. and Nachura, JJ., concur. Judgment and resolution reversed and set aside. Notes.—A grant of a right of way does not legally entitle the grantee to occupy part of the said lot, more so to introduce permanent improvements thereon. (Congregation of the Religious of the Virgin Mary vs. Court of Appeals, 291 SCRA 385 [1998]) The issue of a right of way or easement over private property without tenancy relations is outside the jurisdiction of the DARAB because it is not an agrarian issue. (Laguna Estates Development Corporation vs. Court of Appeals, 335 SCRA 29 [2000]) ——o0o—— [Privatization and Management Office vs. Legaspi Towers 300, Inc., 593 SCRA 382(2009)]

G.R. No. 183719. February 2, 2011.* MARGARITA F. CASTRO, petitioner, vs. NAPOLEON A. MONSOD, respondent. Civil Law; Property; The owner of a parcel of land is the owner of its surface and of everything under it, and he can construct thereon any works, or make any plantations and excavations which he may deem proper.—Article 437 of the Civil Code provides that the owner of a parcel of land is the owner of its surface and of everything under it, and he can construct thereon any works, or make any plantations and excavations which he may deem proper. However, such right of the owner is not absolute and is subject to the following limitations: (1) servitudes or easements, (2) special laws, (3) ordinances, (4) reasonable requirements of aerial navigation, and (5) rights of third persons. Same; Same; Easements; An easement is established either by law or by will of the owners.—An easement or servitude is an encumbrance imposed upon an immovable for the benefit of another immovable belonging to a different owner. There are two kinds of easements according to source. An easement is established either by law or by will of the owners. The courts cannot impose or constitute any servitude where none existed. They can only declare its existence if in reality it exists by law or by the will of the owners. There are therefore no judicial easements. Same; Same; Same; An owner, by virtue of his surface right, may make excavations on his land, but his right is subject to the limitation that he shall not deprive any adjacent land or building of sufficient lateral or subjacent support.—An owner, by virtue of his surface right, may make excavations on his

land, but his right is subject to the limitation that he shall not deprive any adjacent land or building of sufficient lateral or subjacent support. Between two adjacent landowners, each has an absolute property right to have his land laterally supported by the soil of his neighbor, and if either, in excavating on his own premises, he so disturbs the lateral support of his neighbor’s land as to cause it, or, in its natural state, by the _______________ * SECOND DIVISION. 487 VOL. 641, FEBRUARY 2, 2011487 Castro vs. Monsod pressure of its own weight, to fall away or slide from its position, the one so excavating is liable. PETITION for review on certiorari of the decision and resolution of the Court of Appeals. The facts are stated in the opinion of the Court. Nelson A. Loyola for petitioner. Napoleon A. Monsod for respondent. Manuel J. Laserna, Jr. co-counsel for respondent. NACHURA, J.: Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the Decision1 dated May 25, 2007 and the Resolution2 dated July 14, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 83973. The antecedents of the case are as follows: Petitioner is the registered owner of a parcel of land located on Garnet Street, Manuela Homes, Pamplona, Las Piñas City, and covered by Transfer Certificate of Title (TCT) No. T-36071,

with an area of one hundred thirty (130) square meters (sq.m.). Respondent, on the other hand, is the owner of the property adjoining the lot of petitioner, located on Lyra Street, Moonwalk Village, Phase 2, Las Piñas City. There is a concrete fence, more or less two (2) meters high, dividing Manuela Homes from Moonwalk Village.3 On February 29, 2000, respondent caused the annotation of an adverse claim against sixty-five (65) sq.m. of the property of petitioner covered by TCT No. T-36071. The adverse claim _______________ 1 Penned by Associate Justice Rosmari D. Carandang, with Associate Justices Jose C. Reyes, Jr. and Mariflor P. Punzalan Castillo, concurring; Rollo, pp. 68-79. 2 Id., at pp. 81-83. 3 Id., at p. 69. 488 488SUPREME COURT REPORTS ANNOTATED Castro vs. Monsod was filed without any claim of ownership over the property. Respondent was merely asserting the existing legal easement of lateral and subjacent support at the rear portion of his estate to prevent the property from collapsing, since his property is located at an elevated plateau of fifteen (15) feet, more or less, above the level of petitioner’s property.4 Respondent also filed a complaint for malicious mischief and malicious destruction before the office of the barangay chairman.5 In defiance, petitioner filed a complaint for damages with temporary restraining order/writ of preliminary injunction before the Regional Trial Court (RTC) of Las Piñas City.

Petitioner also prayed that the Register of Deeds of Las Piñas City be ordered to cancel the annotation of the adverse claim on TCT No. T-36071.6 Prior to the filing of the case before the RTC, there were deposits of soil and rocks about two (2) meters away from the front door of the house of petitioner. As such, petitioner was not able to park her vehicle at the dead-end portion of Garnet Street. When petitioner noticed a leak that caused the front portion of her house to be slippery, she hired construction workers to see where the leak was coming from. The workers had already started digging when police officers sent by respondent came and stopped the workers from finishing their job.7 Petitioner averred that when she bought the property from Manuela Homes in 1994, there was no annotation or existence of any easement over the property. Respondent neither asked permission nor talked to her with regard to the use of 65 sq.m. of her property as easement. Upon learning of the adverse claim, she felt disturbed and experienced sleepless nights for fear that she would not be able to sell her property. _______________ 4 Id., at p. 125. 5 Id. 6 Id. 7 Id., at pp. 127-128. 489 VOL. 641, FEBRUARY 2, 2011489 Castro vs. Monsod

Petitioner admitted that TCT No. 36071 does not cover the open space at the dead-end portion of Garnet Street.8 For his part, respondent claimed that he and his family had been residing in Moonwalk Village since June 1984. Adjacent to his property is the land of petitioner in Manuela Homes. When he bought the property in 1983, the land elevation of Moonwalk Village was almost on the same level as Manuela Homes. However, sometime in 1985 and 1986, Pilar Development Corporation, the developer of Manuela Homes, bulldozed, excavated, and transferred portions of the elevated land to the lower portions of Manuela Homes. Thus, Manuela Homes became lower than Moonwalk Village.9 Before the said excavation, respondent personally complained to Pilar Development Corporation and was assured that, as provided by the National Building Code, an embankment will be retained at the boundary of Manuela Homes and Moonwalk Village, which is more or less fifteen (15) feet higher than Manuela Homes.10 Manuela Homes retained the embankment consisting of soil and rocks. Respondent had the open space riprapped with stones as reinforcement against any potential soil erosion, earthquake, and possible digging by any person. Respondent asserted that the affidavit of adverse claim was for the annotation of the lateral and subjacent easement of his property over the property of petitioner, in view of the latter’s manifest determination to remove the embankment left by the developer of Manuela Homes. On October 11, 2004, the RTC rendered a decision,11 the dispositive portion of which reads: _______________

8 Id., at pp. 127, 134. 9 Id., at pp. 127-128. 10 Id., at p. 128. 11 Penned by Judge Erlinda Nicolas-Alvaro, Regional Trial Court, Branch 198, Las Piñas City; id., at pp. 125- 134. 490 490SUPREME COURT REPORTS ANNOTATED Castro vs. Monsod “WHEREFORE, premises considered, this court hereby renders judgment: (1) ordering the cancellation of [respondent’s] adverse claim at the back of Transfer Certificate of Title No. T-36071 at the expense of [respondent] Napoleon Monsod; (2) ordering the said [respondent] to pay the herein [petitioner] the amount of Php50,000.00 as moral damages; and (3) dismissing [petitioner’s] claim for actual damages, attorney’s fees, litigation costs and costs of suit and [respondent’s] compulsory counterclaim for lack of merit. SO ORDERED.”12 The trial court ratiocinated that the adverse claim of respondent was non-registrable considering that the basis of his claim was an easement and not an interest adverse to the registered owner, and neither did he contest the title of petitioner. Furthermore, the adverse claim of respondent failed to comply with the requisites provided under Section 70 of Presidential Decree No. 1529.13 On appeal, the CA reversed the decision of the trial court in a Decision14 dated May 25, 2007, the fallo of which reads: “WHEREFORE, premises considered, the instant appeal is GRANTED. The Decision of the Regional Trial Court, Branch

198, Las Piñas City dated October 11, 2004 is REVERSED and SET ASIDE. The Court hereby orders the retention of the annotation at the back of Transfer Certificate of Title No. T36071, not as an adverse claim, but a recognition of the existence of a legal easement of subjacent and lateral support constituted on the lengthwise or horizontal land support/embankment area of sixty-five (65) square meters, more or less, of the property of [petitioner] Margarita Castro. The writ of preliminary injunction issued by this Court on April 18, 2006 is hereby made permanent. [Petitioner’s] claim for damages is likewise DISMISSED. SO ORDERED.”15 _______________ 12 Id., at p. 134. 13 Id., at p. 131. 14 Supra note 1. 15 Id., at pp. 78-79. 491 VOL. 641, FEBRUARY 2, 2011491 Castro vs. Monsod The CA ruled that while respondent’s adverse claim could not be sanctioned because it did not fall under the requisites for registering an adverse claim, the same might be duly annotated in the title as recognition of the existence of a legal easement of subjacent and lateral support. The purpose of the annotation was to prevent petitioner from making injurious excavations on the subject embankment as to deprive the residential house and lot of respondent of its natural support and cause it to collapse.

Respondent only asked that petitioner respect the legal easement already existing thereon.16 On June 15, 2007, petitioner filed a motion for reconsideration. However, the CA denied the same in a Resolution17 dated July 14, 2008. Hence, this petition. The issue in this case is whether the easement of lateral and subjacent support exists on the subject adjacent properties and, if it does, whether the same may be annotated at the back of the title of the servient estate. Article 437 of the Civil Code provides that the owner of a parcel of land is the owner of its surface and of everything under it, and he can construct thereon any works, or make any plantations and excavations which he may deem proper. However, such right of the owner is not absolute and is subject to the following limitations: (1) servitudes or easements,18 (2) special laws,19 (3) ordinances,20 (4) reasonable requirements of aerial navigation,21 and (5) rights of third persons.22 Respondent filed before the RTC an affidavit of adverse claim, the pertinent portions of which read: _______________ 16 Id., at pp. 75-76. 17 Supra note 2. 18 Civil Code, Art. 437. 19 Id. 20 Id. 21 Id. 22 Civil Code, Art. 431. 492 492SUPREME COURT REPORTS ANNOTATED

Castro vs. Monsod “5. That our adverse claim consists of rights of legal or compulsory easement of lateral and subjacent support (under the Civil Code) over a portion of the above-described property of owner Margarita F. Castro, that is, covering the lengthwise or horizontal land support/embankment area of sixty-five (65) square meters, more or less. 6. That said registered owner has attempted to destroy and/or remove portions of the existing lateral/subjacent land and cement supports adjoining the said two properties. In fact, a portion of the easement was already destroyed/removed, to the continuing prejudice of herein adverse claimant, and that a formal complaint against said registered owner was filed by the herein adverse claimant before the Office of the Barangay Chairman of Talon V, Las Piñas City and the same proved futile.”23 Respondent’s assertion that he has an adverse claim over the 65 sq.m. property of petitioner is misplaced since he does not have a claim over the ownership of the land. The annotation of an adverse claim over registered land under Section 70 of Presidential Decree 152924 requires a claim on the title of _______________ 23 Rollo, p. 131. 24 Section 70 of Presidential Decree 1529 provides: Section 70. Adverse claim.—Whoever claims any part or interest in registered land adverse to the registered owner, arising subsequent to the date of the original registration, may, if no other provision is made in this Decree for registering the same, make a statement in writing setting forth fully his alleged

right or interest, and how or under whom acquired, a reference to the number of the certificate of title of the registered owner, the name of the registered owner, and a description of the land in which the right or interest is claimed. The statement shall be signed and sworn to, and shall state the adverse claimant's residence, and a place at which all notices may be served upon him. This statement shall be entitled to registration as an adverse claim on the certificate of title. The adverse claim shall be effective for a period of thirty days from the date of registration. After the lapse of said period, the annotation of adverse claim may be canceled upon filing of a verified petition therefor by the party in interest: Pro493 VOL. 641, FEBRUARY 2, 2011493 Castro vs. Monsod the disputed land. Annotation is done to apprise third persons that there is a controversy over the ownership of the land and to preserve and protect the right of the adverse claimant during the pendency of the controversy. It is a notice to third persons that any transaction regarding the disputed land is subject to the outcome of the dispute.25 In reality, what respondent is claiming is a judicial recognition of the existence of the easement of subjacent and lateral support over the 65 sq. m. portion of petitioner’s property covering the land support/embankment area. His reason for the annotation is only to prevent petitioner from removing the embankment or from digging on the property for fear of soil erosion that might weaken the foundation of the rear portion of his property which is adjacent to the property of petitioner.

An easement or servitude is an encumbrance imposed upon an immovable for the benefit of another immovable belonging to a different owner.26 There are two kinds of easements ac_______________ vided, however, that after cancellation, no second adverse claim based on the same ground shall be registered by the same claimant. Before the lapse of thirty days aforesaid, any party in interest may file a petition in the Court of First Instance where the land is situated for the cancellation of the adverse claim, and the court shall grant a speedy hearing upon the question of the validity of such adverse claim, and shall render judgment as may be just and equitable. If the adverse claim is adjudged to be invalid, the registration thereof shall be ordered canceled. If, in any case, the court, after notice and hearing, shall find that the adverse claim thus registered was frivolous, it may fine the claimant in an amount not less than one thousand pesos nor more than five thousand pesos, in its discretion. Before the lapse of thirty days, the claimant may withdraw his adverse claim by filing with the Register of Deeds a sworn petition to that effect. 25 Arrazola v. Bernas, 175 Phil. 452, 456-457; 86 SCRA 279, 284 (1978). 26 Civil Code, Art. 613. 494 494SUPREME COURT REPORTS ANNOTATED Castro vs. Monsod cording to source. An easement is established either by law or by will of the owners.27 The courts cannot impose or

constitute any servitude where none existed. They can only declare its existence if in reality it exists by law or by the will of the owners. There are therefore no judicial easements.28 Article 684 of the Civil Code provides that no proprietor shall make such excavations upon his land as to deprive any adjacent land or building of sufficient lateral or subjacent support. An owner, by virtue of his surface right, may make excavations on his land, but his right is subject to the limitation that he shall not deprive any adjacent land or building of sufficient lateral or subjacent support. Between two adjacent landowners, each has an absolute property right to have his land laterally supported by the soil of his neighbor, and if either, in excavating on his own premises, he so disturbs the lateral support of his neighbor’s land as to cause it, or, in its natural state, by the pressure of its own weight, to fall away or slide from its position, the one so excavating is liable.29 In the instant case, an easement of subjacent and lateral support exists in favor of respondent. It was established that the properties of petitioner and respondent adjoin each other. The residential house and lot of respondent is located on an elevated plateau of fifteen (15) feet above the level of petitioner’s property. The embankment and the riprapped stones have been in existence even before petitioner became the owner of the property. It was proven that petitioner has been making excavations and diggings on the subject embankment and, unless restrained, the continued excavation of the embankment could cause the foundation of the rear portion of the house of respondent to collapse, resulting in the destruction of a huge part of the family dwelling.30 _______________

27 Civil Code, Art. 619. 28 De Leon, Hector S., Comments and Cases on Property (5th ed.), p. 476. 29 Id., at p. 544. 30 Rollo, pp. 76-77. 495 VOL. 641, FEBRUARY 2, 2011495 Castro vs. Monsod We sustain the CA in declaring that a permanent injunction on the part of petitioner from making injurious excavations is necessary in order to protect the interest of respondent. However, an annotation of the existence of the subjacent and lateral support is no longer necessary. It exists whether or not it is annotated or registered in the registry of property. A judicial recognition of the same already binds the property and the owner of the same, including her successors-in-interest. Otherwise, every adjoining landowner would come to court or have the easement of subjacent and lateral support registered in order for it to be recognized and respected. WHEREFORE, in view of the foregoing, the Decision dated May 25, 2007 and the Resolution dated July 14, 2008 of the Court of Appeals in CA-G.R. CV No. 83973 are hereby AFFIRMED WITH MODIFICATION that the annotation at the back of Transfer Certificate of Title No. T-36071, recognizing the existence of the legal easement of subjacent and lateral support constituted on the lengthwise or horizontal land support/embankment area of sixty-five (65) square meters, more or less, of the property of petitioner Margarita F. Castro, is hereby ordered removed.

SO ORDERED. Carpio (Chairperson), Peralta, Abad and Mendoza, JJ., concur. Judgment and resolution affirmed with modification. Note.—It is settled that the registration of the dominant estate under the Torrens system without the annotation of the voluntary easement in its favor does not extinguish the easement. On the contrary, it is the registration of the servient estate as free, that is, without the annotation of the voluntary easement, which extinguishes the easement. (Unisource Commercial and Development Corporation vs. Chung, 593 SCRA 230 [2009] ——o0o—— [Castro vs. Monsod, 641 SCRA 486(2011)]

G.R. No. 166744. November 2, 2006.*FIRST DIVISION. AC ENTERPRISES, INC., petitioner, vs. FRABELLE PROPERTIES CORPORATION, respondent. Actions; Certiorari; The general rule is that an order denying a motion to dismiss a complaint cannot be questioned via a special civil action for certiorari until a final judgment on the merits of the case is rendered—the remedy of the defendant is to go trial and appeal from an adverse decision.—The Order of the RTC dated September 15, 2003 denying the motion to dismiss of petitioner (as defendant below) is interlocutory in nature. The general rule is that an order denying a motion to dismiss a complaint cannot be questioned via a special civil action for certiorari until a final judgment on the merits of the case is rendered. A party must exhaust all remedies available before resorting to certiorari. A writ for certiorari is not intended to correct every controversial interlocutory ruling. It is resorted only to correct a grave abuse of discretion or a whimsical exercise of judgment equivalent to lack of jurisdiction. It is a remedy narrow in scope, limited only to keeping an inferior court within its jurisdiction and to relieve persons from arbitrary acts which courts have no power or authority to perform. The remedy of petitioner was to go to trial and appeal from an adverse decision. Same; Jurisdictions; Pleadings and Practice; The nature of an action and whether the tribunal has exclusive jurisdiction over such action are to be determined from the material allegations of the complaint, the law in force at the time the complaint is filed, and the character of the relief sought irrespective of whether plaintiff is entitled to all or some of the claims averred.—It is axiomatic that the nature of an action and

whether the tribunal has exclusive jurisdiction over such action are to be determined from the material allegations of the complaint, the law in force at the time the complaint is filed, and the character of the relief sought irrespective of whether plaintiff is entitled to all or some of the claims averred. Jurisdiction is not affected by the pleas or the theories set up by defendant in an answer to the complaint or a motion to dismiss the same. Otherwise, _______________ * FIRST DIVISION. 626 626 SUPREME COURT REPORTS ANNOTATED AC Enterprises, Inc. vs. Frabelle Properties Corporation jurisdiction would be dependent almost entirely upon the whims of defendants. Same; Same; Nuisance; Noise; An action for abatement of a private nuisance, more specifically noise generated by the blowers of an air-conditioning system, even if the plaintiff prays for damages, is one incapable of pecuniary estimation because the basic issue is something other than the right to recover a sum of money.—We agree with the ruling of the RTC, as affirmed by the CA, that as gleaned from the material averments of the complaint as well as the character of the relief prayed for by respondent in its complaint before the RTC, the petition is one for the judicial abatement of a private nuisance, more specifically the noise generated by the blowers of the airconditioning system of the Feliza Building owned by petitioner, with a plea for a writ of preliminary and permanent injunction, plus damages. Such action of respondent is

incapable of pecuniary estimation because the basic issue is something other than the right to recover a sum of money. Although respondent prayed for judgment for temperate or moderate damages and exemplary damages, such claims are merely incidental to or as a consequence of, the principal relief sought by respondent. An action incapable of pecuniary estimation is within the exclusive jurisdiction of the RTC as provided in Batas Pambansa Bilang (B.P. Blg.) 129, as amended by R.A. No. 7691. In Tatel v. Municipality of Virac, 207 SCRA 157 (1992), the Court ruled that a simple suit for abatement of a nuisance is within the exclusive jurisdiction of the Court of First Instance, now the RTC. Same; Same; Same; Words and Phrases; The term “nuisance” is so comprehensive that it has been applied to almost all ways which have interfered with the rights of the citizens, either in person, property, the enjoyment of property, or his comfort; A private nuisance is one which violates only private rights and produces damage to but one or a few persons while a nuisance is public when it interferes with the exercise of public right by directly encroaching on public property or by causing a common injury, an unreasonable interference with the right common to the general public.—Article 694 of the New Civil Code defines a nuisance as follows: Art. 694. A nuisance is any act, omission, establishment, business, condition of property, or anything else which: (1) Injures or endangers the health or safety of others; or (2) Annoys or offends the senses; or (3) Shocks, defies or disregards 627 VOL. 506, NOVEMBER 2, 2006 627 AC Enterprises, Inc. vs. Frabelle Properties Corporation

decency or morality; or (4) Obstructs or interferes with the free passage of any public highway or street, or any body of water; or (5) Hinders or impairs the use of property. The term “nuisance” is so comprehensive that it has been applied to almost all ways which have interfered with the rights of the citizens, either in person, property, the enjoyment of his property, or his comfort. According to Article 695 of the Civil Code, a nuisance may be either public or private: Art. 695. Nuisance is either public or private. A public nuisance affects a community or neighborhood or any considerable number of persons, although the extent of the annoyance, danger or damage upon individuals may be unequal. A private nuisance is one that is not included in the foregoing definition. A private nuisance has been defined as one which violates only private rights and produces damages to but one or a few persons. A nuisance is public when it interferes with the exercise of public right by directly encroaching on public property or by causing a common injury. It is an unreasonable interference with the right common to the general public. Same; Same; Same; A private nuisance action is the remedy for an invasion of a property right, while the action for the abatement of a public nuisance should be commenced by the city or municipality.— Under Article 705 of the New Civil Code, a party aggrieved by a private nuisance has two alternative remedies: (1) a civil action; or (2) abatement, without judicial proceedings. A person injured by a private nuisance may abate it as provided in Article 706: Art. 706. Any person injured by a private nuisance may abate it by removing, or if necessary by destroying the thing which constitutes the

nuisance, without committing a breach of the peace or doing unnecessary injury. However, it is indispensable that the procedure for extrajudicial abatement of a public nuisance by a private person be followed. A private nuisance action is the remedy for an invasion of a property right. On the other hand, the action for the abatement of a public nuisance should be commenced by the city or municipality. A private person may institute an action for the abatement of a public nuisance in cases wherein he suffered a special injury of a direct and substantial character other than that which the general public shares. The district health officer shall determine whether or not abatement, without judicial proceedings, is the best remedy against a public nuisance. 628 628 SUPREME COURT REPORTS ANNOTATED AC Enterprises, Inc. vs. Frabelle Properties Corporation Same; Same; Same; Municipal Corporations; Local Government Units (LGUs); The local sanggunian is empowered to enact ordinances declaring, preventing or abating noise and other forms of nuisance but cannot declare a particular thing as a nuisance per se and order its condemnation—it does not have the power to find, as a fact, that a particular thing is a nuisance when such thing is not a nuisance per se, a thing which must be determined and resolved in the ordinary courts of law.—We agree with petitioner’s contention that, under Section 447(a)(3)(i) of R.A. No. 7160, otherwise known as the Local Government Code, the Sangguniang Panglungsod is empowered to enact ordinances declaring, preventing or abating noise and other forms of

nuisance. It bears stressing, however, that the Sangguniang Bayan cannot declare a particular thing as a nuisance per se and order its condemnation. It does not have the power to find, as a fact, that a particular thing is a nuisance when such thing is not a nuisance per se; nor can it authorize the extrajudicial condemnation and destruction of that as a nuisance which in its nature, situation or use is not such. Those things must be determined and resolved in the ordinary courts of law. If a thing be in fact, a nuisance due to the manner of its operation, that question cannot be determined by a mere resolution of the Sangguniang Bayan. Same; Same; Same; Same; Devolution; Words and Phrases; Devolution refers to the act by which the national government confers powers and authority upon the various local government units to perform specific functions and responsibilities; What were devolved by the Department of Enrivonment and Natural Resources (DENR) to the Local Government Units (LGUs) under DENR Administrative Order No. 30 dated 30 June 1992, in relation to R.A. No. 7160, were the regulatory functions/duties of the National Pollution Control Commission (NPCC) which were absorbed and integrated by the Environmental Management Bureau (EMB).—Section 17 of R.A. No. 7160 provides that local government units shall discharge the functions and responsibilities of national agencies and offices devolved to them pursuant to the law; and such other powers, functions and responsibilities as are necessary, appropriate or incidental to efficient and effective provisions of the basic services and facilities in the Code. Devolution refers to the act by which the national government confers powers and authority upon the

various local government units to perform specific functions and responsibilities. What were devolved by the DENR to the LGUs under DENR Administra629 VOL. 506, NOVEMBER 2, 2006 629 AC Enterprises, Inc. vs. Frabelle Properties Corporation tive Order No. 30 dated June 30, 1992, in relation to R.A. No. 7160, were the regulatory functions/duties of the National Pollution Control Commission (NPCC) which were absorbed and integrated by the EMB, as provided in Title No. XIV, Chapter 2, Section 17 of the 1987 Administrative Code. However, the DENR exercises administrative supervision and control over the LGUs. Enumerated in Chapter IV, Article 1, Sections 74 to 79 of the Rules and Regulations promulgated by the NPCC implementing P.D. 984 are the regulations relative to noise control, specifically, the noise quality standards. Same; Same; Same; Whether or not noise emanating from a blower of the air-conditioning units of a building is nuisance is to be resolved only by the courts in due course of proceedings—noise is not a nuisance per se; Noise becomes actionable only when it passes the limits of reasonable adjustment to the conditions of the locality and of the needs of the maker to the needs of the listener; Injury to a particular person in a peculiar position or of especially sensitive characteristics will not render the noise an actionable nuisance—in the conditions of present living, noise seems inseparable from the conduct of many necessary occupations.—Whether or not noise emanating from a blower of the air-conditioning units of the Feliza Building is nuisance

is to be resolved only by the court in due course of proceedings. The plaintiff must prove that the noise is a nuisance and the consequences thereof. Noise is not a nuisance per se. It may be of such a character as to constitute a nuisance, even though it arises from the operation of a lawful business, only if it affects injuriously the health or comfort of ordinary people in the vicinity to an unreasonable extent. Injury to a particular person in a peculiar position or of especially sensitive characteristics will not render the noise an actionable nuisance. In the conditions of present living, noise seems inseparable from the conduct of many necessary occupations. Its presence is a nuisance in the popular sense in which that word is used, but in the absence of statute, noise becomes actionable only when it passes the limits of reasonable adjustment to the conditions of the locality and of the needs of the maker to the needs of the listener. What those limits are cannot be fixed by any definite measure of quantity or quality; they depend upon the circumstances of the particular case. They may be affected, but are not controlled, by zoning ordinances. The delimitation of designated areas to use for manufacturing, industry or general business is not a license to emit every noise profitably attending the conduct of any one of them. 630 630 SUPREME COURT REPORTS ANNOTATED AC Enterprises, Inc. vs. Frabelle Properties Corporation Same; Same; Same; Test to Determine Noise as Nuisance.— The test is whether rights of property, of health or of comfort are so injuriously affected by the noise in question that the

sufferer is subjected to a loss which goes beyond the reasonable limit imposed upon him by the condition of living, or of holding property, in a particular locality in fact devoted to uses which involve the emission of noise although ordinary care is taken to confine it within reasonable bounds; or in the vicinity of property of another owner who, though creating a noise, is acting with reasonable regard for the rights of those affected by it. Same; Same; Same; Same; The determining factor when noise alone is the cause of complaint is not its intensity or volume— it is that the noise is of such character as to produce actual physical discomfort and annoyance to a person of ordinary sensibilities, rendering adjacent property less comfortable and valuable.—Commercial and industrial activities which are lawful in themselves may become nuisances if they are so offensive to the senses that they render the enjoyment of life and property uncomfortable. The fact that the cause of the complaint must be substantial has often led to expressions in the opinions that to be a nuisance the noise must be deafening or loud or excessive and unreasonable. The determining factor when noise alone is the cause of complaint is not its intensity or volume. It is that the noise is of such character as to produce actual physical discomfort and annoyance to a person of ordinary sensibilities, rendering adjacent property less comfortable and valuable. If the noise does that it can well be said to be substantial and unreasonable in degree; and reasonableness is a question of fact dependent upon all the circumstances and conditions. There can be no fixed standard as to what kind of noise constitutes a nuisance.

Same; Same; Same; Same; Persons who live or work in thickly populated business districts must necessarily endure the usual annoyances and of those trades and businesses which are properly located and carried on in the neighborhood where they live or work.— The courts have made it clear that in every case the question is one of reasonableness. What is a reasonable use of one’s property and whether a particular use is an unreasonable invasion of another’s use and enjoyment of his property so as to constitute a nuisance cannot be determined by exact rules, but must necessarily depend upon the circumstances of each case, such as locality and the charac631 VOL. 506, NOVEMBER 2, 2006 631 AC Enterprises, Inc. vs. Frabelle Properties Corporation ter of the surroundings, the nature, utility and social value of the use, the extent and nature of the harm involved, the nature, utility and social value of the use or enjoyment invaded, and the like. Persons who live or work in thickly populated business districts must necessarily endure the usual annoyances and of those trades and businesses which are properly located and carried on in the neighborhood where they live or work. But these annoyances and discomforts must not be more than those ordinarily to be expected in the community or district, and which are incident to the lawful conduct of such trades and businesses. If they exceed what might be reasonably expected and cause unnecessary harm, then the court will grant relief. Same; Same; Same; Causes of Action; Elements; Pleadings and Practice; Words and Phrases; A cause of action is the act or omission by which a party violates a right of another; The

fundamental test for failure to state a cause of action is whether, admitting the veracity of what appears on the face and within the four corners of the complaint, plaintiff is entitled to the relief prayed for.—A cause of action is the act or omission by which a party violates a right of another. A cause of action exists if the following elements are present: (1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate such right; and (3) an act or omission on the part of such defendant violative of the right of plaintiff or constituting a breach of the obligation of defendant to plaintiff for which the latter may maintain an action for recovery of damages. The fundamental test for failure to state a cause of action is whether, admitting the veracity of what appears on the face and within the four corners of the complaint, plaintiff is entitled to the relief prayed for. Stated otherwise, may the court render a valid judgment upon the facts alleged therein? Indeed, the inquiry is into the sufficiency, not the veracity of the material allegations. If the allegations in the complaint furnish sufficient basis on which it can be maintained, it should not be dismissed regardless of the defenses that may be presented by defendants. Same; Same; Same; Same; Same; Same; The general rule is that the facts asserted in the complaint must be taken into account without modification although with reasonable inferences therefrom, and all the pleadings filed may be considered, including annexes, 632 632 SUPREME COURT REPORTS ANNOTATED AC Enterprises, Inc. vs. Frabelle Properties Corporation

motions and the other evidence on record.—The general rule is that the facts asserted in the complaint must be taken into account without modification although with reasonable inferences therefrom. However, all the pleadings filed may be considered, including annexes, motions and the other evidence on record, to wit: However, in so doing, the trial court does not rule on the truth or falsity of such documents. It merely includes such documents in the hypothetical admission. Any review of a finding of lack of cause of action based on these documents would not involve a calibration of the probative value of such pieces of evidence but would only limit itself to the inquiry of whether the law was properly applied given the facts and these supporting documents. Therefore, what would inevitably arise from such a review are pure questions of law, and not questions of fact. Same; Same; Same; Same; Parties; Words and Phrases; A person injured by a nuisance may bring an action in his own name and in behalf of others similarly affected to abate the same; “Interest” within the meaning of Section 2, Rule 3 of the Revised Rules of Court means material interest, an interest in essence to be affected by the judgment as distinguished from mere interest in the question involved, or a mere incidental interest, and by real interest is meant a present substantial interest, as distinguished from a mere expectancy or a future, contingent, subordinate or consequential interest.— Section 2, Rule 3, of the Revised Rules of Civil Procedure provides that every action must be prosecuted or defended in the name of the real party-in-interest. SEC. 2. Parties in interest.—A real party in interest is the party who stands to be benefited or injured by

the judgment in the suit, or the party entitled to the avails of the suit. Unless otherwise authorized by law or these Rules, every action must be prosecuted or defended in the name of the real party in interest. (2a) “Interest” within the meaning of the rule means material interest, an interest in essence to be affected by the judgment as distinguished from mere interest in the question involved, or a mere incidental interest. By real interest is meant a present substantial interest, as distinguished from a mere expectancy or a future, contingent, subordinate or consequential interest. A real party in interest-plaintiff is one who has a legal right while a real party defendant is one who has a correlative legal obligation whose act or omission violate the legal right of the former. A person injured by a nuisance may bring an action in his own name and in behalf of others simi633 VOL. 506, NOVEMBER 2, 2006 633 AC Enterprises, Inc. vs. Frabelle Properties Corporation larly affected to abate the same. One who has an interest in the property affected such as the owner thereof or fix interest therein are proper parties as plaintiffs. Possession alone of real estate is sufficient to sustain an action to recover damages from the maintenance of a nuisance by the adjoining property in such manner as to injure the enjoyment of the former. Same; Same; Same; Liability for nuisance may be imposed upon one who sets in motion the force which entirely caused the tortuous act, one who sets in motion a force or a chain of events resulting in the nuisance; It is sufficient to maintain an action for abatement of a nuisance if his building is rendered

valueless for the purpose it was devoted.—Liability for nuisance may be imposed upon one who sets in motion the force which entirely caused the tortuous act; upon one who sets in motion a force or a chain of events resulting in the nuisance. In an action for damages resulting from a nuisance, responsibility arises not only from the creator of the nuisance but from its continued maintenance as well. One is entitled to damages on account of the conduct by another of his business which unreasonably and substantially interferes with the quiet enjoyment of his premises by himself or of his tenants. It is sufficient to maintain an action for abatement of a nuisance if his building is rendered valueless for the purpose it was devoted. Same; Same; Same; A negligent or intentional act may constitute a nuisance.—A negligent act may constitute a nuisance. An intentional act may also constitute a nuisance. A nuisance may be formed from a continuous, known invasion, where, after complaint, and notice of damage, the defendant continues to offend and refuses to correct or discontinue the nuisance. In such a case, the nuisance is deemed intentional. An unreasonable use, perpetrated and unconnected even after complaint and notice of damage is deemed intentional. PETITION for review on certiorari of the decision and resolution of the Court of Appeals. The facts are stated in the opinion of the Court. Sonya Margarita Benemerito-Castillo for petitioner. Ernest S. Ang, Jr. for respondent. 634 634 SUPREME COURT REPORTS ANNOTATED

AC Enterprises, Inc. vs. Frabelle Properties Corporation CALLEJO, SR., J.: Before the Court is a petition for review on certiorari of the Decision1Penned by Associate Justice Eugenio S. Labitoria (retired), with Associate Justices Rebecca De Guia-Salvador and Rosalinda Asuncion Vicente, concurring; CA Rollo, pp. 189-202. of the Court of Appeals (CA) in CA-G.R. SP No. 82166, affirming the Order2Penned by Judge Benjamin T. Antonio. of the Regional Trial Court (RTC) of Malabon City in Civil Case No. 3742-MH, which denied the Motion to Dismiss of petitioner AC Enterprises, Inc. (ACEI), as well as the Resolution of the CA denying the motion for reconsideration thereof. Petitioner, a corporation duly organized under domestic laws doing business in the Philippines, owns the 10-storey Feliza Building located along Herrera Street, Legaspi Village, Makati City. The building was subdivided into commercial/office units which were leased to private persons and entities. There are 36 blowers from 18 air-cooled type airconditioning units in the building, four blowers on each floor, from the 2nd to the 10th floors. The blowers are aesthetically covered by vertical concrete type baffles. Respondent Frabelle Properties Corporation (FPC), formerly FTL & Sons Development Corporation,3CA Rollo, p. 242. is the developer of Frabella I Condominium (Frabella I), a 29storey commercial/residential condominium located at 109 Rada Street, Legaspi Village, Makati City. It owned some units in the condominium which it leased to its tenants. The building

is managed by the Frabella I Condominium Corporation (FCC). Rada and Herrera streets lie parallel to each other such that Feliza Building is situated at the back of Frabella I. Feliza Building is at the back of Frabella I and is separated by Rodriguez Street, a two-lane road approximately 12 meters _______________ 1 Penned by Associate Justice Eugenio S. Labitoria (retired), with Associate Justices Rebecca De Guia-Salvador and Rosalinda Asuncion Vicente, concurring; CA Rollo, pp. 189202. 2 Penned by Judge Benjamin T. Antonio. 3 CA Rollo, p. 242. 635 VOL. 506, NOVEMBER 2, 2006 635 AC Enterprises, Inc. vs. Frabelle Properties Corporation wide.4Id., at p. 65. The street is bounded by the Thailand Embassy on the side of the street of Frabella I. The exhaust of the blowers from the air-conditioning units at the Feliza Building were directed towards the rear of Frabella I. On April 11, 1995, respondent wrote petitioner demanding that the latter abate the daily continuous, intense and “unbearable noise” and the hot air blast coming from the 36 blowers in the Feliza Building. Petitioner rejected the demand in a letter dated May 15, 1995. Respondent reiterated its demand for ACEI to abate the nuisance in a letter dated June 6, 1995. On June 29, 1995, respondent requested that the 36 blowers of Felisa Building be tested by the NCR Environmental

Management Bureau (EMB) of the Department of Environment and Natural Resources (DENR). On August 11, 1995, it received a report from the EMB that the noise generated by the blowers of Feliza Building is beyond the legal allowable level under Section 78(b) of Presidential Decree (P.D.) No. 984, as amended. FPC had the blowers tested anew by the EMB on December 8, 1995 and July 1, 1996 with the same results. Despite repeated demands, petitioner refused to act on the matter. On August 14, 2000, respondent again wrote petitioner, demanding that it abate the nuisance. Petitioner ignored the letter anew. Respondent then had the blowers tested again by the EMB with same results as evidenced by its report dated August 29, 2000 and November 4, 2000. On March 11, 2001, Frabelle I Condominium Corporation, through counsel, Ang & Associates, as complainant, filed a complaint against petitioner with the Pollution Adjudication Board (PAB) for the abatement of noise and/or air pollution and damages with a plea for injunctive relief. The complainant alleged therein that it managed the Frabella I and that _______________ 4 Id., at p. 65. 636 636 SUPREME COURT REPORTS ANNOTATED AC Enterprises, Inc. vs. Frabelle Properties Corporation its members’ own units in the condominium. It alleged, inter alia, that:

“6. Feliza Building’s air-conditioning system is served by some 36 blowers, installed 4 blowers to each floor, all located on the same side directly facing Frabella I. 7. Everytime the Feliza Building’s air-conditioning system is turned on, all or a good number of the 36 blowers operate at the same time. As a direct result of the operation of the blowers, unbearable hot air is generated and blown towards Frabella I. 8. Apart from the hot air, the blowers also generate a continuous, deafening, intolerable and irritating, vibrating noise which makes normal conversation across the street and at the Frabella I difficult if not impossible. 9. As a consequence of such hot air, vibrating and intolerable noise, the occupants of Frabella I have been, and still are, prevented from enjoying peaceful and comfortable use of their property thereby forcing them to vacate and/or transfer elsewhere. 10. Such intolerable noise, hot air, and vibration constitute noise and/or air pollution violative of P.D. 984, the Clean Air Act and other related environmental laws. 11. In all good faith without any desire to cause any unnecessary inconvenience or trouble, the complainant, for the last several years, has written and made numerous contacts with the respondent complaining about this pollution, even soliciting the help and intercession of the Makati Commercial Estate Association, Inc. (MACEA) and the Metro Manila Development Authority (MMDA) to try to settle the matter amicably. 12. On the other hand, the DENR, over a span of several years, has conducted several tests. As shown by the results, the noise and vibration generated by the Feliza Building blowers exceeds

the DENR and Local Government ambient noise standards hence, it undoubtedly constitutes pollution.”5CA Rollo, pp. 4849. The complainant prayed that judgment be rendered in its favor, thus: _______________ 5 CA Rollo, pp. 48-49. 637 VOL. 506, NOVEMBER 2, 2006 637 AC Enterprises, Inc. vs. Frabelle Properties Corporation “WHEREFORE, it is respectfully prayed that after notice and hearing, a Decision be rendered in favor of complainant and against the respondent: 1. Declaring the intolerable noise, hot air and vibration generated by the Feliza Building blowers as a noise and/or air pollution and ordering the respondent to abate the same and in case of failure to do so, that the establishment be closed or ordered to cease operations. 2. After arbitration, ordering the respondent to indemnify the complaint for actual damages at not less than P5,000,000.00 and to reimburse it for attorney’s fees and expenses of litigation at not less than P400,000.00. 3. Condemning the respondent to pay the corresponding fines and other administrative penalties for each day of continuing pollution. Complainant prays for other relief just and equitable in the premises.”6Id., at pp. 57-58.

While the case was pending, respondent, through its VicePresident, wrote Dr. Maria Leonor B. Soledad, City Health Officer of Makati City, requesting her intervention to order petitioner to abate the noise and hot air coming from the blowers of the Feliza Building. On March 5, 2002, Dr. Soledad replied that a panel must be formed to settle the matter. In a letter dated March 7, 2002, respondent requested Makati City Mayor Jejomar C. Binay not to renew or to cancel the Mayor’s License and Business Permits of Feliza Building and to compel petitioner to comply with the law.7Id., at pp. 45-46. Copies of the letter were forwarded to Engr. Nelson B. Morales, the City Building Official, and Atty. Enrico Lainez, City Attorney. Engr. Morales acted on the letter and wrote the EMB on April 30, 2002, requesting the investigation of the complaint relative to the noise from the air-conditioning units of the _______________ 6 Id., at pp. 57-58. 7 Id., at pp. 45-46. 638 638 SUPREME COURT REPORTS ANNOTATED AC Enterprises, Inc. vs. Frabelle Properties Corporation Feliza Building.8Rollo, p. 389. A panel from the EMB conducted tests on the 36 blowers of Feliza Building from 10:30 a.m. to 12:50 p.m. on May 24, 2002. On June 28, 2002, the Panel submitted its Investigation Report, stating that the passing of vehicles along the street and the blowers of nearby building contributed to the ambient noise quality in the area.

The report stated that since DENR Administrative Order No. 30 devolved the functions of the DENR on the abatement of noise nuisance to the Local Government Unit, the case should be endorsed to the City Government of Makati for appropriate action.9Id., at p. 392. Regional Director Sixto E. Tolentino, Jr. of the EMB forwarded the report to Engr. Morales on July 2, 2002.10Id., at p. 389. In a letter dated July 19, 2002, Engr. Morales informed respondent that based on the result of investigation conducted by the DENR Management Bureau on Sound Pressure Levels (SPL) measured on the different sampling stations, the excess in the noise quality standard within the vicinity does not come from the air-conditioning system with 36 blowers of Feliza Building alone; there were other prevailing factors to consider, “which is beyond the control of said building and since the final result has been rendered and resolved by the concerned government agency, it is properly advised that further inquiry or anything involving a sound environmental process which is not sanctioned by this office, be addressed directly to the said agency.”11Id., at p. 388. Copies of the letter were furnished to the City Mayor, the City Attorney and petitioner. Respondent then wrote Engr. Morales seeking clarification, wanting to find out why the matter should be referred to the EMB when the latter had already endorsed the matter to the City of Makati. A conference was held between the executives of respondent and _______________ 8 Rollo, p. 389. 9 Id., at p. 392. 10 Id., at p. 389.

11 Id., at p. 388. 639 VOL. 506, NOVEMBER 2, 2006 639 AC Enterprises, Inc. vs. Frabelle Properties Corporation Engr. Morales. The latter insisted on the report of the EMB and his July 19, 2002 letter and dared it to go to court if it was not satisfied with the report and his resolution of the matter. Respondent then wrote another letter to the EMB relative to the May 24, 2002 Report of the Panel. The EMB conducted SPL measurements anew on February 4, 2003. Per its Report submitted on November 24, 2003, the EMB declared that, from the table, it is evident that the SPL measurements were high when the doors were opened compared to the readings when the doors were closed. However, the EMB emphasized that the standards in Section 78 (b) of the Implementing Rules and Regulations of P.D. No. 984 could not be applied since the provisions were for ambient noise. It pointed out that the SPL measurements were taken inside the building. The EMB opined that since the nature of complaint is regarding noise nuisance generated from the firm’s blowers, the SPL measurements were not the critical factor in the resolution of the issue. It stated that the noise needs not to be high or low to annoy or cause nuisance to the receptor, for as long as the complainant is disturbed with the level of sound coming from the firm, it was considered a nuisance.12Records, pp. 46-47. On July 1, 2003, respondent filed a complaint for the abatement of nuisance with damages with prayer for the issuance of a writ of preliminary and permanent injunction

before the RTC of Malabon City against petitioner. The complaint alleged the following: “6. The Feliza Building’s air-conditioning units are served by some 36 blowers, 4 blowers to each floor located outside the windows of the building facing directly towards the Frabella I Condominium. The 36 blowers were installed from the 2nd floor to the 10th floor of the building and these blowers are aesthetically covered by a vertical concrete sun baffles. _______________ 12 Records, pp. 46-47. 640 640 SUPREME COURT REPORTS ANNOTATED AC Enterprises, Inc. vs. Frabelle Properties Corporation 7. [Every time] the Feliza Building’s air-conditioning system is turned on, all or a good number of the 36 blowers are made to operate simultaneously. The operation of the Feliza’s blowers generates a continuous deafening unbearable vibrating and stressful noise affecting the tenants of the Frabella I Condominium. Hot air is also blasted from the [Feliza] Building’s blowers to the direction of the Frabella I Condominium. 8. The tenants occupying the 5th to the 16th floors of the Frabella I Condominium facing Feliza Building are directly subjected to a daily continuous intense noise and hot air blast coming from the blowers of the [10-storey] Feliza Building. Some are tenants of plaintiff, who have complained to plaintiff about the matter. Tenants who could not bear the nuisance any

longer have vacated their units, and as a result, many units of plaintiff have remained vacant, and unoccupied or uninhabitable, thereby depriving plaintiff with rental income that it should have otherwise be receiving. 9. In all good faith, without any desire to cause any unnecessary inconvenience or trouble, plaintiff has written and made numerous contacts with defendant to complain about this nuisance, even soliciting the help and intercession of the Barangay San Lorenzo, Makati Commercial Estate Association, Inc. (MACEA), Metro Manila Development Authority (MMDA), Makati City Government, Makati Pollution Office and Department of Environment and Natural Resources (DENR), to try to settle the matter amicably. Several meetings have taken place, as well as many correspondences made by plaintiff to defendant. But reasonable and lawful demands by plaintiff to abate the nuisance have been repeatedly ignored/refused by defendant. The demand letters, and the response of defendant to these letters, are herein attached and made integral part of this Complaint as follows: Date Remarks Annex 11 April 1995 Demand letter to abate nuisance “A” 15 May 1995 Response to demand letter “B” 06 June 1995 Follow-up demand letter 641 VOL. 506, NOVEMBER 2, 2006 641

AC Enterprises, Inc. vs. Frabelle Properties Corporation “C” 14 August 2000 Follow-up demand letter “D” 10. There [are] more letters that were exchanged between plaintiff and defendant and/or their lawyers, but they will not be attached to this Complaint at this time to simplify the facts. 11. Even the Metro Manila Development Authority (MMDA) and Makati Commercial Estate Association, Inc. (MACEA) wrote defendant letters urging it to rectify and abate the nuisance. Copies of the letters of the MMDA dated 29 April 1996 and the MACEA dated 10 October 1996 are herein attached and marked as Annexes—“E” and “F”[,] respectively. 12. On the other hand, the DENR, over a span of 7 years, has conducted several noise sampling tests. As shown by the results, the unbearable noise generated by the Feliza’s blowers is beyond the legally allowable level under Sec. 78(b) of P.D. 984, as indicated in their reports, hence[,] it undoubtedly constitutes nuisance. Copies of the test results are herein attached and made an integral part of this Complaint as follows: Date Annex 29 June 1995 “G” 11 August 1995 “H” 08 December 1995 “I” 01 July 1996 “J” 04 November 1996 “K” 29 August 2000 “L”

13. Please note that the testing done on 08 December 1995 (Annex - “I”) was even requested by defendant. 14. On 04 February 2003, another test by the DENR was conducted, and a copy of the results are herein attached and marked as Annex - “M.” Although the latest test would seem to indicate that there was a reduction in the decibel readings as compared with the previous tests, this is actually misleading. For one, 28 blowers were operational at the time of the testing, as opposed to the previous 642 642 SUPREME COURT REPORTS ANNOTATED AC Enterprises, Inc. vs. Frabelle Properties Corporation testing done when all 36 blowers were functioning. This is rather exceptional because ordinarily, all 36 blowers of the Feliza Building are in operation. The fact that only 28 blowers were operational at the time of the testing resulted in the lower decibel reading. 15. Plaintiff will also demonstrate by expert testimony during the course of the trial that there were lapses committed during the latest testing that materially influenced the results. But be that as it may, defendant did not perform any remedial or rectification works to lower the noise being generated by the blowers, hence [,] it was not responsible for any imagined or actual reduction in the decibel readings. 16. As a consequence of such unbearable, hot air and stressful noise, the occupants of the Frabella I, including the tenants of plaintiff, have been and still are, prevented from enjoying

peaceful and comfortable use of their property thereby forcing them to vacate and or to transfer elsewhere. 17. Notwithstanding the foregoing results, repeated requests/demands from the plaintiff and recommendations of the DENR, MACEA and MMDA to abate the pollution and nuisance, the defendant has ignored and still continues to ignore such requests/demands/recommendation.”13Records, pp. 2-5. Respondent prayed for injunction and the following other reliefs, thus: “WHEREFORE, premises considered, it is respectfully prayed that upon the filing of this Complaint, after notice and hearing, and after the payment of a bond in an amount to be fixed by the Honorable Court, a Writ of Preliminary Injunction be issued enjoining defendant from operating the air-conditioning system of the Feliza Building and/or turning on the blowers subject matter of this suit while the instant case remains pending. After trial and hearing, judgment be rendered against the defendant and for the plaintiff, ordering the former: 1. To abate the noise and air pollution being generated by all the blowers of the air-conditioning system of Feliza _______________ 13 Records, pp. 2-5. 643 VOL. 506, NOVEMBER 2, 2006 643 AC Enterprises, Inc. vs. Frabelle Properties Corporation Building, and/or to make the Writ of Preliminary Injunction permanent;

2. To pay plaintiff the amount of P1,000,000.00 in temperate or moderate damages[;] 3. To pay the plaintiff the amount of P1,000,000.00 as and by way of exemplary damages; 4. To pay the plaintiff the amount of P500,000.00 as and by way of attorney’s fees; and 5. [To pay] the cost of the suit.”14Id., at pp. 9-10. Petitioner moved for the dismissal of the complaint on the following grounds: (1) lack of jurisdiction of the court over the subject matter of the complaint; (2) the complaint does not state a cause of action; and (3) the action is barred by res judicata, litis pendentia, and forum shopping.15Id., at pp. 8089. Petitioner averred that it was the Makati City Government that had jurisdiction over the complaint pursuant to Republic Act (R.A.) No. 7160. It also pointed out that DENR Administrative Order (A.O.) No. 30 issued on June 30, 1992 devolved to the local government units the power to determine matters pertaining to environmental management such as: (a) enforcement of pollution control and environmental protection laws, rules and regulations; (b) abatement of noise and other forms of nuisance; and (c) implementation of cease and desist orders issued by the PAB. It maintained that respondent had filed a similar action before the Makati City Government concerning the same issues presented in the complaint and that the City Building Official, Engr. Morales, had ruled in his letter dated July 19, 2002 that the excess in the noise quality standard within the vicinity was caused not only by the airconditioning system of Feliza Building but also by other prevailing factors which were beyond its control. Respondent

had failed to appeal the resolution; hence, the resolution of the City Building Official barred the complaint. _______________ 14 Id., at pp. 9-10. 15 Id., at pp. 80-89. 644 644 SUPREME COURT REPORTS ANNOTATED AC Enterprises, Inc. vs. Frabelle Properties Corporation Petitioner further averred that, aside from the action brought before the City Government, the Frabella Condominium Corporation (FCC) filed a case for Abatement of Noise and/or Air Pollution and Damages with Prayer for Interim Cease and Desist Order, docketed as PAB Case No. 01-0009NCR. As gleaned from the material averments of the two complaints, both involved the same set of facts and issues. Consequently, the petition is barred by litis pendentia, and respondent was guilty of violating Section 5, Rule 7 of the Rules of Court for failure to include in its certification against forum shopping of the pendency of the PAB case or the prior resolution by the City Government of the complaint before the City Building Official/City Engineer. Petitioner further claimed that the complaint stated no cause of action because it failed to allege any right of respondent which it was obliged to respect, and any act or omission of defendant in violation of such right. As gleaned from the EMB’s report to the City Engineer on May 24, 2002, the passing of vehicles along the street and blowers in the nearby building contributed to the ambient noise quality in the area.16CA Rollo, pp. 55-63.

In compliance with the order of the court, the parties submitted their respective Position Papers. Respondent averred that the provisions of R.A. No. 7160 cited by petitioner apply not to abatements of nuisance but to pollution control cases.17Id., at pp. 86-99. The local government units (LGUs) are only granted administrative and executive powers, not judicial or quasijudicial functions to abate a nuisance. While admitting that DENR A.O. No. 30 devolved to the LGUs the function of abating noise and other forms of nuisance as defined by law, plaintiff posited that said A.O. is not a law and the DENR cannot deprive the court of its jurisdiction over the abatement of nuisance. _______________ 16 CA Rollo, pp. 55-63. 17 Id., at pp. 86-99. 645 VOL. 506, NOVEMBER 2, 2006 645 AC Enterprises, Inc. vs. Frabelle Properties Corporation Respondent alleged that in filing a motion to dismiss, petitioner hypothetically admitted the factual allegations in the complaint and, thus, only questions of law remained; hence, the doctrine of primary jurisdiction and the need for exhaustion of administrative remedies do not apply. Moreover, petitioner itself had even admitted that respondent had tried to seek administrative relief before the Makati City Government, but the City Building Official denied the same. It insisted that to require the further exhaust of administrative remedies beyond what it had tried in the past years would be an injustice. It

claimed that the proper application of P.D. No. 984 was in issue, specifically Section 78(b) of the Rules and Regulations of the National Pollution Control Commission (NPCC) which were adopted and promulgated pursuant to Section 6 of P.D. No. 984 and Title VIII of the Civil Code. Respondent maintained that Engr. Morales’ letter to it could not be considered as final as to constitute res judicata between the parties. It was only a reply-letter. Besides, the City Engineer/Building Official could not exercise quasi-judicial functions. Due process was not also observed because no proceedings were conducted. It insisted that it wrote follow-up letters to know the basis of his findings and to confirm the fact that the Makati City Government did not issue a permit to operate its air-conditioning unit. However, Engr. Morales refused to acknowledge the same and did not reply thereto. Respondent asserted that it did not engage in forum shopping as the complainant in the PAB case was FCC, a corporation of unit owners of Frabella I. It is a totally different corporate entity, the stockholders and officers of which are not similar to FPC. On petitioner’s claim that there was no cause of action for the abatement of nuisance, it declared that the material allegations of its complaint and the answer thereto show otherwise. Petitioner had the obligation to abate the nuisance caused by the blowers of Feliza Building. Although under the DENR Report on May 24, 2002, the DENR conducted noise sampling, and noted that the passing vehicles along the street and blowers of nearby building contributed to 646 646 SUPREME COURT REPORTS ANNOTATED

AC Enterprises, Inc. vs. Frabelle Properties Corporation the noise, the basis of its complaint was the noise generated by the blowers of Feliza Building. Before the RTC court could resolve the motion to dismiss of petitioner, the PAB resolved, on July 29, 200318Id., at p. 175. to dismiss the complaint filed by Frabelle. The matter was then endorsed to the LGU concerned in accordance with Section IV, Rule III of PAB Resolution 1-C, Series of 1997, as amended. It noted that based on the pleadings of the parties, and the testimonial evidence, the case is more of a nuisance, and “[e]xcept where such would constitute a pollution case, local government units shall have the power to abate nuisance within their respective areas pursuant to the Republic Act No. 386 (Civil Code of the Philippines), Republic Act 7160 (the Local Government Code), Presidential Decree 856 (the Code of Sanitation of the Philippines), DENR Department Administrative Order No. 30, Series of 1992 and other pertinent laws, rules and regulations” without prejudice to the institution of a pollution case, upon proof that respondent had failed to comply with DENR standards and the presentation of other evidence that would warrant the PAB to take cognizance of and assert jurisdiction over the case.19Id., at p. 93. Thereafter, the RTC denied petitioner’s motion to dismiss in an Order20Rollo, pp. 119-123. dated September 15, 2003. It ruled that the doctrine of primary jurisdiction simply calls for the determination of administrative questions, which are ordinarily questions of facts and not of law. Likewise, the trial court is not divested of its jurisdiction simply because of plaintiff’s failure to observe the doctrine of exhaustion of administrative

remedies. Moreover, as gleaned from the averments of the complaint, there was an urgency of abating the noise and air pollution generated by the blowers of petitioner’s airconditioning system such that respondent prayed for injunctive relief. The RTC took note of the allegations of respondent _______________ 18 Id., at p. 175. 19 Id., at p. 93. 20 Rollo, pp. 119-123. 647 VOL. 506, NOVEMBER 2, 2006 647 AC Enterprises, Inc. vs. Frabelle Properties Corporation that it would suffer great and irreparable injury; hence, to require it to exhaust further administrative remedies would be, in effect, a nullification of its claim. According to the RTC, the doctrine of res judicata applies only to judicial and quasi-judicial proceedings and not to the exercise of administrative powers. Thus, no forum shopping was also committed. Since the findings of the City Building Official appear to be a complete disavowal of the previous results gathered from the numerous tests conducted by the EMB, the court could not be deprived of its inherent power to review the factual findings of the administrative official in order to determine the regularity of the procedure used. On the merits of the complaint, the RTC declared that the factual allegations were sufficient in themselves to constitute a cause of action against respondent and, if admitting the facts,

the court can render valid judgment on the basis thereof in accordance with the relief prayed for: “Undeniably, the instant complaint is one for abatement of nuisance. Plaintiff alleges that the operation of defendant’s blowers generates a continuous, deafening, unbearable, vibrating and stressful noise affecting its tenants. Some have already vacated their units while others refused to pay rents and threaten plaintiff to be sued because of the unabated nuisance. Plaintiff has been deprived of rental income. It had written and made numerous contacts with the defendant to complain about the nuisance and further solicited intervention from government agencies including the Government of Makati City. Defendant allegedly failed or refused to abate the nuisance which is in total disregard of the right of the plaintiff over its property. Contested findings of the EMB and City Building Official of Makati City are, likewise, put in issue. These are sufficient to constitute a cause of action against the defendant and, if admitting the facts, this Court can render valid judgment upon the same in accordance with the relief prayed for.”21Id., at p. 123. _______________ 21 Id., at p. 123. 648 648 SUPREME COURT REPORTS ANNOTATED AC Enterprises, Inc. vs. Frabelle Properties Corporation The court denied the motion for reconsideration filed by petitioner,22Id., at pp. 124-132. and the latter sought relief

from the CA via a petition for certiorari. Petitioner averred that: THE PUBLIC RESPONDENT ACTED WITHOUT JURISDICTION, OR WITH GRAVE ABUSE OF DISCRETION SO GRAVE AS TO LOSE JURISDICTION IN ASSUMING AND EXERCISING ITS JURISDICTION IN CIVIL CASE NO. 03-3745-MN, CONSIDERING THAT: A. THE HONORABLE COURT HAS NO JURISDICTION OVER THE SUBJECT MATTER OF THE COMPLAINT. JURISDICTION IS VESTED WITH THE MAKATI CITY GOVERNMENT, THE LOCAL GOVERNMENT UNIT CONCERNED. B. THE COMPLAINT IS BARRED BY RES JUDICATA. THE MAKATI CITY GOVERNMENT HAS ALREADY DECIDED A COMPLAINT FILED BY FRABELLE. FRABELLE DID NOT ELEVATE THE SAME ON APPEAL, OR, IN ANY WAY, QUESTION SUCH DECISION. THUS, THE DECISION BY THE MAKATI CITY GOVERNMENT IS NOW FINAL AND EXECUTORY. C. AT THE TIME THE COMPLAINT WAS FILED, IT WAS BARRED BY LITIS PENDENTIA. A SIMILAR ACTION WAS PENDING WITH THE POLLUTION ADJUDICATION BOARD (PAB) WHICH, SUBSEQUENTLY, FOUND NO LIABILITY ON THE PART OF AC. FRABELLE IS CLEARLY AND UNDENIABLY GUILTY OF FORUM SHOPPING. D. PLAINTIFF FRABELLE HAS NO CAUSE OF ACTION AND THE COMPLAINT FAILS TO STATE A CAUSE OF ACTION AGAINST AC ENTERPRISES.23CA Rollo, pp. 1112.

Petitioner asserted that, by express provision of law, the City of Makati has primary jurisdiction over the complaint and is the competent authority to determine the existence of any incidence of pollution, the special standards and regula_______________ 22 Id., at pp. 124-132. 23 CA Rollo, pp. 11-12. 649 VOL. 506, NOVEMBER 2, 2006 649 AC Enterprises, Inc. vs. Frabelle Properties Corporation tions controlling the same and the resolution whether a party has complied with the regulations. The complaint does not fall under any of the exceptions to the rule on exhaustion of administrative remedies. Respondent is guilty of shortcircuiting the whole process without requisite justification. Contrary to the contention of respondent, the proceedings before the City Government are quasi-judicial in nature. It pointed out that the City Government had already made its findings, which respondent did not contest in the proper tribunal within the reglementary period. It did not appeal the decision of the City Building Official conformably with DENR Administrative Order No. 37-45 (General Manual of Operations for Devolved Functions from the Department of Environment and Natural Resources to the Local Government Units); hence, the resolution became final and executory. It insisted that the complaint is but a desperate attempt to revive what is otherwise a dead issue.

On September 21, 2004, the CA rendered judgment denying the petition.24Rollo, pp. 189-202. The fallo of the decision reads: “WHEREFORE, premises considered, the petition is DISMISSED for lack of merit. Accordingly, the dismissal of the petition rendered the application for a temporary restraining order or writ of preliminary injunction moot and academic. SO ORDERED.”25Id., at p. 201. The CA ruled that the action of respondent was one for the abatement of a nuisance within the exclusive jurisdiction of the RTC. It agreed with respondents’ contention that, under R.A. No. 7160, the LGUs are not divested of its jurisdiction over an action for the abatement of a nuisance. Section 17, subparagraphs (b)(3)(iii) in relation to (b)(4) of the law pertain to the enforcement of pollution control law and not to the abatement of nuisance. While DENR A.O. No. 30 devolved to _______________ 24 Rollo, pp. 189-202. 25 Id., at p. 201. 650 650 SUPREME COURT REPORTS ANNOTATED AC Enterprises, Inc. vs. Frabelle Properties Corporation the LGUs the abatement of noise and other forms of nuisance as defined by law, this does not necessarily deprive the courts to hear and decide actions pertaining thereon. It was thus proper for respondent to bring the case before the court since it had already sought the intercession of Barangay San Lorenzo,

Makati Commercial Estate Corporation (MACEA), DENR, and the Makati City Government to no avail. Further, the doctrine of primary jurisdiction and the principle of exhaustion of administrative remedies need not be adhered to when the question between the parties is purely legal. In this case, petitioner, in filing a motion to dismiss, is deemed to have hypothetically admitted all the factual averments of respondent. Hence, what is left for the court to adjudicate is only the application of laws dealing with nuisance. The CA also declared that the filing of the case below was not barred by res judicata for the reason that the decision adverted to by petitioner was only a letter of the City Building Official to respondent; no adversarial proceedings or submission of evidence and position papers took place before said office. At best, the letter is only an exercise of the City Government’s administrative powers, not judicial or quasi-judicial functions which the City Building Official does not possess. Respondent’s filing of the complaint before the Malabon RTC is also not barred by litis pendentia. FCC, as complainant, initiated the action before the PAB, while the respondent filed the pending case before the court; there is no identity of parties since FCC has a personality separate and distinct from that of respondent. Finally, the CA held that all the requisites for the existence of a cause of action were present in the case at bar. Due to the unbearable noise and hot air allegedly produced by the blowers installed at petitioner’s building, tenants of respondent have been complaining, forcing them to vacate their units while others refused to pay their rent and threatened to take legal action. Respondent had the right to abate such nuisance in

order to avert future business losses. Since petitioner refused to heed its demands, respondent was well within its 651 VOL. 506, NOVEMBER 2, 2006 651 AC Enterprises, Inc. vs. Frabelle Properties Corporation right to file a case protecting its property and proprietary rights. On January 18, 2005, the appellate court resolved to deny petitioner’s motion for reconsideration26Id., at pp. 205-221. for lack of merit.27Id., at pp. 256-257. Petitioner forthwith filed the instant petition for review on certiorari, praying for the reversal of the CA decision and resolution on the following grounds: I. THE COURT OF APPEALS ERRONEOUSLY RULED THAT THE LOWER COURT HAS JURISDICTION OVER THE INSTANT CASE, CONSIDERING THAT THE EXCLUSIVE AUTHORITY TO DETERMINE THE ISSUES INVOLVED IN THE CASE A QUO LIES WITH THE CITY OF MAKATI. A. THE COURT OF APPEALS ERRED IN NOT RULING THAT THE POWER TO ABATE NUISANCES AND CONTROL NOISE POLLUTION HAS BEEN DEVOLVED TO THE LOCAL GOVERNMENT UNIT CONCERNED IN ACCORDANCE WITH REPUBLIC ACT 7160 OTHERWISE KNOWN AS THE LOCAL GOVERNMENT CODE. II.

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE ISSUES INVOLVED IN THE INSTANT CASE NECESSARILY INVOLVE A QUESTION OF FACT, AND, THEREFORE, THE DOCTRINE OF PRIMARY JURISDICTION AND THE DOCTRINE OF EXHAUSTION OF ADMINISTRATIVE REMEDIES ARE BOTH APPLICABLE. III. THE COURT OF APPEALS ERRONEOUSLY RULED THAT THE COMPLAINT IS NOT BARRED BY (1) LITIS PENDENTIA; (2) RES JUDICATA; AND (3) FORUM SHOPPING. _______________ 26 Id., at pp. 205-221. 27 Id., at pp. 256-257. 652 652 SUPREME COURT REPORTS ANNOTATED AC Enterprises, Inc. vs. Frabelle Properties Corporation IV. THE COURT OF APPEALS ERRED IN RULING THAT RESPONDENT’S COMPLAINT STATES A CAUSE OF ACTION.28Id., at p. 21. Petitioner insists that, under Section 17(b)(4) in relation to Section 17(b)(3)(III) of R.A. No. 7160, the City of Makati is obliged to enforce the Pollution Control Law, and under Section 458(4)(I) of the said law, the Sangguniang Panglungsod is empowered to declare, prevent or abate any nuisance. Thus, the City of Makati has exclusive jurisdiction

over respondent’s complaint for the abatement of the noise from the blowers of the air conditioning unit of the Feliza Building and of the hot air generated by the said blowers. Petitioner avers that the issues before the trial court were factual in nature. By its motion to dismiss the complaint, it did not hypothetically admit the allegations of respondent in its complaint that the noise and hot air emitted by the blowers of the Feliza Building constitute a nuisance or air pollution because the allegations are mere conclusions of law and not mere statements of facts. Respondent’s complaint before the trial court and its several complaints against petitioner before quasijudicial bodies is an implied admission of the availability of administrative remedies under the law. Since respondent failed to pursue and exhaust all administrative remedies before filing its complaint below, its action was premature. While there were exceptions to the requirement of exhaustion of administrative remedies, nevertheless, respondent failed to establish any of them. Moreover, respondent’s action before the RTC was barred by the letter of the City Engineer’s Office of Makati City on July 19, 2002 which ruled that there was no factual basis for respondent’s complaint; hence, respondent’s complaint was barred by res judicata. The complainant in PAB Case No. 01-0009-NCR involved the same set of issues and circumstances, and the complainant therein and respondent represented the same interests, alleged the same rights _______________ 28 Id., at p. 21. 653 VOL. 506, NOVEMBER 2, 2006 653

AC Enterprises, Inc. vs. Frabelle Properties Corporation and prayed for the same reliefs. Consequently, the RTC erred in denying its motion to dismiss the complaint on the ground of res judicata, litis pendentia and forum shopping. Finally, respondent had no cause of action against petitioner because, as shown by the tests conducted by the EMB on May 24, 2002, based on noise sampling tests, the noise and air pollution did not emanate from Feliza Building but from passing cars. In its comment on the petition, respondent maintained that the assailed orders of the RTC and decision of the CA are in accord with law and the rulings of this Court. Respondent maintains that the only issue before the trial court was how to apply P.D. No. 984 and Section 78(b) and the Rules and Regulations of the NPCC and the provisions of the New Civil Code governing the abatement of nuisance. By filing a motion to dismiss the complaint on the ground that it stated no cause of action, the petitioner thereby hypothetically admitted the factual allegations therein. The court must hear the case to be able to finally resolve the factual issues that may be raised in the Answer of the petitioner after the denial of its motion to dismiss. Respondent avers that it was not obliged to first exhaust all administrative remedies. It pointed out that the Building Official of Makati City ignored its right to due process when he dismissed its complaint without conducting an investigation based solely on the July 2, 2002 Report of the EMB Panel. The issues between the parties are legal, that is, whether there is irreparable injury. It likewise points out that to require

exhaustion of administrative remedies would be unreasonable as the rule does not provide a plain, speedy and adequate remedy. It insists that it could not have appealed the letters of the City Mayor and the Building Official of Makati because there are no rules promulgated by the City governing appeals from said letters. It points out that the City Engineer and City Mayor did not grant its letter request654 654 SUPREME COURT REPORTS ANNOTATED AC Enterprises, Inc. vs. Frabelle Properties Corporation ing for a clarification of petitioner’s letters denying its lettercomplaint. The petition is denied for lack of merit. The Order of the RTC dated September 15, 2003 denying the motion to dismiss of petitioner (as defendant below) is interlocutory in nature. The general rule is that an order denying a motion to dismiss a complaint cannot be questioned via a special civil action for certiorari until a final judgment on the merits of the case is rendered. A party must exhaust all remedies available before resorting to certiorari. A writ for certiorari is not intended to correct every controversial interlocutory ruling. It is resorted only to correct a grave abuse of discretion or a whimsical exercise of judgment equivalent to lack of jurisdiction. It is a remedy narrow in scope, limited only to keeping an inferior court within its jurisdiction and to relieve persons from arbitrary acts which courts have no power or authority to perform.29Indiana Aerospace University v. Commission on Higher Education, G.R. No. 139371, April 4,

2001, 356 SCRA 367, 384. The remedy of petitioner was to go to trial and appeal from an adverse decision. Moreover, the CA correctly ruled that the RTC did not commit grave abuse of its discretion in denying the motion to dismiss filed by respondent. Indeed, the assailed orders of the RTC are in accord with the law and rulings of this Court, taking into account the averments of the complaint and the answer appended thereto and the other pleadings of the parties. The RTC Has Jurisdiction Over the Action of the Respondent for Abatement Of Nuisance It is axiomatic that the nature of an action and whether the tribunal has exclusive jurisdiction over such action are to be determined from the material allegations of the complaint, the law in force at the time the complaint is filed, and the _______________ 29 Indiana Aerospace University v. Commission on Higher Education, G.R. No. 139371, April 4, 2001, 356 SCRA 367, 384. 655 VOL. 506, NOVEMBER 2, 2006 655 AC Enterprises, Inc. vs. Frabelle Properties Corporation character of the relief sought irrespective of whether plaintiff is entitled to all or some of the claims averred. Jurisdiction is not affected by the pleas or the theories set up by defendant in an answer to the complaint or a motion to dismiss the same. Otherwise, jurisdiction would be dependent almost entirely upon the whims of defendants.30Arzaga v. Copias, 448 Phil.

171, 180; 400 SCRA 148, 154-155 (2003); Del Mar v. Philippine Amusement and Gaming Corporation, 400 Phil. 307, 326; 346 SCRA 485 (2000). We agree with the ruling of the RTC, as affirmed by the CA, that as gleaned from the material averments of the complaint as well as the character of the relief prayed for by respondent in its complaint before the RTC, the petition is one for the judicial abatement of a private nuisance, more specifically the noise generated by the blowers of the airconditioning system of the Feliza Building owned by petitioner, with a plea for a writ of preliminary and permanent injunction, plus damages. Such action of respondent is incapable of pecuniary estimation because the basic issue is something other than the right to recover a sum of money. Although respondent prayed for judgment for temperate or moderate damages and exemplary damages, such claims are merely incidental to or as a consequence of, the principal relief sought by respondent. An action incapable of pecuniary estimation is within the exclusive jurisdiction of the RTC as provided in Batas Pambansa Bilang (B.P. Blg.) 129, as amended by R.A. No. 7691.31Radio Communications of the Philippines v. Court of Appeals, 435 Phil. 62, 66; 386 SCRA 67, 70 (2002); Raymundo v. Court of Appeals, G.R. No. 97805, September 2, 1992, 213 SCRA 457, 460461. In Tatel v. Municipality of Virac,32G.R. No. 40243, March 11, 1992, 207 SCRA 157. the Court ruled that a simple suit for abatement of a nuisance is within the exclusive jurisdiction of the Court of First Instance, now the RTC. _______________

30 Arzaga v. Copias, 448 Phil. 171, 180; 400 SCRA 148, 154155 (2003); Del Mar v. Philippine Amusement and Gaming Corporation, 400 Phil. 307, 326; 346 SCRA 485 (2000). 31 Radio Communications of the Philippines v. Court of Appeals, 435 Phil. 62, 66; 386 SCRA 67, 70 (2002); Raymundo v. Court of Appeals, G.R. No. 97805, September 2, 1992, 213 SCRA 457, 460461. 32 G.R. No. 40243, March 11, 1992, 207 SCRA 157. 656 656 SUPREME COURT REPORTS ANNOTATED AC Enterprises, Inc. vs. Frabelle Properties Corporation Article 694 of the New Civil Code defines a nuisance as follows: “Art. 694. A nuisance is any act, omission, establishment, business, condition of property, or anything else which: (1) Injures or endangers the health or safety of others; or (2) Annoys or offends the senses; or (3) Shocks, defies or disregards decency or morality; or (4) Obstructs or interferes with the free passage of any public highway or street, or any body of water; or (5) Hinders or impairs the use of property.” The term “nuisance” is so comprehensive that it has been applied to almost all ways which have interfered with the rights of the citizens, either in person, property, the enjoyment of his property, or his comfort.33TOLENTINO, CIVIL CODE OF THE PHILIPPINES,PROPERTY,VOL. II, p. 372. According to Article 695 of the Civil Code, a nuisance may be either public or private:

“Art. 695. Nuisance is either public or private. A public nuisance affects a community or neighborhood or any considerable number of persons, although the extent of the annoyance, danger or damage upon individuals may be unequal. A private nuisance is one that is not included in the foregoing definition.” A private nuisance has been defined as one which violates only private rights and produces damages to but one or a few persons.34Id., at p. 377. A nuisance is public when it interferes with the exercise of public right by directly encroaching on public property or by causing a common injury.35Connerty v. Metropolitan District Commission, 495 N.E.2d 840 (1986). It is an unreason_______________ 33 TOLENTINO, CIVIL CODE OF THE PHILIPPINES,PROPERTY,VOL. II, p. 372. 34 Id., at p. 377. 35 Connerty v. Metropolitan District Commission, 495 N.E.2d 840 (1986). 657 VOL. 506, NOVEMBER 2, 2006 657 AC Enterprises, Inc. vs. Frabelle Properties Corporation able interference with the right common to the general public.36Harvey v. Mason City & Ft. Dodge R. Co., 105 N.W. 958 (1906). Under Article 705 of the New Civil Code, a party aggrieved by a private nuisance has two alternative remedies: (1) a civil action; or (2) abatement, without judicial proceedings. A

person injured by a private nuisance may abate it as provided in Article 706: “Art. 706. Any person injured by a private nuisance may abate it by removing, or if necessary by destroying the thing which constitutes the nuisance, without committing a breach of the peace or doing unnecessary injury. However, it is indispensable that the procedure for extrajudicial abatement of a public nuisance by a private person be followed.” A private nuisance action is the remedy for an invasion of a property right. On the other hand, the action for the abatement of a public nuisance should be commenced by the city or municipality.37Art. 701, NEW CIVIL CODE. A private person may institute an action for the abatement of a public nuisance in cases wherein he suffered a special injury of a direct and substantial character other than that which the general public shares.38Connerty v. Metropolitan District Commission, supra note 36. The district health officer shall determine whether or not abatement, without judicial proceedings, is the best remedy against a public nuisance.39Art. 702, NEW CIVIL CODE. In the present case, respondent opted to file an action in the RTC for abatement of the private nuisance complained of and damages under Article 697 of the New Civil Code for its past existence. One has an action to recover personal damages arising from a private nuisance. The gist of the action is the unrea_______________ 36 Harvey v. Mason City & Ft. Dodge R. Co., 105 N.W. 958 (1906). 37 Art. 701, NEW CIVIL CODE.

38 Connerty v. Metropolitan District Commission, supra note 36. 39 Art. 702, NEW CIVIL CODE. 658 658 SUPREME COURT REPORTS ANNOTATED AC Enterprises, Inc. vs. Frabelle Properties Corporation sonable interference by the defendant with the use and enjoyment of properties. Indeed, petitioner may be compelled to adopt the necessary measures to reduce or deaden the nuisance emanating from the blowers of the air-conditioning system at the Feliza Building. The PAB has no primary jurisdiction over the noise complained of by the respondent. The resolution of the issue before the RTC, which is whether the noise complained of is actionable nuisance, does not require any special technical knowledge, expertise and experience of the PAB or even of Makati City requiring the determination of technical and intricate matters of fact. Indeed, the PAB dismissed the complaint of the Frabelle I Condominium Corporation declaring that, based on the pleadings before it and the evidence of the parties, the case is more of an abatement of a nuisance under the New Civil Code and DENR Order No. 30, Series of 1992. It declared that it was not a pollution case. The Resolution reads: “After considering the evidence adduced and the arguments of both parties in their pleadings, the Board, likewise giving due importance to the technical findings giving rise to the conclusion that the nature of the case is more of a nuisance,

hereby resolves to DISMISS the pending complaint of pollution in accordance with Rule III, Section IV of PAB Resolution 1-C, Series of 1997 as amended, which categorically states that “Except where such would constitute a pollution case, local government units shall have the power to abate a nuisance within their respective areas pursuant to the Republic Act No. 386 (Civil Code of the Philippines), Republic Act 7160 (the Local Government Code), Presidential Decree 856 (the Code on Sanitation of the Philippines), DENR Department Administrative Order No. 30, Series of 1992 and other pertinent laws, rules and regulations.” (italics supplied) Accordingly, the issues raised by the complainant are hereby endorsed to the Local Government Unit concerned for appropriate action consistent with above cited laws, and without prejudice to the institution of a pollution case upon definite findings that herein respondent had failed to comply with the DENR Standards, and 659 VOL. 506, NOVEMBER 2, 2006 659 AC Enterprises, Inc. vs. Frabelle Properties Corporation presentation of other evidence that would warrant the Board to take cognizance of the matter as a pollution case.”40CA Rollo, p. 93. The power of the NPCC to resolve pollution cases under Section 6, paragraphs (e), (f), (g), (j), (k) and (p) of P.D. No. 984 is vested in the Pollution Adjudication Board (PAB) under Title XIV, Chapter 2, Section 13 of the 1987 Administrative Code, which reads:

“SEC. 13. Pollution Adjudication Board.—The Pollution Adjudication Board, under the Office of the Secretary, shall be composed of the Secretary as Chairman, two Undersecretaries as may be designated by the Secretary, the Director of Environmental Management, and three others to be designated by the Secretary as members. The Board shall assume the powers and functions of the Commission Commissioners of the National Pollution Control Commission with respect to the adjudication of pollution cases under Republic Act 3931 and Presidential Decree 984, particularly with respect to Section 6 letters (e), (f), (g), (j), (k) and (p) of P.D. 984. The Environment Management Bureau shall serve as the Secretariat of the Board. These powers and functions may be delegated to the regional officers of the Department in accordance with the rules and regulations to be promulgated by the Board.” The cases referred to in Section 6 of P.D. No. 984 are as follows: (e) Issue orders or decisions to compel compliance with the provisions of this Decree and its implementing rules and regulations only after proper notice and hearing. (f) Make, alter or modify orders requiring the discontinuance of pollution specifying the conditions and the time within such discontinuance must be accomplished. (g) Issue, renew or deny permits, under such conditions as it may determine to be reasonable, for the prevention and abatement of pollution, for the discharge of sewage, industrial waste, or for the installation or operation of sewage works and industrial disposal system or parts thereof: Provided, however, That the Commission, by _______________

40 CA Rollo, p. 93. 660 660 SUPREME COURT REPORTS ANNOTATED AC Enterprises, Inc. vs. Frabelle Properties Corporation rules and regulations, may require subdivisions, condominium, hospitals, public buildings and other similar human settlements to put up appropriate central sewerage system and sewage treatment works, except that no permits shall be required of any new sewage works or changes to or extensions of existing works that discharge only domestic or sanitary wastes from a single residential building provided with septic tanks or their equivalent. The Commission may impose reasonable fees and charges for the issuance or renewal of all permits herein required. xxx (j) Serve as arbitrator for the determination of reparations, or restitution of the damages and losses resulting from pollution. (k) Deputize in writing or request assistance of appropriate government agencies or instrumentalities for the purpose of enforcing this Decree and its implementing rules and regulations and the orders and decision of the Commission. xxx (p) Exercise such powers and perform such other functions as may be necessary to carry out its duties and responsibilities under this Decree. Section 2(a) of P.D. No. 984 defines pollution as: (a) “Pollution” means any alteration of the physical, chemical and biological properties of any water, air and/or land

resources of the Philippines, or any discharge thereto of any liquid, gaseous or solid wastes as will or is likely to create or to render such water, air and land resources harmful, detrimental or injuries to public health, safety or welfare or which will adversely affect their utilization for domestic, commercial, industrial, agricultural, recreational or other legitimate purposes. We agree with petitioner’s contention that, under Section 447(a)(3)(i) of R.A. No. 7160, otherwise known as the Local Government Code, the Sangguniang Panglungsod is empowered to enact ordinances declaring, preventing or abating noise and other forms of nuisance. It bears stressing, however, that the Sangguniang Bayan cannot declare a particular thing as a nuisance per se and order its condemnation. It does 661 VOL. 506, NOVEMBER 2, 2006 661 AC Enterprises, Inc. vs. Frabelle Properties Corporation not have the power to find, as a fact, that a particular thing is a nuisance when such thing is not a nuisance per se; nor can it authorize the extrajudicial condemnation and destruction of that as a nuisance which in its nature, situation or use is not such. Those things must be determined and resolved in the ordinary courts of law. If a thing be in fact, a nuisance due to the manner of its operation, that question cannot be determined by a mere resolution of the Sangguniang Bayan.41Estate of Francisco v. Court of Appeals, G.R. No. 91279, July 25, 1991, 199 SCRA 597, 601.

Section 17 of R.A. No. 7160 provides that local government units shall discharge the functions and responsibilities of national agencies and offices devolved to them pursuant to the law; and such other powers, functions and responsibilities as are necessary, appropriate or incidental to efficient and effective provisions of the basic services and facilities in the Code. Devolution refers to the act by which the national government confers powers and authority upon the various local government units to perform specific functions and responsibilities. What were devolved by the DENR to the LGUs under DENR Administrative Order No. 30 dated June 30, 1992, in relation to R.A. No. 7160, were the regulatory functions/duties of the National Pollution Control Commission (NPCC) which were absorbed and integrated by the EMB, as provided in Title No. XIV, Chapter 2, Section 17 of the 1987 Administrative Code. However, the DENR exercises administrative supervision and control over the LGUs. Enumerated in Chapter IV, Article 1, Sections 74 to 79 of the Rules and Regulations promulgated by the NPCC implementing P.D. 984 are the regulations relative to noise control, specifically, the noise quality standards. Under Section 78 of said Rules, as amended by NPCC Memorandum Circular No. 002, dated May 12, 1980, the _______________ 41 Estate of Francisco v. Court of Appeals, G.R. No. 91279, July 25, 1991, 199 SCRA 597, 601. 662 662 SUPREME COURT REPORTS ANNOTATED AC Enterprises, Inc. vs. Frabelle Properties Corporation

Environmental Quality Standards for Noise in General Areas are: Category of Area Daytime Morning & Evening Nighttime AA 50dB 45dB 40dB A 55 ” 50 ” 45 ” B 65 ” 60 ” 55 ” C 70 ” 65 ” 60 ” D 75 ” 70 ” 65 ” Class “A” area refers to that section or contiguous area which is primarily used for residential purposes, while Class “B” refers to that section or contiguous area which is primarily a commercial area. Frabelle I and Feliza Buildings are located in Makati City, an area which is classified as a commercial district. The division of the 24-hour period shall be as follows: Morning ......................................................................... 5:00 A.M. to 9:00 A.M. Daytime ......................................................................... 8:00 A.M. to 10:00 P.M. Evening .......................................................................... 6:00 P.M. to 10:00 P.M. Nighttime ....................................................................... 10:00 P.M.to 5:00 P.M. The LGUs may conduct inspections, at all reasonable times, without doing damage, after due notice to the owners of

buildings to ascertain compliance with the noise standards under the law; and to order them to comply therewith if they fail to do so; or suspend or cancel any building permits or clearance certificates issued by it for said units/buildings after due hearing as required by P.D. No. 984. However, the LGUs have no power to declare a particular thing as a nuisance unless such as thing is a nuisance per se; nor can they effect the extrajudicial abatement of that as a 663 VOL. 506, NOVEMBER 2, 2006 663 AC Enterprises, Inc. vs. Frabelle Properties Corporation nuisance which in its nature or use is not such. Those things must be resolved by the courts in the ordinary course of law. Whether or not noise emanating from a blower of the airconditioning units of the Feliza Building is nuisance is to be resolved only by the court in due course of proceedings. The plaintiff must prove that the noise is a nuisance and the consequences thereof. Noise is not a nuisance per se. It may be of such a character as to constitute a nuisance, even though it arises from the operation of a lawful business, only if it affects injuriously the health or comfort of ordinary people in the vicinity to an unreasonable extent. Injury to a particular person in a peculiar position or of especially sensitive characteristics will not render the noise an actionable nuisance. In the conditions of present living, noise seems inseparable from the conduct of many necessary occupations. Its presence is a nuisance in the popular sense in which that word is used, but in the absence of statute, noise becomes actionable only when it

passes the limits of reasonable adjustment to the conditions of the locality and of the needs of the maker to the needs of the listener. What those limits are cannot be fixed by any definite measure of quantity or quality; they depend upon the circumstances of the particular case. They may be affected, but are not controlled, by zoning ordinances. The delimitation of designated areas to use for manufacturing, industry or general business is not a license to emit every noise profitably attending the conduct of any one of them. The test is whether rights of property, of health or of comfort are so injuriously affected by the noise in question that the sufferer is subjected to a loss which goes beyond the reasonable limit imposed upon him by the condition of living, or of holding property, in a particular locality in fact devoted to uses which involve the emission of noise although ordinary care is taken to confine it within reasonable bounds; or in the vicinity of property of another owner who, though creating a 664 664 SUPREME COURT REPORTS ANNOTATED AC Enterprises, Inc. vs. Frabelle Properties Corporation noise, is acting with reasonable regard for the rights of those affected by it.42Tortorella v. H. Traiser & Co., 90 ALR 1203 (1933). Commercial and industrial activities which are lawful in themselves may become nuisances if they are so offensive to the senses that they render the enjoyment of life and property uncomfortable. The fact that the cause of the complaint must be substantial has often led to expressions in the opinions that

to be a nuisance the noise must be deafening or loud or excessive and unreasonable. The determining factor when noise alone is the cause of complaint is not its intensity or volume. It is that the noise is of such character as to produce actual physical discomfort and annoyance to a person of ordinary sensibilities, rendering adjacent property less comfortable and valuable. If the noise does that it can well be said to be substantial and unreasonable in degree; and reasonableness is a question of fact dependent upon all the circumstances and conditions. There can be no fixed standard as to what kind of noise constitutes a nuisance.43Kentucky and West Virginia Power Company v. Anderson, 156 S.W.2d 857 (1941) (emphasis ours). The courts have made it clear that in every case the question is one of reasonableness. What is a reasonable use of one’s property and whether a particular use is an unreasonable invasion of another’s use and enjoyment of his property so as to constitute a nuisance cannot be determined by exact rules, but must necessarily depend upon the circumstances of each case, such as locality and the character of the surroundings, the nature, utility and social value of the use, the extent and nature of the harm involved, the nature, utility and social value of the use or enjoyment invaded, and the like.44Clinic and Hospital v. McConnell, 23 ALR2d 1278 (1951). Persons who live or work in thickly populated business districts must necessarily endure the usual annoyances and of those trades and businesses which are properly located and _______________ 42 Tortorella v. H. Traiser & Co., 90 ALR 1203 (1933).

43 Kentucky and West Virginia Power Company v. Anderson, 156 S.W.2d 857 (1941) (emphasis ours). 44 Clinic and Hospital v. McConnell, 23 ALR2d 1278 (1951). 665 VOL. 506, NOVEMBER 2, 2006 665 AC Enterprises, Inc. vs. Frabelle Properties Corporation carried on in the neighborhood where they live or work. But these annoyances and discomforts must not be more than those ordinarily to be expected in the community or district, and which are incident to the lawful conduct of such trades and businesses. If they exceed what might be reasonably expected and cause unnecessary harm, then the court will grant relief.45Sullivan v. Royer, 72 Cal. 248, 13 P 655 (1887); Five Oaks Corp. v. Gathmann, 190 Md 348, 58 A2d 656 (1948). A finding by the LGU that the noise quality standards under the law have not been complied with is not a prerequisite nor constitutes indispensable evidence to prove that the defendant is or is not liable for a nuisance and for damages. Such finding is merely corroborative to the testimonial and/or other evidence to be presented by the parties. The exercise of due care by the owner of a business in its operation does not constitute a defense where, notwithstanding the same, the business as conducted, seriously affects the rights of those in its vicinity.46Robinson v. Westman, 29 N.W.2d 1 (1947). We reject petitioner’s contention that respondent’s complaint does not state a cause of action for abatement of a private nuisance and for damages. Under Section l(g), Rule 16 of the Rules of Court, a complaint may be dismissed upon motion if

the complaint states no cause of action, or that a condition precedent for filing the claim has not been complied with.47Section 1(j), Rule 16, Rules of Court. A cause of action is the act or omission by which a party violates a right of another.48Section 2, Rule 2, 1997 Rules of Civil Procedure. A cause of action exists if the following elements are present: (1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate such right; and (3) an act _______________ 45 Sullivan v. Royer, 72 Cal. 248, 13 P 655 (1887); Five Oaks Corp. v. Gathmann, 190 Md 348, 58 A2d 656 (1948). 46 Robinson v. Westman, 29 N.W.2d 1 (1947). 47 Section 1(j), Rule 16, Rules of Court. 48 Section 2, Rule 2, 1997 Rules of Civil Procedure. 666 666 SUPREME COURT REPORTS ANNOTATED AC Enterprises, Inc. vs. Frabelle Properties Corporation or omission on the part of such defendant violative of the right of plaintiff or constituting a breach of the obligation of defendant to plaintiff for which the latter may maintain an action for recovery of damages.49Mondragon Leisure and Resorts Corporation v. United Coconut Planters Bank, G.R. No. 154187, April 14, 2004, 427 SCRA 585, 592; Barcelona v. Court of Appeals, G.R. No. 130087, September 24, 2003, 412 SCRA 41, 46; Nadela v. City of Cebu, G.R. No. 149627, Se...

The fundamental test for failure to state a cause of action is whether, admitting the veracity of what appears on the face and within the four corners of the complaint, plaintiff is entitled to the relief prayed for. Stated otherwise, may the court render a valid judgment upon the facts alleged therein?50Regino v. Pangasinan Colleges of Science and Technology, G.R. No. 156109, November 18, 2004, 443 SCRA 56, 59; Hongkong and Shanghai Banking Corporation Limited v. Catalan, G.R. No. 159590, October 18, 2004, 440 SCRA 498, 510; Mondragon Leisure and Resorts ... Indeed, the inquiry is into the sufficiency, not the veracity of the material allegations.51Hongkong and Shanghai Banking Corporation, Limited v. Catalan, Id. If the allegations in the complaint furnish sufficient basis on which it can be maintained, it _______________ 49 Mondragon Leisure and Resorts Corporation v. United Coconut Planters Bank, G.R. No. 154187, April 14, 2004, 427 SCRA 585, 592; Barcelona v. Court of Appeals, G.R. No. 130087, September 24, 2003, 412 SCRA 41, 46; Nadela v. City of Cebu, G.R. No. 149627, September 18, 2003, 411 SCRA 315, 323; Bank of America NT & SA v. Court of Appeals, 448 Phil. 181, 194; 400 SCRA 156, 167 (2003); Ceroferr Realty Corporation v. Court of Appeals, 426 Phil. 522, 528; 376 SCRA 144, 148 (2002); Uy v. Hon. Evangelista, 413 Phil. 403, 415; 361 SCRA 95, 107 (2001); Drilon v. Court of Appeals, G.R. No. 106922, April 20, 2001, 357 SCRA 12, 21; and Alberto v. Court of Appeals, 390 Phil. 253, 263; 334 SCRA 756, 766 (2000). 50 Regino v. Pangasinan Colleges of Science and Technology, G.R. No. 156109, November 18, 2004, 443 SCRA 56, 59;

Hongkong and Shanghai Banking Corporation Limited v. Catalan, G.R. No. 159590, October 18, 2004, 440 SCRA 498, 510; Mondragon Leisure and Resorts Corporation v. United Coconut Planters Bank, supra, at p. 591; Equitable Philippine Commercial International Bank v. Court of Appeals, G.R. No. 143556, March 16, 2004, 425 SCRA 544, 552; Vda. de Daffon v. Court of Appeals, 436 Phil. 233, 239; 387 SCRA 427, 432 (2002); Heirs of Kionisala v. Heirs of Dacut, 428 Phil. 249, 259; 378 SCRA 206, 213-214 (2002); Alberto v. Court of Appeals, Id.; Heirs of Paez v. Hon. Torres, 381 Phil. 393, 400; 324 SCRA 403, 410 (2000); and Dabuco v. Court of Appeals, 379 Phil. 939, 949; 322 SCRA 853, 862-863 (2000). 51 Hongkong and Shanghai Banking Corporation, Limited v. Catalan, Id. 667 VOL. 506, NOVEMBER 2, 2006 667 AC Enterprises, Inc. vs. Frabelle Properties Corporation should not be dismissed regardless of the defenses that may be presented by defendants.52Id.; Mondragon Leisure and Resorts Corporation v. United Coconut Planters Bank, supra, at pp. 591-592; and Vda. de Daffon v. Court of Appeals, supra, at p. 239; p. 432. As the Court emphasized: “In determining whether allegations of a complaint are sufficient to support a cause of action, it must be borne in mind that the complaint does not have to establish or allege facts proving the existence of a cause of action at the outset; this will have to be done at the trial on the merits of the case. To sustain a motion to dismiss for lack of cause of action, the complaint

must show that the claim for relief does not exist, rather than that a claim has been defectively stated, or is ambiguous, indefinite or uncertain. Equally important, a defendant moving to dismiss a complaint on the ground of lack of cause of action is regarded as having hypothetically admitted all the averments thereof.”53Parañaque Kings Enterprises, Inc. v. Court of Appeals, G.R. 111538, February 26, 1997, 268 SCRA 727. The general rule is that the facts asserted in the complaint must be taken into account without modification although with reasonable inferences therefrom.54Nadela v. City of Cebu, supra, at p. 323; Heirs of Kionisala v. Heirs of Dacut, supra, at p. 259; pp. 213-214. However, all the pleadings filed may be considered, including annexes, motions and the other evidence on record, to wit: “However, in so doing, the trial court does not rule on the truth or falsity of such documents. It merely includes such documents in the hypothetical admission. Any review of a finding of lack of cause of action based on these documents would not involve a calibration of the probative value of such pieces of evidence but would only limit itself to the inquiry of whether the law was properly applied given the facts and these supporting documents. Therefore, what would inevitably arise from such a review are pure questions of law, and not questions of fact.”55China Road and Bridge Corporation v. Court of Appeals, 401 Phil. 590, 602; 348 SCRA 401, 412 (2000). _______________ 52 Id.; Mondragon Leisure and Resorts Corporation v. United Coconut Planters Bank, supra, at pp. 591-592; and Vda. de Daffon v. Court of Appeals, supra, at p. 239; p. 432.

53 Parañaque Kings Enterprises, Inc. v. Court of Appeals, G.R. 111538, February 26, 1997, 268 SCRA 727. 54 Nadela v. City of Cebu, supra, at p. 323; Heirs of Kionisala v. Heirs of Dacut, supra, at p. 259; pp. 213-214. 55 China Road and Bridge Corporation v. Court of Appeals, 401 Phil. 590, 602; 348 SCRA 401, 412 (2000). 668 668 SUPREME COURT REPORTS ANNOTATED AC Enterprises, Inc. vs. Frabelle Properties Corporation Section 2, Rule 3, of the Revised Rules of Civil Procedure provides that every action must be prosecuted or defended in the name of the real party-in-interest. SEC. 2. Parties in interest.—A real party in interest is the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit. Unless otherwise authorized by law or these Rules, every action must be prosecuted or defended in the name of the real party in interest. (2a) “Interest” within the meaning of the rule means material interest, an interest in essence to be affected by the judgment as distinguished from mere interest in the question involved, or a mere incidental interest. By real interest is meant a present substantial interest, as distinguished from a mere expectancy or a future, contingent, subordinate or consequential interest.56Ortigas & Co., Ltd. v. Court of Appeals, 400 Phil. 615, 625; 346 SCRA 748, 757-758 (2000). A real party in interest-plaintiff is one who has a legal right while a real party defendant is one who has a correlative legal obligation whose

act or omission violate the legal right of the former.57Rebollido v. Court of Appeals, G.R. No. 81123, February 28, 1989, 170 SCRA 800, 806. A person injured by a nuisance may bring an action in his own name and in behalf of others similarly affected to abate the same.58Robinson v. Westman, supra note 47. One who has an interest in the property affected such as the owner thereof or fix interest therein are proper parties as plaintiffs.59Connerty v. Metropolitan District Commission, supra note 36. Possession alone of real estate is sufficient to sustain an action to recover damages from the maintenance of a nuisance by the adjoining property in such manner as to injure the enjoyment of the former. In the present case, respondent made the following allegations in its complaint below: _______________ 56 Ortigas & Co., Ltd. v. Court of Appeals, 400 Phil. 615, 625; 346 SCRA 748, 757-758 (2000). 57 Rebollido v. Court of Appeals, G.R. No. 81123, February 28, 1989, 170 SCRA 800, 806. 58 Robinson v. Westman, supra note 47. 59 Connerty v. Metropolitan District Commission, supra note 36. 669 VOL. 506, NOVEMBER 2, 2006 669 AC Enterprises, Inc. vs. Frabelle Properties Corporation [Every time] the Feliza Building’s air-conditioning system is turned on, all or a good number of the 36 blowers are made to

operate simultaneously. The operation of the Feliza’s blowers generates a continuous defeaning unbearable vibrating and stressful noise affecting the tenants of Frabella I Condominium. Hot air is also blasted from the [Feliza Building’s blowers to the direction of the Frabella I Condominium. xxxx The tenants occupying the 5th to the 16th floors of the Frabella I Condominium facing Feliza Building are directly subjected to a daily continuous intense noise and hot air blast coming from the blowers of the [10-storey] Feliza Building. Some are tenants of plaintiff, who have complained to plaintiff about the matter. Tenants who could not bear the nuisance any longer have vacated their units, and as a result, many units of plaintiff have remained vacant, and unoccupied or uninhabitable thereby depriving plaintiff with rental income that it should have otherwise be receiving. xxxx Defendant did not perform any remedial or rectification works to lower the noise being generated by the blowers; As a consequence of such unbearable, hot air and stressful noise, the occupants of the Frabella I, including the tenants of plaintiff, have been and still are, prevented from enjoying peaceful and comfortable use of their property thereby forcing them to vacate and or to transfer elsewhere. Notwithstanding the foregoing results, repeated requests/ demands from the plaintiff and recommendation of the DENR, MACEA and MMDA to abate nuisance, the defendant has ignored and still continues to ignore such requests/demands/recommendation.

Appended to respondent’s complaint are its letters of demand to the petitioner for the latter to abate the nuisance complained of, as well as the results of the tests conducted by the DENR showing that the noise generated by the blowers of the Feliza Building is beyond the legally allowable level standards under Section 78 of P.D. No. 984. 670 670 SUPREME COURT REPORTS ANNOTATED AC Enterprises, Inc. vs. Frabelle Properties Corporation By filing a motion to dismiss the complaint on the ground that the complaint does not state a sufficient cause of action for abatement of nuisance and damages, petitioner hypothetically admitted the material allegations of the complaint. A plain reading of the material averments therein and its appendages will readily show that respondent had a cause of action for abatement of a private nuisance and for damages. Respondent is the real party-in-interest as party plaintiff in the complaint below because it owned several units in Frabelle I and, as a result of the defeaning and unbearable noise from the blowers of the air-conditioning units of the Feliza Building owned by petitioner, many tenants of the respondent vacated their units. The units remained unoccupied, thereby depriving respondent of income. Some of the tenants even threatened to sue respondent on account of the noise from the Feliza Building. In fine, respondent is obliged to maintain its tenants in the peaceful and adequate enjoyment of the units.60Art. 1654(3), NEW CIVIL CODE.

Under Article 697 of the New Civil Code, the aggrieved party is entitled to damages for the present and past existence of a nuisance.61Art. 697, NEW CIVIL CODE. He is entitled to actual or compensatory damages62Art. 2199, NEW CIVIL CODE. or indemnification for damages inclusive of the value of the loss suffered and profits which respondent failed to obtain. Liability for nuisance may be imposed upon one who sets in motion the force which entirely caused the tortuous act; upon one who sets in motion a force or a chain of events resulting in the nuisance. In an action for damages resulting from a nuisance, responsibility arises not only from the creator of the nuisance but from its continued maintenance as well.63Hasapopoulos v. Murphy, 689 S.W.2d 118 (1985). One is entitled to damages on account of the conduct by another of his business which unreasonably and substantially interferes _______________ 60 Art. 1654(3), NEW CIVIL CODE. 61 Art. 697, NEW CIVIL CODE. 62 Art. 2199, NEW CIVIL CODE. 63 Hasapopoulos v. Murphy, 689 S.W.2d 118 (1985). 671 VOL. 506, NOVEMBER 2, 2006 671 AC Enterprises, Inc. vs. Frabelle Properties Corporation with the quiet enjoyment of his premises by himself or of his tenants.64Pratt v. Hercules, Inc., 570 F. Supp.773 (1982). It is sufficient to maintain an action for abatement of a nuisance if

his building is rendered valueless for the purpose it was devoted. A negligent act may constitute a nuisance. An intentional act may also constitute a nuisance. A nuisance may be formed from a continuous, known invasion, where, after complaint, and notice of damage, the defendant continues to offend and refuses to correct or discontinue the nuisance. In such a case, the nuisance is deemed intentional.65Supra note 51. An unreasonable use, perpetrated and unconnected even after complaint and notice of damage is deemed intentional.66Bower v. Hog Builders, Inc., 461 S.W.2d 784 (1970); Vaughn v. Missouri Power and Light Co., 89 SW2d 699 (1935); Hawkins v. Burlington Northern, Inc., 514 S.W.2d 593 (1974). In this case, as alleged in the complaint, the subject nuisance had been existing continuously since 1995 and, despite repeated demands by respondent, petitioner intransigently refused to abate the same. We reject petitioner’s contention that considering the Report of the EMB Team dated July 2, 2002 that the noise complained of by the respondent did not necessarily come from the blowers but also from passing cars, it follows that respondent has no cause of action against it for abatement of nuisance. As gleaned from the Report, the panel of investigators found that the passing of vehicles along the street and blowers of nearby buildings were merely contributory to the ambient noise quality in the area. To what extent the passing of vehicles contributed to the noise is not indicated in the Report, nor is it stated that the noise coming from the blowers of the air-conditioning unit of the Feliza Building were at par with or lower than the Level

Standards under the property Rules and regulations of P.D. No. 984. _______________ 64 Pratt v. Hercules, Inc., 570 F. Supp.773 (1982). 65 Supra note 51. 66 Bower v. Hog Builders, Inc., 461 S.W.2d 784 (1970); Vaughn v. Missouri Power and Light Co., 89 SW2d 699 (1935); Hawkins v. Burlington Northern, Inc., 514 S.W.2d 593 (1974). 672 672 SUPREME COURT REPORTS ANNOTATED AC Enterprises, Inc. vs. Frabelle Properties Corporation The July 2, 2002 Report of the EMB Panel should not be considered in isolation of other Reports of the EMB since 1995 up to 2000, showing that the noise level from the blowers of the Feliza Building exceeded the allowable level under P.D. No. 984. The July 2, 2002 Report is not decisive on the issue of whether petitioner had abated the nuisance complained of by respondent or that the nuisance does not exist at all. Indeed, in Velasco v. Manila Electric Company,67G.R. No. 18390, August 6, 1971, 40 SCRA 342, 348-349. this Court cited the ruling in Kentucky & West Virginia Power Co. v. Anderson,68156 S.W.2d 857. thus: x x x The determinating factor when noise alone is the cause of complaint is not its intensity or volume. It is that the noise is of such character as to produce actual physical discomfort and annoyance to a person of ordinary sensibilities, rendering adjacent property less comfortable and valuable. If the noise

does that it can well be said to be substantial and unreasonable in degree; and reasonableness is a question of fact dependent upon all the circumstances and conditions. 20 R.C.L. 445, 453; Wheat Culvert Company v. Jenkins, supra. There can be no fixed standard as to what kind of noise constitutes a nuisance. x xx Besides, even if it is assumed for the nonce that petitioner had abated the nuisance in 2002, still the complaint of the respondent states a cause of action for damages based upon the past existence of the nuisance, from 1995. Where the injury from the alleged nuisance is temporary in its nature; or is of a continuing or recurring character, the damages are ordinarily regarded as continuing and one recovery against the wrongdoer is not a bar to sanction an action for damages thereafter accruing from the same wrong.69Harvey v. Mason City & Ft. Dodge R. Co, supra note 37. _______________ 67 G.R. No. 18390, August 6, 1971, 40 SCRA 342, 348-349. 68 156 S.W.2d 857. 69 Harvey v. Mason City & Ft. Dodge R. Co, supra note 37. 673 VOL. 506, NOVEMBER 2, 2006 673 AC Enterprises, Inc. vs. Frabelle Properties Corporation The Complaint of the Respondent Not Premature Admittedly, respondent did not appeal the July 19, 2002 letter of Engr. Morales. However, the letter was not appealable. It bears stressing that the letter-complaint of the respondent to Mayor Jejomar Binay against petitioner was referred to Engr.

Morales for investigation of the complaint; the latter was required to submit his Report thereon to the City Mayor for final disposition. Engr. Morales did secure the July 2, 2002 Report of the EMB but failed to make a Report on his findings. Until after the City Mayor shall have acted on the findings and recommendation of Engr. Morales an appeal therefrom would be premature. Obviously, Engr. Morales gave respondent another chance to have the EMB reverse or revise its July 2, 2002 Report. However, when the officials of respondent sought a clarification of his Order, Engr. Morales was piqued and even dared them to go to court if they were not satisfied with the EMB Report. Respondent then sought another test by the EMB. In its November 24, 2003, Report, the EMB confirmed that the SPL was higher when the doors were open; as it was, the SPL readings were taken from inside the Frabelle I. The EMB added that the noise quality standards in Section 78 of the Implementing Rules and Regulations of P.D. No. 984 could not be applied since it is for ambient noise. It even emphasized that the SPL are not the actual factors in the resolution of the issues. Conformably with case law, the EMB opined, noise need not be high or low to annoy or cause nuisance to the receptor; as long as the complainant is disturbed with the level of sound coming from the firm, the same is a nuisance. Clearly, the EMB was of the view that the EMB Reports are not decisive on the issue between petitioner and respondent, and that said issue is one beyond the competence of the LGUs, by implying that the issue is a matter to be presented to and resolved by the ordinary courts. By returning the records to Makati City, the EMB expected the City to dismiss

674 674 SUPREME COURT REPORTS ANNOTATED AC Enterprises, Inc. vs. Frabelle Properties Corporation the complaint and just allow respondent, as complainant, to seek relief from the courts. Respondent then took its cue from the EMB Report and filed its complaint in the RTC. There is, thus, no basis for the contention of petitioner that respondent failed to exhaust all administrative remedies before filing its complaint with the RTC. Also barren of merit are the petitioner’s contention that the action of respondent was barred by the decision of the PAB AM No. 01-0009-FLC. While it is true that the Frabella I Condominium Corporation filed its complaint against petitioner before the PAB for and in behalf of the tenants/owners of units of Frabella I, including those owned by respondent, however, the PAB dismissed the complaint on the ground of lack of jurisdiction and without prejudice. The PAB ruled that respondent’s action was for abatement of a nuisance which was already devolved to the local government. As gleaned from the Resolution, the dismissal was without prejudice. Since the PAB had no jurisdiction over the complaint and the dismissal was without prejudice, respondent’s action before the RTC was not barred by res judicata or litis pendentia.70Cayana v. Court of Appeals, G.R. No. 125607, March 18, 2004, 426 SCRA 10, 19-21; Delgado v. Court of Appeals, G.R. No. 137881, December 21, 2004, 447 SCRA 402, 415. The decision of the PAB was not a decision on the merits of the case.71Custodio v. Corrado, G.R. No.

146082, July 30, 2004, 435 SCRA 500, 508-509. Consequently, the contention of petitioner that respondent is guilty of forum shopping has no factual basis. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioner. SO ORDERED. Panganiban (C.J., Chairperson), Ynares-Santiago, AustriaMartinez and Chico-Nazario, JJ., concur. _______________ 70 Cayana v. Court of Appeals, G.R. No. 125607, March 18, 2004, 426 SCRA 10, 19-21; Delgado v. Court of Appeals, G.R. No. 137881, December 21, 2004, 447 SCRA 402, 415. 71 Custodio v. Corrado, G.R. No. 146082, July 30, 2004, 435 SCRA 500, 508-509. 675 VOL. 506, NOVEMBER 2, 2006 675 AC Enterprises, Inc. vs. Frabelle Properties Corporation Petition denied. Notes.—In determining whether or not the complaint states a cause of action, the annexes attached to the complaint may be considered, they being parts of the complaint. (Sea-Land Service, Inc. vs. Court of Appeals, 327 SCRA 135 [2000]) Annexes form an integral part of the pleading. (Rudolf Lietz Holdings, Inc. vs. Registry of Deeds of Parañaque City, 344 SCRA 680 [2000]) ——o0o—— [AC Enterprises, Inc. vs. Frabelle Properties Corporation, 506 SCRA 625(2006)]

G.R. No. 182567. July 13, 2009.* GUILLERMO M. TELMO, petitioner, vs. LUCIANO M. BUSTAMANTE, respondent. Administrative Law; Desistance of the complainant does not necessarily result in the dismissal of the administrative complaint because the Court attaches no persuasive value to a desistance, especially when executed as an afterthought; The issue in an administrative case is not whether the complaint states a cause of action against the respondent, but whether the public officials have breached the norms and standards of the public service.—The desistance of the complainant does not necessarily result in the dismissal of the administrative complaint because the Court attaches no persuasive value to a desistance, especially when executed as an afterthought. It should be remembered that the issue in an administrative case is not whether the complaint states a cause of action against the respondent, but whether the public officials have breached the norms and standards of the public service. Considering that petitioner admitted in his pleadings that he summarily removed the concrete posts erected by respondent, allegedly within the parameters of his authority as Municipal Engineer of Naic, Cavite, it is only proper that this case be decided on its merits rather than on the basis of the desistance of respondent. Civil Law; Nuisance; A nuisance per se is that which affects the immediate safety of persons and property and may be summarily abated under the undefined law of necessity.—A nuisance per se is that which affects the immediate safety of persons and property and _______________ * THIRD DIVISION.

553 ,553 may be summarily abated under the undefined law of necessity. Evidently, the concrete posts summarily removed by petitioner did not at all pose a hazard to the safety of persons and properties, which would have necessitated immediate and summary abatement. What they did, at most, was to pose an inconvenience to the public by blocking the free passage of people to and from the national road. PETITION for review on certiorari of the decision and order of the Office of the Deputy Ombudsman for Luzon. The facts are stated in the resolution of the Court. Siccuan and Francisco Law Office for petitioner. Reynante L. San Gaspar for respondent. NACHURA, J.: For our consideration is a Petition1 for Review on Certiorari under Rule 45 of the Rules of Court in relation to Section 27, paragraph 3 of the Ombudsman Act of 1989 (Republic Act No. 6770). Subject of the Petition is the Decision2 dated October 13, 2005 and the Order3 dated March 17, 2006 of the Office of the Deputy Ombudsman for Luzon. This case arose from the Verified Complaint4 filed by respondent Luciano M. Bustamante before the Office of the Deputy Ombudsman for Luzon against petitioner Guillermo Telmo, Municipal Engineer of Naic, Cavite, Danilo Consumo, Barangay (Brgy.) Chairman, Brgy. Halang, Naic, Cavite, and Elizalde Telmo, a private individual.

The complaint alleged that respondent is a co-owner of a real property of 616 square meters in Brgy. Halang, Naic, Cavite, known as Lot 952-A and covered by Transfer Certificate of Title No. T-957643 of the Register of Deeds of Cavite. _______________ 1 Rollo, pp. 3-13. 2 Id., at pp. 22-27. 3 Id., at pp. 14-21. 4 Ombudsman Records, pp. 1-5. 554 554SUPREME COURT REPORTS ANNOTATED Petitioner and Elizalde Telmo (Telmos) are the owners of the two (2) parcels of land denominated as Lot 952-B and 952-C, respectively, located at the back of respondent’s lot. When his lot was transgressed by the construction of the Noveleta-NaicTagaytay Road, respondent offered for sale the remaining lot to the Telmos. The latter refused because they said they would have no use for it, the remaining portion being covered by the road’s 10-meter easement. The complaint further alleged that, on May 8, 2005, respondent caused the resurvey of Lot 952-A in the presence of the Telmos. The resurvey showed that the Telmos encroached upon respondent’s lot. Petitioner then uttered, “Hangga’t ako ang municipal engineer ng Naic, Cavite, hindi kayo makakapagtayo ng anuman sa lupa n’yo; hindi ko kayo bibigyan ng building permit.” On May 10, 2005, respondent put up concrete poles on his lot. However, around 7:00 p.m. of the same day, the Telmos and

their men allegedly destroyed the concrete poles. The following day, respondent’s relatives went to Brgy. Chairman Consumo to report the destruction of the concrete poles. Consumo told them that he would not record the same, because he was present when the incident occurred. Consumo never recorded the incident in the barangay blotter. Respondent complained that he and his co-owners did not receive any just compensation from the government when it took a portion of their property for the construction of the Noveleta-Naic-Tagaytay Road. Worse, they could not enjoy the use of the remaining part of their lot due to the abusive, Illegal, and unjust acts of the Telmos and Consumo. Respondent charged the latter criminally—for violation of Article 3125 of the Revised _______________ 5 Art. 312. Occupation of real property or usurpation of real rights in property.—Any person who, by means of violence against or intimidation of persons, shall take possession of any real property or shall usurp any real rights in property belonging to another, in addition to the penalty incurred for the acts of violence executed by 555 ,555 Penal Code and Section 3(e)6 of Republic Act No. 30197—and administratively—for violation of Section 4 (a)8, (b)9, (c)10, and _______________

him, shall be punished by a fine from 50 to 100 per centum of the gain which he shall have obtained, but not less than 75 pesos. If the value of the gain cannot be ascertained, a fine of from 200 to 500 pesos shall be imposed. 6 Section 3. Corrupt practices of public officers.—In addition to acts or omissions of public officers already penalized by existing law, the following shall constitute corrupt practices of any public officer and are hereby declared to be unlawful: xxx (e) Causing any undue injury to any party, including the Government, or giving any private party any unwarranted benefits, advantage or preference in the discharge of his official, administrative or judicial functions through manifest partiality, evident bad faith or gross inexcusable negligence. This provision shall apply to officers and employees of offices or government corporations charged with the grant of licences or permits or other concessions. 7 Anti-Graft and Corrupt Practices Act. 8 Section 4. Norms of Conduct of Public Officials and Employees.—(A) Every public official and employee shall observe the following as standards of personal conduct in the discharge and execution of official duties: (a) Commitment to public interest.—Public officials and employees shall always uphold the public interest over and above personal interest. All government resources and powers of their respective offices must be employed and used efficiently, effectively, honestly and economically, particularly to avoid wastage in public funds and revenues.

9 (b) Professionalism.—Public officials and employees shall perform and discharge their duties with the highest degree of excellence, professionalism, intelligence and skill. They shall enter public service with utmost devotion and dedication to duty. They shall endeavor to discourage wrong perceptions of their roles as dispensers or peddlers of undue patronage. 10 (c) Justness and sincerity.—Public officials and employees shall remain true to the people at all times. They must act with justness and sincerity and shall not discriminate against anyone, 556 556SUPREME COURT REPORTS ANNOTATED (e)11 of Republic Act No. 6713.12 In his Counter-Affidavit,13 petitioner denied having uttered the words attributed to him by respondent, and claimed that he only performed his official duties in requiring an application for a building permit before any structure can be erected on government property. He said that respondent insisted on enclosing with barbed wire and concrete posts the lot that already belonged to the national government, which had now been converted into a national road. He also alleged that if he allowed the enclosures erected by the respondent, other residents would be denied ingress to and egress from their own properties. In his own counter-affidavit, Consumo denied collusion with petitioner in not recording in the barangay blotter the subject incident. He explained that on May 10, 2005 at around _______________

especially the poor and the underprivileged. They shall at all times respect the rights of others, and shall refrain from doing acts contrary to law, good morals, good customs, public policy, public order, public safety and public interest. They shall not dispense or extend undue favors on account of their office to their relatives whether by consanguinity or affinity except with respect to appointments of such relatives to positions considered strictly confidential or as members of their personal staff whose terms are coterminous with theirs. 11 (e) Responsiveness to the public.—Public officials and employees shall extend prompt, courteous, and adequate service to the public. Unless otherwise provided by law or when required by the public interest, public officials and employees shall provide information of their policies and procedures in clear and understandable language, ensure openness of information, public consultations and hearings whenever appropriate, encourage suggestions, simplify and systematize policy, rules and procedures, avoid red tape and develop an understanding and appreciation of the socioeconomic conditions prevailing in the country, especially in the depressed rural and urban areas. 12 Code of Conduct and Ethical Standards for Public Officials and Employees. 13 Ombudsman Records, pp. 16-17. 557 ,557 5:00 p.m., he was summoned by petitioner to intercede, because the respondent and his men were fencing the subject

property. Consumo obliged, personally saw the fence being built, and observed that even the trucks owned by petitioner were enclosed therein. When he asked respondent if he had the necessary permit and the proper barangay clearance to do so, respondent’s lawyer, Atty. San Gaspar, replied that there was no need for the permit and clearance since respondent was just fencing his own property. Thus, Consumo could not prevent the ongoing fencing, but told respondent and company to wait for petitioner to decide the matter. Consumo further alleged that after putting up the fence, respondent and his companions left without waiting for the arrival of petitioner. When petitioner arrived, he explained to the people present that the property enclosed by respondent is owned by the government and that no one is allowed to construct any fence without a permit from him, as the Municipal Engineer, or from any building official of the local government of Naic, Cavite. Consumo said that the residents affected by the fence constructed by respondent were the ones who pulled out the concrete posts in order to provide access to the national road. These residents included the petitioner, whose trucks used for delivering sand and hollow blocks were enclosed and also denied access. In his Counter-Affidavit,14 Elizalde Telmo denied having encroached, occupied or taken possession of respondent’s property. He claimed that, on May 10, 2005, he was merely an onlooker to the altercation between petitioner and respondent. He said that petitioner, his brother, insisted that respondent could not enclose the property in question unless the latter obtains a building permit from the Office of the Municipal Engineer/Building Official, since it appeared that the subject

property was no longer a property of respondent but was converted into government property by virtue of the 30_______________ 14 Id., at p. 28. 558 558SUPREME COURT REPORTS ANNOTATED meter road set-back imposed by the Zoning Ordinance of the Municipality of Naic, Cavite. Elizalde Telmo stated that he did not offer any resistance to the fencing of the property in question. He observed, though, that when they learned that petitioner was arriving at the place, respondent and his companions just left the vicinity. Later, petitioner and respondent filed their respective position papers15 upon the directive of the Graft Investigating and Prosecuting Officer. Their position papers reiterated the allegations made in their respective affidavits earlier submitted. In the Decision16 dated October 13, 2005, the Office of the Deputy Ombudsman for Luzon found petitioner and Danilo Consumo administratively liable, but dismissed the charge against Elizalde Telmo for lack of jurisdiction over his person, he being a private individual. The dispositive portion of the Decision states— “WHEREFORE, premises considered, the undersigned investigator respectfully recommends the following, to wit: (1) That the administrative complaint against respondent Elizalde Telmo be DISMISSED for lack of jurisdiction; (2) That respondent Guillermo Telmo be meted the PENALTY OF FINE EQUIVALENT TO SIX (6) MONTHS

SALARY for violation of Section 4 of Republic Act No. 6713; and (3) That respondent Danilo Consumo be meted the PENALTY OF FINE EQUIVALENT TO THREE (3) MONTHS HONORARIA for violation of Section 4 of Republic Act No. 6713. SO DECIDED.”17 _______________ 15 For the respondents, id., at pp. 30-33; for the complainant, id., at pp. 38-45. 16 Rollo, pp. 22-27. 17 Id., at p. 26. 559 ,559 Petitioner filed a Motion for Reconsideration,18 wherein he elaborated that he just performed his official duties when he summarily removed the concrete posts erected by respondent to enclose the property. In the Order19 dated March 17, 2006, the Office of the Deputy Ombudsman for Luzon denied the Motion for Reconsideration for lack of merit. Hence, this petition anchored on the following grounds: A. THE HONORABLE DEPUTY OMBUDSMAN FOR LUZON SERIOUSLY ERRED WHEN HE DECLARED THAT THERE WAS NO VALID TAKING OF RESPONDENT’S LOT BY MEANS OF EXPROPRIATION. B. THE HONORABLE DEPUTY OMBUDSMAN FOR LUZON SERIOUSLY ERRED WHEN HE DECLARED

THAT PETITIONER SHOULD BE AUTHORIZED BY THE MUNICIPAL MAYOR OR BY THE COURT TO ABATE PUBLIC NUISANCE OR NUISANCE PER SE. C. THE HONORABLE DEPUTY OMBUDSMAN FOR LUZON ERRED WHEN HE METED THE PENALTY OF FINE EQUIVALENT TO SIX (6) MONTHS SALARY FOR VIOLATION OF SECTION 4 OF REPUBLIC ACT NO. 6713.20 In essence, petitioner contends that the property claimed and enclosed with concrete posts by respondent was validly taken by the National Government through its power of eminent domain, pursuant to Executive Order No. 113, as amended by Executive Order No. 253, creating the Noveleta-Naic-Tagaytay Road. In this context, petitioner contends that the concrete posts erected by respondent were a public nuisance under Article 694 (4)21 of the Civil Code, more partic_______________ 18 Id., at pp. 49-56. 19 Id., at pp. 14-21. 20 Id., at p. 6. 21 Art. 694. A nuisance is any act, omission, establishment, business, condition of property, or anything else which: xxx 560 560SUPREME COURT REPORTS ANNOTATED ularly a nuisance per se, which may be summarily abated under Article 699 (3)22 of the same Code. Petitioner says that as the Municipal Engineer, he is also the Building Official of Naic,

Cavite; and thus, it was well within his authority, pursuant to Section 214, paragraph two (2) of the National Building Code, to order the removal of the concrete posts. Petitioner likewise claims that Section 23 of Revised Philippine Highway Act (Presidential Decree No. 17)23 mandated him to remove respondent’s concrete posts. Petitioner concludes that since he merely performed his official duties in removing the concrete posts erected by petitioner from the property, which is already owned by the government, he must be absolved of any administrative liability. Instead of filing his comment on the petition, respondent manifested through counsel that he is no longer interested in pursuing this case, submitting therewith his Affidavit of Desistance24 dated December 5, 2007. Respondent alleged in the affidavit that the administrative charges he lodged against petitioner were brought about by a misunderstanding between them, which differences have already been settled. Consequently, this case should now be dismissed. We disagree. The desistance of the complainant does not necessarily result in the dismissal of the administrative complaint because the Court attaches no persuasive value to a desistance, espe_______________ (4) Obstructs or interferes with the free passage of any public highway or street, or any body of water; x x x. 22 Art. 699. The remedies against a public nuisance are: xxx (3) Abatement, without judicial proceedings. 23 “It shall be unlawful for any person to usurp any portion of a right of way, to convert any part of any public highway,

bridge, wharf or trail to his own private use or to obstruct the same in any manner.” 24 Rollo, p. 68. 561 ,561 cially when executed as an afterthought.25 It should be remembered that the issue in an administrative case is not whether the complaint states a cause of action against the respondent, but whether the public officials have breached the norms and standards of the public service.26Considering that petitioner admitted in his pleadings that he summarily removed the concrete posts erected by respondent, allegedly within the parameters of his authority as Municipal Engineer of Naic, Cavite, it is only proper that this case be decided on its merits rather than on the basis of the desistance of respondent. It cannot be denied that respondent’s property was taken by the National Government thru the Department of Public Works and Highways when it constructed the Noveleta-Naic-Tagaytay Road. What is not clear from the records of this case is whether respondent’s property was taken as part of the national road itself or only as part of the right-of-way easement therefor. We observe that the re-survey plan27 of his property attached by respondent to his complaint and the survey plan28 of the Noveleta-Naic-Tagaytay Road submitted by petitioner appear to be different. Nevertheless, it is evident from the sketch plans that respondent could not enclose his property because it is now being used by the National Government. Therefore, whatever cause of action respondent may have in his claim for

just compensation for the taking of his property, the same should be lodged against the National Government. While it is settled that respondent does not have the legal right to enclose the property, we should now determine _______________ 25 People v. Dimaano, G.R. No. 168168, September, 14, 2005, 469 SCRA 647, 663. 26 Vilar v. Angeles, A.M. No. P-06-2276, February 5, 2007, 514 SCRA 147, 156. 27 Ombudsman Records, p. 8. 28 Rollo, p. 28. 562 562SUPREME COURT REPORTS ANNOTATED whether petitioner indeed performed his official functions properly. First. Petitioner claims that his act of summarily removing respondent’s concrete posts was authorized under the National Building Code (Presidential Decree No. 1096). The provision he cites correctly pertains to Section 215, which reads— “Sec. 215. Abatement of Dangerous Buildings.—When any building or structure is found or declared to be dangerous or ruinous, the Building Official shall order its repair, vacation or demolition depending upon the decree of danger to life, health, or safety. This is without prejudice to further action that may be taken under the provisions of Articles 482 and 694 to 707 of the Civil Code of the Philippines.”

To better understand this provision, we refer to Section 214 of the same law, which defines what are dangerous and ruinous buildings or structures susceptible of abatement. It provides— “Sec. 214. Dangerous and Ruinous Buildings or Structures.—Dangerous buildings are those which are herein declared as such or are structurally unsafe or not provided with safe egress, or which constitute a fire hazard, or are otherwise dangerous to human life, or which in relation to existing use, constitute a hazard to safety or health or public welfare because of inadequate maintenance, dilapidation, obsolescence, or abandonment, or which otherwise contribute to the pollution of the site or the community to an intolerable degree.” A careful reading of the foregoing provisions would readily show that they do not apply to the respondent’s situation. Nowhere was it shown that the concrete posts put up by respondent in what he believed was his and his co-owners’ property were ever declared dangerous or ruinous, such that they can be summarily demolished by petitioner. What is more, it appears that the concrete posts do not even fall within the scope of the provisions of the National 563 ,563 Building Code. The Code does not expressly define the word “building.” However, we find helpful the dictionary definition of the word “building,” viz.: “[A] constructed edifice designed usually covered by a roof and more or less completely enclosed by walls, and serving as a dwelling, storehouse, factory, shelter for animals, or other

useful structure—distinguished from structures not designed for occupancy (as fences or monuments) and from structures not intended for use in one place (as boats or trailers) even though subject to occupancy.”29 The provisions of the National Building Code would confirm that “building” as used therein conforms to this definition. Thus, applying the statutory construction principle of ejusdem generic,30 the word “structure” should be construed in the context of the definition of the word “building.” The concrete posts put up by respondent on the property are not properly covered by the definition of the word “building” nor is it embraced in the corresponding interpretation of the word “structure.” Second. Petitioner contends that respondent’s concrete posts were in the nature of a nuisance per se, which may be the subject of summary abatement sans any judicial proceedings. Again, we disagree. A nuisance per se is that which affects the immediate safety of persons and property and may be summarily abated under the undefined law of necessity.31 Evidently, the concrete _______________ 29 Webster’s Third New International Dictionary (Unabridged), 1993, p. 292. 30 Under the principle of ejusdem generis, where a statute describes a thing of a particular class or kind accompanied by words of a generic character, the generic word will usually be limited to things of a similar nature as those particularly enumerated, unless there be something in the context of the statute that would repel such inference.

31 Tayaban v. People, G.R. No. 150194, March 6, 2007, 517 SCRA 488, 507. 564 564SUPREME COURT REPORTS ANNOTATED posts summarily removed by petitioner did not at all pose a hazard to the safety of persons and properties, which would have necessitated immediate and summary abatement. What they did, at most, was to pose an inconvenience to the public by blocking the free passage of people to and from the national road. Third. Petitioner likewise maintains that his authority to perform the assailed official act sprang from Section 23 of the Revised Philippine Highway Act. He posits that this provision is particularly implemented by Department Order No. 52,32 Series of 2003 of the Department of Public Works and Highways for the Removal of Obstructions and Prohibited Uses within the Right-of-Way of National Roads. Department Order No. 52 directs all District Engineers to immediately remove or cause the removal of all obstructions and prohibited uses within the right-of-way of all national roads in their respective jurisdictions. These obstructions and prohibited uses include, among others, all kinds of private, temporary and permanent structures, such as buildings, houses, shanties, stores, shops, stalls, sheds, posts, canopies, billboards, signages, advertisements, fences, walls, railings, basketball courts, garbage receptacles, and the like. The Department Order requires the District Engineers to issue notices to the concerned persons to remove the obstructions and prohibited

uses within the right-of-way, and shall follow through prompt compliance with these notices and full implementation of the Order. It further provides that appropriate sanctions will be taken against those who fail to comply with its provisions. Gauging the action of petitioner based on the guidelines set by Department Order No. 52, from which he claims his authority, we cannot but conclude that petitioner went beyond the scope of his official power because it is the concerned District Engineer of the Department of Public Works and _______________ 32 Ombudsman Records, pp. 69-70. 565 ,565 Highways who should have ordered respondent to remove the concrete posts. The petitioner failed to show that he was duly authorized by the District Engineer to implement the Department Order in Naic, Cavite. More importantly, even assuming that petitioner had been duly authorized to order the removal of the concrete posts of respondent, he failed to prove that he issued the required notice to respondent to remove the said structures before he did the removal himself. Note that petitioner, in fact, admitted in his pleadings that he summarily removed the said posts. The Revised Philippine Highway Act and Department Order No. 52 do not expressly provide for the administrative sanction to be taken against public officials violating their provisions. Hence, we must refer to the Uniform Rules on Administrative Cases in the Civil Service. We believe that the administrative

offense committed by petitioner through the questioned act was only Discourtesy in the Course of Official Duties, which is a light offense under Rule IV, Section 52 of the said Rules. The penalties imposable for such an offense are a reprimand for the first offense, a suspension from 1 day to 30 days for the second offense, and dismissal from public service for the third offense. Since this appears to be petitioner’s first offense, his action warrants only a REPRIMAND. WHEREFORE, the Decision dated October 13, 2005 and the Order dated March 17, 2006 of the Office of the Deputy Ombudsman for Luzon finding petitioner Guillermo M. Telmo, Municipal Engineer of Naic, Cavite, administratively culpable for violation of Section 4 of Republic Act No. 6713, imposing upon him the penalty of fine equivalent to his six 6-month salary, must be MODIFIED. Guillermo M. Telmo is instead found administratively guilty of DISCOURTESY IN THE COURSE OF OFFICIAL DUTIES and is hereby REPRIMANDED. Costs against petitioner. [Telmo vs. Bustamante, 592 SCRA 552(2009)]

G.R. No. 91478. February 7, 1991.*FIRST DIVISION. ROSITA PENA, petitioner, us. THE COURT OF APPEALS, SPOUSES RISING T. YAP and CATALINA YAP, PAMPANGA BUS CO., INC., JESUS DOMINGO, JOAQUIN BRIONES, SALVADOR BERNARDEZ, MARCELINO ENRIQUEZ and EDGARDO A. ZABAT, respondents. Corporation Law; By-laws; Quorum; Three (3) out of five (5) members of the board of directors present in the special meeting of respondent PAMBUSCO do not constitute a quorum to validly transact business. Section 4 of its amended by-laws requires at least four (4) members present to constitute a quorum in a special meeting of its board of directors.—The by-laws of a corporation are its own private laws which substantially have the same effect as the laws of the corporation. They are in effect, written, into the charter. In this sense they become part of the fundamental law of the corporation with which the corporation and its directors and officers must comply. Apparently, only three (3) out of five (5) members of the board of directors of respondent PAMBUSCO convened on November 19, 1974 by virtue of a prior notice of a special meeting. There was no quorum to validly transact business since, under Section 4 of the amended by-laws hereinabove reproduced, at least four (4) members must be present to constitute a quorum in a special meeting of the board of directors of respondent PAMBUSCO. Same; Board of Directors; Only persons who own at least one (1) share in their own right may qualify to be directors of a corporation.—As a matter of fact, the three (3) alleged directors who attended the special meeting on November 19,1974 were not listed as directors of respondent

PAMBUSCO in the latest general information sheet of respondent PAMBUSCO filed with the SEC dated 18 March 1951. Similarly, the latest list of stockholders of respondent PAMBUSCO on file with the SEC does not show that the said alleged directors were _______________ * FIRST DIVISION. 718 718 SUPREME COURT REPORTS ANNOTATED Peña vs. Court of Appeals among the stockholders of respondent PAMBUSCO. Under Section 30 of the then applicable Corporation Law, only persons who own at least one (1) share in their own right may qualify to be directors of a corporation. Further, under Section 28 1/2 ofthe said law, the sale or disposition of all and/or substantially all properties of the corporation requires, in addition to a proper board resolution, the affirmative votes of the stockholders holding at least two-thirds (2/3) of the voting power in the corporation in a meeting duly called for that purpose. No doubt, the questioned resolution was not confirmed at a subsequent stockholders meeting duly called for the purpose by the affirmative votes of the stockholders holding at least two-thirds (2/3) of the voting power in the corporation. The same requirement is found in Section 40 of the present Corporation Code. Same; Deed of Assignment; Civil Law; Donation; Liberality as a consideration in the deed of assignment of the respondent PAMBUSCO in favor of its former corporate officer for services rendered is not just an ordinary deed of assignment but

a donation.—Respondent court, in upholding the questioned deed of assignment, which appears to be without any consideration at all, held that the consideration thereof is the liberality of the respondent PAMBUSCO in favor of its former corporate officer, respondent Enriquez, for services rendered. Assuming this to be so, then as correctly argued by petitioner, it is not just an ordinary, deed of assignment, but is in fact a donation. Under Article 725 of the Civil Code, in order to be valid, such a donation must be made in a public document and the acceptance must be made in the same or in a separate instrument. In the latter case, the donor shall be notified of the acceptance in an authentic form and such step must be noted in both instruments. Non-compliance with this requirement renders the donation null and void. Since undeniably the deed of assignment dated March 8, 1975 in question, shows that there was no acceptance of the donation in the same and in a separate document, the said deed of assignment is thus void ab initio and of no force and effect. PETITION for certiorari to review the decision and resolution of the Court of Appeals. The facts are stated in the opinion of the Court. Cesar L. Villanueva for petitioner. Martin N. Roque for private respondents. 719 VOL. 193, FEBRUARY 7, 1991 719 Peña vs. Court of Appeals GANCAYCO, J.:

The validity of the redemption of a foreclosed real property is the center of this controversy. The facts as found by the respondent court are not disputed. “A reading of the records shows that [Pampanga Bus Co.] PAMBUSCO, original owners of the lots in question under TCT Nos. 4314, 4315 and 4316, mortgaged the same to the Development Bank of the Philippines (DBP) on January 3, 1962 in consideration of the amount of P935.000.00. This mortgage was foreclosed. In the foreclosure sale under Act No. 3135 held on October 25, 1974, the said properties were awarded to Rosita Pena as highest bidder. A certificate of sale was issued in her favor by the Senior Deputy Sheriff of Pamapanga, Edgardo A. Zabat, upon payment of the sum of P128,000.00 to the Office of the Provincial Sheriff (Exh. 23). The certificate of sale was registered on October 29, 1974 (Exh. G). “On November 19, 1974, the board of directors of PAMBUSCO, through three (3) out of its five (5) directors, resolved to assign its right of redemption over the aforesaid lots and authorized one of its members, Atty. Joaquin Briones, ‘to execute and sign a Deed of Assignment for and in behalf of PAMBUSCO in favor of any interested party xxx’ (Exh. 24). Consequently, on March 18, 1975, Briones executed a Deed of Assignment of PAMBUSCO’s redemption right over the subject lots in favor of Marcelino Enriquez (Exh. 25). The latter then redeemed the said properties and a certificate of redemption dated August 15, 1975 was issued in his favor by Sheriff Zabat upon payment of the sum of one hundred forty thousand, four hundred seventy four pesos P140,474.00) to the Office of the Provincial Sheriff of Pampanga (Exh. 26).

“A day after the aforesaid certificate was issued, Enriquez executed a deed of absolute sale of the subject properties in favor of plaintiffs-appellants, the spouses Rising T. Yap and Catalina Lugue, for the sum of P140,000.00 (Exh. F). “On August 18, 1975, a levy on attachment in favor of Capitol Allied Trading was entered as an additional encumbrance on TCT Nos. 4314, 4315 and 4316 and a Notice of a pending consulta was also annotated on the same titles concerning the Allied Trading case entitled Dante Gutierrez, et al. vs. PAMBUSCO (Civil Case No. 4310) in which the registrability of the aforesaid lots in the name of the spouses Yap was sought to be resolved (Exh. 20-F). The certificate of sale issued by the Sheriff in favor of defendant Peña, the resolution of the PAMBUSCO’s board of directors assigning its redemption rights 720 720 SUPREME COURT REPORTS ANNOTATED Peña vs. Court of Appeals to any interested party, the deed of assignment PAMBUSCO executed in favor of Marcelino B. Enriquez, the certificate of redemption issued by the Sheriff in favor of Enriquez as well as the deed of absolute sale of the subject lots executed by Enriquez in favor of the plaintiffs-appellants were all annotated on the same certificates of title likewise on August 18, 1975. Also, on the same date, the Office of the Provincial Sheriff of San Fernando, Pampanga informed defendant-appellee by registered mail ‘that the properties under TCT Nos. 4314, 4315 and 4316 x x x x x x xxx were all redeemed by Mr. Marcelino

B. Enriquez on August 15,1975 xxx xxx xxx;’ and that she may now get her money at the Sheriffs Office (Exh. J and J-1). “On September 8, 1975, Pena wrote the Sheriff notifying him that the redemption was not valid as it was made under a void deed of assignment. She then requested the recall of the said redemption and a restraint on any registration or transaction regarding the lots in question (Exh. 27). “On Sept. 10, 1975, the CFI Branch III, Pampanga in the aforementioned Civil Case No. 4310, entitled Dante Gutierrez, et al. vs. PAMBUSCO, et al., ordered the Register of Deeds of Pampanga xxx to desist from registering or noting in his registry of property xxx any of the following documents under contract, until further orders: ‘(a) Deed of Assignment dated March 18, 1975 executed by the defendant Pampanga Bus Company in virtue of a resolution of its Board of Directors in favor of defendant Marcelino Enriquez; ‘(b) A Certificate of Redemption issued by defendant Deputy Sheriff Edgardo Zabat in favor of defendant Marcelino Enriquez dated August 15, 1975; ‘(c) Deed of Sale dated August 16,1975 executed by defendant Marcelino Enriquez in favor of defendant Rising Yap.’ (Original Record, p. 244) ‘On November 17, 1975, the Land Registration Commission opined under LRC Resolution No. 1029 that ‘the levy on attachment in favor of Capitol Allied Trading (represented by Dante Gutierrez) should be carried over on the new title that would be issued in the name of Rising Yap in the event that he is able to present the owner’s duplicates of the certificates of title herein involved’ (Exh. G).

‘Meanwhile, defendant Peña, through counsel, wrote the Sheriff asking for the execution of a deed of final sale in her favor on the ground that ‘the one (1) year period of redemption has long elapsed without any valid redemption having been exercised;’ hence she ‘will now refuse to receive the redemption money xxx’ (Exh. 28). On Dec. 30, 1977, plaintiff Yap wrote defendant Peña asking 721 VOL. 193, FEBRUARY 7, 1991 721 Peña vs. Court of Appeals payment of back rentals in the amount of P42,750.00 ‘for the use and occupancy of the land and house located at Sta. Lucia, San Fernando, Pampanga,’ and informing her of an increase in monthly rental to P2,000; otherwise, to vacate the premises or face an eviction cum collection suit (Exh. D). In the meantime, the subject lots, formerly under TCT Nos. 4314, 4315 and 4316 were registered on June 16, 1978 in the name of the spouses Yap under TCT Nos. 148983-R, 148984R and 148985-R, with an annotation of a levy on attachment in favor of Capitol Allied Trading. The LRC Resolution No. 1029 allowing the conditioned registration of the subject lots in the name of the spouses Yap was also annotated on TCT No. 4315 on June 16, 1978 and the notice of a pending consulta noted thereon on August 18, 1975 was cancelled on the same date. No Trial on the merits was held concerning Civil Case No. 4310. In an order dated February 17, 1983, the case was dismissed without prejudice.

Despite the foregoing, defendant-appellee Peña remained in possession of the lots in question; hence, the spouses Yap were prompted to file the instant case.”1Pages 38 to 40, Rollo. The antecedents of the present petition are as follows: “Plaintiffs-appellants, the spouses Rising T. Yap and Catalina Lugue, are the registered owners of the lots in question under Transfer Certificate of Title (TCT) Nos. 148983-R, 148984-R, 148985-R. In the complaint filed on December 15, 1978, appellants sought to recover possession over the subject lands from defendants Rosita Pena and Washington Distillery on the ground that being registered owners, they have to enforce their right to possession against defendants who have been allegedly in unlawful possession thereof since October 1974 ‘when the previous owners assigned (their) right to collect rentals x x x in favor of plaintiffs’ (Record, p. 5). The amount claimed as damages is pegged on the total amount of unpaid rentals from October 1974 (as taken from the allegations in the complaint) up to December 1978 at a monthly rate of P1,500.00 ‘and the further sum of P2,000.00 a month from January 1979 until the defendants finally vacate the xxx premises in question; with interest at the legal rate’ (Record, p. 6). “In their answer, defendants Rosita Pena and Washington Distillery denied the material allegations of the complaint and by way of an _______________ 1 Pages 38 to 40, Rollo. 722 722 SUPREME COURT REPORTS ANNOTATED Peña vs. Court of Appeals

affirmative and special defense asserted that Perla is now the legitimate owner of the subject lands for having purchased the same in a foreclosure proceeding instituted by the DBP xxx against PAMBUSCO xxx and no valid redemption having been effected within the period provided by law. It was contended that plaintiffs could not have acquired ownership over the subject properties under a deed of absolute sale executed in their favor by one Marcelino B. Enriquez who likewise could not have become [the] owner of the properties in question by redeeming the same on August 18, 1975 (Exh. 26) under an allegedly] void deed of assignment executed in his favor on March 18, 1975 by the original owners of the land in question, the PAMBUSCO. The defense was that since the deed of assignment executed by PAMBUSCO in favor of Enriquez was void ab initio for being an ultra vires act of its board of directors and, for being without any valuable consideration, it could not have had any legal effect; hence, all the acts which flowed from it and all the rights and obligations which derived from the aforesaid void deed are likewise void and without any legal effect. “Further, it was alleged in the same Answer that plaintiffs are buyers in bad faith because they have caused the titles of the subject properties with the Register of Deeds to be issued in their names despite an order from the then CFI, Br. III, Pampanga in Civil Case No. 4310, entitled Dante Gutierrez, et al. vs. Pampanga Bus Company, Inc., et al., to desist from registering or noting in his registry of property xxx any of the above-mentioned documents under contest, until further orders.

(Record, p. 11). “For its part, defendant Washington Distillery stated that it has never occupied the subject lots; hence they should not have been impleaded in the complaint. “The defendants, therefore, prayed that the complaint be dismissed; that the deed of assignment executed in favor of Marcelino Enriquez, the certificate of redemption issued by the Provincial Sheriff also in favor of Marcelino Enriquez, and the deed of sale of these parcels of land executed by Marcelino Enriquez in favor of the plaintiffs herein be all declared null and void; and further, that TCT Nos. 148983-R, 148984-R and 148985-R, covering these parcels issued in the plaintiffs name be cancelled and, in lieu thereof, corresponding certificates of title over these same parcels be issued in the name of defendant Rosita Peña. ‘Thereafter, the defendants with prior leave of court filed a third-party complaint third-party defendants PAMBUSCO, Jesus Domingo, Joaquin Briones, Salvador Bernardez (as members of the Board of Directors of PAMBUSCO), Marcelino Enriquez, and Deputy Sheriff Edgardo Zabat of Pampanga. All these third-party defendants, how723 VOL. 193, FEBRUARY 7, 1991 723 Peña vs. Court of Appeals ever, were declared as in default for failure to file their answer, except Edgardo Zabat who did file his answer but failed to appear at the pre-trial.

“After trial, a decision was rendered by the court in favor of the defendants-appellees, to wit: “WHEREFORE, and in view of all the foregoing, judgment is hereby rendered dismissing the complaint filed by the plaintiffs against the defendants and declaring as null and void the following: ‘(a) The resolution of the Board of Directors of PAMBUSCO approved on November 19, 1974 assigning the PAMBUSCO’s right of redemption concerning the parcels involved herein; ‘(b) The deed of assignment dated March 18, 1975 executed in favor of Marcelino Enriquez pursuant to the resolution referred to in the preceding paragraph; ‘(c) The certificate of redemption dated August 15, 1975 issued by Deputy Sheriff Edgardo Zabat in favor of Marcelino Enriquez concerning these parcels; ‘(d) The deed of absolute sale dated August 15, 1975 executed by Marcelino Enriquez in favor of the plaintiffs concerning the same parcels; and ‘(e) TCT Nos. 148983-R, 148984-R and 148985-R of the Kegister of Deeds of Pampanga in the name of the plaintiffs also covering these parcels. ‘Third-party defendant Edgardo Zabat, in his capacity as Deputy Sheriff of Pampanga is directed to execute in favor of defendant Rosita Pena the corresponding certificate of final sale involving the parcels bought by her in the auction sale of October 25, 1974 for which a certificate of sale had been issued to her. ‘Finally, the third-party defendants herein except Deputy Sheriff Edgardo Zabat are hereby ordered to pay the defendants/ third party plaintiffs, jointly and severally, the

amount of P10,000.00 as attorney’s fees plus costs.’ ”2Pages 35 to 38, Rollo. Thus, an appeal from said judgment of the trial court was interposed by private respondents to the Court of Appeals wherein in due course a decision was rendered on June 20, 1989, the dispositive part of which reads as follows: _______________ 2 Pages 35 to 38, Rollo. 724 724 SUPREME COURT REPORTS ANNOTATED Peña vs. Court of Appeals “WHEREFORE, premises considered, the judgment of the trial court on appeal is REVERSED. Defendant-appellee Pena is hereby ordered to vacate the lands in question and pay the plaintiffs-appellants the accrued rentals from October, 1974 in the amount of P1,500.00 per month up to December, 1978 and the amount of P2,000.00 per month thereafter, until appellee finally vacate (sic) the premises; with interest at the legal rate.” “SO ORDERED.”3Page 52, Rollo. A motion for reconsideration filed by the appellee was denied in a resolution dated December 27, 1989. Hence, this petition for review on certiorari of said decision and resolution of the appellate court predicated on the following assigned errors: “First Assignment of Error THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE TRIAL COURT HAD NO

JURISDICTION TO RULE ON THE VALIDITY OF THE QUESTIONED RESOLUTION AND TRANSFERS. Second Assignment of Error THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAS NO LEGAL STANDING TO ASSAIL THE VALIDITY OF THE QUESTIONED RESOLUTION AND THE SERIES OF SUCCEEDING TRANSACTIONS LEADING TO THE REGISTRATION OF THE SUBJECT PROPERTIES IN FAVOR OF THE RESPONDENTS YAP. Third Assignment of Error THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE RESOLUTION OF RESPONDENT PAMBUSCO, ADOPTED ON 19 NOVEMBER 1974, ASSIGNING ITS RIGHT OF REDEMPTION IS NOT VOID OR AT THE VERY LEAST LEGALLY DEFECTIVE. _______________ 3 Page 52, Rollo. 725 VOL. 193, FEBRUARY 7, 1991 725 Peña vs. Court of Appeals Fourth Assignment of Error THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF ASSIGNMENT, DATED 8 MARCH 1975, IN FAVOR OF RESPONDENT ENRIQUEZ IS NOT VOID OR AT THE VERY LEAST VOIDABLE OR RESCISSIBLE. Fifth Assignment of Error

THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE QUESTIONED DEED OF ASSIGNMENT, DATED 8 MARCH 1975, WAS VOID AB INITIO FOR FAILING TO COMPLY WITH THE FORMALITIES MANDATORILY REQUIRED UNDER THE LAW FOR DONATIONS. Sixth Assignment of Error THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENTS YAP ARE PURCHASERS IN GOOD FAITH AND IN FURTHER HOLDING THAT IT WAS TOO LATE FOR PETITIONER TO INTERPOSE THE ISSUE THAT RESPONDENTS YAP WERE PURCHASERS IN BAD FAITH. Seventh Assignment of Error THE RESPONDENT COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE TRIAL COURT.”4Pages 12 to 13, Rollo. The petition is impressed with merit. First, the preliminary issues. The respondent court ruled that the trial court has no jurisdiction to annul the board resolution as the matter falls within the jurisdiction of the Securities and Exchange Commission (SEC) and that petitioner did not have the proper standing to have the same declared null and void. In Philex Mining Corporation vs. Reyes,5118 SCRA 602 (1982). this Court held that it is the fact of relationship between the parties that determines the proper and exclusive jurisdiction of the SEC to hear and _______________ 4 Pages 12 to 13, Rollo.

5 118 SCRA 602 (1982). 726 726 SUPREME COURT REPORTS ANNOTATED Peña vs. Court of Appeals decide intra-corporate disputes; that unless the controversy has arisen between and among stockholders of the corporation, or between the stockholders and the officers of the corporation, then the case is not within the jurisdiction of the SEC. Where the issue involves a party who is neither a stockholder or officer of the corporation, the same is not within the jurisdiction of the SEC. In Union Glass & Container Corporation vs. Securities and Exchange Commission,6126 SCRA 31, 38 (1983). this Court defined the relationships which are covered within “intracorporate disputes” under Presidential Decree No. 902-A, as amended, as follows: “Otherwise stated, in order that the SEC can take cognizance of a case, the controversy must pertain to any of the following relationships; (a) between the corporation, partnership or association and the public; (b) between the corporation, partnership or association and its stockholders, partners, members, or officers; (c) between the corporation, partnership or association and the state in so far as its franchise, permit or license to operate is concerned; and (d) among the stockholders, partners or associates themselves.” In this case, neither petitioner nor respondents Yap spouses are stockholders or officers of PAMBUSCO. Consequently, the issue of the validity of the series of transactions resulting in the

subject properties being registered in the names of respondents Yap may be resolved only by the regular courts. Respondent court held that petitioner being a stranger to the questioned resolution and series of succeeding transactions has no legal standing to question their validity. In Teves vs. People’s Homesite and Housing Corporation,723 SCRA 1141, 1147 (1968). this Court held: “We note however, in reading the complaint that the plaintiff is seeking the declaration of the nullity of the deed of sale, not as a party in the deed, or because she is obliged principally or subsidiarily under the deed, but because she has an interest that is affected by the deed. This Court has held that a person who is not a party obliged principally _______________ 6 126 SCRA 31, 38 (1983). 7 23 SCRA 1141, 1147 (1968). 727 VOL. 193, FEBRUARY 7, 1991 727 Peña vs. Court of Appeals or subsidiarily in a contract may exercise an action for nullity of the contract if he is prejudiced in his rights with respect to one of the contracting parties, and can show the detriment which would positively result to him from the contract in which he had no intervention, Indeed, in the case now before Us, the complaint alleges facts which show that plaintiff suffered detriment as a result of the deed of sale entered into by and between defendant PHHC and defendant Melisenda L. Santos. We believe that the plaintiff should be given a chance

to present evidence to establish that she suffered detriment and that she is entitled to relief.” (Emphasis supplied.) There can be no question in this case that the questioned resolution and series of transactions resulting in the registration of the properties in the name of respondent Yap spouses adversely affected the rights of petitioner to the said properties. Consequently, petitioner has the legal standing to question the validity of said resolution and transactions. As to the question of validity of the board resolution of respondent PAMBUSCO adopted on November 19, 1974, Section 4, Article III of the amended by-laws of respondent PAMBUSCO, provides as follows: “Sec. 4. Notices of regular and special meetings of the Board of Directors shall be mailed to each Director not less than five days before any such meeting, and notices of special meeting shall state the purpose or purposes thereof. Notices of regular meetings shall be sent by the Secretary and notices of special meetings by the President or Directors issuing the call. No failure or irregularity of notice of meeting shall invalidate any regular meeting or proceeding thereat; Provided a quorum of the Board is present, nor of any special meeting; Provided at least four Directors are present.” (Emphasis supplied.)8Exhibit “4-A... The trial court in finding the resolution void held as follows: “On the other hand, this Court finds merit in the position taken by the defendants that the questioned resolution should be declared invalid it having been approved in a meeting attended by only 3 of the 5 members of the Board of Directors of PAMBUSCO which attendance is short of the number required by the By-Laws of the corporation.

_______________ 8 Exhibit “4-A”. 728 728 SUPREME COURT REPORTS ANNOTATED Peña vs. Court of Appeals x x x. “In the meeting of November 19, 1974 when the questioned resolution was approved, the three members of the Board of Directors of PAMBUSCO who were present were Jesus Domingo, Joaquin Briones, and Salvador Bernardez. The remaining 2 others, namely: Judge Pio Marcos and Alfredo Mamuyac were both absent therefrom. As it becomes clear that the resolution approved on November 19, 1974 is null and void it having been approved by only 3 of the members of the Board of Directors who were the only ones present at the said meeting, the deed of assignment subsequently executed in favor of Marcelino Enriquez pursuant to this resolution also becomes null and void, x x x”9Pages 92 to 93, Rollo. However, the respondent court overturning said legal conclusions of the trial court made the following disquisition: “It should be noted that the provision in Section 4, Article III of PAMBUSCO’s amended by-laws would apply only in case of a failure to notify the members of the board of directors on the holding of a special meeting, x x x. In the instant case, however, there was no proof whatsoever, either by way of documentary or testimonial evidence, that there was such a failure or irregularity of notice as to make the aforecited provision apply. There was not even such an

allegation in the Answer that should have necessitated a proof thereof. The fact alone that only three (3) out of five (5) members of the board cf directors attended the subject special meeting, was not enough to declare the aforesaid proceeding void ab initio, much less the board resolution borne out of it, when there was no proof of irregularity nor failure of notice and when the defense made in the Answer did not touch upon the said failure of attendance. Therefore, the judgment declaring the nullity of the subject board resolution must be set aside for lack of proof. “Moreover, there is no categorical declaration in the by-laws that a failure to comply with the attendance requirement in a special meeting should make all the acts of the board therein null and void ab initio. A cursory reading of the subject provision, as aforequoted, would show that its framers only intended to make voidable a board meeting held Without the necessary compliance with the attendance requirement in the by-laws. Just the use of the word Invalidate’ already denotes a legal imputation of validity to the questioned board _______________ 9 Pages 92 to 93, Rollo. 729 VOL. 193, FEBRUARY 7, 1991 729 Peña vs. Court of Appeals meeting absent its invalidation in the proceedings prescribed by the corporation’s by-laws and/or the general incorporation law. More significantly, it should be noted that even if the subject special meeting is itself declared void, it does not follow that

the acts of the board therein are ipso facto void and without any legal effect. Without the declaration of nullity of the subject board proceedings, its validity should be maintained and the acts borne out of it should be presumed valid. Considering that the subject special board meeting has not been declared void in a proper proceeding, nor even in the trial by the court below, there is no reason why the acts of the board in the said special meeting should be treated as void ab initio, x x x.”10Pages 44 to 45, Rollo. The Court disagrees. The by-laws of a corporation are its own private laws which substantially have the same effect as the laws of the corporation. They are in effect, written, into the charter. In this sense they become part of the fundamental law of the corporation with which the corporation and its directors and officers must comply.118 Fletcher Cyclopedia of the Law of Private Corporations, Perm, Ed., pages 750 to 751. Apparently, only three (3) out of five (5) members of the board of directors of respondent PAMBUSCO convened on November 19, 1974 by virtue of a prior notice of a special meeting. There was no quorum to validly transact business since, under Section 4 of the amended by-laws hereinabove reproduced, at least four (4) members must be present to constitute a quorum in a special meeting of the board of directors of respondent PAMBUSCO. Under Section 25 of the Corporation Code of the Philippines, the articles of incorporation or by-laws of the corporation may fix a greater number than the majority of the number of board members to constitute the quorum necessary for the valid transaction of business. Any number less than the number

provided in the articles or by-laws therein cannot constitute a quorum and any act therein would not bind the corporation; all that the attending directors could do is to adjourn.12Citing Ballantine, page 130. Moreover, the records show that respondent PAMBUSCO ceased to operate as of November 15, 1949 as evidenced by a _______________ 10 Pages 44 to 45, Rollo. 11 8 Fletcher Cyclopedia of the Law of Private Corporations, Perm, Ed., pages 750 to 751. 12 Citing Ballantine, page 130. 730 730 SUPREME COURT REPORTS ANNOTATED Peña vs. Court of Appeals letter of the SEC to said corporation dated April 17, 1980.13Exhibit 19. Being a dormant corporation for several years, it was highly irregular, if not anomalous, for a group of three (3) individuals representing themselves to be the directors of respondent PAMBUSCO to pass a resolution disposing of the only remaining asset of the corporation in favor of a former corporate officer. As a matter of fact, the three (3) alleged directors who attended the special meeting on November 19, 1974 were not listed as directors of respondent PAMBUSCO in the latest general information sheet of respondent PAMBUSCO filed with the SEC dated 18 March 1951.14Exhibit 7. Similarly, the latest list of stockholders of respondent PAMBUSCO on file with the

SEC does not show that the said alleged directors were among the stockholders of respondent PAMBUSCO.15Exhibit 8. Under Section 30 of the then applicable Corporation Law, only persons who own at least one (1) share in their own right may qualify to be directors of a corporation. Further, under Section 28 1/2 of the said law, the sale or disposition of all and/ or substantially all properties of the corporation requires, in addition to a proper board resolution, the affirmative votes of the stockholders holding at least two-thirds (2/3) of the voting power in the corporation in a meeting duly called for that purpose. No doubt, the questioned resolution was not confirmed at a subsequent stockholders meeting duly called for the purpose by the affirmative votes of the stockholders holding at least two-thirds (2/3) of the voting power in the corporation. The same requirement is found in Section 40 of the present Corporation Code. It is also undisputed that at the time of the passage of the questioned resolution, respondent PAMBUSCO was insolvent and its only remaining asset was its right of redemption over the subject properties. Since the disposition of said redemption right of respondent PAMBUSCO by virtue of the questioned resolution was not approved by the required number of stock_______________ 13 Exhibit 19. 14 Exhibit 7. 15 Exhibit 8. 731 VOL. 193, FEBRUARY 7, 1991 731 Peña vs. Court of Appeals

holders under the law, the said resolution, as well as the subsequent assignment executed on March 8, 1975 assigning to respondent Enriquez the said right of redemption, should be struck down as null and void. Respondent court, in upholding the questioned deed of assignment, which appears to be without any consideration at all, held that the consideration thereof is the liberality of the respondent PAMBUSCO in favor of its former corporate officer, respondent Enriquez, for services rendered. Assuming this to be so, then as correctly argued by petitioner, it is not just an ordinary deed of assignment, but is in fact a donation. Under Article 725 of the Civil Code, in order to be valid, such a donation must be made in a public document and the acceptance must be made in the same or in a separate instrument. In the latter case, the donor shall be notified of the acceptance in an authentic form and such step must be noted in both instruments.16Article 749, Civil Code. Non-compliance with this requirement renders the donation null and void.17Uzon vs. Del Rosario, et al., L-4963, January 28, 1953 92 Phil. 530; Aldaba vs. Court of Appeals, 27 SCRA 263 (1969). Since undeniably the deed of assignment dated March 8, 1975 in question,18Exhibit 25. shows that there was no acceptance of the donation in the same and in a separate document, the said deed of assignment is thus void ab initio and of no force and effect. WHEREFORE, the petition is GRANTED. The questioned decision of the respondent Court of Appeals dated June 20, 1989 and its resolution dated December 27, 1989 are hereby REVERSED AND SET ASIDE and another judgment is

hereby rendered AFFIRMING in toto the decision of the trial court. SO ORDERED. Narvasa (Chairman), Cruz, Griño-Aquino and Medialdea, JJ., concur. Petition granted. Decision and resolution annulled and set aside. _______________ 16 Article 749, Civil Code. 17 Uzon vs. Del Rosario, et al., L-4963, January 28, 1953 92 Phil. 530; Aldaba vs. Court of Appeals, 27 SCRA 263 (1969). 18 Exhibit 25. 732 732 SUPREME COURT REPORTS ANNOTATED Nabus vs. Court of Appeals Note.—Purpose of the formal requirements is to insure that the acceptance of the donation is duly communicated to the donor. (Pajarillo vs. Intermediate Appellate Court, 176 SCRA 340.) ——o0o—— [Peña vs. Court of Appeals, 193 SCRA 717(1991)]

G.R. No. 50553. February 19, 1991.*FIRST DIVISION. NAZARIO VITA, plaintiff-appellant, vs. SOLEDAD MONTA-NANO, ESTANISLAO JOVELLANO AND ESTEBANA JOVEL-LANO, defendants-appellants. JOSE, ELENA AND ALODIA, ALL SURNAMED MONTANANO, intervenors-appellants. Civil Law; Paraphernal Property; Evidence; Documentary and Testimonial Evidence; The three (3) parcels of land mentioned in the complaint were paraphernal properties of Isidra Montanano, being supported by documentary and testimonial evidence.—We are in conformity with the finding of the trial court that the three (3) parcels of land mentioned in the complaint were paraphernal properties of Isidra Montanano, being supported by documentary and testimonial evidence (p. 48, Record on Appeal): “x x x, plaintiff claims that in accordance with the inventory prepared by Edilberto Vita of his properties before his death (Exhs. “O”, “O-1”, “O-1-A”, “O-1-B” and “O-1-C”), the parcel of land covered by Tax Declaration No. 4 (old) was a paraphernal property of his wife Isidra Montanano while the parcels of land covered by Tax Declaration Nos. 72 (old) and 73 were conjugal properties of the spouses Edilberto Vita and Isidra Montanano as they were donated to the latter by Francisca Asilo during their marriage. It is the contention of the plaintiff that upon the death of Isidra Montan-ano, her husband Edilberto Vita acquired ownership of these properties. “This contention of the plaintiff in effect corroborates the claim of the defendants and intervenors that all the three (3) parcels of land, subject-matter of the complaint, including all the parcels of land being claimed by them in the intervenor’s counterclaim, were all parapher-nal

properties of Isidra Montanano. The two (2) parcels of land supposedly received as donation by Isidra Montanano during her marriage with Edilberto Vita should be classified as her paraphernal properties, it being acquired by her through lucrative title (Art. 148, Civil Code). On the other hand, plaintiff’s testimony that the third parcel of land covered in the complaint was inherited by Edilberto Vita from Isidra Montanano is an admission that the said property was the paraphernal property of the latter. “The defendants and intervenors claim that the above-stated three (3) parcels of land and the properties covered in their counterclaim were donated to them by Isidra Montan-ano by virtue of two (2) deeds of donation she executed on November 22, 1938 and December 20, 1940. They presented testimonial and ________________ * FIRST DIVISION. 181 VOL. 194, FEBRUARY 19, 1991 181 Vita vs. Montanano documentary evidence to prove that Isidra Montanano acquired all these parcels of land, either by inheritance or donation, from her father Domingo Montanano, her aunt Francisca Asilo and her uncle Juan Asilo. Aside from this, the tax declarations covering the properties involved in the complaint and counterclaim are mostly in the name of Isidra Montanano, except one each in the name of her father Domingo Montanano, her aunt Francisca Asilo and her nephew Jose Samonte. The court is convinced, therefore, that all the

properties involved in this litigation were the paraphernal properties of the deceased Isidra Montanano.” Same; Conjugal Property; Remedial Law; Special Proceedings; Settlement of Estate of deceased persons; It is not necessary to file a separate proceeding in court for the proper disposition of the estate of Isidra Montanano. If both spouses died, the conjugal partnership shall be liquidated in the testate or intestate proceedngs of either.—Whatever merit there may be in plaintiff-appellant’s claim that upon the death of Isidra Montanano, the ownership of these parcels of land (except with respect to the parcel of land covered by Tax Declaration No. 1253 (4, old) which was validly donated to defendantsappellants and inter-venors-appellants by Isidra Montanano, as We shall discuss later) are vested upon Edilberto Vita by operation of law, subject only to the right of her nephew and nieces, liquidation of the conjugal partnership of Isidra Montanano and Edilberto Vita must be undertaken prior to the adjudication of properties to the heirs (Vicente J. Fran-cisco, The Revised Rules of Court in the Philippines, 1970 Edition, p. 619). In this connection, contrary to the trial court’s ruling, it is not necessary to file a separate proceeding in court for the proper disposition of the estate of Isidra Montanano. Under Rule 73, Section 2 of the Rules of Court, if both spouses have died, the conjugal partnership shall be liquidated in the testate or intestate proceedings of either. In the present case, therefore, the conjugal partnerhip of Isidra Montanano and Edilberto Vita should be liquidated in the testate proceedings of the latter. Same; Donation; Acceptance; Acceptance is necessary in a donation. This applies to all kinds of donation because the law does not make any distinction.—It is explicit in Article 725 of

the Civil Code that acceptance is necessary in a donation. This applies to all kinds of donation because the law does not make any distinction. The rationale behind the requirement of acceptance is that nobody is obliged to receive a benefit against his will (Arturo M. Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, Volume II, 1972 Edition, p. 521). We uphold the trial court that (p. 50, Record on 182 182 SUPREME COURT REPORTS ANNOTATED Vita vs. Montanano Appeal): “x x x, notwithstanding the fact that from the secondary evidence presented, the said deed of donation mortis causa of Novem-ber 22, 1938 seems to have been legally and validly executed, it cannot be given force and effect as the acceptance thereof by the donees is void and illegal in as much (sic) as they were made at the time of the execution of the document, not after the death of the donor Isidra Montanano. A donation mortis causa takes effect only after the death of the donor, consequently it is only after the latter’s death that its acceptance maybe made. Same; Donation inter vivos; It was obviously the intention of Isidra Montanano to grant a donation inter vivos to defendantsappellants and intervenors-appellants in the second deed of donation.—The quoted provision in the second deed of donation should be understood in its entirety. Thus, based on the first part of the paragraph which states “ ‘[n]a bagaman at sa kasulatang ito ay lubusan ng ibinibigay at ipinagkakaloob sa bawat isa x x x na iyon ay patuluyan nang ngayo’y

iguinagawad sa kanila ng walang pasubali, na magagawa na nila ang buong karapatan ngayon bilang tunay na may-ari x x x’ ” (italics supplied), supra, it was obviously the intention of Isidra Montanano to grant a donation inter vivos to defendantsappellants and intervenors-appellants. Although the rest of the paragraph states “ ‘gayon man, ay kami pa ring mag-asawa ang mananatili sa pag-mamayari, pakikina-bang at pamomosision,—na kani-kaniyang pag-aaring dito’y ipinagkakaloob, sa buong panahon na ang bawat isa sa amin magasawa’y nabubuhay, at kung kailan bawian kami ng hiram na buhay, ay saka at saka pa lamang maaring matamo nila ang ganap na pagmamayari at pakikinabang sa mga pag-aaring iyan x x x,’ ” supra, We have adjudged in the case of Heirs of Juan Bonsato, et al. v. Court of Appeals, et al., 95 Phil. 481, 488: “It is true that the last paragraph in each donation contains the phrase ‘that after the death of the donor the aforesaid donation shall become effective.’ x x x However, said expression must be construed together with the rest of the paragraph, and thus taken, its meaning clearly appears to be that after the donor’s death, the donation will take effect so as to make the donees the absolute owners of the donated property, free from all liens and encumbrances; for it must be remembered that the donor reserved for himself a share of the fruits of the land donated. Such reservation constituted a charge or encumbrance that would disappear upon the donor’s death, when full title would become vested in the donees.” Same; Same; When the main consideration of the donation is not the death of the donor but rather the services rendered to him by the donee or his affection for the latter, the donation should be considered

183 VOL. 194, FEBRUARY 19, 1991 183 Vita vs. Montanano as inter vivos.—As We have ruled in Concepcion, et al. v. Concepcion, 91 Phil. 823, 830. “x x x, even if he (donor) says it (the donation) is to take effect after his death, when from the body of the instrument or donation it is to be gathered that the main consideration of the donation is not the death of the donor but rather services rendered to him, by the donee or his affection for the latter, then the donation should be considered as inter vivos, x x x, and the condition that the donation is to take effect only after the death of the donor should be interpreted as meaning that the possession and enjoyment of the fruits of the property donated should take place only after donor’s death.” APPEAL from the decision of the then Court of First Instance of Biñan, Laguna, Br. I. The facts are stated in the opinion of the Court. MEDIALDEA, J.: In a resolution dated March 16, 1979, the Court of Appeals certified this case to Us because it involves pure questions of law (pp. 70-80, Rollo). The pertinent facts are as follows: A complaint was filed before the Court of First Instance (now Regional Trial Court) of Laguna by plaintiff-appellant Nazario Vita, in his capacity as judicial administrator of the estate of deceased Edilberto Vita, seeking to recover from defendantsappellants Soledad Montanano, Estanislao Jovellano and Estebana Jovellano the possession of three (3) parcels of land

located in Barrio Talangan, Nagcarlan, Laguna and their annual yield since January, 1962 in the amount of P1,100.00 a year. Plaintiff-appellant claims that during the lifetime of Edilberto Vita, he was the owner and possessor of these three (3) parcels of land covered by: Tax Declaration No. 1252 (73, old) with an area of 3,640 square meters, Tax Declaration No. 1231 (72, old) with an area of 1,000 square meters, and Tax Declaration No. 1253 (4, old) with an area of 640 square meters; and he was enjoying the fruits therefrom. When he died on January 23, 1962, defendants-appellants, through stealth and strategy, took possession of the above-stated parcels of land and gathered the fruits therefrom. Notwithstanding demands from plaintiffappellant, defendants-appellants refused to surrender the posses184 184 SUPREME COURT REPORTS ANNOTATED Vita vs. Montanano sion of these parcels of land. Plaintiff-appellant further claims reimbursement in the sum of P2,000.00 as attorney’s fees and P1,000.00 as actual or compensatory damages. In their answer dated December 1, 1964, defendants-appellants deny that the three (3) parcels of land belong to the estate of Edilberto Vita. Instead, they claim that the two parcels of land covered by Tax Declaration No. 1252 and Tax Declaration No. 1231 belong to Soledad Montanano as these were conveyed to her by Isidra Montanano (her aunt and wife of Edilberto Vita) and Edilberto Vita in a document signed and executed by them on November 22, 1938 and ratified by one Mr. Matienzo, a

Notary Public from Nagcarlan, Laguna. However, all copies of said document were lost during the last war. The parcel of land covered by Tax Declaration No. 1253 is owned in common by Soledad Montanano, her brother Jose and sisters Elena and Alodia. It originally belonged to Francisca Asilo, deceased sister of their grandmother, Micaela Asilo. Its ownership was transferred to them under the arrangement sanctioned by Edilberto Vita himself wherein all the proceeds from the yearly harvests therefrom shall be spent for the yearly masses to be held for the souls of Francisca Asilo and Isidra Montanano. This being the case, plaintiff-appellant is now estopped from instituting this action. Defendants-appellants claim also that Edilberto Vita could not have inherited these parcels of land from Isidra Montanano as the latter’s estate has never been the subject of a judicial or extra-judicial proceeding. The erroneous inclusion of these parcels of land in the inventory of the estate of Edilberto Vita in Special Proceedings No. SC-136 of the Court of First Instance of Laguna does not make them actually a part of his estate. There is no fixed income from these parcels of land because since 1962, plaintiff-appellant, with unknown persons, has been gathering whatever crops that may be taken therefrom. And, by reason of the malicious filing of this complaint, they seek reimbursement of the amount of P1,000.00 representing attorney’s fees and other litigation expenses. Replying to defendants-appellants’ answer, plaintiff-appellant claims that Isidra Montanano and Edilberto Vita never executed any document on November 22, 1938 and if they had, it was thereafter repudiated, canceled and destroyed, for which reason, the three (3) parcels of land remained in the possession

185 VOL. 194, FEBRUARY 19, 1991 185 Vita vs. Montanano of Isidra Montanano and Edilberto Vita; that upon the death on September 25, 1957 of Isidra Montanano, who left neither descendants nor ascendants, her surviving spouse Edilberto Vita succeeded her and took immediate possession of her estate; and that from the time defendants-appellants took possession of these parcels of land, they have continuously gathered the fruits therefrom. In a petition dated August 20, 1966, Jose, Elena and Alodia Montanano sought leave of court to intervene in this case. In the order of the trial court dated April 12, 1967, the amended answer dated September 10, 1966, which intervenors-appellants filed jointly with Soledad Montanano, was admitted as their answer-in-intervention. Incorporated therein is a counterclaim that Soledad, Jose, Elena and Alodia Montanano are the co-owners of (pp. 43-44, Record on Appeal): “(a) A parcel of coconut land situated in Bo. Bangbang, Nagcar-lan, Laguna, containing an area of 2,450 square meters, more or less, covered by Tax Declaration No. 8953; “(b) A parcel of coconut and secano land situated in Bo. Buboy, Nagcarlan, Laguna with an area of 15,096 square meters, more or less, and covered by Tax Declaration No. 10228; “(c) A parcel of coconut land, with its improvements, situated in Bo. Yucos, Nagcarlan, Laguna, with an area of 2,500 square

meters, more or less, and covered by Tax Declaration No. 7999; “(d) A parcel of coconut land, with its improvements, situated in Bo. Talangan, Nagcarlan, Laguna, with an area of 12,865 square meters, more or less, and covered by Tax Declaration No. 1233 (sic) (third parcel of land in the complaint); and “(e) A parcel of residential land, with its improvements, situated in Gen. Luna, Nagcarlan, Laguna, with an area of 167.50 square meters, more or less, and covered by Tax Declaration No. 102;” that Jose Montanano is the sole owner of (p. 44, ibid): “(a) A parcel of coconut land, with improvements thereon, situated in Bo. Bangbang, Nagcarlan, Laguna, with an area of 10,000 square meters, more or less, and covered by Tax Declaration No. 6493; and “(b) A parcel of coconut land, with improvements thereon, situated in Bo. Banago, Nagcarlan, Laguna, with an area of 9,604 square meters, more or less, and covered by Tax Declaration No. 8304;” 186 186 SUPREME COURT REPORTS ANNOTATED Vita vs. Montanano that Soledad Montanano is the sole owner of (p. 44, ibid): “(a) A parcel of coconut land, with improvements thereon, situated in Bo. Talangan, Nagcarlan, Laguna, with an area of 4,165 square meters more or less, and covered by Tax Declaration No. 123 (sic) (the second parcel of land in the complaint); and

“(b) A parcel of coconut land, with improvements thereon, situated in Bo. Talangan, Nagcarlan, Laguna, containing an area of 10,434 square meters, more or less; and covered by Tax Declaration No. 1252 (the first parcel of land in the complaint);” that Alodia Montanano is the sole owner of (p. 44, ibid): “(a) A parcel of coconut land and irrigated riceland, with improvements thereon, situated in Bo. Buboy, Nagcarlan, Laguna, containing an area of 24,153 square meters, more or less and covered by Tax Declaration No. 10268; and “(b) A parcel of coconut land, with improvements thereon, situated in Bo. Buboy, Nagcarlan, Laguna, containing an area of 1,619 square meters, more or less, and covered by Tax Declaration No. 8510;” that Elena Montanano is the sole owner of (p. 44, ibid): “(a) A parcel of coconut land, with improvements thereon, situated in Bo. Buboy, Nagcarlan, Laguna, containing an area of 6,242 square meters, more or less, and covered by Tax Declaration No. 8511; and “(b) A portion of a parcel of riceland situated at C. Lirio St., Nagcarlan, Laguna, containing an area of 9,691 square meters, more or less and covered by Tax Declaration No. 1184.” They alleged therein that they acquired ownership of the three (3) parcels of land mentioned in the complaint, which are in the possession of Soledad Montanano, and the other parcels of land mentioned in their counterclaim, which are in the possession of plaintiff-appellant, by virtue of a donation mortis causa executed by Isidra Montanano on November 22, 1938 or by a donation executed by her on December 20, 1940 which was confirmed by Edilberto Vita. They pray that these parcels of

land be adjudicated to them in the manner set forth in their counterclaim; that plaintiff-appellant be ordered to account for 187 VOL. 194, FEBRUARY 19, 1991 187 Vita vs. Montanano the harvests from these parcels of land from the time he took possession; and that they be awarded damages corresponding to their litigation expenses. In his reply dated July 4, 1967, plaintiff-appellant denied all the allegations contained in the answer-in-intervention and reiterated that there was no such donation executed by Isidra Montanano. If such donation were really executed, she was forced to do so at a time when she was not mentally in a position to execute and sign freely said document. On September 15, 1973, the trial court rendered judgment adverse to all parties, the dispositive portion of which reads (p. 52, Record on Appeal): “Considering that the plaintiff has not shown by preponderating evidence that the three (3) parcels of land covered in the complaint belong to the estate of Edilberto Vita and it appearing likewise that the defendants and intervenors have not shown that the parcels of land covered in the counterclaim were validly donated to them and that they have legally accepted the donation made by Isidra Montan-ano, the complaint filed by the plaintiff and the counterclaim filed by the intervenors are hereby DISMISSED. This is without prejudice to the filing of a separate proceedings (sic) in Court for the proper disposition of the estate of the deceased Isidra

Montanano, including that of her share in the fruits of the properties donated to her during her marriage with Edilberto Vita which is considered part of their conjugal properties. No assessment is hereby made with respect to the damages sustained by the parties as they offset each other, if any. “Without pronouncement as to costs. “SO ORDERED.” All parties appealed to the Court of Appeals. The case is now before Us raising mainly the following legal issues: 1) whether or not the three (3) parcels of land mentioned in the complaint are included in the estate of Edilberto Vita (as regards the appeal of plaintiff-appel-lant); and 2) whether or not acceptance is necessary in a donation mortis causa; and whether the donation dated December 20, 1940 is mortis causa or inter vivos (with respect to the appeal of defendants-appellants and intervenors-appel-lants). 188 188 SUPREME COURT REPORTS ANNOTATED Vita vs. Montanano Plaintiff-appellant avers that the trial court failed to consider that Edilberto Vita’s right to the conjugal half in the first two parcels as surviving spouse had ceased to be inchoate upon the death of Isidra in 1957, and that such right had been vested upon him by operation of law. With respect to the conjugal half pertaining to Isidra in said two parcels, and the entirety of the third parcel as her paraphernal property, they were likewise vested upon him by operation of law, subject only to the right

of her nephew and nieces, pursuant to Articles 995 and 1001 of the New Civil Code. In other words, plaintiff-appellant is again claiming that the parcels of land covered by Tax Declaration No. 1252 (73, old) and Tax Declaration No. 1231 (72, old) are conjugal properties of Isidra Montanano and Edilberto Vita whereas the parcel of land covered by Tax Declaration No. 1253 (4, old) is the paraphernal property of Isidra Montanano. We are in conformity with the finding of the trial court that the three (3) parcels of land mentioned in the complaint were paraphernal properties of Isidra Montanano, being supported by documentary and testimonial evidence (p. 48, Record on Appeal): “x x x, plaintiff claims that in accordance with the inventory prepared by Edilberto Vita of his properties before his death (Exhs. “O”, “O-1”, “O-1-A”, “O-1-B” and “O-1-C”), the parcel of land covered by Tax Declaration No. 4 (old) was a paraphernal property of his wife Isidra Montanano while the parcels of land covered by Tax Declaration Nos. 72 (old) and 73 were conjugal properties of the spouses Edilberto Vita and Isidra Montanano as they were donated to the latter by Francisca Asilo during their marriage. It is the contention of the plaintiff that upon the death of Isidra Montanano, her husband Edilberto Vita acquired ownership of these properties. “This contention of the plaintiff in effect corroborates the claim of the defendants and intervenors that all the three (3) parcels of land, subject-matter of the complaint, including all the parcels of land being claimed by them in the intervenor’s counterclaim, were all paraphernal properties of Isidra Montanano. The two (2) parcels of land supposedly received as

donation by Isidra Montanano during her marriage with Edilberto Vita should be classified as her paraphernal properties, it being acquired by her through lucrative title (Art. 148, Civil Code). On the other hand, plaintiff’s testimony that the third parcel of land covered in the complaint was inherited by Edilberto Vita from Isidra Montanano is an admission that the said property was the 189 VOL. 194, FEBRUARY 19, 1991 189 Vita vs. Montanano paraphernal property of the latter. “The defendants and intervenors claim that the above-stated three (3) parcels of land and the properties covered in their counterclaim were donated to them by Isidra Montanano by virtue of two (2) deeds of donation she executed on November 22, 1938 and December 20, 1940. They presented testimonial and documentary evidence to prove that Isidra Montanano acquired all these parcels of land, either by inheritance or donation, from her father Domingo Montanano, her aunt Francisca Asilo and her uncle Juan Asilo. Aside from this, the tax declarations covering the properties involved in the complaint and counterclaim are mostly in the name of Isidra Montanano, except one each in the name of her father Domingo Montanano, her aunt Francisca Asilo and her nephew Jose Samonte. The court is convinced, therefore, that all the properties involved in this litigation were the paraphernal properties of the deceased Isidra Montanano.”

Whatever merit there may be in plaintiff-appellant’s claim that upon the death of Isidra Montanano, the ownership of these parcels of land (except with respect to the parcel of land covered by Tax Declaration No. 1253 (4, old) which was validly donated to defendants-appellants and intervenorsappellants by Isidra Montanano, as We shall discuss later) are vested upon Edilberto Vita by operation of law, subject only to the right of her nephew and nieces, liquidation of the conjugal partnership of Isidra Montanano and Edilberto Vita must be undertaken prior to the adjudication of properties to the heirs (Vicente J. Francisco, The Revised Rules of Court in the Philippines, 1970 Edition, p. 619). In this connection, contrary to the trial court’s ruling, it is not necessary to file a separate proceeding in court for the proper disposition of the estate of Isidra Montanano. Under Rule 73, Section 2 of the Rules of Court, if both spouses have died, the conjugal partnership shall be liquidated in the testate or intestate proceedings of either. In the present case, therefore, the conjugal partnership of Isidra Montanano and Edilberto Vita should be liquidated in the testate proceedings of the latter. Defendants-appellants and intervenors-appellants allege the following: 1) that a donation mortis causa (as in the case of the November 22, 1938 donation), being in the nature of a legacy, need not be accepted; their acceptance of that donation is superfluous; and 2) that the December 20, 1940 donation is a 190 190 SUPREME COURT REPORTS ANNOTATED Vita vs. Montanano

donation inter vivos because: a) there is no stipulation or provision therein that the donation is essentially revocable; b) there was an acceptance of the donation; c) the donation was not simply made in consideration of the death of the donor but of her affection for the donees. It is explicit in Article 725**Article 725 of the Civil Code provides:“ART. 725. Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it.”(see also Articles 734, 745 and 746 of the same Code). of the Civil Code that acceptance is necessary in a donation. This applies to all kinds of donation because the law does not make any distinction. The rationale behind the requirement of acceptance is that nobody is obliged to receive a benefit against his will (Arturo M. Tolentino, Commentaries and Jurisprudence on the Civil Code of the Phil-ippines, Volume II, 1972 Edition, p. 521). We uphold the trial court that (p. 50, Record on Appeal): “x x x, notwithstanding the fact that from the secondary evidence presented, the said deed of donation mortis causa of November 22, 1938 seems to have been legally and validly executed, it cannot be given force and effect as the acceptance thereof by the donees is void and illegal in as much (sic) as they were made at the time of the execution of the document, not after the death of the donor Isidra Montanano. A donation mortis causa takes effect only after the death of the donor, consequently it is only after the latter’s death that its acceptance maybe made. “x x x. However, We adopt a view contrary to that of the trial court regarding the second allegation of defendants-appellants and

intervenors-appellants. According to the trial court (p. 50, Record on Appeal): “The defendants and intervenors further claim that all the properties covered by that counterclaim were donated to them by Isidra Montanano pursuant to a second deed of donation executed by the latter on December 20, 1940 (Exh. ‘3’). A careful study of the said document, however, shows that it is another deed of donation mortis _______________ ** Article 725 of the Civil Code provides: “ART. 725. Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it.” (see also Articles 734, 745 and 746 of the same Code). 191 VOL. 194, FEBRUARY 19, 1991 191 Vita vs. Montanano causa, considering the following provisions appearing therein with respect to its effectivity: ‘Na bagaman at sa kasulatang ito ay lubusan ng ibinibigay at ipinagkakaloob sa bawat isa ng pag-aaring dito’y itinungod sa kani-kanila, matangi ang ganang napaukol sa kay Dr. Vicente C. Chipongian at kay Maria Osuna, na iyon ay patuluyan nang ngayo’y iguinagawad sa kanila ng walang pasubali, na magagawa na nila ang buong karapatan ngayon bilang tunay na may-ari, gayon man, ay kami pa ring mag-asawa ang mananatili sa pag-mamayari, pakikinabang at pamomosision, sa kani-kaniyang pag-aaring dito’y ipinagkakaloob, sa buong

panahon na ang bawat isa sa amin mag-asawa’y nabubuhay, at kung kailan bawian kami ng hiram na buhay, ay saka at saka pa lamang maaring matamo nila ang ganap na pagmamayari at pakikina-bang sa mga pag-aaring iyan na dito’y inihayag nila ang pagtan-gap.’ “From this provision of the document, it clearly appears that the donors shall continue to be the owner and possessors of the properties involved in the donation and shall continue to enjoy the fruits of said properties while they are still living and it is only upon their death that ownership will transfer to the donees. It was the evident intent of the donors in this case to give the donation after their death. In the meantime, they retain full or naked ownership and control of the properties while they are still living and title will pass to the donees only after their death. This is donation mortis causa (Heirs of Bonsato v. Court of Appeals, G.R. No. L-6600, July 30, 1954, 50 O.G. 3568; Howard v. Padilla, G.R. L-7064, 7098, April 22, 1955).” The quoted provision in the second deed of donation should be understood in its entirety. Thus, based on the first part of the paragraph which states “ ‘[n]a bagaman at sa kasulatang ito ay lubusan ng ibinibigay at ipinagkakaloob sa bawat isa x x x na iyon ay patuluyan nang ngayo’y iguinagawad sa kanila ng walang pasubali, na magagawa na nila ang buong karapatan ngayon bilang tunay na may-ari x x x’ ” (italics supplied), supra, it was obviously the intention of Isidra Montanano to grant a donation inter vivos to defendants-appellants and intervenors-appellants. Although the rest of the paragraph states “ ‘gayon man, ay kami pa ring mag-asawa ang mananatili sa pag-mama-yari, pakikinabang at pamomosision,—na kani-kaniyang pag-aaring dito’y

ipinagkakaloob, sa buong panahon na ang bawat isa sa amin mag-asawa’y nabubuhay, at kung kailan bawian 192 192 SUPREME COURT REPORTS ANNOTATED Vita vs. Montanano kami ng hiram na buhay, ay saka at saka pa lamang maaring matamo nila ang ganap na pagmamayari at pakikinabang sa mga pag-aaring iyan x x x,’ ” supra, We have adjudged in the case of Heirs of Juan Bonsato, et al. v. Court of Appeals, et al., 95 Phil. 481, 488: “It is true that the last paragraph in each donation contains the phrase ‘that after the death of the donor the aforesaid donation shall become effective.’ x x x However, said expression must be construed together with the rest of the paragraph, and thus taken, its meaning clearly appears to be that after the donor’s death, the donation will take effect so as to make the donees the absolute owners of the donated property, free from all liens and encumbrances; for it must be remembered that the donor reserved for himself a share of the fruits of the land donated. Such reservation constituted a charge or encumbrance that would disappear upon the donor’s death, when full title would become vested in the donees.” It was also Our observation therein that (ibid, at p. 487): “x x x. The donor only reserved for himself, during his lifetime, the owner’s share of the fruits or produce x x x, a reservation that would be unnecessary if the ownership of the donated property remained with the donor. Most significant is

the absence of stipulation that the donor could revoke the donations x x x.” Furthermore, mention must be made of the fact that the consideration of the second deed of donation is love and services rendered by defendants-appellants and intervenorsappellants to Isidra Montanano, as revealed by the third and fourth paragraphs therein (Exhibit “3,” for the defendants): “Na sapagkat ang banal kong nais ay kung bawian man ako ng aking hiram na buhay ay matumbasan man lamang sa pamamag-itan ng isinasagawa kong pagkakaloob sa hinaharap na kasulatan yuong manga pagdamay, pagmamahal at paghahasikaso na tinangap ko at tunay na ipinakita sa akin ng mga dito’y itinangi ko,— “Kaya’t dahil diya’y buong puso kong ibinibigay, isinusulit at ganap na IPINAGKAKALOOB, ang mga natitira ko pang mga pagaari, na wala pang kinatutunguran o napagbibigyan, sa kaparaanang dito’y itinatagubilen ko, sa manga taong gaya nitong mga sumusunod: “x x x.” 193 VOL. 194, FEBRUARY 19, 1991 193 Vita vs. Montanano As We have ruled in Concepcion, et al. v. Concepcion, 91 Phil. 823, 830: “x x x, even if he (donor) says it (the donation) is to take effect after his death, when from the body of the instrument or donation it is to be gathered that the main consideration of the donation is not the death of the donor but rather services

rendered to him, by the donee or his affection for the latter, then the donation should be considered as inter vivos, x x x, and the condition that the donation is to take effect only after the death of the donor should be interpreted as meaning that the possession and enjoyment of the fruits of the property donated should take place only after donor’s death.” Along the same line of ratiocination is Our holding in Balaqui, et al. v. Dongso, et al., 53 Phil. 673, 677: “x x x, that as the donor guaranteed the right which she conferred on the donee by virtue of the deed of gift, wherein, in recompense of the latter’s good services to the former, she donates to her the two parcels of land with their improvements, said gift is inter vivos and irrevocable, and not mortis causa, notwithstanding the fact that the donor stated in said deed that she did not transfer the ownership of the two parcels of land donated, save upon her death, for such a statement can mean nothing else than that she only reserved to herself the possession and usufruct of said property, and because the donor could not very well guarantee the aforesaid right after her death.” ACCORDINGLY, the appeal of plaintiff-appellant is hereby DENIED whereas the appeal of defendants-appellants is hereby PARTLY GRANTED. The decision of the Court of First Instance of Laguna dated September 15, 1973 is MODIFIED as follows: 1) the dismissal of the complaint of plaintiff-appellant is AFFIRMED; 2) the dismissal of the counterclaim of defen-dants-appellants and intervenorsappellants is SET ASIDE; and 3) plaintiff-appellant is ordered: a) to deliver the possession of the properties donated to defendants-appellants and interve-nors-appellants by virtue of

the deed of donation dated Decem-ber 20, 1940, and b) to render an accounting of the products harvested therefrom from January 23, 1962 up to the present. 194 194 SUPREME COURT REPORTS ANNOTATED Locsin vs. Valenzuela SO ORDERED. Narvasa (Chairman), Cruz, Gancayco and Griño-Aquino, JJ., concur. Appeal of plaintiff-appellant denied. Appeal of defendantsappellants, partly granted. Decision modified. Note.—Determination of whether a donation is inter vivos or mortis causa depends upon the nature of the disposition to be made. (National Treasurer of the Philippines vs. Vda. de Meim-ban, 131 SCRA 264.) [Vita vs. Montanano, 194 SCRA 180(1991)]

G.R. No. 72908. August 11, 1989.*FIRST DIVISION. EUFEMIA PAJARILLO, CLAUDIO SUTERIO, JR., NYMIA SUTERIO and MARILYN SUTERIO, petitioners, vs. INTERMEDIATE APPELLATE COURT, THIRD CIVIL CASES DIVISION, SALUD SUTERIO and PEDRO MATIAS, respondents. Civil Law; Donation; Party-in-Interest; Petitioners have the legal personality to challenge the validity of the donation on which Salud bases her claim to the property under litigation.— We hold at the outset that, contrary to the ruling in the challenged decision, the petitioners have the legal personality to challenge the validity of the donation on which Salud bases her claim to the property under litigation. As defendants in the complaint for reconveyance, they had every right to resist the plaintiffs’ allegation that she was the owner of the subject property by virtue of the claimed donation. Recognition of that donation would topple the props of their own contention that Juana could dispose of the property as its owner when she sold it to Claudio Suterio in 1956. Same; Same; Felipe and Juana being the owners of the property in question were free to give the land to whomever they pleased and for whatever reason they saw fit.—Felipe and Juana had declared themselves the heirs of Perfecta and the owners of the property in question. As such, they were free to give the land to whomever they pleased and for whatever reason they saw fit. Hence, if they chose to respect Perfecta’s wishes and carry out her intentions by donating the land to Salud, there was no legal impediment to their doing so. In fact, that was not only the legal but also the moral thing to do.

Same; Same; Same; Extrajudicial settlement also reflects donors own affection for Salud which constituted the valid consideration for their own act of liberality.—There is no question that Felipe and Juana could have simply disregarded their sister’s sentiments and decided not to donate the property to Salud, keeping the same for themselves. The fact that they did not do this speaks well indeed of their integrity and their loyalty as well to their deceased sister. The extrajudicial settlement also reflects their own affection for Salud which constituted the valid consideration for their own act of liberality. Notably, in _______________ * FIRST DIVISION. 341 VOL. 176, AUGUST 11, 1989 341 Pajarillo vs. Intermediate Appellate Court her acceptance of the donation, Salud referred to “the donors Felipe Balane and Juana Balane de Suterio,” and not Perfecta. Same; Same; Form; Court finds that under the circumstances of the case, a literal adherence to the requirement of the law might result not in justice to the parties but conversely a distortion of their intentions.—A strict interpretation of Article 633 can lead to no other conclusion than the annulment of the donation for being defective in form as urged by the petitioners. This would be in keeping with the unmistakable language of the abovequoted provision. However, we find that under the circumstances of the present case, a literal adherence to the requirement of the law might result not in justice to the parties

but conversely a distortion of their intentions. It is also a policy of the Court to avoid such an intepretation. Same; Same; Same; Same; Purpose of the formal requirement is to insure that the acceptance of the donation is duly communicated to the donor.—The purpose of the formal requirement is to insure that the acceptance of the donation is duly communicated to the donor. In the case at bar, it is not even suggested that Juana was unaware of the acceptance for she in fact confirmed it later and requested that the donated land be not registered during her lifetime by Salud. Given this significant evidence, the Court cannot in conscience declare the donation ineffective because there is no notation in the extrajudicial settlement of the donee’s acceptance. That would be placing too much stress on mere form over substance. It would also disregard the clear reality of the acceptance of the donation as manifested in the separate instrument dated June 20, 1946, and as later acknowledged by Juana. Same; Same; Laches; One may expect a person to be vigilant of his rights when dealing with an acquaintance or associate or even with az friend but not when the other person is a close relative as in the case at bar.—The problem with the petitioners’ theory is that it would regard Juana and Salud as strangers when they are in fact mother and daughter. One may expect a person to be vigilant of his rights when dealing with an acquaintance or associate, or even with a friend, but not when the other person is a close relative, as in the case at bar. To begin with, the land came from Juana herself. Secondly, she requested her daughter not to register the land as long as she was still alive so she could enjoy its fruits until her death. To Salud, it was not difficult to comply with this request, coming

as it did from her own mother. There was no reason to disobey her. She did not have to protect herself against her own mother. Indeed, what would have been unseemly was 342 342 SUPREME COURT REPORTS ANNOTATED Pajarillo vs. Intermediate Appellate Court her registering the land against her mother’s request as if she had no confidence in her. Salud did no less than what any dutiful daughter would have done under the circumstances. Same; Same; Registration; Registration not necessary to make the donation a binding commitment insofar as the donors and the donee were concerned.—There is nothing in this instrument to suggest that the donation was to take effect upon the death of the donors as to make it a donation mortis causa, as urged by the petitioners. The donation became effective upon acceptance by Salud except that, in obedience to her mother’s request, she chose not to register the land in the meantime and to allow her mother to enjoy its fruits. What was deferred was not its effectivity but only its enjoyment by Salud. Registration was not necessary to make the donation a binding commitment insofar as the donors and the donee were concerned. Same; Same; Trust; When Claudio registered the land in his name knowing there was a flaw in his title, an implied trust was created in favor of Salud as real owner of the property.—It is clear that Juana Balane de Suterio had no right to sell the subject land to Claudio because she was no longer its owner, having previously donated it to her daughter Salud. Juana herself was holding the land merely as a trustee of Salud, who had transferred possession to her mother at the old woman’s

request. The deed of sale was itself vitiated by bad faith as Claudio is presumed to have known of the previous donation to his sister Salud, whose acceptance of the donation was formally witnessed by his own wife, the herein principal petitioner. When Claudio registered the land in his name knowing there was a flaw in his title, an implied trust was created in favor of Salud as the real owner of the property in accordance with Article 1456 of the Civil Code. Same; Same; Prescription; The legal principle is that if the registration of the land is fraudulent and the person in whose name the land is registered thus holds it as a mere trustee, the real owner is entitled to file an action for reconveyance within a period of ten years.—The petitioners do not insist on prescription as a bar to the action for reconveyance, and understandably so. The legal principle is that if the registration of the land is fraudulent and the person in whose name the land is registered thus holds it as a mere trustee, the real owner is entitled to file an action for reconveyance of the property within a period of ten years. The record shows that while the land was registered in the name of Claudio Suterio, Sr. in 1958, the complaint for 343 VOL. 176, AUGUST 11, 1989 343 Pajarillo vs. Intermediate Appellate Court reconveyance was filed by the petitioners in 1965, or still within the ten-year prescriptive period. PETITION for certiorari to review the decision of the then Intermediate Appellate Court. Ejercito, J. The facts are stated in the opinion of the Court.

Agustin A. Ferrer for petitioners. Alfredo I. Raya for respondents. CRUZ, J.: This is one of those distasteful litigations involving a controversy among close relatives over properties left by a common ascendant. The petitioners are the widow and children of the brother of the principal private respondent. She and her brother appear to be the only remaining issue of the mother who seems to have caused all the present confusion. The record does not show how close, if at all, the members of this small family were. What is certain is that there is no affection now among the protagonists in this case. The mother was Juana Balane de Suterio, who had a brother named Felipe Balane and a sister named Perfecta Balane de Cordero. Perfecta died in 1945 leaving inter alia a tract of land consisting of about 28 hectares and covered by TCT No. 4671 in the Registry of Deeds of Quezon Province. On May 20, 1946, Juana and Felipe executed a public instrument entitled “Extra-judicial Settlement of the Estate of the Deceased Perfecta Balane de Cordero.”1Exhibit “A.... In it they disposed of the said property as follows: EXTRA-JUDICIAL SETTLEMENT OF THE ESTATE OF DECEASED PERFECTA BALANE DE CORDERO. This agreement made this 20th day of May, 1946, by and between Felipe Balane and Juana Balane de Suterio, both of age and residents of Macalelon, Tayabas, Philippines. _______________ 1 Exhibit “A.” 344

344 SUPREME COURT REPORTS ANNOTATED Pajarillo vs. Intermediate Appellate Court WITNESSETH: That whereas, the said Felipe Balane and Juana Balane de Suterio are the only brother and sister respectively and forced heirs of Perfecta Balane de Cordero who dies intestate on January 21, 1945; That whereas, the said Perfecta Balane de Cordero, deceased, left property described as follows: TRANSFER CERTIFICATE OF TITLE NO. 4671. Province of Tayabas. A parcel of land (Lot No. 6-A, Plan Psu-12210), with all buildings and improvements except those herein expressly noted as belonging to other person, situated in the barrio of Luctol, Municipality of Macalelon. Bounded on the NE., by Lot No. 6-B; on the E., by property by Andrea Fernandez, the sapa Luctob and the sapa Patay; on the SE., by properties of Andrea Fernandez and Silvestra Mereis; on the SW., by properties of Felix Rodriguez, Dionisio Fornea, Placido Abistado and Adriano Abistado and the mangrove of the government; and on the NW., by properties of Orilleneda, Mariano Glindro, Maxima Orilleneda, Placida Forcados and Basilio Rabe. xx xx xx xx xx xx xx containing an area of TWO HUNDRED EIGHTY-FIVE THOUSAND THREE HUNDRED FIFTY-THREE SQUARE METERS (285,353) more or less. That whereas, we Felipe Balane and Juana Balane de Suterio, the only heirs of the property described above left by the deceased Perfecta Balane de Cordero, do hereby agree in

carrying out the antemortem wish of our beloved deceased sister that in consideration of love and affection the property described above be donated to Salud Suterio de Matias. That whereas, the estate left by the said Perfecta Balane de Castro, deceased, is not free from obligation or debt. It has an incumbrance of about ONE THOUSAND PESOS (P1,000.00) to the Philippine National Bank, Tayabas Branch. That whereas, Salud Suterio de Matias, to whom this property is donated extra-judicially as agreed upon by both heirs, shall assume the said obligation to the Philippine National Bank, Tayabas Branch. NOW, THEREFORE, we Felipe Balane and Juana Balane de Suterio have mutually agreed and covenanted to adjudicate, give, transfer and convey the property described above to Salud Suterio de Matias heirs, executors, administrators and assign. And the donee does hereby accept this donation and does hereby express her gratitutde for the kindness and liberality of the donor. 345 VOL. 176, AUGUST 11, 1989 345 Pajarillo vs. Intermediate Appellate Court IN WITNESS WHEREOF, we have hereunto set our hands this 20th day of May, 1946. (Sgd.) FELIPE BALANE FELIPE BALANE (Sgd.) JUANA BALANE DE SUTERIO JUANA BALANE DE SUTERIO (Acknowledgment)

On June 20, 1946, Salud Suterio executed the following public instrument,2Exhibit “B.... with petitioner Eufemia Pajarillo was one of the witnesses: KNOW ALL MEN BY THESE PRESENTS: That on May 20, 1946, FELIPE BALANE and JUANA BALANE DE SUTERIO, the only heirs to the properties of the late PERFECTA BALANE DE CORDERO, executed a DEED OF DONATION in favor of the undersigned and the said donation was made in accordance to the antemortem wish of my late aunt, Perfecta Balane de Cordero, to the effect that the property described in the Deed of Donation, be given to me because of her love and affection for me, being her only niece. That, I, SALUD SUTERIO DE MATIAS, the only DONEE, do hereby receive and accept this donation and further express my gratitude for the kindness and liberality of the DONORS, FELIPE BALANE and JUANA BALANE DE SUTERIO. IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of June, 1946. (Sgd.) SALUD SUTERIO DE MATIAS SALUD SUTERIO DE MATIAS Donee Signed in the presence of: (Sgd.) SOFRONIO BALANE (Sgd.) EUFEMIA P. SUTERIO (Acknowledgment) _______________ 2 Exhibit “B.” 346 346 SUPREME COURT REPORTS ANNOTATED

Pajarillo vs. Intermediate Appellate Court These instruments were never registered nor was title transferred in Salud’s name although she says she immediately took possession of the land. Meantime, intestate proceedings were instituted on the estate of Perfecta and the said land was among those included in the inventory of the properties belonging to the decedent.3Exhibit “12-A.... Salud interposed no objection to its inclusion nor did she oppose its subsequent adjudication to her mother Juana in the project of partition. It is not clear if the land was ever registered in Juana’s name. However, there is evidence that Juana confirmed the earlier donation of the land to Salud but requested that she be allowed to possess the same and enjoy its fruits until her death.4Exhibit “D.... It has also not been controverted that Salud paid the P1,000.00 loan for which the land was mortgaged. Salud says that sometime in 1951, acceding to this request, she transferred the possession of the land to her mother, who was then staying with Claudio and his family. During the period they were occupying the land, Claudio paid the realty taxes thereon.5Exhibits “4” to “4-G.... On May 25, 1956, Juana executed a deed of absolute sale conveying the land to Claudio for the declared consideration of P12,000.00.6Exhibit “1.... Two years later, on August 27, 1958, Claudio had the land registered in his name and was issued TCT No. 32050 in the land records of Quezon Province.7Exhibit “2.... Claudio died in 1961 and his mother in 1963. On June 30, 1965, the private respondents filed a complaint for the reconveyance of the property on the ground that the deed of

sale in favor of Claudio was fictitious and its registration in his name was null and void.8Record on Appeal, p. 1. Salud (joined by her husband) alleged that she was unaware until later of the supposed sale of the land to Claudio. She faulted it as having been procured through fraud and improper influence on her sick and aged mother. She claimed that no _______________ 3 Exhibit “12-A.” 4 Exhibit “D.” 5 Exhibits “4” to “4-G.” 6 Exhibit “1.” 7 Exhibit “2.” 8 Record on Appeal, p. 1. 347 VOL. 176, AUGUST 11, 1989 347 Pajarillo vs. Intermediate Appellate Court compensation was actually paid by Claudio and that the transaction was deliberately concealed from her by her brother and the defendants.9Ibid., pp. 4-5. For their part, the defendants assailed the donation to Salud as legally inefficacious and defective and contended that her complaint was barred by prescription, estoppel and res judicata. They also filed a counterclaim questioning the sale to Salud by her mother of another tract of land, in which they said they were entitled to share as Juana’s heirs.10Id., p. 27. On April 17, 1979, Judge Juan M. Montecillo of the Court of First Instance of Quezon rendered judgment upholding the donation to the plaintiff and annulling the deed of sale and the

registration of the land in favor of Claudio Suterio, Sr. The defendants were required to reconvey the land to Salud Suterio even as their counterclaim was dismissed for lack of evidence.11Id., p. 69. On appeal, the decision was affirmed in toto.12Rollo, p. 46. Penned by Ejercito, J., with Coquia, Zosa and Bartolome, JJ., concurring. The respondent court is now sought to be reversed in this petition for certiorari under Rule 45 of the Rules of Court. We hold at the outset that, contrary to the ruling in the challenged decision, the petitioners have the legal personality to challenge the validity of the donation on which Salud bases her claim to the property under litigation. As defendants in the complaint for reconveyance, they had every right to resist the plaintiffs’ allegation that she was the owner of the subject property by virtue of the claimed donation. Recognition of that donation would topple the props of their own contention that Juana could dispose of the property as its owner when she sold it to Claudio Suterio in 1956. The petitioners also assail the intrinsic validity of the extrajudical settlement and submit that it is not really a donation as conceptually understood in civil law. Their argument is that the real donor of the property was Perfecta, the deceased sister, who, however, could no longer bestow the intended gift. For their part, Felipe and Juana could not have made the donation _______________ 9 Ibid., pp. 4-5. 10 Id., p. 27. 11 Id., p. 69.

12 Rollo, p. 46. Penned by Ejercito, J., with Coquia, Zosa and Bartolome, JJ., concurring. 348 348 SUPREME COURT REPORTS ANNOTATED Pajarillo vs. Intermediate Appellate Court either because they were not moved by the same sentiments Perfecta had for her niece Salud. That feeling would have provided the required consideration if Perfecta herself had made the donation, but not the other two. This appears to be too much nitpicking, if not sophistry. Felipe and Juana had declared themselves the heirs of Perfecta and the owners of the property in question. As such, they were free to give the land to whomever they pleased and for whatever reason they saw fit. Hence, if they chose to respect Perfecta’s wishes and carry out her intentions by donating the land to Salud, there was no legal impediment to their doing so. In fact, that was not only the legal but also the moral thing to do. There is no question that Felipe and Juana could have simply disregarded their sister’s sentiments and decided not to donate the property to Salud, keeping the same for themselves. The fact that they did not do this speaks well indeed of their integrity and their loyalty as well to their deceased sister. The extrajudicial settlement also reflects their own affection for Salud which constituted the valid consideration for their own act of liberality. Notably, in her acceptance of the donation, Salud referred to “the donors Felipe Balane and Juana Balane de Suterio,” and not Perfecta.

It is also pointed out that the donation is defective in form because of non-compliance with the requirements of the law regarding its acceptance. As it was executed in 1946, the applicable rule is Article 633 of the old Civil Code reading as follows: Art. 633. In order that a donation of real property be valid it must be made by public instrument in which the property donated must be specifically described and the amount of the charges to be assumed by the donee expressed. The acceptance may be made in the deed of gift or in a separate public writing; but it shall produce no effect if not made during the lifetime of the donor. If the acceptance is made by separate public instrument, authentic notice thereof shall be given the donor, and this proceeding shall be noted in both instruments. There is no question that the donation was accepted in a separate public instrument and that it was duly communicated 349 VOL. 176, AUGUST 11, 1989 349 Pajarillo vs. Intermediate Appellate Court to the donors. Even the petitioners cannot deny this. But what they do contend is that such acceptance was not “noted in both instruments,” meaning the extrajudicial partition itself and the instrument of acceptance, as required by the Civil Code. That is perfectly true. There is nothing in either of the two instruments showing that “authentic notice” of the acceptance was made by Salud to Juana and Felipe. And while the first instrument contains the statement that “the donee does hereby

accept this donation and does hereby express her gratitude for the kindness and liberality of the donor,” the only signatories thereof were Felipe Balane and Juana Balane de Suterio. That was in fact the reason for the separate instrument of acceptance signed by Salud a month later. A strict interpretation of Article 633 can lead to no other conclusion than the annulment of the donation for being defective in form as urged by the petitioners. This would be in keeping with the unmistakable language of the above-quoted provision. However, we find that under the circumstances of the present case, a literal adherence to the requirement of the law might result not in justice to the parties but conversely a distortion of their intentions. It is also a policy of the Court to avoid such an intepretation. The purpose of the formal requirement is to insure that the acceptance of the donation is duly communicated to the donor. In the case at bar, it is not even suggested that Juana was unaware of the acceptance for she in fact confirmed it later and requested that the donated land be not registered during her lifetime by Salud.13TSN, January 15, 1970, p. 54. Given this significant evidence, the Court cannot in conscience declare the donation ineffective because there is no notation in the extrajudicial settlement of the donee’s acceptance. That would be placing too much stress on mere form over substance. It would also disregard the clear reality of the acceptance of the donation as manifested in the separate instrument dated June 20, 1946, and as later acknowledged by Juana. The cases cited by the parties in their respective memoranda _______________ 13 TSN, January 15, 1970, p. 54.

350 350 SUPREME COURT REPORTS ANNOTATED Pajarillo vs. Intermediate Appellate Court are not really in point. In Legasto v. Verzosa,1454 Phil. 766. there was no evidence whatsoever that the claimed donations had been accepted, as stressed by Justice Villa-Real. The same observation is made of Santos v. Robledo,1528 Phil. 245. where Justice Torres noted that the acceptance of the donation did not appear in the deed of donation or in any other instrument. The petitioners would also fault the private respondents for laches and argue that Salud’s inaction in protection of her rights should bar her from asserting them at this late hour. Specifically, it is pointed out that she failed to register the deed of donation and its acceptance in 1946; did not oppose the inclusion of the subject land in the inventory of Perfecta’s properties submitted in the intestate proceedings in 1946; did not object to the adjudication of the land to Juana in the project of partition in 1951; did not protest the sale of the land to Claudio Suterio in 1956; and did not question its registration in his name in 1958. It is contended that all these acts constitute laches, which has been described by this Court thus: An estoppel by laches arises from the negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it.16Tijam, et al. v. Sibonghanoy, 23 SCRA 29.

The problem with the petitioners’ theory is that it would regard Juana and Salud as strangers when they are in fact mother and daughter. One may expect a person to be vigilant of his rights when dealing with an acquaintance or associate, or even with a friend, but not when the other person is a close relative, as in the case at bar. To begin with, the land came from Juana herself. Secondly, she requested her daughter not to register the land as long as she was still alive so she could enjoy its fruits until her death. To Salud, it was not difficult to comply with this request, coming as it did from her own mother. There was no reason to disobey her. She did not have to protect herself _______________ 14 54 Phil. 766. 15 28 Phil. 245. 16 Tijam, et al. v. Sibonghanoy, 23 SCRA 29. 351 VOL. 176, AUGUST 11, 1989 351 Pajarillo vs. Intermediate Appellate Court against her own mother. Indeed, what would have been unseemly was her registering the land against her mother’s request as if she had no confidence in her. Salud did no less than what any dutiful daughter would have done under the circumstances. If Salud did not protest the inclusion of the land in the inventory of Perfecta’s properties and its subsequent adjudication to Juana in the intestate proceedings, it was because she did not feel threatened by these acts. She did not distrust her mother. Moreover, Juana had herself acknowledged

the donation when she was asked in whose name the property would be registered following the intestate proceedings. Salud felt safe because she had the extrajudicial settlement to rely on to prove that her mother and her uncle had donated the subject land to her. There is nothing in this instrument to suggest that the donation was to take effect upon the death of the donors as to make it a donation mortis causa, as urged by the petitioners. The donation became effective upon acceptance by Salud except that, in obedience to her mother’s request, she chose not to register the land in the meantime and to allow her mother to enjoy its fruits. What was deferred was not its effectivity but only its enjoyment by Salud. Registration was not necessary to make the donation a binding commitment insofar as the donors and the donee were concerned.17Sapto, et al. v. Fabiana, 103 Phil. 683. As for her inaction against the deed of sale in favor of her brother Claudio, it should be noted in the first place that she was not aware of it when it was executed in 1956. Her mother, who was already 76 years old at the time, never informed her about it, nor did her brother or any of the defendants, for reasons of their own. It was only later, when the sale was registered in 1958 and a new title to the land was issued to Claudio, that she started asking questions. Even then, being a sister to Claudio, she did not immediatey take legal steps. It is natural, even among non-relatives, to seek a non-judicial settlement through extra-legal measures before going to court. It is more so in the case of relatives, who should avoid as much _______________ 17 Sapto, et al. v. Fabiana, 103 Phil. 683.

352 352 SUPREME COURT REPORTS ANNOTATED Pajarillo vs. Intermediate Appellate Court as possible the asperity and bitterness of litigation. That is what Salud did when she repeatedly asked the petitioners for the return of the property albeit to no avail. It was only when it became clear that amicable persuasion was not possible that she decided to sue the wife and children of her departed brother. The petitioners stress that it took Salud all of seven years from the registration of the land in Claudios’s name before she filed the complaint for reconveyance against them. That is true. But if one remembers that her brother died only in 1961 and her own mother only in 1963, at the age of 83, it will be easy to understand the reason for the delay, which would otherwise have been unjustified. Suits among brothers and sisters are especially painful to their parents. Salud must have thought many times about filing her complaint against her brother Claudio while her old mother was still alive. In fact, Salud hesitated still even after her mother’s death and took two more years before she finally filed her complaint against Claudio’s wife and children. It is clear that Juana Balane de Suterio had no right to sell the subject land to Claudio because she was no longer its owner, having previously donated it to her daughter Salud. Juana herself was holding the land merely as a trustee of Salud, who had transferred possession to her mother at the old woman’s request. The deed of sale was itself vitiated by bad faith as

Claudio is presumed to have known of the previous donation to his sister Salud, whose acceptance of the donation was formally witnessed by hiw own wife, the herein principal petitioner.18Exhibit “B.... When Claudio registered the land in his name knowing there was a flaw in his title, an implied trust was created in favor of Salud as the real owner of the property in accordance with Article 1456 of the Civil Code, reading as follows: If the property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. As trustor, Salud had every right to sue for the recovery of the _______________ 18 Exhibit “B.” 353 VOL. 176, AUGUST 11, 1989 353 Pajarillo vs. Intermediate Appellate Court land in the action for reconveyance against Claudio’s heirs. As we said in Vda. de Jacinto, et al. v. Vda. de Jacinto, et al.:19115 Phil. 263. Public policy demands that a person guilty of fraud or at least, of breach of trust, should not be allowed to use a Torrens title as a shield against the consequences of his own wrongdoing. The petitioners do not insist on prescription as a bar to the action for reconveyance, and understandably so. The legal principle is that if the registration of the land is fraudulent and the person in whose name the land is registered thus holds it as

a mere trustee, the real owner is entitled to file an action for reconveyance of the property within a period of ten years. As we have held in many cases: Where the action is one for reconveyance based on constructive trust, a ten-year period is allowed.20Quiñiano v. Court of Appeals, 39 SCRA 221. An action for reconveyance of realty, based upon a constructive or implied trust resulting from fraud, may be barred by prescription. The prescriptive period is reckoned from the issuance of the title which operates as a constructive notice.21Sinaon v. Soroñgon, 136 SCRA 407. While actions to enforce a constructive trust prescribe in 10 years from registration of the property, private respondents’ right commenced from actual discovery of petitioner’s act of defraudation.22Adille v. Court of Appeals, 157 SCRA 455. The record shows that while the land was registered in the name of Claudio Suterio, Sr. in 1958, the complaint for reconveyance was filed by the petitioners in 1965, or still within the ten-year prescriptive period. The last issue raised by the petitioners, viz., the validity of the deed of sale executed by Juana Balane de Suterio on January 29, 1950, in favor of Salud Suterio,23Exhibit “Q.... need not detain us too long. The trial court sustained the contract for lack of sufficient evidence to invalidate it and was upheld by the respondent _______________ 19 115 Phil. 263. 20 Quiñiano v. Court of Appeals, 39 SCRA 221. 21 Sinaon v. Soroñgon, 136 SCRA 407. 22 Adille v. Court of Appeals, 157 SCRA 455.

23 Exhibit “Q.” 354 354 SUPREME COURT REPORTS ANNOTATED People vs. Songcuan court. We see no reason to disturb their factual finding, absent a showing that it was reached arbitrarily. Interestingly, it occurred to the petitioners to question the transaction only when they were sued by the private respondents, after fifteen years from the date of the sale. This is an even longer period than the nine years during which the petitioners say Salud Suterio was sleeping on her rights following the sale of her land to Claudio Suterio. WHEREFORE, the petition is DENIED, with costs against the petitioners. It is so ordered. Narvasa, Gancayco, Griño-Aquino and Medialdea, JJ., concur. Petition denied. Notes.—Property donated inter vivos is subject to collation after donor’s death, whether the donation was made to a compulsory heir or a stranger. (Vda de Tupas vs. RTC of Negros Occidental, Br. XLIII, 144 SCRA 622.) Determination of whether a donation is inter vivos or mortis causa depends upon the nature of disposition made. (National Treasurer of the Philippines vs. Vda. de Meimban, 131 SCRA 264.) ——o0o—— [Pajarillo vs. Intermediate Appellate Court, 176 SCRA 340(1989)]

G.R. No. 97882. August 28, 1996.*THIRD DIVISION. THE CITY OF ANGELES, Hon. ANTONIO ABAD SANTOS, in his capacity as MAYOR of Angeles City, and the SANGGUNIANG PANLUNGSOD OF THE CITY OF ANGELES, petitioners, vs. COURT OF APPEALS and TIMOG SILANGAN DEVELOPMENT CORPORATION, respondents. Civil Law; Donations; Private respondent is under legal obligation to donate the open space exclusively allocated for parks, playgrounds and recreational use to the petitioner.— Pursuant to the wording of Sec. 31 of P.D. 957 as above amended by the aforequoted P.D. No. 1216, private respondent is under legal obligation to donate the open space exclusively allocated for parks, playgrounds and recreational use to the petitioner. Same; Same; The amendment in Sec. 31 of P.D. 957 makes a legal obligation on the subdivision owner / developer to donate the open space for parks and playgrounds.—It is clear from the aforequoted amendment that it is no longer optional on the part of the subdivision owner/developer to donate the open space for parks and playgrounds; rather there is now a legal obligation to donate the same. Although there is a proviso that the donation of the parks and playgrounds may be made to the homeowners association of the .project with the consent of the city or municipality concerned, nonetheless, the owner/developer is still obligated under the law to donate. Such option does not change the mandatory character of the provision. The donation has to be made regardless of which donee is picked by the owner/developer. The consent

requirement before the same can be donated to the homeowners’ association emphasizes this point. Same; Same; Any condition may be imposed in the donation so long as the same is not contrary to law, morals, good customs, public order or public policy.—We hold that any condition may be imposed in the donation, so long as the same is not contrary to law, morals, good customs, public order or public policy. The contention of petitioners that the donation should be unconditional because it is mandatory has no basis in law. P.D. 1216 does not provide that the dona_______________ * THIRD DIVISION. 91 VOL. 261, AUGUST 28, 1996 91 City of Angeles vs. Court of Appeals tion of the open space for parks and playgrounds should be unconditional. To rule that it should be so is tantamount to unlawfully expanding the provisions of the decree. Same; Same; Injunction; The construction and operation of a drug rehabilitation center on the land in question is a continuing violation of the law and thus should be enjoined.— In light of Sec. 31 of P.D. 957, as amended, declaring the open space for parks, playgrounds and recreational area as nonbuildable, it appears indubitable that the construction and operation of a drug rehabilitation center on the land in question is a continuing violation of the law and thus should be enjoined. Same; Same; Both petitioner and private respondents are in violation of P.D. 957.—Both petitioners and private

respondents are in violation of P.D. 957 as amended, for donating and accepting a donation of open space less than that required by law, and for agreeing to build and operate a sports complex on the non-buildable open space so donated; and petitioners, for constructing a drug rehabilitation center on the same non-buildable area. Same; Same; Neither party can recover damages from the other arising from the act contrary to law or plead the same as a cause of action or as a defense.—Further, as a matter of public policy, private respondent cannot be allowed to evade its statutory obligation to donate the required open space through the expediency of invoking petitioners’ breach of the aforesaid condition. It is a familiar principle that the courts will not aid either party to enforce an illegal contract, but will leave them both where they find them. Neither party can recover damages from the other arising from the act contrary to law, or plead the same as a cause of action or as a defense. Each must bear the consequences of his own acts. Same; Same; There is no legal basis whatsoever to revoke the donation of the subject open space and to return the donated land to private respondent.—There is therefore no legal basis whatsoever to revoke the donation of the subject open space and to return the donated land to private respondent. The donated land should remain with the donee as the law clearly intended such open spaces to be perpetually part of the public domain, non-alienable and permanently devoted to public use as such parks, playgrounds or recreation areas. 92 92 SUPREME COURT REPORTS ANNOTATED City of Angeles vs. Court of Appeals

Same; Same; Damages; The Court has time and again ruled that public officials are not immune from damages in their personal capacities arising from acts done in bad faith.—In theory, the cost of such demolition, and the reimbursement of the public funds expended in the construction thereof, should be borne by the officials of the City of Angeles who ordered and directed such construction. This Court has time and again ruled that public officials are not immune from damages in their personal capacities arising from acts done in bad faith. Otherwise stated, a public official may be liable in his personal capacity for whatever damage he may have caused by his act done with malice and in bad faith or beyond the scope of his authority or jurisdiction. Same; Same; Same; Prevailing jurisprudence holding that public officials are personally liable for damages arising from illegal acts done in bad faith are premised on said officials having been sued both in their official and personal capacities.—In the instant case, the public officials concerned deliberately violated the law and persisted in their violations, going so far as attempting to deceive the courts by their pretended change of purpose and usage for the center, and “making a mockery of the judicial system.” Indisputably, said public officials acted beyond the scope of their authority and jurisdiction and with evident bad faith. However, as noted by the trial court, the petitioners mayor and members of the Sangguniang Panlungsod of Angeles City were sued only in their official capacities, hence, they could not be held personally liable without first giving them their day in court. Prevailing jurisprudence holding that public officials are

personally liable for damages arising from illegal acts done in bad faith are premised on said officials having been sued both in their official and personal capacities. PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. Quiason, Makalintal, Barot, Torres, Ibarra & Sison for petitioners. Angara, Abello, Concepcion, Regala & Cruz for private respondent. 93 VOL. 261, AUGUST 28, 1996 93 City of Angeles vs. Court of Appeals PANGANIBAN, J.: In resolving this petition, the Court addressed the questions of whether a donor of open spaces in a residential subdivision can validly impose conditions on the said donation; whether the city government as donee can build and operate a drug rehabilitation center on the donated land intended for open space; and whether the said donation may be validly rescinded by the donor. Petitioners claim they have the right to construct and operate a drug rehabilitation center on the donated land in question, contrary to the provisions stated in the amended Deed of Donation. On the other hand, private respondent, owner/developer of the Timog Park residential subdivision in Angeles City, opposed the construction and now, the operation of the said cen-ter on

the donated land, which is located within said residential subdivision. Before us is a petition for review on certiorari assailing the Decision1Rollo, pp. 42–50. of the Court of Appeals2Twelfth Division, J. Bonifacio A. Cacdac, Jr., ponente and JJ. Reynato S. Puno (chairman) and Salome A. Montoya, concurring. dated October 31, 1990, which affirmed the decision3Rollo, pp. 93– 106. of the Regional Trial Court of Angeles City Branch 56,4Judge Carlos D. Rustia, presiding. dated February 15, 1989, The Antecedents In a Deed of Donation dated March 9, 1984, subsequently superseded by a Deed of Donation dated September 27, 1984, which in turn was superseded by an Amended Deed of Donation dated November 26, 1984, private respondent donated to the City of Angeles, 51 parcels of land situated in Barrio Pampang, City of Angeles, with an aggregate area of 50,676 square meters, more or less, part of a bigger area also be_______________ 1 Rollo, pp. 42–50. 2 Twelfth Division, J. Bonifacio A. Cacdac, Jr., ponente and JJ. Reynato S. Puno (chairman) and Salome A. Montoya, concurring. 3 Rollo, pp. 93–106. 4 Judge Carlos D. Rustia, presiding. 94 94 SUPREME COURT REPORTS ANNOTATED City of Angeles vs. Court of Appeals

longing to private respondent. The amended deed5Rollo, pp. 54–62. provided, among others, that: “2. The properties donated shall be devoted and utilized solely for the site of the Angeles City Sports Center (which excludes cockfighting) pursuant to the plans to be submitted within six (6) months by the DONEE to the DONOR for the latter’s approval, which approval shall not be unreasonably withheld as long as entire properties donated are developed as a Sports Complex. Any change for modification in the basic design or concept of said Sports Center must have the prior written consent of the DONOR. 3. No commercial building, commercial complex, market or any other similar complex, mass or tenament (sic) housing/building(s) shall be constructed in the properties donated nor shall cockfighting, be allowed in the premises. 4. The construction of the Sports Center shall commence within a period of one (1) year from 09 March 1984 and shall be completed within a period of five (5) years from 09 March 1984. xxx xxx xxx 6. The properties donated (which is more than five (5) percent of the total land area of the DONOR’s subdivision) shall constitute the entire open space for DONOR’s subdivision and all other lands or areas previously reserved or designated, including Lot 1 and Lot 2A of Block 72 and the whole Block 29 are dispensed with, and rendered free, as open spaces, and the DONEE hereby agrees to execute and deliver all necessary consents, approvals, endorsements, and authorizations to effect the foregoing.

7. The properties donated are devoted and described as ‘open spaces’ of the DONOR’s subdivision, and to this effect, the DONEE, upon acceptance of this donation, releases the DONOR and/or assumes any and all obligations and liabilities appertaining to the properties donated. 8. Any substantial breach of the foregoing provisos shall entitle the DONOR to revoke or rescind this Deed of Donation, and in such eventuality, the DONEE agrees to vacate and return the premises, together with all improvements, to the DONOR peacefully without necessity of judicial action.” _______________ 5 Rollo, pp. 54–62. 95 VOL. 261, AUGUST 28, 1996 95 City of Angeles vs. Court of Appeals On July 19, 1988, petitioners started the construction of a drug rehabilitation center on a portion of the donated land. Upon learning thereof, private respondent protested such action for being violative of the terms and conditions of the amended deed and prejudicial to its interest and to those of its clients and residents. Private respondent also offered another site for the rehabilitation center. However, petitioners ignored the protest, maintaining that the construction was not violative of the terms of the donation. The alternative site was rejected because, according to petitioners, the site was too isolated and had no electric and water facilities. On August 8, 1988, private respondent filed a complaint with the Regional Trial Court, Branch 56, in Angeles City against the petitioners, alleging breach of the conditions imposed in the

amended deed of donation and seeking the revocation of the donation and damages, with preliminary injunction and/or temporary restraining order to halt the construction of the said center. On August 10, 1988, the trial court issued a temporary restraining order to enjoin the petitioners from further proceeding with the construction of the center, which at that time was already 40% complete. However, the trial court denied the prayer for preliminary injunction based on the prohibition in Presidential Decree No. 1818. In their Answer with counterclaim, petitioners admitted the commencement of the construction but alleged inter alia that the conditions imposed in the amended deed were contrary to Municipal Ordinance No. 1, Series of 1962, otherwise known as the Subdivision Ordinance of the Municipality of Angeles.6Section 10 of the said Subdivision Ordinance of the Municipality of Angeles reads:“Open Spaces Dedicated to Public Use-Subdivisions in the Municipality containing an area of at least one (1) hectare shall be provided with suitable sites known as open... _______________ 6 Section 10 of the said Subdivision Ordinance of the Municipality of Angeles reads: “Open Spaces Dedicated to Public Use-Subdivisions in the Municipality containing an area of at least one (1) hectare shall be provided with suitable sites known as open spaces for parks, playgrounds, playlots and/or other areas to be dedicated 96 96 SUPREME COURT REPORTS ANNOTATED

City of Angeles vs. Court of Appeals On October 15, 1988, private respondent filed a Motion for Partial Summary Judgment on the ground that the main defense of the petitioners was anchored on a pure question of law and that their legal position was untenable. The petitioners opposed, contending that they had a meritorious defense as (1) private respondents had no right to dictate upon petitioners what to do with the donated land and how to do it so long as the purpose remains for public use; and (2) the cause of action of the private respondent became moot and academic when the Angeles City Council repealed the resolution providing for the construction of said drug rehabilitation center and adopted a new resolution changing the purpose and usage of said center to a ‘sports development and youth center’ in order to conform with the sports complex project constructed on the donated land. On February 15, 1989, the trial court rendered its decision, in relevant part reading as follows: “x x x the Court finds no inconsistency between the conditions imposed in the Deeds of Donation and the provision of the Subdivi\sion Ordinance of the City of Angeles requiring subdivisions in Angeles City to reserve at least one (1) hectare in the subdivision as suitable sites known as open spaces for parks, playgrounds, playlots and/or other areas to be dedicated to public use. On the contrary, the condition requiring the defendant City of Angeles to devote and utilize the properties donated to it by the plaintiff for the site of the _______________

to public use, which areas shall comprise at least five (5) per cent of the gross area of the subdivision. Open spaces so dedicated for public use shall be consolidated as much as possible and not broken into small odd-shaped parcels of land, and shall be conveniently located for maximum utility. Should the subdivision so elect, he may turn over and transfer free of charge the title to said open space to the Municipal Government after which the government shall assume the responsibility of maintaining the said areas. Provided, that the government reserves the right to reject the transfer of any area specified in this section if in its opinion the site has not been developed in such manner as to make the same suitable for the use it is intended.” (Italics supplied) 97 VOL. 261, AUGUST 28, 1996 97 City of Angeles vs. Court of Appeals Angeles City Sports Center conforms with the requirement in the Subdivision Ordinance that the subdivision of the plaintiff shall be provided with a playground or playlot, among others. On the other hand the term “public use” in the Subdivision Ordinance should not be construed to include a Drug Rehabilitation Center as that would be contrary to the primary purpose of the Subdivision Ordinance requiring the setting aside of a portion known as “Open Space” for park, playground and playlots, since these are intended primarily for the benefit of the residents of the subdivision. While laudable to the general public, a Drug Rehabilitation Center in a subdivision will be a cause of concern and constant worry to its resident esidents.

As to the third issue in paragraph (3), the passage of the Ordinance changing the purpose of the building constructed in the donated properties from a Drug Rehabilitation Center to a Sports Center comes too late. It should have been passed upon the demand of the plaintiff to the defendant City of Angeles to stop the construction of the Drug Rehabilitation Center, not after the complaint was filed. Besides, in seeking the revocation of the Amended Deed of Donation, plaintiff also relies on the failure of the defendant City of Angeles to submit the plan of the proposed Sports Center within six (6) months and construction of the same within five years from March 9, 1984, which are substantial violations of the conditions imposed in the Amended Deed of Donation.” The dispositive portion of the RTC decision reads: “WHEREFORE, judgment is hereby rendered: (1) Enjoining defendants, its officers, employees and all persons acting on their behalf to perpetually cease and desist from constructing a Drug Rehabilitation Center or any other building or improvement on the Donated Land. (2) Declaring the amended Deed of Donation revoked and rescinded and ordering defendants to peacefully vacate and return the Donated Land to plaintiff, together with all the improvements existing thereon. And, (3) Denying the award of compensatory or actual and exemplary damages including attorney’s fees. NO PRONOUNCEMENT AS TO COST." 98 98 SUPREME COURT REPORTS ANNOTATED City of Angeles vs. Court of Appeals

In March 1989, petitioners filed their Notice of Appeal. On April 15, 1989, while the appeal was pending, petitioners inaugurated the Drug Rehabilitation Center.7Court of Appeals’ Decision, p. 5; rollo, p. 46. On April 26, 1991, the respondent Court rendered the assailed Decision affirming the ruling of the trial court. Subsequently, the petitioners’ motion for reconsideration was also denied for lack of merit. Consequently, this Petition for Review. The Issues The key issues8Rollo, pp. 20–21. raised by petitioners may be restated as follows: I. Whether a subdivision owner/developer is legally bound under Presidential Decree No. 1216 to donate to the city or municipality the “open space” allocated exclusively for parks, playgrounds and recreational use. II. Whether the percentage of the “open space” allocated exclusively for parks, playgrounds and recreational use is to be based on the “gross area” of the subdivision or on the total area reserved for “open space.” III. Whether private respondent as subdivision owner/developer may validly impose conditions in the Amended Deed of Donation regarding the use of the '"open space” allocated exclusively for parks and playgrounds. IV. Whether or not the construction of the Drug Rehabilitation Center on the donated “open space” may be enjoined. V. Whether the donation by respondent as subdivision owner/developer of the “open space” of its subdivision in favor

of petitioner City of Angeles may be revoked for alleged violation of the Amended Deed of Donation. Central to this entire controversy is the question of whether the donation of the open space may be revoked at all. _______________ 7 Court of Appeals’ Decision, p. 5; rollo, p. 46. 8 Rollo, pp. 20–21. 99 VOL. 261, AUGUST 28, 1996 99 City of Angeles vs. Court of Appeals First Issue: Developer Legally Bound to Donate Open Space The law involved in the instant case is Presidential Decree No. 1216, dated October 14, 1977,9Published in the Official Gazette (Vol. 74, No. 2, January 9, 1978, pp. 257–259). which reads: “PRESIDENTIAL DECREE NO. 1216 Defining ‘Open Space’ In Residential Subdivisions And Amending Section 31 Of Presidential Decree No. 957 Requiring Subdivision Owners To Provide Roads, Alleys, Sidewalks And Reserve Open Space For Parks Or Recreational Use. WHEREAS, there is a compelling need to create and maintain a healthy environment in human settlements by providing open spaces, roads, alleys and sidewalks as may be deemed suitable to enhance the quality of life of the residents therein; WHEREAS, such open spaces, roads, alleys and sidewalks in residential subdivisions are for public use and are, therefore, beyond the commerce of men;

WHEREAS, pursuant to Presidential Decree No. 953 at least thirty per cent (30%) of the total area of a subdivision must be reserved, developed and maintained as open space for parks and recreational areas, the cost of which will ultimately be borne by the lot buyers which thereby increase the acquisition price of subdivision lots beyond the reach of the common mass; WHEREAS, thirty percent (30%) required open space can be reduced to a level that will make the subdivision industry viable and the price of residential lots within the means of the low income group at the same time preserve the environmental and ecological balance through rational control of land use and proper design of space and facilities; WHEREAS, pursuant to Presidential Decree No. 757, government efforts in housing, including resources, functions and activities to maximize results have been concentrated into one single agency, namely, the National Housing Authority; NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me by the Constitution, do hereby order and decree: _______________ 9 Published in the Official Gazette (Vol. 74, No. 2, January 9, 1978, pp. 257–259). 100 100 SUPREME COURT REPORTS ANNOTATED City of Angeles vs. Court of Appeals SECTION 1. For purposes of this Decree, the term ‘open space’ shall mean an area reserved exclusively for parks, playgrounds, recreational uses, schools, roads, places of

worship, hospitals, health centers, barangay centers and other similar facilities and amenities. SECTION 2. Section 31 of Presidential Decree No. 957 is hereby amended to read as follows: ‘Section 31. Roads, Alleys, Sidewalks and Open Spaces—The owner as developer of a subdivision shall provide adequate roads, alleys and sidewalks. For subdivision projects one (1) hectare or more, the owner or developer shall reserve thirty per cent (30%) of the gross area for open space. Such open space shall have the following standards allocated exclusively for parks, playgrounds and recreational use: a. 9% of gross area for high density or social housing (66 to 100 family lots per gross hectare). b. 7% of gross area for medium-density or economic housing (21 to 65 family lots per gross hectare). c. 3.5% of gross area for low-density or open market housing (20 family lots and below per gross hectare). These areas reserved for parks, playgrounds and recreational use shall be non-alienable public lands, and nonbuildable. The plans of the subdivision project shall include tree planting on such parts of the subdivision as may be designated by the Authority. Upon their completion certified to by the Authority, the roads, alleys, sidewalks and playgrounds shall be donated by the owner or developer to the city of municipality and it shall be mandatory for the local governments to accept provided, however, that the parks and playgrounds may be donated to the Homeowners Association of the project with the consent of the city or municipality concerned. No portion of the parks and

playgrounds donated thereafter shall be converted to any other purpose or purposes.’ SECTION 3. Sections 2 and 5 of Presidential Decree No. 953 are hereby repealed and other laws, decrees, executive orders, institutions, rules and regulations or parts thereof inconsistent with these provisions are also repealed or amended accordingly. SECTION 4. This Decree shall take effect immediately.” 101 VOL. 261, AUGUST 28, 1996 101 City of Angeles vs. Court of Appeals Pursuant to the wording of Sec. 31 of P.D. 957 as above amended by the aforequoted P.D. No. 1216, private respondent is under legal obligation to donate the open space exclusively allocated for parks, playgrounds and recreational use to the petitioner. This can be clearly established by referring to the original provision of Sec. 31 of P.D. 957, which reads as follows: “SECTION 31. Donation of roads and open spaces to local government.—The registered owner or developer of the subdivision or condominium project, upon completion of the development of said project may, at his option, convey by way of donation the roads and open spaces found within the project to the city or municipality wherein the project is located. Upon acceptance of the donation by the city or municipality concerned, no portion of the area donated shall thereafter be converted to any other purpose or purposes unless after hearing, the proposed conversion is approved by the Authority.” (Italics supplied)

It will be noted that under the aforequoted original provision, it was optional on the part of the owner or developer to donate the roads and open spaces found within the project to the city or municipality where the project is located. Elsewise stated, there was no legal obligation to make the donation. However, said Sec. 31 as amended now states in its last paragraph: “Upon their completion x x x, the roads, alleys, sidewalks and playgrounds shall be donated by the owner or developer to the city or municipality and it shall be mandatory for the local government to accept; provided, however, that the parks and playgrounds may be donated to the Homeowners Association of the project with the consent of the city or municipality concerned. x x x.” It is clear from the aforequoted amendment that it is no longer optional on the part of the subdivision owner/developer to donate the open space for parks and playgrounds; rather there is now a legal obligation to donate the same. Although there is a proviso that the donation of the parks and playgrounds may be made to the homeowners’ association of the 102 102 SUPREME COURT REPORTS ANNOTATED City of Angeles vs. Court of Appeals project with the consent of the city or municipality concerned, nonetheless, the owner/developer is still obligated under the law to donate. Such option does not change the mandatory character of the provision. The donation has to be made regardless of which donee is picked by the owner/developer.

The consent requirement before the same can be donated to the homeowners’ association emphasizes this point. Second Issue: Percentage of Area for Parks and Playgrounds Petitioners contend that the 3.5% to 9% allotted by Sec. 31 for parks, playgrounds and recreational uses should be based on the gross area of the entire subdivision, and not merely on the area of the open space alone, as contended by private respondent and as decided by the respondent Court.10The Court of Appeals said:“x x x The obligation to donate however, does not cover the entire open space but only that 3.5% to 9% of the open space which is exclusively reserved to parks and playgrounds. x x x.” (Rollo, p. 48). The petitioners are correct. The language of Section 31 of P.D. 957 as amended by Section 2 of P.D. 1216 is wanting in clarity and exactitude, but it can be easily inferred that the phrase “gross area” refers to the entire subdivision area. The said phrase was used four times in the same section in two sentences, the first of which reads: “x x x For subdivision projects one (1) hectare or more, the owner or developer shall reserve thirty per cent (30%) of the gross area for open space. x x x.” Here, the phrase “30% of the gross area” refers to the total area of the subdivision, not of the open space. Otherwise, the definition of “open space” would be circular. Thus, logic dictates that the same basis be applied in the succeeding instances where the phrase “open space” is used, i.e., “9% of gross area ... 7% of gross area . . , 3.5% of gross area . . ." Moreover, we agree with petitioners that construing the 3.5% _______________ 10 The Court of Appeals said:

“x x x The obligation to donate however, does not cover the entire open space but only that 3.5% to 9% of the open space which is exclusively reserved to parks and playgrounds. x x x.” (Rollo, p. 48). 103 VOL. 261, AUGUST 28, 1996 103 City of Angeles vs. Court of Appeals to 9% as applying to the totality of the open space would result in far too small an area being devoted for parks, playgrounds, etc., thus rendering meaningless and defeating the purpose of the statute. This becomes clear when viewed in the light of the original requirement of P.D. 953 (“Requiring the Planting of Trees in Certain Places, etc."), Section 2 of which reads: “Sec. 2. Every owner of land subdivided into residential/commercial industrial lots after the effectivity of this Decree shall reserve, develop and maintain not less than thirty percent (30%) of the total area of the subdivision, exclusive of roads, service streets and alleys, as open space for parks and recreational areas. No plan for a subdivision shall be approved by the Land Registration Commission or any office or agency of the government unless at least thirty percent (30%) of the total area of the subdivision, exclusive of roads, service streets and alleys, is reserved as open space for parks and recreational areas. x x x.” To our mind, it is clear that P.D. 1216 was an attempt to achieve a happy compromise and a realistic balance between the imperatives of environmental planning and the need to maintain economic feasibility in subdivision and housing

development, by reducing the required area for parks, playgrounds and recreational uses from thirty percent (30%) to -only 3.5%-9% of the entire area of the subdivision. Third Issue: Imposition of Conditions in Donation of Open Space Petitioners argue that since the private respondent is required by law to donate the parks and playgrounds, it has no right to impose the condition in the Amended Deed of Donation that “the properties donated shall be devoted and utilized solely for the site of the Angeles City Sports Center.” It cannot prescribe any condition as to the use of the area donated because the use of the open spaces is already governed by P.D. 1216. In other words, the donation should be absolute. Consequently, the conditions in the amended deed which were allegedly violated are deemed not written. Such being the case, petitioners cannot be considered to have committed any viola104 104 SUPREME COURT REPORTS ANNOTATED City of Angeles vs. Court of Appeals tion of the terms and conditions of the said amended deed, as the donation is deemed unconditional, and it follows that there is no basis for revocation of the donation. However, the general law on donations does not prohibit the imposition of conditions on a donation so long as the conditions are not illegal or impossible.11Art. 727, Civil Code. In regard to donations of open spaces, P.D. 1216 itself requires among other things that the recreational areas to be donated be based, as aforementioned, on a percentage (3.5%, 7%, or 9%) of the total area of the subdivision depending on whether the

subdivision is low-, medium-, or high-density. It further declares that such open space devoted to parks, playgrounds and recreational areas are non-alienable public land and nonbuildable. However, there is no prohibition in either P.D. 957 or P.D. 1216 against imposing conditions on such donation. We hold that any condition may be imposed in the donation, so long as the same is not contrary to law, morals, good customs, public order or public policy. The contention of petitioners that the donation should be unconditional because it is mandatory has no basis in law. P.D. 1216 does not provide that the donation of the open space for parks and playgrounds should be unconditional. To rule that it should be so is tanta“mount to unlawfully expanding the provisions of the decree.12Palanca vs. City of Manila, 41 Phil. 125, 130, October 27, 1920 and Republic Flour Mills, Inc. vs. Commissioner of Customs, 39 SCRA 268, 274, May 31, 1971. In the case at bar, one of the conditions imposed in the Amended Deed of Donation is that the donee should build a sports complex on the donated land. Since P.D. 1216 clearly requires that the 3.5% to 9% of the gross area allotted for parks and playgrounds is “non-buildable,” then the obvious question arises whether or not such condition was validly imposed and is binding on the donee. It is clear that the “nonbuildable” character applies only to the 3.5% to 9% area set by law. If there is any excess land over and above the 3.5% to 9% _______________ 11 Art. 727, Civil Code. 12 Palanca vs. City of Manila, 41 Phil. 125, 130, October 27, 1920 and Republic Flour Mills, Inc. vs. Commissioner of Customs, 39 SCRA 268, 274, May 31, 1971.

105 VOL. 261, AUGUST 28, 1996 105 City of Angeles vs. Court of Appeals required by the decree, which is also used or allocated for parks, playgrounds and recreational purposes, it is obvious that such excess area is not covered by the non-buildability restriction. In the instant case, if there be an excess, then the donee would not be barred from developing and operating a sports complex thereon, and the condition in the amended deed would then be considered valid and binding. To determine if the over 50,000 square meter area donated pursuant to the amended deed would yield an excess over the area required by the decree, it is necessary to determine under which density category the Timog Park subdivision falls. If the subdivision falls under the low density or open market housing category, with 20 family lots or below per gross hectare, the developer will need to allot only 3.5% of gross area for parks and playgrounds, and since the donated land constitutes “more than five (5) percent of the total land area of the subdivision,13Vide par. 6 of Amended Deed of Donation. there would therefore be an excess of over 1.5% of gross area which would not be non-buildable.” Petitioners, on the other hand, alleged (and private respondent did not convert) that the subdivision in question is a “medium-density or economic housing” subdivision based on the sizes of the family lots donated in the amended deed,14The 51 donated lots ranged in size from 287 to 640 square meters with the average size of a family lot being 463.5 square meters. The average size or area of a family lot should be at least 500 square meters to have a

density of 20 family lots or below per... for which category the decree mandates that not less than 7% of gross area be set aside. Since the donated land constitutes only a little more than 5% of the gross area of the subdivision, which is less than the area required to be allocated for nonbuildable open space, therefore there is no “excess land” to speak of. This then means that the condition to build a sports complex on the donated land is contrary to law and should be considered as not imposed. _______________ 13 Vide par. 6 of Amended Deed of Donation. 14 The 51 donated lots ranged in size from 287 to 640 square meters with the average size of a family lot being 463.5 square meters. The average size or area of a family lot should be at least 500 square meters to have a density of 20 family lots or below per gross hectare. The subdivision in question obviously falls under the medium-density or economic housing category. 106 106 SUPREME COURT REPORTS ANNOTATED City of Angeles us. Court of Appeals Fourth Issue: Injunction vs. Construction of the Drug Rehabilitation Center Petitioners argue that the court cannot enjoin the construction of the drug rehabilitation center because the decision of the trial court came only after the construction of the center was completed and, based on jurisprudence, there can be no injunction of events that have already transpired.15Aragones us. Subido, 25 SCRA 95, 101, September 23, 1968. Private respondent, on the other hand, counters that the operation of the center is a continuing act which would clearly

cause injury to private respondent, its clients, and residents of the subdivision, and thus, a proper subject of injunction.16Dayrit vs. De Los Santos, 18 Phil. 275, 280, January 11, 1911. Equity should move in to warrant the granting of the injunctive relief if persistent repetition of the wrong is threatened.17Rustia vs. Franco, 41 Phil. 280, 283– 285, December 13, 1920. In light of Sec. 31 of P.D. 957, as amended, declaring the open space for parks, playgrounds and recreational area as nonbuildable, it appears indubitable that the construction and operation of a drug rehabilitation center on the land in question is a continuing violation of the law and thus should be enjoined. Furthermore, the factual background of this case warrants that this Court rule against petitioners on this issue. We agree with and affirm the respondent Court’s finding that petitioners committed acts mocking the judicial system.18CA Decision, pp. 5–6; rollo, pp. 46–47. “x x x When a writ of preliminary injunction was sought for by the appellee [private respondent] to enjoin the appellants [petitioners herein] from further continuing with the construction of the said center, the latter resisted and took refuge under the provisions of Presidential Decree No. 1818 (which prohibits writs of preliminary injunction) to continue with the construction of the building. Yet, the appellants also presented ‘City Council Resolution No. 227 which allegedly repealed the previous Resolution authorizing the _______________ 15 Aragones us. Subido, 25 SCRA 95, 101, September 23, 1968.

16 Dayrit vs. De Los Santos, 18 Phil. 275, 280, January 11, 1911. 17 Rustia vs. Franco, 41 Phil. 280, 283–285, December 13, 1920. 18 CA Decision, pp. 5–6; rollo, pp. 46–47. 107 VOL. 261, AUGUST 28, 1996 107 City of Angeles vs. Court of Appeals City Government to construct a Drug Rehabilitation Center on the donated property, by ‘changing the purpose and usage of the Drug Rehabilitation Center to Sports Development and Youth Center to make it conform to the Sports Complex Project therein.’ Under this Resolution No. 227, the appellants claimed that they have abandoned all plans for the construction of the Drug Rehabilitation Center. Nonetheless, when judgment was finally rendered on February 15, 1989, the appellants were quick to state that they have not after all abandoned their plans for the center as they have in fact inaugurated the same on April 15, 1989. In plain and simple terms, this act is a mockery of our judicial system perpetrated by the appellants. For them to argue that the court cannot deal on their Drug Rehabilitation Center is not only preposterous but also ridiculous. It is interesting to observe that under the appealed decision the appellants and their officers, employees and all other persons acting on their behalf were perpetually enjoined to cease and desist from constructing a Drug Rehabilitation Center on the donated property. Under Section 4 of Rule 39 of the Rules of Court, it is provided that:

“Section 4. A judgment in an action for injunction shall not be stayed after its rendition and before an appeal is taken or during the pendency of an appeal.” Accordingly, a judgment restraining a party from doing a certain act is enforceable and shall remain in full force and effect even pending appeal. In the case at bar, the cease and desist order therefore still stands. Appellants’ persistence and continued construction and, subsequent, operation of the Drug Rehabilitation Center violate the express terms of the writ of injunction lawfully issued by the lower court.” This Court finds no cogent reason to reverse the above mentioned findings of the respondent court. The allegation of the petitioners that the construction of the center was finished before the judgment of the trial court was rendered deserves scant consideration because it is self-serving and is completely unsupported by other evidence. The fact remains that the trial court rendered judgment enjoining the construction of the drug rehabilitation center, revoking the donation and ordering the return of the donated land. In spite of such injunction, petitioners publicly flaunted 108 108 SUPREME COURT REPORTS ANNOTATED City of Angeles vs. Court of Appeals their disregard thereof with the subsequent inauguration of the center on August 15, 1989. The operation of the center, after inauguration, is even more censurable. Fifth Issue: Revocation of a Mandatory Donation Because of Non-compliance With an Illegal Condition

The private respondent contends that the building of said drug rehabilitation center is violative of the Amended Deed of Donation. Therefore, under Article 764 of the New Civil Code and stipulation no. 8 of the amended deed, private respondent is empowered to revoke the donation when the donee has failed to comply with any of the conditions imposed in the deed. We disagree. Article 1412 of the Civil Code which provides that: “If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed: "(1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other’s undertaking;” comes into play here. Both petitioners and private respondents are in violation of P.D. 957 as amended, for donating and accepting a donation of open space less than that required by law, and for agreeing to build and operate a sports complex on the non-buildable open space so donated; and petitioners, for constructing a drug rehabilitation center on the same nonbuildable area. Moreover, since the condition to construct a sports complex on the donated land has previously been shown to be contrary to law, therefore, stipulation no. 8 of the amended deed cannot be implemented because (1) no valid stipulation of the amended deed had been breached, and (2) it is highly improbable that the decree would have allowed the return of the donated land for open space under any circumstance, consider109

VOL. 261, AUGUST 28, 1996 109 City of Angeles vs. Court of Appeals ing the non-alienable character of such open space, in the light of the second Whereas clause of P.D. 1216 which declares that “x x x such open spaces, roads, alleys and sidewalks in residential subdivisions are for public use and are, therefore, beyond the commerce of men.” Further, as a matter of public policy, private respondent cannot be allowed to evade its statutory obligation to donate the required open space through the expediency of invoking petitioners’ breach of the aforesaid condition. It is a familiar principle that the courts will not aid either party to enforce an illegal contract, but will leave them both where they find them. Neither party can recover damages from the other arising from the act contrary to law, or plead the same as a cause of action or as a defense. Each must bear the consequences of his own acts.19Teja vs. Intermediate Appellate Court, 48 SCRA 347, March 10, 1987. There is therefore no legal basis whatsoever to revoke the donation of the subject open space and to return the donated land to private respondent. The donated land should remain with the donee as the law clearly intended such open spaces to be perpetually part of the public domain, non-alienable and permanently devoted to public use as such parks, playgrounds or recreation areas. Removal/Demolition of Drug Rehabilitation Center Inasmuch as the construction and operation of the drug rehabilitation center has been established to be contrary to law, the said center should be removed or demolished. At this

juncture, we hasten to add that this Court is and has always been four-square behind the government’s efforts to eradicate the drug scourge in this country. But the end never justifies the means, and however laudable the purpose of the construction in question, this Court cannot and will not countenance an outright and continuing violation of the laws of the land, especially when committed by public officials. _______________ 19 Teja vs. Intermediate Appellate Court, 48 SCRA 347, March 10, 1987. 110 110 SUPREME COURT REPORTS ANNOTATED City of Angeles vs. Court of Appeals In theory, the cost of such demolition, and the reimbursement of the public funds expended in the construction thereof, should be borne by the officials of the City of Angeles who ordered and directed such construction. This Court has time and again ruled that public officials are not immune from damages in their personal capacities arising from acts done in bad faith. Otherwise stated, a public official may be liable in his personal capacity for whatever damage he may have caused by his act done with malice and in bad faith or beyond the scope of his authority or jurisdiction.20See for instance, Vidad vs. RTC of Negros Oriental, Br. 42, 227 SCRA 271, October 18, 1993; M.H. Wylie vs. Rarang, 209 SCRA 357, May 28, 1992; Orocio vs. Commission On Audit, 213 SCRA 109, August 31, 1992. In the instant case, the public officials concerned deliberately violated the law and persisted in their violations, going so far as attempting to deceive the courts by

their pretended change of purpose and usage for the center, and “making a mockery of the judicial system.” Indisputably, said public officials acted beyond the scope of their authority and jurisdiction and with evident bad faith. However, as noted by the trial court,21RTC Decision, p. 7; records, p. 113. the petitioners mayor and members of the Sangguniang Panlungsod of Angeles City were sued only in their official capacities, hence, they could not be held personally liable without first giving them their day in court. Prevailing jurisprudence22Aside from the cases cited in footnote no. 20, consider also Rama vs. Court of Appeals 148 SCRA 496, March 16, 1987, and San Luis vs. Court of Appeals, 174 SCRA 258, June 26, 1989. holding that public officials are personally liable for damages arising from illegal acts done in bad faith are premised on said officials having been sued both in their official and personal capacities. After due consideration of the circumstances, we believe that the fairest and most equitable solution is to have the City of Angeles, donee of the subject open space and, ostensibly, the main beneficiary of the construction and operation of the _______________ 20 See for instance, Vidad vs. RTC of Negros Oriental, Br. 42, 227 SCRA 271, October 18, 1993; M.H. Wylie vs. Rarang, 209 SCRA 357, May 28, 1992; Orocio vs. Commission On Audit, 213 SCRA 109, August 31, 1992. 21 RTC Decision, p. 7; records, p. 113. 22 Aside from the cases cited in footnote no. 20, consider also Rama vs. Court of Appeals 148 SCRA 496, March 16, 1987, and San Luis vs. Court of Appeals, 174 SCRA 258, June 26, 1989.

111 VOL. 261, AUGUST 28, 1996 111 City of Angeles vs. Court of Appeals proposed drug rehabilitation center, undertake the demolition and removal of said center, and if feasible, recover the cost thereof from the city officials concerned. WHEREFORE, the assailed Decision of the Court of Appeals is hereby MODIFIED as follows: (1) Petitioners are hereby ENJOINED perpetually from operating the drug rehabilitation center or any other such facility on the donated open space. (2) Petitioner City of Angeles is ORDERED to undertake the demolition and removal of said drug rehabilitation center within a period of three (3) months from finality of this Decision, and thereafter, to devote the said open space for public use as a park, playground or other recreational use. (3) The Amended Deed of Donation dated November 26, 1984 is hereby declared valid and subsisting, except that the stipulations or conditions therein concerning the construction of the Sports Center or Complex are hereby declared void and as if not imposed, and therefore of no force and effect. No costs. SO ORDERED. Narvasa (C.J., Chairman), Davide, Jr., Melo and Francisco, JJ., concur. Judgment modified. Note.—Only the donor or his heirs have the personality to question the violation of any restriction in the deed of donation. (Garrido vs. Court of Appeals, 236 SCRA 450 [1994])

——o0o—— [City of Angeles vs. Court of Appeals, 261 SCRA 90(1996)]

G.R. No. 112796. March 5, 1998.*FIRST DIVISION. TITO R. LAGAZO, petitioner, vs. COURT OF APPEALS and ALFREDO CABANLIT, respondents. Civil Law; Donations; Simple or pure and onerous donations distinguished.—A simple or pure donation is one whose cause is pure liberality (no strings attached), while an onerous donation is one which is subject to burdens, charges or future services equal to or more in value than the thing donated. Under Article 733 of the Civil Code, donations with an onerous cause shall be governed by the rules on contracts; hence, the formalities required for a valid simple donation are not applicable. Same; Same; Court rules that the donation was simple, not onerous.—We rule that the donation was simple, not onerous. Even conceding that petitioner’s full payment of the purchase price of the lot might have been a burden to him, such payment was not however imposed by the donor as a condition for the donation. Same; Same; Acceptance of the donation by the donee is indispensable, its absence makes the donation null and void.— In the words of the esteemed Mr. Justice Jose C. Vitug, “Like any other contract, an agreement of the parties is essential. The donation, following the theory of cognition (Article 1319, Civil Code), is perfected only upon the moment the donor knows of the acceptance by the donee.” Furthermore, “[i]f the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form, _______________ * FIRST DIVISION. 19

VOL. 287, MARCH 5, 1998 19 Lagazo vs. Court of Appeals and this step shall be noted in both instruments.” Acceptance of the donation by the donee is, therefore, indispensable; its absence makes the donation null and void. PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. Domingo G. Foronda for petitioner. Puno and Puno for private respondent. PANGANIBAN, J.: Where the acceptance of a donation was made in a separate instrument but not formally communicated to the donor, may the donation be nonetheless considered complete, valid and subsisting? Where the deed of donation did not expressly impose any burden—the expressed consideration being purely one of liberality and generosity—but the recipient actually paid charges imposed on the property like land taxes and installment arrearages, may the donation be deemed onerous and thus governed by the law on ordinary contracts? The Case The Court answers these questions in the negative as it resolves this petition for review under Rule 45 of the Rules of Court seeking to set aside the Decision1Rollo, pp. 21-26. of the Court of Appeals2First Division, composed of JJ. Santiago M. Kapunan, chairman and ponente (now an associate justice of the Supreme Court); Minerva P. Gonzaga-Reyes and Eduardo G. Montenegro, members, concurring. in CA-GR CV No. 38050 promulgated on November 29, 1993. The assailed

Decision reversed the Regional Trial Court, Branch 30, Manila, in Civil Case No. 87-39133 which _______________ 1 Rollo, pp. 21-26. 2 First Division, composed of JJ. Santiago M. Kapunan, chairman and ponente (now an associate justice of the Supreme Court); Minerva P. Gonzaga-Reyes and Eduardo G. Montenegro, members, concurring. 20 20 SUPREME COURT REPORTS ANNOTATED Lagazo vs. Court of Appeals had disposed3Penned by Judge Jesus O. Ibay. of the controversy in favor of herein petitioner in the following manner:4RTC Decision, p. 4; rollo, p. 49. “WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant as follows: 1. Ordering the defendant, or any person claiming rights under him, to surrender to plaintiff possession of the premises known as Lot 8w, Block 6, Psd-135534 of the Monserrat Estate, and the improvement standing thereon, located at 3320 2nd St., V. Mapa, Old Sta. Mesa, Manila; 2. Ordering the defendant to pay plaintiff the sum of Five Thousand (P5,000.00) Pesos, as and for attorney’s fees; and 3. Costs against the defendant. The defendant’s counterclaims are hereby dismissed.” The Facts Although the legal conclusions and dispositions of the trial and the appellate courts are conflicting, the factual antecedents of

the case are not substantially disputed.5Private respondent, in his Comment to the Petition, set forth his “Counter-Statement of the Facts” supposedly “contrary to the Statement of Facts and of the case as set forth in the ‘Petition for Review.’ ” The Petition,... We reproduce their narration from the assailed Decision: “Civil Case No. 83-39133 involves an action filed by plaintiffappellee [herein petitioner] on January 22, 1987 seeking to recover from defendant-appellant [a] parcel of land which the former claims to have acquired from his grandmother by donation. Defendantappellant [herein private respondent], on the other hand, put up the defense that when the alleged donation was executed, he had already acquired the property by a Deed of Assignment from a transferee of plaintiff-appellee’s grandmother. ________________ 3 Penned by Judge Jesus O. Ibay. 4 RTC Decision, p. 4; rollo, p. 49. 5 Private respondent, in his Comment to the Petition, set forth his “Counter-Statement of the Facts” supposedly “contrary to the Statement of Facts and of the case as set forth in the ‘Petition for Review.’ ” The Petition, however, simply quoted from the appealed Decision which substantially incorporated the version and defenses of private respondent. 21 VOL. 287, MARCH 5, 1998 21 Lagazo vs. Court of Appeals

The evidence for plaintiff-appellee [herein petitioner] is summarized as follows: Catalina Jacob Vda. de Reyes, a widow and grandmother of plaintiff-appellee, was awarded in July 1975 a 60.10-square meter lot which is a portion of the Monserrat Estate, more particularly described as Lot 8W, Block 6 of Psd-135834, located at 3320 2nd St., V. Mapa, Old Sta. Mesa, Manila. The Monserrat Estate is a public land owned by the City of Manila and distributed for sale to bona fide tenants under its land-forthe-landless program. Catalina Jacob constructed a house on the lot. On October 3, 1977, or shortly before she left for Canada where she is now a permanent resident, Catalina Jacob executed a special power of attorney (Exh. ‘A’) in favor of her son-in-law Eduardo B. Español authorizing him to execute all documents necessary for the final adjudication of her claim as awardee of the lot. Due to the failure of Eduardo B. Español to accomplish the purpose of the power of attorney granted to him, Catalina Jacob revoked said authority in an instrument executed in Canada on April 16, 1984 (Exh. ‘D’). Simultaneous with the revocation, Catalina Jacob executed another power of attorney of the same tenor in favor of plaintiff-appellee. On January 30, 1985, Catalina Jacob executed in Canada a Deed of Donation over a Lot 8W in favor of plaintiff-appellee (Exh. ‘E’). Following the donation, plaintiff-appellee checked with the Register of Deeds and found out that the property was in the delinquent list, so that he paid the installments in arrears and the remaining balance on the lot (Exhs. ‘F,’ ‘F-1’ and ‘F-

2’) and declared the said property in the name of Catalina Jacob (Exhs. ‘G,’ ‘G-1,’ ‘G-2’ and ‘G-3’). On January 29, 1986, plaintiff-appellee sent a demand letter to defendant-appellant asking him to vacate the premises (Exh. ‘H’). A similar letter was sent by plaintiff-appellee’s counsel to defendant on September 11, 1986 (Exh. ‘I’). However, defendant-appellant refused to vacate the premises claiming ownership thereof. Hence, plaintiffappellee instituted the complaint for recovery of possession and damages against defendant-appellant. Opposing plaintiff-appellee’s version, defendant-appellant claimed that the house and lot in controversy were his by virtue of the following documents: 22 22 SUPREME COURT REPORTS ANNOTATED Lagazo vs. Court of Appeals 1. Deed of Absolute Sale executed by Catalina Jacob dated October 7, 1977 in favor of Eduardo B. Español covering the residential house located at the premises (Exh. ‘4’); 2. Deed of Assignment over Lot 8W executed by Catalina Jacob in favor of Eduardo Español dated September 30, 1980 (Exh. ‘5’); and 3. Deed of Assignment executed by Eduardo B. Español over Lot 8W and a residential house thereon in favor of defendantappellant dated October 2, 1982 (Exh. ‘6’). After trial, the lower court decided in favor of plaintiff-appellee and against defendant-appellant, rationalizing that the version

of the former is more credible than that of the latter. According to the lower court: ‘From the oral and documentary evidence adduced by the parties[,] it appears that the plaintiff has a better right over the property, subject matter of the case. The version of the plaintiff is more credible than that of the defendant. The theory of the plaintiff is that the house and lot belong to him by virtue of the Deed of Donation in his favor executed by his grandmother Mrs. Jacob Vda. de Reyes, the real awardee of the lot in question. The defendant’s theory is that he is the owner thereof because he bought the house and lot from Eduardo Español, after the latter had shown and given to him Exhibits 1, 4 and 5. He admitted that he signed the Deed of Assignment in favor of Eduardo Español on September 30, 1980, but did not see awardee Catalina Jacob Vda. de Reyes signed [sic] it. In fact, the acknowledgment in Exhibit ‘5’ shows that the assignor/awardee did not appear before the notary public. It may be noted that on said date, the original awardee of the lot was no longer in the Philippines, as both parties admitted that she had not come back to the Philippines since 1977. (Exhs. K, K-1). Defendant, claiming to be the owner of the lot, unbelievably did not take any action to have the said house and lot be registered or had them declared in his own name. Even his Exhibit 7 was not mailed or served to the addressee. Such attitude and laxity is very unnatural for a buyer/owner of a property, in stark contrast of [sic] the interest shown by the plaintiff who saw to it that the lot was removed from the de 23 VOL. 287, MARCH 5, 1998 23

Lagazo vs. Court of Appeals linquent list for non-payment of installments and taxes due thereto [sic].’ ”6CA Decision, pp. 1-3; rollo, pp. 21-23. Ruling of the Appellate Court In reversing the trial court’s decision,7Rollo, pp. 46-49. Respondent Court of Appeals anchored its ruling upon the absence of any showing that petitioner accepted his grandmother’s donation of the subject land. Citing jurisprudence that the donee’s failure to accept a donation whether in the same deed of donation or in a separate instrument renders the donation null and void, Respondent Court denied petitioner’s claim of ownership over the disputed land. The appellate court also struck down petitioner’s contention that the formalities for a donation of real property should not apply to his case since it was an onerous one—he paid for the amortizations due on the land before and after the execution of the deed of donation—reasoning that the deed showed no burden, charge or condition imposed upon the donee; thus, the payments made by petitioner were his voluntary acts. Dissatisfied with the foregoing ruling, petitioner now seeks a favorable disposition from this Court.8This case was deemed submitted for resolution upon receipt by this Court of petitioner’s memorandum on April 29, 1996. Issues Petitioner anchors his petition on the following grounds:9Petition, pp. 6-7; rollo, pp. 11-12.

“[I.] In reversing the decision of the trial court, the Court of Appeals decided a question of substance in a way not in accord with the law and applicable decisions of this Honorable Court. [II.] Even granting the correctness of the decision of the Court of Appeals, certain fact and circumstances transpired in the _______________ 6 CA Decision, pp. 1-3; rollo, pp. 21-23. 7 Rollo, pp. 46-49. 8 This case was deemed submitted for resolution upon receipt by this Court of petitioner’s memorandum on April 29, 1996. 9 Petition, pp. 6-7; rollo, pp. 11-12. 24 24 SUPREME COURT REPORTS ANNOTATED Lagazo vs. Court of Appeals meantime which would render said decision manifestly unjust, unfair and inequitable to petitioner.” We believe that the resolution of this case hinges on the issue of whether the donation was simple or onerous. The Court’s Ruling The petition lacks merit. Main Issue: Simple or Onerous Donation? At the outset, let us differentiate between a simple donation and an onerous one. A simple or pure donation is one whose cause is pure liberality (no strings attached), while an onerous donation is one which is subject to burdens, charges or future services equal to or more in value than the thing donated.10De Luna vs. Abrigo, 181 SCRA 150, 155-56, January 18, 1990,

citing Edgardo L. Paras, Civil Code of the Philippines Annotated, 11th ed., Vol. II, p. 726. Under Article 733 of the Civil Code, donations with an onerous cause shall be governed by the rules on contracts; hence, the formalities required for a valid simple donation are not applicable. Petitioner contends that the burdens, charges or conditions imposed upon a donation need not be stated on the deed of donation itself. Thus, although the deed did not categorically impose any charge, burden or condition to be satisfied by him, the donation was onerous since he in fact and in reality paid for the installments in arrears and for the remaining balance of the lot in question. Being an onerous donation, his acceptance thereof may be express or implied, as provided under Art. 1320 of the Civil Code, and need not comply with the formalities required by Art. 749 of the same code. His payment of the arrearages and balance and his assertion of his ________________ 10 De Luna vs. Abrigo, 181 SCRA 150, 155-56, January 18, 1990, citing Edgardo L. Paras, Civil Code of the Philippines Annotated, 11th ed., Vol. II, p. 726. 25 VOL. 287, MARCH 5, 1998 25 Lagazo vs. Court of Appeals right of possession against private respondent clearly indicate his acceptance of the donation. We rule that the donation was simple, not onerous. Even conceding that petitioner’s full payment of the purchase price of the lot might have been a burden to him, such payment was

not however imposed by the donor as a condition for the donation. Rather, the deed explicitly stated: “That for and in consideration of the love and affection which the DONEE inspires in the DONOR, and as an act of liberality and generosity and considering further that the DONEE is a grandson of the DONOR, the DONOR hereby voluntarily and freely gives, transfer[s] and conveys, by way of donation unto said DONEE, his heirs, executors, administrators and assigns, all the right, title and interest which the said DONOR has in the above described real property, together with all the buildings and improvements found therein, free from all lines [sic] and encumbrances and charges whatsoever”11Exh. E; rollo, p. 106.; [italics supplied] It is clear that the donor did not have any intention to burden or charge petitioner as the donee. The words in the deed are in fact typical of a pure donation. We agree with Respondent Court that the payments made by petitioner were merely his voluntary acts. This much can be gathered from his testimony in court, in which he never even claimed that a burden or charge had been imposed by his grandmother. “ATTY. FORONDA: q After you have received this [sic] documents, the x x x revocation of power of attorney and the Special Power of Attorney in your favor, what did you do? WITNESS: a I went here in City Hall and verif[ied] the status of the award of my grandmother. q When you say the award, are you referring to the award in particular [of the] lot in favor of your grandmother? a Yes, Sir.

_______________ 11 Exh. E; rollo, p. 106. 26 26 SUPREME COURT REPORTS ANNOTATED Lagazo vs. Court of Appeals q What was the result of your verification? a According to the person in the office, the papers of my grandmother is [sic] includ[ed] in the dilinquent [sic] list. q What did you do then when you found out that the lot was includ[ed] in the dilinquent [sic] list? A I talked to the person in charged [sic] in the office and I asked him what to do so that the lot should not [be] included in the dilinquent [sic] list. ATTY. FORONDA: q And what was the answer [sic] given to you to the inquiry which you made? WITNESS: a According to the person in the office, that I would pay the at least [sic] one half of the installment in order to take [out] the document [from] the delinquent list. q And [were] you able to pay? a I was able to pay, sir. q What were you able to pay, one half of the balance or the entire amounts [sic]? a First, I paid the [sic] one half of the balance since the time the lot was awarded to us. q What about the remaining balance, were you able to pay it?

a I was able to pay that, sir. q So, as of now, the amount in the City of Manila of the lot has already been duly paid, is it not? a Yes, sir.”12TSN, August 2, 1988, pp. 17-19. The payments even seem to have been made pursuant to the power of attorney13Records, p. 10; rollo, p. 102. executed by Catalina Reyes in favor of petitioner, her grandson, authorizing him to execute acts necessary for the fulfillment of her obligations. Nothing in the records shows that such acts were meant to be a burden in the donation. _______________ 12 TSN, August 2, 1988, pp. 17-19. 13 Records, p. 10; rollo, p. 102. 27 VOL. 287, MARCH 5, 1998 27 Lagazo vs. Court of Appeals As a pure or simple donation, the following provisions of the Civil Code are applicable: “Art. 734. The donation is perfected from the moment the donor knows of the acceptance by the donee.” “Art. 746. Acceptance must be made during the lifetime of the donor and the donee.” “Art. 749. In order that the donation of an immovable may be valid, it must be made in a public instrument, specifying therein the property donated and the value of the charges which the donee must satisfy.

The acceptance may be made in the same deed of donation and in a separate public document, but it shall not take effect unless it is done during the lifetime of the donor. If the acceptance is made in a separate instrument, the donor shall be notified thereof in authentic form, and this step shall be noted in both instruments.” In the words of the esteemed Mr. Justice Jose C. Vitug,14In his Compendium of Civil Law and Jurisprudence, 1993 revised ed., p. 349. “Like any other contract, an agreement of the parties is essential. The donation, following the theory of cognition (Article 1319, Civil Code), is perfected only upon the moment the donor knows of the acceptance by the donee.” Furthermore, “[i]f the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form, and this step shall be noted in both instruments.”15Ibid., p. 353, citing Legasto vs. Verzosa, 54 Phil. 766, March 31, 1930. Acceptance of the donation by the donee is, therefore, indispensable; its absence makes the donation null and void.16Peña vs. Court of Appeals, 193 SCRA 717, 731, February 7, 1991. The perfection and the validity of a donation are well explained by former Sen. Arturo M. Tolentino in this wise: “x x x Title to immovable property does not pass from the donor to the donee by virtue of a deed of donation until and unless it has _______________ 14 In his Compendium of Civil Law and Jurisprudence, 1993 revised ed., p. 349.

15 Ibid., p. 353, citing Legasto vs. Verzosa, 54 Phil. 766, March 31, 1930. 16 Peña vs. Court of Appeals, 193 SCRA 717, 731, February 7, 1991. 28 28 SUPREME COURT REPORTS ANNOTATED Lagazo vs. Court of Appeals been accepted in a public instrument and the donor duly notified thereof. The acceptance may be made in the very same instrument of donation. If the acceptance does not appear in the same document, it must be made in another. Solemn words are not necessary; it is sufficient if it shows the intention to accept. But in this case it is necessary that formal notice thereof be given to the donor, and the fact that due notice has been given must be noted in both instruments (that containing the offer to donate and that showing the acceptance). Then and only then is the donation perfected. If the instrument of donation has been recorded in the registry of property, the instrument that shows the acceptance should also be recorded. Where the deed of donation fails to show the acceptance, or where the formal notice of the acceptance, made in a separate instrument, is either not given to the donor or else not noted in the deed of donation and in the separate acceptance, the donation is null and void.”17Tolentino, Civil Code of the Philippines, 1992 ed., Vol. II, pp. 557-558 (citations omitted). Exhibit E (the deed of donation) does not show any indication that petitioner-donee accepted the gift. During the trial, he did not present any instrument evidencing such acceptance despite

the fact that private respondent already raised this allegation in his supplemental pleading18Records, pp. 62-64. to which petitioner raised no objection. It was only after the Court of Appeals had rendered its decision, when petitioner came before this Court, that he submitted an affidavit19Annex D to Petition; rollo, p. 50. dated August 28, 1990, manifesting that he “wholeheartedly accepted” the lot given to him by his grandmother, Catalina Reyes. This is too late, because arguments, evidence, causes of action and matters not raised in the trial court may no longer be raised on appeal.20First Philippine International Bank vs. Court of Appeals, 252 SCRA 259, January 24, 1996; Servicewide Specialists, Inc. vs. Court of Appeals, 257 SCRA 643, June 26, 1996. True, the acceptance of a donation may be made at any time during the lifetime of the donor. And granting arguendo that such acceptance may still be admitted in evidence on _______________ 17 Tolentino, Civil Code of the Philippines, 1992 ed., Vol. II, pp. 557-558 (citations omitted). 18 Records, pp. 62-64. 19 Annex D to Petition; rollo, p. 50. 20 First Philippine International Bank vs. Court of Appeals, 252 SCRA 259, January 24, 1996; Servicewide Specialists, Inc. vs. Court of Appeals, 257 SCRA 643, June 26, 1996. 29 VOL. 287, MARCH 5, 1998 29 Lagazo vs. Court of Appeals

appeal, there is still need for proof that a formal notice of such acceptance was received by the donor and noted in both the deed of donation and the separate instrument embodying the acceptance. At the very least, this last legal requisite of annotation in both instruments of donation and acceptance was not fulfilled by petitioner. For this reason, the subject lot cannot be adjudicated to him. Secondary Issue: Supervening Events Petitioner also contends that certain supervening events have transpired which render the assailed Decision “manifestly unjust, unfair and inequitable” to him. The City of Manila has granted his request for the transfer to his name of the lot originally awarded in favor of Catalina Reyes. A deed of sale21Annex G to Petition; rollo, pp. 54-56. covering the subject lot has in fact been executed between the City of Manila, as the vendor; and petitioner, as the vendee. The corresponding certificate of title22Annex A to Supplement to Petition; rollo, pp. 62-63. has also been issued in petitioner’s name. A close perusal of the city government’s resolution23Annex E to Petition; rollo, pp. 51-52. granting petitioner’s request reveals that the request for and the grant of the transfer of the award were premised on the validity and perfection of the deed of donation executed by the original awardee, petitioner’s grandmother. This is the same document upon which petitioner, as against private respondent, asserts his right over the lot. But, as earlier discussed and ruled, this document has no force and effect and, therefore, passes no title, right or interest. Furthermore, the same resolution states:

“WHEREAS, in a report submitted by Ms. [Menchu C.] Bello [, Special Investigator,] on February 7, 1990, it is stated that x x x constructed on the lot is a make-shift structure used for residential _______________ 21 Annex G to Petition; rollo, pp. 54-56. 22 Annex A to Supplement to Petition; rollo, pp. 62-63. 23 Annex E to Petition; rollo, pp. 51-52. 30 30 SUPREME COURT REPORTS ANNOTATED Lagazo vs. Court of Appeals purposes by the proposed transferee Tito Lagazo and his family; x x x and that constructed at Lot 8, Block 6, former Monserrat Estate is a make-shift structure used as a dwelling place by Lagazo and family because the front portion of their house which was constructed on a road lot was demolished, and the structure was extended backward covering a portion of the old temporary road lot. x x x” The above findings of the investigator are, however, directly contradictory to the testimonies in court of petitioner himself and of private respondent. Petitioner claimed the following: that the house constructed on the subject lot was owned by his grandmother Catalina Jacob; that before the latter left for Canada in 1977, Eduardo Español had already been living in the same house and continued to do so until 1982; and that private respondent occupied the premises after Español left.24TSN, October 20, 1989, pp. 4-5. On the other hand, private respondent testified that he bought the subject house

and lot from Eduardo Español in 1982, after which he and his family occupied the same; but sometime in 1985, they had to leave the place due to a roadwidening project which reduced the house to “about three meters [in] length and one arm[’]s width.”25TSN, March 13, 1990, pp. 9-13. Between the testimonies under oath of the contending parties and the report—not subjected to cross-examination—which was prepared by the investigator who recommended the approval of petitioner’s request for transfer, it is the former to which the Court is inclined to give more credence. The investigator’s report must have been based on the misrepresentations of petitioner who arrogated unto himself the prerogatives of both Español and private respondent. Further, it is on record that petitioner had required private respondent to vacate the subject premises before he instituted this complaint. This shows he was not in actual possession of the property, contrary to the report of the investigator. ________________ 24 TSN, October 20, 1989, pp. 4-5. 25 TSN, March 13, 1990, pp. 9-13. 31 VOL. 287, MARCH 5, 1998 31 Lagazo vs. Court of Appeals Cabanlit’s Claim of Ownership Petitioner also assails Respondent Court’s conclusion that it is unnecessary to pass upon private respondent’s claim over the property. Petitioner insists that the principal issue in the case,

as agreed upon by the parties during pretrial, is “who between the parties is the owner of the house and lot in question.” In disposing of the principal issue of the right of petitioner over the subject property under the deed of donation, we arrive at one definite conclusion: on the basis of the alleged donation, petitioner cannot be considered the lawful owner of the subject property. This does not necessarily mean, however, that private respondent is automatically the rightful owner. In resolving private respondent’s claim of ownership, the examination of the genuineness of the documents (deeds of assignment over the lot between Catalina Reyes and Eduardo Español and between Español and private respondent) upon which he asserts his right is necessary, especially in light of petitioner’s allegations of forgery. However, the respective assignors in both documents are not parties to the instant case. Not having been impleaded in the trial court, they had no participation whatsoever in the proceedings at bar. Elementary norms of fair play and due process bar us from making any disposition which may affect their rights. Verily, there can be no valid judgment for or against them.26Matuguina Integrated Wood Products, Inc. vs. Court of Appeals, 263 SCRA 490, October 24, 1996; Ang Yu Asuncion vs. Court of Appeals, 238 SCRA 602, December 2, 1994. See also Periquet, Jr. vs. Intermediate Appellate Court, 238 SCRA 697, December 5, 1994. Anyhow, since petitioner, who was the plaintiff below, failed to prove with clear and convincing evidence his ownership claim over the subject property, the parties thus resume their status quo ante. The trial court should have dismissed his complaint for his failure to prove a right superior to that of private respondent, but without prejudice to any action

_______________ 26 Matuguina Integrated Wood Products, Inc. vs. Court of Appeals, 263 SCRA 490, October 24, 1996; Ang Yu Asuncion vs. Court of Appeals, 238 SCRA 602, December 2, 1994. See also Periquet, Jr. vs. Intermediate Appellate Court, 238 SCRA 697, December 5, 1994. 32 32 SUPREME COURT REPORTS ANNOTATED Lagazo vs. Court of Appeals that Catalina Reyes or Eduardo Español or both may have against said private respondent. Stating this point otherwise, we are not ruling in this case on the rights and obligations between, on the one hand, Catalina Reyes, her assigns and/or representatives; and, on the other, Private Respondent Cabanlit. Not having proven any right to a valid, just and demandable claim that compelled him to litigate or to incur expenses in order to protect his interests by reason of an unjustified act or omission of private respondent, petitioner cannot be awarded attorney’s fees.27See Art. 2208, Civil Code. Solid Homes, Inc. vs. Court of Appeals, 235 SCRA 299, August 12, 1994; Philippine National Bank vs. Court of Appeals, 256 SCRA 44, April 2, 1996. WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED. SO ORDERED. Davide, Jr. (Chairman), Bellosillo, Vitug and Quisumbing, JJ., concur. Petition denied; Assailed decision affirmed.

——o0o—— [Lagazo vs. Court of Appeals, 287 SCRA 18(1998)]

G.R. No. 50553. February 19, 1991.*FIRST DIVISION. NAZARIO VITA, plaintiff-appellant, vs. SOLEDAD MONTA-NANO, ESTANISLAO JOVELLANO AND ESTEBANA JOVEL-LANO, defendants-appellants. JOSE, ELENA AND ALODIA, ALL SURNAMED MONTANANO, intervenors-appellants. Civil Law; Paraphernal Property; Evidence; Documentary and Testimonial Evidence; The three (3) parcels of land mentioned in the complaint were paraphernal properties of Isidra Montanano, being supported by documentary and testimonial evidence.—We are in conformity with the finding of the trial court that the three (3) parcels of land mentioned in the complaint were paraphernal properties of Isidra Montanano, being supported by documentary and testimonial evidence (p. 48, Record on Appeal): “x x x, plaintiff claims that in accordance with the inventory prepared by Edilberto Vita of his properties before his death (Exhs. “O”, “O-1”, “O-1-A”, “O-1-B” and “O-1-C”), the parcel of land covered by Tax Declaration No. 4 (old) was a paraphernal property of his wife Isidra Montanano while the parcels of land covered by Tax Declaration Nos. 72 (old) and 73 were conjugal properties of the spouses Edilberto Vita and Isidra Montanano as they were donated to the latter by Francisca Asilo during their marriage. It is the contention of the plaintiff that upon the death of Isidra Montan-ano, her husband Edilberto Vita acquired ownership of these properties. “This contention of the plaintiff in effect corroborates the claim of the defendants and intervenors that all the three (3) parcels of land, subject-matter of the complaint, including all the parcels of land being claimed by them in the intervenor’s counterclaim, were all parapher-nal

properties of Isidra Montanano. The two (2) parcels of land supposedly received as donation by Isidra Montanano during her marriage with Edilberto Vita should be classified as her paraphernal properties, it being acquired by her through lucrative title (Art. 148, Civil Code). On the other hand, plaintiff’s testimony that the third parcel of land covered in the complaint was inherited by Edilberto Vita from Isidra Montanano is an admission that the said property was the paraphernal property of the latter. “The defendants and intervenors claim that the above-stated three (3) parcels of land and the properties covered in their counterclaim were donated to them by Isidra Montan-ano by virtue of two (2) deeds of donation she executed on November 22, 1938 and December 20, 1940. They presented testimonial and ________________ * FIRST DIVISION. 181 VOL. 194, FEBRUARY 19, 1991 181 Vita vs. Montanano documentary evidence to prove that Isidra Montanano acquired all these parcels of land, either by inheritance or donation, from her father Domingo Montanano, her aunt Francisca Asilo and her uncle Juan Asilo. Aside from this, the tax declarations covering the properties involved in the complaint and counterclaim are mostly in the name of Isidra Montanano, except one each in the name of her father Domingo Montanano, her aunt Francisca Asilo and her nephew Jose Samonte. The court is convinced, therefore, that all the

properties involved in this litigation were the paraphernal properties of the deceased Isidra Montanano.” Same; Conjugal Property; Remedial Law; Special Proceedings; Settlement of Estate of deceased persons; It is not necessary to file a separate proceeding in court for the proper disposition of the estate of Isidra Montanano. If both spouses died, the conjugal partnership shall be liquidated in the testate or intestate proceedngs of either.—Whatever merit there may be in plaintiff-appellant’s claim that upon the death of Isidra Montanano, the ownership of these parcels of land (except with respect to the parcel of land covered by Tax Declaration No. 1253 (4, old) which was validly donated to defendantsappellants and inter-venors-appellants by Isidra Montanano, as We shall discuss later) are vested upon Edilberto Vita by operation of law, subject only to the right of her nephew and nieces, liquidation of the conjugal partnership of Isidra Montanano and Edilberto Vita must be undertaken prior to the adjudication of properties to the heirs (Vicente J. Fran-cisco, The Revised Rules of Court in the Philippines, 1970 Edition, p. 619). In this connection, contrary to the trial court’s ruling, it is not necessary to file a separate proceeding in court for the proper disposition of the estate of Isidra Montanano. Under Rule 73, Section 2 of the Rules of Court, if both spouses have died, the conjugal partnership shall be liquidated in the testate or intestate proceedings of either. In the present case, therefore, the conjugal partnerhip of Isidra Montanano and Edilberto Vita should be liquidated in the testate proceedings of the latter. Same; Donation; Acceptance; Acceptance is necessary in a donation. This applies to all kinds of donation because the law does not make any distinction.—It is explicit in Article 725 of

the Civil Code that acceptance is necessary in a donation. This applies to all kinds of donation because the law does not make any distinction. The rationale behind the requirement of acceptance is that nobody is obliged to receive a benefit against his will (Arturo M. Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, Volume II, 1972 Edition, p. 521). We uphold the trial court that (p. 50, Record on 182 182 SUPREME COURT REPORTS ANNOTATED Vita vs. Montanano Appeal): “x x x, notwithstanding the fact that from the secondary evidence presented, the said deed of donation mortis causa of Novem-ber 22, 1938 seems to have been legally and validly executed, it cannot be given force and effect as the acceptance thereof by the donees is void and illegal in as much (sic) as they were made at the time of the execution of the document, not after the death of the donor Isidra Montanano. A donation mortis causa takes effect only after the death of the donor, consequently it is only after the latter’s death that its acceptance maybe made. Same; Donation inter vivos; It was obviously the intention of Isidra Montanano to grant a donation inter vivos to defendantsappellants and intervenors-appellants in the second deed of donation.—The quoted provision in the second deed of donation should be understood in its entirety. Thus, based on the first part of the paragraph which states “ ‘[n]a bagaman at sa kasulatang ito ay lubusan ng ibinibigay at ipinagkakaloob sa bawat isa x x x na iyon ay patuluyan nang ngayo’y

iguinagawad sa kanila ng walang pasubali, na magagawa na nila ang buong karapatan ngayon bilang tunay na may-ari x x x’ ” (italics supplied), supra, it was obviously the intention of Isidra Montanano to grant a donation inter vivos to defendantsappellants and intervenors-appellants. Although the rest of the paragraph states “ ‘gayon man, ay kami pa ring mag-asawa ang mananatili sa pag-mamayari, pakikina-bang at pamomosision,—na kani-kaniyang pag-aaring dito’y ipinagkakaloob, sa buong panahon na ang bawat isa sa amin magasawa’y nabubuhay, at kung kailan bawian kami ng hiram na buhay, ay saka at saka pa lamang maaring matamo nila ang ganap na pagmamayari at pakikinabang sa mga pag-aaring iyan x x x,’ ” supra, We have adjudged in the case of Heirs of Juan Bonsato, et al. v. Court of Appeals, et al., 95 Phil. 481, 488: “It is true that the last paragraph in each donation contains the phrase ‘that after the death of the donor the aforesaid donation shall become effective.’ x x x However, said expression must be construed together with the rest of the paragraph, and thus taken, its meaning clearly appears to be that after the donor’s death, the donation will take effect so as to make the donees the absolute owners of the donated property, free from all liens and encumbrances; for it must be remembered that the donor reserved for himself a share of the fruits of the land donated. Such reservation constituted a charge or encumbrance that would disappear upon the donor’s death, when full title would become vested in the donees.” Same; Same; When the main consideration of the donation is not the death of the donor but rather the services rendered to him by the donee or his affection for the latter, the donation should be considered

183 VOL. 194, FEBRUARY 19, 1991 183 Vita vs. Montanano as inter vivos.—As We have ruled in Concepcion, et al. v. Concepcion, 91 Phil. 823, 830. “x x x, even if he (donor) says it (the donation) is to take effect after his death, when from the body of the instrument or donation it is to be gathered that the main consideration of the donation is not the death of the donor but rather services rendered to him, by the donee or his affection for the latter, then the donation should be considered as inter vivos, x x x, and the condition that the donation is to take effect only after the death of the donor should be interpreted as meaning that the possession and enjoyment of the fruits of the property donated should take place only after donor’s death.” APPEAL from the decision of the then Court of First Instance of Biñan, Laguna, Br. I. The facts are stated in the opinion of the Court. MEDIALDEA, J.: In a resolution dated March 16, 1979, the Court of Appeals certified this case to Us because it involves pure questions of law (pp. 70-80, Rollo). The pertinent facts are as follows: A complaint was filed before the Court of First Instance (now Regional Trial Court) of Laguna by plaintiff-appellant Nazario Vita, in his capacity as judicial administrator of the estate of deceased Edilberto Vita, seeking to recover from defendantsappellants Soledad Montanano, Estanislao Jovellano and Estebana Jovellano the possession of three (3) parcels of land

located in Barrio Talangan, Nagcarlan, Laguna and their annual yield since January, 1962 in the amount of P1,100.00 a year. Plaintiff-appellant claims that during the lifetime of Edilberto Vita, he was the owner and possessor of these three (3) parcels of land covered by: Tax Declaration No. 1252 (73, old) with an area of 3,640 square meters, Tax Declaration No. 1231 (72, old) with an area of 1,000 square meters, and Tax Declaration No. 1253 (4, old) with an area of 640 square meters; and he was enjoying the fruits therefrom. When he died on January 23, 1962, defendants-appellants, through stealth and strategy, took possession of the above-stated parcels of land and gathered the fruits therefrom. Notwithstanding demands from plaintiffappellant, defendants-appellants refused to surrender the posses184 184 SUPREME COURT REPORTS ANNOTATED Vita vs. Montanano sion of these parcels of land. Plaintiff-appellant further claims reimbursement in the sum of P2,000.00 as attorney’s fees and P1,000.00 as actual or compensatory damages. In their answer dated December 1, 1964, defendants-appellants deny that the three (3) parcels of land belong to the estate of Edilberto Vita. Instead, they claim that the two parcels of land covered by Tax Declaration No. 1252 and Tax Declaration No. 1231 belong to Soledad Montanano as these were conveyed to her by Isidra Montanano (her aunt and wife of Edilberto Vita) and Edilberto Vita in a document signed and executed by them on November 22, 1938 and ratified by one Mr. Matienzo, a

Notary Public from Nagcarlan, Laguna. However, all copies of said document were lost during the last war. The parcel of land covered by Tax Declaration No. 1253 is owned in common by Soledad Montanano, her brother Jose and sisters Elena and Alodia. It originally belonged to Francisca Asilo, deceased sister of their grandmother, Micaela Asilo. Its ownership was transferred to them under the arrangement sanctioned by Edilberto Vita himself wherein all the proceeds from the yearly harvests therefrom shall be spent for the yearly masses to be held for the souls of Francisca Asilo and Isidra Montanano. This being the case, plaintiff-appellant is now estopped from instituting this action. Defendants-appellants claim also that Edilberto Vita could not have inherited these parcels of land from Isidra Montanano as the latter’s estate has never been the subject of a judicial or extra-judicial proceeding. The erroneous inclusion of these parcels of land in the inventory of the estate of Edilberto Vita in Special Proceedings No. SC-136 of the Court of First Instance of Laguna does not make them actually a part of his estate. There is no fixed income from these parcels of land because since 1962, plaintiff-appellant, with unknown persons, has been gathering whatever crops that may be taken therefrom. And, by reason of the malicious filing of this complaint, they seek reimbursement of the amount of P1,000.00 representing attorney’s fees and other litigation expenses. Replying to defendants-appellants’ answer, plaintiff-appellant claims that Isidra Montanano and Edilberto Vita never executed any document on November 22, 1938 and if they had, it was thereafter repudiated, canceled and destroyed, for which reason, the three (3) parcels of land remained in the possession

185 VOL. 194, FEBRUARY 19, 1991 185 Vita vs. Montanano of Isidra Montanano and Edilberto Vita; that upon the death on September 25, 1957 of Isidra Montanano, who left neither descendants nor ascendants, her surviving spouse Edilberto Vita succeeded her and took immediate possession of her estate; and that from the time defendants-appellants took possession of these parcels of land, they have continuously gathered the fruits therefrom. In a petition dated August 20, 1966, Jose, Elena and Alodia Montanano sought leave of court to intervene in this case. In the order of the trial court dated April 12, 1967, the amended answer dated September 10, 1966, which intervenors-appellants filed jointly with Soledad Montanano, was admitted as their answer-in-intervention. Incorporated therein is a counterclaim that Soledad, Jose, Elena and Alodia Montanano are the co-owners of (pp. 43-44, Record on Appeal): “(a) A parcel of coconut land situated in Bo. Bangbang, Nagcar-lan, Laguna, containing an area of 2,450 square meters, more or less, covered by Tax Declaration No. 8953; “(b) A parcel of coconut and secano land situated in Bo. Buboy, Nagcarlan, Laguna with an area of 15,096 square meters, more or less, and covered by Tax Declaration No. 10228; “(c) A parcel of coconut land, with its improvements, situated in Bo. Yucos, Nagcarlan, Laguna, with an area of 2,500 square

meters, more or less, and covered by Tax Declaration No. 7999; “(d) A parcel of coconut land, with its improvements, situated in Bo. Talangan, Nagcarlan, Laguna, with an area of 12,865 square meters, more or less, and covered by Tax Declaration No. 1233 (sic) (third parcel of land in the complaint); and “(e) A parcel of residential land, with its improvements, situated in Gen. Luna, Nagcarlan, Laguna, with an area of 167.50 square meters, more or less, and covered by Tax Declaration No. 102;” that Jose Montanano is the sole owner of (p. 44, ibid): “(a) A parcel of coconut land, with improvements thereon, situated in Bo. Bangbang, Nagcarlan, Laguna, with an area of 10,000 square meters, more or less, and covered by Tax Declaration No. 6493; and “(b) A parcel of coconut land, with improvements thereon, situated in Bo. Banago, Nagcarlan, Laguna, with an area of 9,604 square meters, more or less, and covered by Tax Declaration No. 8304;” 186 186 SUPREME COURT REPORTS ANNOTATED Vita vs. Montanano that Soledad Montanano is the sole owner of (p. 44, ibid): “(a) A parcel of coconut land, with improvements thereon, situated in Bo. Talangan, Nagcarlan, Laguna, with an area of 4,165 square meters more or less, and covered by Tax Declaration No. 123 (sic) (the second parcel of land in the complaint); and

“(b) A parcel of coconut land, with improvements thereon, situated in Bo. Talangan, Nagcarlan, Laguna, containing an area of 10,434 square meters, more or less; and covered by Tax Declaration No. 1252 (the first parcel of land in the complaint);” that Alodia Montanano is the sole owner of (p. 44, ibid): “(a) A parcel of coconut land and irrigated riceland, with improvements thereon, situated in Bo. Buboy, Nagcarlan, Laguna, containing an area of 24,153 square meters, more or less and covered by Tax Declaration No. 10268; and “(b) A parcel of coconut land, with improvements thereon, situated in Bo. Buboy, Nagcarlan, Laguna, containing an area of 1,619 square meters, more or less, and covered by Tax Declaration No. 8510;” that Elena Montanano is the sole owner of (p. 44, ibid): “(a) A parcel of coconut land, with improvements thereon, situated in Bo. Buboy, Nagcarlan, Laguna, containing an area of 6,242 square meters, more or less, and covered by Tax Declaration No. 8511; and “(b) A portion of a parcel of riceland situated at C. Lirio St., Nagcarlan, Laguna, containing an area of 9,691 square meters, more or less and covered by Tax Declaration No. 1184.” They alleged therein that they acquired ownership of the three (3) parcels of land mentioned in the complaint, which are in the possession of Soledad Montanano, and the other parcels of land mentioned in their counterclaim, which are in the possession of plaintiff-appellant, by virtue of a donation mortis causa executed by Isidra Montanano on November 22, 1938 or by a donation executed by her on December 20, 1940 which was confirmed by Edilberto Vita. They pray that these parcels of

land be adjudicated to them in the manner set forth in their counterclaim; that plaintiff-appellant be ordered to account for 187 VOL. 194, FEBRUARY 19, 1991 187 Vita vs. Montanano the harvests from these parcels of land from the time he took possession; and that they be awarded damages corresponding to their litigation expenses. In his reply dated July 4, 1967, plaintiff-appellant denied all the allegations contained in the answer-in-intervention and reiterated that there was no such donation executed by Isidra Montanano. If such donation were really executed, she was forced to do so at a time when she was not mentally in a position to execute and sign freely said document. On September 15, 1973, the trial court rendered judgment adverse to all parties, the dispositive portion of which reads (p. 52, Record on Appeal): “Considering that the plaintiff has not shown by preponderating evidence that the three (3) parcels of land covered in the complaint belong to the estate of Edilberto Vita and it appearing likewise that the defendants and intervenors have not shown that the parcels of land covered in the counterclaim were validly donated to them and that they have legally accepted the donation made by Isidra Montan-ano, the complaint filed by the plaintiff and the counterclaim filed by the intervenors are hereby DISMISSED. This is without prejudice to the filing of a separate proceedings (sic) in Court for the proper disposition of the estate of the deceased Isidra

Montanano, including that of her share in the fruits of the properties donated to her during her marriage with Edilberto Vita which is considered part of their conjugal properties. No assessment is hereby made with respect to the damages sustained by the parties as they offset each other, if any. “Without pronouncement as to costs. “SO ORDERED.” All parties appealed to the Court of Appeals. The case is now before Us raising mainly the following legal issues: 1) whether or not the three (3) parcels of land mentioned in the complaint are included in the estate of Edilberto Vita (as regards the appeal of plaintiff-appel-lant); and 2) whether or not acceptance is necessary in a donation mortis causa; and whether the donation dated December 20, 1940 is mortis causa or inter vivos (with respect to the appeal of defendants-appellants and intervenors-appel-lants). 188 188 SUPREME COURT REPORTS ANNOTATED Vita vs. Montanano Plaintiff-appellant avers that the trial court failed to consider that Edilberto Vita’s right to the conjugal half in the first two parcels as surviving spouse had ceased to be inchoate upon the death of Isidra in 1957, and that such right had been vested upon him by operation of law. With respect to the conjugal half pertaining to Isidra in said two parcels, and the entirety of the third parcel as her paraphernal property, they were likewise vested upon him by operation of law, subject only to the right

of her nephew and nieces, pursuant to Articles 995 and 1001 of the New Civil Code. In other words, plaintiff-appellant is again claiming that the parcels of land covered by Tax Declaration No. 1252 (73, old) and Tax Declaration No. 1231 (72, old) are conjugal properties of Isidra Montanano and Edilberto Vita whereas the parcel of land covered by Tax Declaration No. 1253 (4, old) is the paraphernal property of Isidra Montanano. We are in conformity with the finding of the trial court that the three (3) parcels of land mentioned in the complaint were paraphernal properties of Isidra Montanano, being supported by documentary and testimonial evidence (p. 48, Record on Appeal): “x x x, plaintiff claims that in accordance with the inventory prepared by Edilberto Vita of his properties before his death (Exhs. “O”, “O-1”, “O-1-A”, “O-1-B” and “O-1-C”), the parcel of land covered by Tax Declaration No. 4 (old) was a paraphernal property of his wife Isidra Montanano while the parcels of land covered by Tax Declaration Nos. 72 (old) and 73 were conjugal properties of the spouses Edilberto Vita and Isidra Montanano as they were donated to the latter by Francisca Asilo during their marriage. It is the contention of the plaintiff that upon the death of Isidra Montanano, her husband Edilberto Vita acquired ownership of these properties. “This contention of the plaintiff in effect corroborates the claim of the defendants and intervenors that all the three (3) parcels of land, subject-matter of the complaint, including all the parcels of land being claimed by them in the intervenor’s counterclaim, were all paraphernal properties of Isidra Montanano. The two (2) parcels of land supposedly received as

donation by Isidra Montanano during her marriage with Edilberto Vita should be classified as her paraphernal properties, it being acquired by her through lucrative title (Art. 148, Civil Code). On the other hand, plaintiff’s testimony that the third parcel of land covered in the complaint was inherited by Edilberto Vita from Isidra Montanano is an admission that the said property was the 189 VOL. 194, FEBRUARY 19, 1991 189 Vita vs. Montanano paraphernal property of the latter. “The defendants and intervenors claim that the above-stated three (3) parcels of land and the properties covered in their counterclaim were donated to them by Isidra Montanano by virtue of two (2) deeds of donation she executed on November 22, 1938 and December 20, 1940. They presented testimonial and documentary evidence to prove that Isidra Montanano acquired all these parcels of land, either by inheritance or donation, from her father Domingo Montanano, her aunt Francisca Asilo and her uncle Juan Asilo. Aside from this, the tax declarations covering the properties involved in the complaint and counterclaim are mostly in the name of Isidra Montanano, except one each in the name of her father Domingo Montanano, her aunt Francisca Asilo and her nephew Jose Samonte. The court is convinced, therefore, that all the properties involved in this litigation were the paraphernal properties of the deceased Isidra Montanano.”

Whatever merit there may be in plaintiff-appellant’s claim that upon the death of Isidra Montanano, the ownership of these parcels of land (except with respect to the parcel of land covered by Tax Declaration No. 1253 (4, old) which was validly donated to defendants-appellants and intervenorsappellants by Isidra Montanano, as We shall discuss later) are vested upon Edilberto Vita by operation of law, subject only to the right of her nephew and nieces, liquidation of the conjugal partnership of Isidra Montanano and Edilberto Vita must be undertaken prior to the adjudication of properties to the heirs (Vicente J. Francisco, The Revised Rules of Court in the Philippines, 1970 Edition, p. 619). In this connection, contrary to the trial court’s ruling, it is not necessary to file a separate proceeding in court for the proper disposition of the estate of Isidra Montanano. Under Rule 73, Section 2 of the Rules of Court, if both spouses have died, the conjugal partnership shall be liquidated in the testate or intestate proceedings of either. In the present case, therefore, the conjugal partnership of Isidra Montanano and Edilberto Vita should be liquidated in the testate proceedings of the latter. Defendants-appellants and intervenors-appellants allege the following: 1) that a donation mortis causa (as in the case of the November 22, 1938 donation), being in the nature of a legacy, need not be accepted; their acceptance of that donation is superfluous; and 2) that the December 20, 1940 donation is a 190 190 SUPREME COURT REPORTS ANNOTATED Vita vs. Montanano

donation inter vivos because: a) there is no stipulation or provision therein that the donation is essentially revocable; b) there was an acceptance of the donation; c) the donation was not simply made in consideration of the death of the donor but of her affection for the donees. It is explicit in Article 725**Article 725 of the Civil Code provides:“ART. 725. Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it.”(see also Articles 734, 745 and 746 of the same Code). of the Civil Code that acceptance is necessary in a donation. This applies to all kinds of donation because the law does not make any distinction. The rationale behind the requirement of acceptance is that nobody is obliged to receive a benefit against his will (Arturo M. Tolentino, Commentaries and Jurisprudence on the Civil Code of the Phil-ippines, Volume II, 1972 Edition, p. 521). We uphold the trial court that (p. 50, Record on Appeal): “x x x, notwithstanding the fact that from the secondary evidence presented, the said deed of donation mortis causa of November 22, 1938 seems to have been legally and validly executed, it cannot be given force and effect as the acceptance thereof by the donees is void and illegal in as much (sic) as they were made at the time of the execution of the document, not after the death of the donor Isidra Montanano. A donation mortis causa takes effect only after the death of the donor, consequently it is only after the latter’s death that its acceptance maybe made. “x x x. However, We adopt a view contrary to that of the trial court regarding the second allegation of defendants-appellants and

intervenors-appellants. According to the trial court (p. 50, Record on Appeal): “The defendants and intervenors further claim that all the properties covered by that counterclaim were donated to them by Isidra Montanano pursuant to a second deed of donation executed by the latter on December 20, 1940 (Exh. ‘3’). A careful study of the said document, however, shows that it is another deed of donation mortis _______________ ** Article 725 of the Civil Code provides: “ART. 725. Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it.” (see also Articles 734, 745 and 746 of the same Code). 191 VOL. 194, FEBRUARY 19, 1991 191 Vita vs. Montanano causa, considering the following provisions appearing therein with respect to its effectivity: ‘Na bagaman at sa kasulatang ito ay lubusan ng ibinibigay at ipinagkakaloob sa bawat isa ng pag-aaring dito’y itinungod sa kani-kanila, matangi ang ganang napaukol sa kay Dr. Vicente C. Chipongian at kay Maria Osuna, na iyon ay patuluyan nang ngayo’y iguinagawad sa kanila ng walang pasubali, na magagawa na nila ang buong karapatan ngayon bilang tunay na may-ari, gayon man, ay kami pa ring mag-asawa ang mananatili sa pag-mamayari, pakikinabang at pamomosision, sa kani-kaniyang pag-aaring dito’y ipinagkakaloob, sa buong

panahon na ang bawat isa sa amin mag-asawa’y nabubuhay, at kung kailan bawian kami ng hiram na buhay, ay saka at saka pa lamang maaring matamo nila ang ganap na pagmamayari at pakikina-bang sa mga pag-aaring iyan na dito’y inihayag nila ang pagtan-gap.’ “From this provision of the document, it clearly appears that the donors shall continue to be the owner and possessors of the properties involved in the donation and shall continue to enjoy the fruits of said properties while they are still living and it is only upon their death that ownership will transfer to the donees. It was the evident intent of the donors in this case to give the donation after their death. In the meantime, they retain full or naked ownership and control of the properties while they are still living and title will pass to the donees only after their death. This is donation mortis causa (Heirs of Bonsato v. Court of Appeals, G.R. No. L-6600, July 30, 1954, 50 O.G. 3568; Howard v. Padilla, G.R. L-7064, 7098, April 22, 1955).” The quoted provision in the second deed of donation should be understood in its entirety. Thus, based on the first part of the paragraph which states “ ‘[n]a bagaman at sa kasulatang ito ay lubusan ng ibinibigay at ipinagkakaloob sa bawat isa x x x na iyon ay patuluyan nang ngayo’y iguinagawad sa kanila ng walang pasubali, na magagawa na nila ang buong karapatan ngayon bilang tunay na may-ari x x x’ ” (italics supplied), supra, it was obviously the intention of Isidra Montanano to grant a donation inter vivos to defendants-appellants and intervenors-appellants. Although the rest of the paragraph states “ ‘gayon man, ay kami pa ring mag-asawa ang mananatili sa pag-mama-yari, pakikinabang at pamomosision,—na kani-kaniyang pag-aaring dito’y

ipinagkakaloob, sa buong panahon na ang bawat isa sa amin mag-asawa’y nabubuhay, at kung kailan bawian 192 192 SUPREME COURT REPORTS ANNOTATED Vita vs. Montanano kami ng hiram na buhay, ay saka at saka pa lamang maaring matamo nila ang ganap na pagmamayari at pakikinabang sa mga pag-aaring iyan x x x,’ ” supra, We have adjudged in the case of Heirs of Juan Bonsato, et al. v. Court of Appeals, et al., 95 Phil. 481, 488: “It is true that the last paragraph in each donation contains the phrase ‘that after the death of the donor the aforesaid donation shall become effective.’ x x x However, said expression must be construed together with the rest of the paragraph, and thus taken, its meaning clearly appears to be that after the donor’s death, the donation will take effect so as to make the donees the absolute owners of the donated property, free from all liens and encumbrances; for it must be remembered that the donor reserved for himself a share of the fruits of the land donated. Such reservation constituted a charge or encumbrance that would disappear upon the donor’s death, when full title would become vested in the donees.” It was also Our observation therein that (ibid, at p. 487): “x x x. The donor only reserved for himself, during his lifetime, the owner’s share of the fruits or produce x x x, a reservation that would be unnecessary if the ownership of the donated property remained with the donor. Most significant is

the absence of stipulation that the donor could revoke the donations x x x.” Furthermore, mention must be made of the fact that the consideration of the second deed of donation is love and services rendered by defendants-appellants and intervenorsappellants to Isidra Montanano, as revealed by the third and fourth paragraphs therein (Exhibit “3,” for the defendants): “Na sapagkat ang banal kong nais ay kung bawian man ako ng aking hiram na buhay ay matumbasan man lamang sa pamamag-itan ng isinasagawa kong pagkakaloob sa hinaharap na kasulatan yuong manga pagdamay, pagmamahal at paghahasikaso na tinangap ko at tunay na ipinakita sa akin ng mga dito’y itinangi ko,— “Kaya’t dahil diya’y buong puso kong ibinibigay, isinusulit at ganap na IPINAGKAKALOOB, ang mga natitira ko pang mga pagaari, na wala pang kinatutunguran o napagbibigyan, sa kaparaanang dito’y itinatagubilen ko, sa manga taong gaya nitong mga sumusunod: “x x x.” 193 VOL. 194, FEBRUARY 19, 1991 193 Vita vs. Montanano As We have ruled in Concepcion, et al. v. Concepcion, 91 Phil. 823, 830: “x x x, even if he (donor) says it (the donation) is to take effect after his death, when from the body of the instrument or donation it is to be gathered that the main consideration of the donation is not the death of the donor but rather services

rendered to him, by the donee or his affection for the latter, then the donation should be considered as inter vivos, x x x, and the condition that the donation is to take effect only after the death of the donor should be interpreted as meaning that the possession and enjoyment of the fruits of the property donated should take place only after donor’s death.” Along the same line of ratiocination is Our holding in Balaqui, et al. v. Dongso, et al., 53 Phil. 673, 677: “x x x, that as the donor guaranteed the right which she conferred on the donee by virtue of the deed of gift, wherein, in recompense of the latter’s good services to the former, she donates to her the two parcels of land with their improvements, said gift is inter vivos and irrevocable, and not mortis causa, notwithstanding the fact that the donor stated in said deed that she did not transfer the ownership of the two parcels of land donated, save upon her death, for such a statement can mean nothing else than that she only reserved to herself the possession and usufruct of said property, and because the donor could not very well guarantee the aforesaid right after her death.” ACCORDINGLY, the appeal of plaintiff-appellant is hereby DENIED whereas the appeal of defendants-appellants is hereby PARTLY GRANTED. The decision of the Court of First Instance of Laguna dated September 15, 1973 is MODIFIED as follows: 1) the dismissal of the complaint of plaintiff-appellant is AFFIRMED; 2) the dismissal of the counterclaim of defen-dants-appellants and intervenorsappellants is SET ASIDE; and 3) plaintiff-appellant is ordered: a) to deliver the possession of the properties donated to defendants-appellants and interve-nors-appellants by virtue of

the deed of donation dated Decem-ber 20, 1940, and b) to render an accounting of the products harvested therefrom from January 23, 1962 up to the present. 194 194 SUPREME COURT REPORTS ANNOTATED Locsin vs. Valenzuela SO ORDERED. Narvasa (Chairman), Cruz, Gancayco and Griño-Aquino, JJ., concur. Appeal of plaintiff-appellant denied. Appeal of defendantsappellants, partly granted. Decision modified. Note.—Determination of whether a donation is inter vivos or mortis causa depends upon the nature of the disposition to be made. (National Treasurer of the Philippines vs. Vda. de Meim-ban, 131 SCRA 264.) ——o0o—— [Vita vs. Montanano, 194 SCRA 180(1991)]

G.R. No. 45262. July 23, 1990.*THIRD DIVISION. RUPERTO REYES and REYNALDO C. SAN JUAN, in his capacity as Special Administrator, petitioners, vs. HON. LORENZO R. MOSQUEDA, Judge of CFI, Pampanga (Branch VII), and URSULA D. PASCUAL, respondents. G.R. No. 45394. July 23, 1990.*THIRD DIVISION. PEDRO DALUSONG, petitioner, vs. HON. LORENZO R. MOSQUEDA, JUDGE, BRANCH VII, COURT OF FIRST INSTANCE OF PAMPANGA, and URSULA D. PASCUAL, respondents. G.R. Nos. 73241-42. July 23, 1990.*THIRD DIVISION. OFELIA D. PARUNGAO and ROSARIO DUNCIL, petitioners, vs. THE HON. INTERMEDIATE APPELLATE COURT, (Third Civil Cases Division), BENJAMIN P. REYES and OSCAR REYES, respondents. Civil Law; Donation; Jurisdiction; Provisional character of the exclusion of the contested properties in the inventory as stressed in the order is within the jurisdiction of probate court.—The questioned August 1, 1976 order of the then Court of First Instance of Pampanga in S.P. Proc. No. 73-30-M categorically stated that the exclusion from the inventory of the estate of the deceased Dr. Emilio D. Pascual was “without prejudice to its final determination in a separate action.” The provisional character of the exclusion of the contested properties in the inventory as stressed in the order is within the jurisdiction of the probate court. Same; Same; Same; Same; Rule is well-settled that a probate court or one in charge of proceedings whether testate or intestate cannot adjudicate or determine title to properties claimed to be a part of the estate and which are equally claimed

to belong to outside parties.—“It is wellsettled rule that a probate court or one in charge of proceedings whether testate or intestate cannot adjudicate or determine title to properties claimed to be a part of the estate and which are equally _______________ * THIRD DIVISION. 662 662 SUPREME COURT REPORTS ANNOTATED Reyes vs. Mosqueda claimed to belong to outside parties. All that the said court could do as regards said properties is to determine whether they should or should not be included in the inventory or list of properties to be administered by the administrator. If there is no dispute, well and good; but if there is, then the parties, the administrator, and the opposing parties have to resort to an ordinary action for a final determination of the conflicting claims of title because the probate court cannot do so.” Same; Same; Same; Same; Same; For the purpose of determining whether a certain property should or should not be included in the inventory, the probate court may pass upon the title thereto but such determination is not conclusive and is subject to the final decision in a separate action regarding ownership which may be constituted by the parties.— Similarly, in Valero Vda. de Rodriguez v. Court of Appeals, (91 SCRA 540) we held that for the purpose of determining whether a certain property should or should not be included in the inventory, the probate court may pass upon the title thereto but such determination is not conclusive and is subject to the

final decision in a separate action regarding ownership which may be instituted by the parties. Same; Same; That the title given to a deed of donation is not the determinative factor which makes the donation “inter vivos” or “mortis causa” now a settled rule.—It is, now a settled rule that the title given to a deed of donation is not the determinative factor which makes the donation “inter vivos” or “mortis causa.” As early as the case of Laureta v. Manta, et al., (44 Phil. 668 [1928]) this Court ruled that the dispositions in a deed of donation—whether “inter vivos” or “mortis causa” do not depend on the title or term used in the deed of donation but on the provisions stated in such deed. Same; Same; Same; Characteristics of a donation inter vivos and mortis causa distinguished in Bonsato et al. vs. Court of Appeals et al.—In the later case of Bonsato, et al. v. Court of Appeals, et al. (95 Phil. 481 [1954]) this Court, distinguished the characteristics of a donation inter vivos and “mortis causa” in this wise: “Did the late Domingo Bonsato make donations inter vivos or dispositions post mortem in favor of the petitioners herein? If the latter, then the documents should reveal any or all of the following characteristics: (1) Convey no title or ownership to the transferee before the death of the transferor; or, what amounts to the same thing, that the transferor should retain the ownership (full or naked) and control of the property while alive (Vidal v. Posadas, 58 Phil., 108; Guzman v. Ibea, 67 Phil., 633); (2) That before his death, the transfer should be revocable by the 663 VOL. 187, JULY 23, 1990 663 Reyes vs. Mosqueda

transferor at will, ad nutum; but revocability may be provided for indirectly by means of a reserved power in the donor to dispose of the properties conveyed (Bautista v. Sabiniano, G.R. No. L-4326, November 18, 1952); (3) That the transfer should be void if the transferor should survive the transferee.” Same; Same; Same; Whether a donation is inter vivos or mortis causa depends upon the nature of the disposition made.— “Whether a donation is inter vivos or mortis causa depends upon the nature of the disposition made. ‘Did the donor intend to transfer the ownership of the property donated upon the execution of the donation? If this is so, as reflected from the provisions contained in the donation, then it is inter vivos; otherwise, it is merely mortis causa, or made to take effect after death.’ ” Same; Same; Same; Same; The so-called donations mortis causa is really a donation inter vivos; Case at bar.—Applying the above principles to the instant petitions, there is not doubt that the so-called DONATION MORTIS CAUSA is really a donation inter vivos. The donation was executed by Dr. Pascual in favor of his sister Ursula Pascual out of love and affection as well as a recognition of the personal services rendered by the donee to the donor. The transfer of ownership over the properties donated to the donee was immediate and independent of the death of the donor. The provision as regards the reservation of properties for the donor’s subsistence in relation to the other provisions of the deed of donation confirms the intention of the donor to give naked ownership of the properties to the donee immediately after the execution of the deed of donation.

G.R. No. 45262 and G.R. No. 45394: PETITIONS to review the decision of the then Court of First Instance of Pampanga, Br. 7. Mosqueda, J. The facts are stated in the opinion of the Court. G.R. Nos. 73241-42: PETITION to review the motion for reconsideration in the then Intermediate Appellate Court. The facts are stated in the opinion of the Court. 664 664 SUPREME COURT REPORTS ANNOTATED Reyes vs. Mosqueda GUTIERREZ, JR., J.: The instant petitions have been consolidated as they arose from the same facts and involve similar issues. Dr. Emilio Pascual died intestate and without issue on November 18, 1972. He was survived by his sister, Ursula Pascual and the children of his late sisters as follows: (1) Maria Pascual Reyes—Ruperto Reyes and Jose Reyes; (2) Ines Pascual Reyes—Jose P. Reyes, Benito Reyes, and Marina Reyes Manalastas; (3) Josefa Pascual Reyes—Augusto Reyes and Benjamin Reyes; and (4) Escolastica Pascual Dalusong (half-blood)—Pedro Dalusong. On December 3, 1973, the heirs of Dr. Pascual filed Special Proceedings No. 73-30-M in the then Court of First Instance of Pampanga for the administration of his estate. Atty. Marcela Macapagal, Clerk of Court of Branch VII was appointed special administratrix. Macapagal was, however, replaced by Reynaldo San Juan.

On February 12, 1976, Ursula Pascual filed a motion to exclude some properties from the inventory of Pascual’s estate and to deliver the titles thereto to her. Ursula alleged that Dr. Pascual during his lifetime or on November 2, 1966 executed a “Donation Mortis Causa” in her favor covering properties which are included in the estate of Dr. Pascual (subject of Special Proceedings No. 73-30-M) and therefore should be excluded from the inventory. On August 1, 1976; the trial court issued an order excluding from the inventory of the estate the properties donated to Ursula, to wit: “WHEREFORE, in view of all the foregoing discussion, let the properties listed in paragraph 2 of the motion of February 12, 1976 filed by Ursula D. Pascual thru counsel be, as it is hereby ordered, excluded from the inventory of the estate of the deceased Dr. Emilio D. Pascual, without prejudice to its final determination in a separate action. Special Administrator Reynaldo San Juan is hereby ordered to return to Court the custody of the corresponding certificates of titles of these properties, until the issue of ownership is finally determined in a separate action.” (G.R. No. 45262, pp. 23-24) 665 VOL. 187, JULY 23, 1990 665 Reyes vs. Mosqueda The Order is now the subject of G.R. Nos. 45262 and 45394. On January 5, 1977, we issued a temporary restraining order enjoining the trial court from enforcing the August 1, 1976 Order.

Among the properties included in the “donation mortis causa” in favor of Ursula was Lot 24, Block No. 15 of the subdivision plan Psd-3231, located at 1109-1111 R. Papa St., Tondo, Manila as evidenced by Transfer Certificate of Title No. 17854. The records show that on May 15, 1969, Emilio Pascual executed a deed of donation of real property inter vivos over the abovementioned lot in Manila in favor of Ofelia D. Parungao, petitioner in G.R. Nos. 73241-42 a minor with her mother, Rosario Duncil, accepting the gift and donation for and in her behalf. When Parungao reached the age of majority or on December 20, 1976, she tried to have the donation registered. However, she found out that the certificate of title was missing from where it was supposed to be kept, prompting her to file a petition for reconstitution of title with the Court of First Instance of Manila. The petition was granted in October 1977. Parungao registered the deed of donation with the Register of Deeds of Manila who cancelled Transfer Certificate of Title No. 17854 and issued in lieu thereof Transfer Certificate of Title No. 129092 in the name of Ofelia Parungao. She then filed a motion for exclusion in Special Proceedings No. 73-30M. In the meantime, on September 23, 1976, Ursula Pascual executed a deed of absolute sale over the Tondo property in favor of Benjamin, Oscar, Jose and Emmanuel, all surnamed Reyes. On May 2, 1978, Benjamin Reyes, private respondent in G.R. Nos. 73241-42 filed a complaint for declaration of nullity of Transfer Certificate of Title No. 129092, Register of Deeds of Manila and/or reconveyance of deed of title against Ofelia Parungao and Rosario Duncil with the then Court of First

Instance of Manila. The case was docketed as Civil Case No. 115164. In their answer with compulsory counterclaim Parungao and Duncil denied Reyes’ assertion of ownership over the Tondo property. On November 6, 1978, Ofelia Parungao filed a complaint for recovery of possession over the Tondo property against Benjamin Reyes and his nephew Oscar Reyes with the Court of First Instance of Manila. The case was docketed as Civil Case 666 666 SUPREME COURT REPORTS ANNOTATED Reyes vs. Mosqueda No. 119359. In her complaint, Parungao also alleged that as early as 1973, the defendants occupied two (2) doors of the apartment situated at the Tondo property by mere tolerance of the previous owner, Dr. Emilio Pascual, and later by her until April 8, 1978 when she formally demanded that the defendants vacate the premises. Parungao prayed that the defendants be evicted from the premises. The two cases were consolidated. On June 3, 1982, the then Court of First Instance, Branch 8 rendered a joint decision, the dispositive portion of which reads: “WHEREFORE, judgment is hereby rendered: In Civil Case No. 115164— 1) Declaring TCT No. 129092 in the name of Ofelia Parungao null and void; and ordering the Register of Deeds of Manila to cancel said title and to restore, in lieu thereof, TCT No. 17854 in the name of Emilio D. Pascual;

2) Ordering Ofelia D. Parungao to pay plaintiff Benjamin P. Reyes the sum of Two Thousand (P2,000.00) Pesos, as and for attorney’s fees; and to pay the costs of suit including all fees which the Register of Deeds may prescribe for the full implementation of this decision. For lack of merit, the counterclaim is dismissed. In Civil Case No. 119359— 1) Dismissing the complaint for want of merit; and 2) On the counterclaim, ordering Ofelia Parungao to pay defendants the sum of Two Thousand (P2,000.00) Pesos as and for attorney’s fees.” Parungao appealed the decision to the then Intermediate Appellate Court. The decision was, however, affirmed, with costs against the appellant. The Intermediate Appellate Court decision is now the subject matter in G.R. Nos. 73241-42. On January 29, 1986, we issued a minute resolution denying the above petition for lack of merit. The resolution became final and executory on March 10, 1986 and on this same day the entry of judgment was effected. The entry of judgment was however set aside in the resolution dated January 19, 1987 on the ground that the January 29, 1986 resolution was not received by the petitioners’ counsel of record. The petitioner was 667 VOL. 187, JULY 23, 1990 667 Reyes vs. Mosqueda

granted leave to file a motion for reconsideration of the January 29, 1986 resolution. The motion for reconsideration is now before us for resolution. The issues raised in these petitions are two-fold: (1) In G.R. No. L-45394, petitioner Pedro Dalusong questions the jurisdiction of the probate court to exclude the properties donated to Ursula Pascual in its Order dated August 1, 1976, and (2) In G.R. No. L-45262 and G.R. Nos. 73241-42 Ruperto Reyes, Reynaldo C. San Juan, in his capacity as special administrator of the estate of Emilio Pascual (petitioner in G.R. No. L-45262), Ofelia Parungao and Rosario Duncil (petitioners in G.R. Nos. 73241-42) question the appellate court’s finding that the “Donation Mortis Causa” executed by Emilio Pascual in favor of his sister Ursula Pascual was actually a Donation Inter Vivos. We first discuss the issue on jurisdiction. The questioned August 1, 1976 order of the then Court of First Instance of Pampanga in S.P. Proc. No. 73-30-M categorically stated that the exclusion from the inventory of the estate of the deceased Dr. Emilio D. Pascual was “without prejudice to its final determination in a separate action.” The provisional character of the exclusion of the contested properties in the inventory as stressed in the order is within the jurisdiction of the probate court. This was stressed in the case of Cuizon v. Ramolete (129 SCRA 495 [1984]) which we cited in the case of Morales v. Court of First Instance of Cavite, Branch V (146 SCRA 373 [1986]): “It is well-settled rule that a probate court or one in charge of proceedings whether testate or intestate cannot adjudicate or determine title to properties claimed to be a part of the estate

and which are equally claimed to belong to outside parties. All that the said court could do as regards said properties is to determine whether they should or should not be included in the inventory or list of properties to be administered by the administrator. If there is no dispute, well and good; but if there is, then the parties, the administrator, and the opposing parties have to resort to an ordinary action for a final determination of the conflicting claims of title because the probate court cannot do so (Mallari v. Mallari, 92 Phil. 694; Baquial v. Amihan, 92 Phil. 501). Similarly, in Valero Vda. de Rodriguez v. Court of Appeals, (91 SCRA 540) we held that for the purpose of determining whether a 668 668 SUPREME COURT REPORTS ANNOTATED Reyes vs. Mosqueda certain property should or should not be included in the inventory, the probate court may pass upon the title thereto but such determination is not conclusive and is subject to the final decision in a separate action regarding ownership which may be instituted by the parties (3 Moran’s Comments on the Rules of Court, 1970 Edition, pages 448-449 and 473; Lachenal v. Salas, L-42257, June 14, 1976, 71 SCRA 262, 266).” On the second issue, it may be noted that the Court of Appeals did not pass upon the authenticity of the 1969 donation to Parungao because of its finding that the 1966 donation to Pascual was inter vivos. The petitioners do not press the authenticity of the 1969 donation as their challenge centers on

whether or not the 1966 donation was inter vivos. However, the trial court has a lengthy discussion reflecting adversely on the authenticity of the 1969 donation to Parungao. The petitioners assert that the 1966 donation was null and void since it was not executed with the formalities of a will. Therefore, the petitioners in G.R. No. L-45262 insist that the donated properties should revert to the estate of Emilio Pascual while the petitioners in G.R. Nos. 73241-42 insist that the donation of real property inter vivos in favor of Ofelia Parungao be given effect. The subject deed of donation titled “DONATION MORTIS CAUSA” duly notarized by a certain Cornelio M. Sigua states: “That Dr. Emilio D. Pascual, Filipino, single, of age and resident of Apalit, Pampanga, hereinafter called the DONOR and Ursula D. Pascual, Filipino, single, also of age, resident of and with postal address at Apalit, Pampanga, hereinafter called the DONEE, have agreed, as they do hereby agree, to the following, to wit: That the said DONOR, Dr. Emilio D. Pascual, for and in consideration of the love and affection which he has and bears unto the said DONEE, as also for the personal services rendered by the said DONEE to the said DONOR, does hereby by these presents voluntarily GIVE, GRANT, and DONATE MORTIS CAUSA, unto the said DONEE URSULA D. PASCUAL, her heirs and assigns, all of my rights, title and interest, in and to the following parcels of land with all the improvements thereon, situated in the Municipality of Apalit, Pampanga, and more particularly described and identified as follows: xxx xxx xxx

669 VOL. 187, JULY 23, 1990 669 Reyes vs. Mosqueda (Enumerated herein are 41 parcels of land) Also included in this DONATION MORTIS CAUSA are all personal properties of the DONOR in the form of cash money or bank deposits and insurance in his favor, and his real properties situated in other towns of Pampanga, such as San Simon, and in the province of Rizal, San Francisco del Monte and in the City of Manila. That the said donor has reserved for himself sufficient property to maintain him for life; and that the said DONEE does hereby ACCEPT and RECEIVE this DONATION MORTIS CAUSA, and further does express his appreciation and gratefulness for the generosity of said DONOR;” (Rollo of G.R. No. L-45262, pp. 12-16) xxx xxx xxx Considering the provisions of the DONATION MORTIS CAUSA the appellate court ruled that the deed of donation was actually a donation inter vivos although denominated as DONATION MORTIS CAUSA. It is, now a settled rule that the title given to a deed of donation is not the determinative factor which makes the donation “inter vivos” or “mortis causa.” As early as the case of Laureta v. Manta, et al., (44 Phil. 668 [1928]) this Court ruled that the dispositions in a deed of donation—whether “inter vivos” or “mortis causa” do not depend on the title or term used in the deed of donation but on the provisions stated in such deed. This

Court explained in Concepcion v. Concepcion (91 Phil. 823 [1952])— “x x x But, it is a rule consistently followed by the courts that it is the body of the document of donation and the statements contained therein, and not the title that should be considered in ascertaining the intention of the donor. Here, the donation is entitled and called donacio onerosa mortis causa. From the body, however, we find that the donation was of a nature remunerative rather than onerous. It was for past services rendered, services which may not be considered as a debt to be paid by the donee but services rendered to her freely and in goodwill. The donation instead of being onerous or for a valuable consideration, as in payment of a legal obligation, was more of remuneratory or compensatory nature, besides being partly motivated by affection. We should not give too much importance or significance to or be guided by the use of the phrase ‘mortis causa’ in a donation and thereby to conclude that the donation is not one of inter vivos. In the 670 670 SUPREME COURT REPORTS ANNOTATED Reyes vs. Mosqueda case of De Guzman et al. v. Ibea, et al. (67 Phil. 633), this Court through Mr. Chief Justice Avanceña said that if a donation by its terms is inter vivos, this character is not altered by the fact that the donor styles it mortis causa.

In the case of Laureta v. Mata, et al. (44 Phil. 668), the court held that the donation involved was inter vivos. There, the donor Severa Magno y Laureta gave the properties involved as— “ ‘a reward for the services which he is rendering me, and as a token of my affection toward him and of the fact that he stands high in my estimation, I hereby donate ‘mortis causa’ to said youth all the properties described as follows: xxx xxx xxx “ ‘I also declare that it is the condition of this donation that the donee cannot take possession of the properties donated before the death of the donor, and in the event of her death the said donee shall be under obligation to cause a mass to be held annually as a suffrage in behalf of my soul, and also to defray the expenses of my burial and funerals.’ It will be observed that the present case and that of Laureta above cited are similar in that in both cases the donation was being made as a reward for services rendered and being rendered, and as a token of affection for the donee; the phrase ‘mortis causa’ was used; the donee to take possession of the property donated only after the death of the donor; the donee was under obligation to defray the expenses incident to the celebration of the anniversary of the donor’s death, including church fees. The donation in both cases were duly accepted. In said case of Laureta this Court held that the donation was in praesenti and not a gift in futuro.” In the later case of Bonsato, et al. v. Court of Appeals, et al. (95 Phil. 481 [1954]) this Court, distinguished the characteristics of a donation inter vivos and “mortis causa” in this wise:

“Did the late Domingo Bonsato make donations inter vivos or dispositions post mortem in favor of the petitioners herein? If the latter, then the documents should reveal any or all of the following characteristics: (1) Convey no title or ownership to the transferee before the death of the transferor; or, what amounts to the same thing, that the transferor should retain the ownership (full or naked) and control of the property while alive (Vidal v. Posadas, 58 Phil., 108; Guzman v. Ibea, 67 Phil., 633); 671 VOL. 187, JULY 23, 1990 671 Reyes vs. Mosqueda (2) That before his death, the transfer should be revocable by the transferor at will, ad nutum; but revocability may be provided for indirectly by means of a reserved power in the donor to dispose of the properties conveyed (Bautista v. Sabiniano, G.R. No. L-4326, November 18, 1952); (3) That the transfer should be void if the transferor should survive the transferee.” These principles were repeated in the case of Castro v. Court of Appeals (27 SCRA 1076 [1969]), to wit: “Whether a donation is inter vivos or mortis causa depends upon the nature of the disposition made. ‘Did the donor intend to transfer the ownership of the property donated upon the execution of the donation? If this is so, as reflected from the provisions contained in the donation, then it is inter vivos; otherwise, it is merely mortis causa, or made to take effect after

death.’ (Howard v. Padilla and Court of Appeals, G.R. No. L7064 and L-7098, April 22, 1955.” Applying the above principles to the instant petitions, there is no doubt that the so-called DONATION MORTIS CAUSA is really a donation inter vivos. The donation was executed by Dr. Pascual in favor of his sister Ursula Pascual out of love and affection as well as a recognition of the personal services rendered by the donee to the donor. The transfer of ownership over the properties donated to the donee was immediate and independent of the death of the donor. The provision as regards the reservation of properties for the donor’s subsistence in relation to the other provisions of the deed of donation confirms the intention of the donor to give naked ownership of the properties to the donee immediately after the execution of the deed of donation. With these findings we find no need to discuss the other arguments raised by the petitioners. WHEREFORE, this Court hereby renders judgment as follows: 1) In G.R. Nos. 45262 and 45394 the petitions are DENIED. The Temporary Restraining Order issued on January 5, 1977 is hereby LIFTED; and 2) In G.R. Nos. 73241-42, the motion for reconsideration is DENIED. This DENIAL is FINAL. 672 672 SUPREME COURT REPORTS ANNOTATED Echaus vs. Court of Appeals SO ORDERED.

Fernan (C.J., Chairman), Feliciano, Bidin and Cortés, JJ., concur. Petitions and motion denied. Note.—Rule that a donor cannot lawfully convey what is not his property. (De Guzman, Jr., vs. Court of Appeals, 156 SCRA 701.) [Reyes vs. Mosqueda, 187 SCRA 661(1990)]

G.R. No. 106755. February 1, 2002.*SECOND DIVISION. APOLINARIA AUSTRIA-MAGAT, petitioner, vs. HON. COURT OF APPEALS and FLORENTINO LUMUBOS, DOMINGO COMIA, TEODORA CARAMPOT, ERNESTO APOLO, SEGUNDA SUMPELO, MAMERTO SUMPELO and RICARDO SUMPELO, respondents. Civil Law; Donations; Whether the donation is inter vivos or mortis causa depends on whether the donor intended to transfer ownership over the properties upon the execution of the deed; Characteristics of a donation mortis causa.—It has been held that whether the donation is inter vivos or mortis causa depends on whether the donor intended to transfer ownership over the properties upon the execution of the deed. In Bonsato v. Court of Appeals, this Court enumerated the characteristics of a donation mortis causa, to wit: (1) It conveys no title or ownership to the transferee before the death of the transferor; or, what amounts to the same thing, that the transferor should retain the ownership (full or naked) and control of the property while alive; (2) That before his death, the transfer should be revocable by the transferor at will, ad nutum; but revocability may be provided for indirectly by means of a reserved power in the donor to dispose of the properties conveyed; (3) That the transfer should be void if the transferor should survive the transferee. Same; Same; When the deed of donation provides that the donor will not dispose or take away the property donated, he in effect is making a donation inter vivos.—In Cuevas v. Cuevas, we ruled that when the deed of donation provides that the donor will not dispose or take away the property donated (thus making the donation irrevocable), he in effect is making a

donation inter vivos. He parts away with his naked title but maintains beneficial ownership while he lives. It remains to be a donation inter vivos despite an express provision that the donor continues to be in possession and enjoyment of the donated property while he is alive. Same; Same; The prohibition to alienate does not necessarily defeat the inter vivos character of the donation.—In Gestopa v. Court of Appeals, this Court held that the prohibition to alienate does not necessarily defeat the inter vivos character of the donation. It even highlights the fact that what remains with the donor is the right of usufruct and not anymore the naked title of ownership over the property donated. In the case at bar, the _______________ * SECOND DIVISION. 557 VOL. 375, FEBRUARY 1, 2002 557 Austria-Magat vs. Court of Appeals provision in the deed of donation that the donated property will remain in the possession of the donor just goes to show that the donor has given up his naked title of ownership thereto and has maintained only the right to use (jus utendi) and possess (jus possidendi) the subject donated property. Same; Same; An acceptance clause is a mark that the donation is inter vivos.—Another indication in the deed of donation that the donation is inter vivos is the acceptance clause therein of the donees. We have ruled that an acceptance clause is a mark that the donation is inter vivos. Acceptance is a requirement for donations inter vivos. On the other hand, donations mortis

causa, being in the form of a will, are not required to be accepted by the donees during the donor’s lifetime. PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. Rudolp Philip Jurado for petitioner. Public Attorney’s Office for private respondents. DE LEON, JR., J.: Before us is a petition for review of the Decision1Penned by Associate Justice Santiago M. Kapunan (now Associate Justice of the Supreme Court) and concurred in by Associate Justices Ricardo J. Francisco and Minerva Gonzaga-Reyes (former Associate Justices of the Supreme Court); Rollo, pp. 17-24. of the Court of Appeals,2Third Division. dated June 30, 1989 reversing the Decision,3Penned by Judge Rolando D. Diaz; Records, pp. 107-114. dated August 15, 1986 of the Regional Trial Court (RTC) of Cavite, Branch 17. The Decision of the RTC dismissed Civil Case No. 4426 which is an action for annulment of title, reconveyance and damages. The facts of the case are as follows: Basilisa Comerciante is a mother of five (5) children, namely, Rosario Austria, Consolacion Austria, herein petitioner Apolinaria Austria-Magat, Leonardo, and one of herein respondents, Floren_______________ 1 Penned by Associate Justice Santiago M. Kapunan (now Associate Justice of the Supreme Court) and concurred in by Associate Justices Ricardo J. Francisco and Minerva GonzagaReyes (former Associate Justices of the Supreme Court); Rollo, pp. 17-24.

2 Third Division. 3 Penned by Judge Rolando D. Diaz; Records, pp. 107-114. 558 558 SUPREME COURT REPORTS ANNOTATED Austria-Magat vs. Court of Appeals tine Lumubos. Leonardo died in a Japanese concentration camp at Tarlac during World War II. In 1953, Basilisa bought a parcel of residential land together with the improvement thereon covered and described in Transfer Certificate of Title No. RT-4036 (T-3268) and known as Lot 1, Block 1, Cavite Beach Subdivision, with an area of 150 square meters, located in Bagong Pook, San Antonio, Cavite City. On December 17, 1975, Basilisa executed a document designated as “Kasulatan sa Kaloobpala (Donation).” The said document which was notarized by Atty. Carlos Viniegra, reads as follows: KASULATANG SA KALOOBPALA (DONATION) TALASTASIN NG LAHAT AT SINUMAN: Na ako, si BASELISA COMERCIANTE, may sapat na gulang, Filipina, balo, at naninirahan sa blg. 809 L. Javier Bagong Pook, San Antonio, Lungsod ng Kabite, Filipinas, sa pamamagitan ng kasulatang ito’y NAGSASALAYSAY Na alang-alang sa mabuting paglilingkod at pagtingin na iniukol sa akin ng apat kong mga tunay na anak na sila:

ROSARIO AUSTRIA, Filipina, may sapat na gulang, balo, naninirahan sa 809 L. Javier, Bagong Pook, San Antonio, Lungsod ng Kabite; CONSOLACION AUSTRIA, Filipino, may sapat na gulang, balo naninirahan sa 809 L. Javier, Bagong Pook, San Antonio, Lungsod ng Kabite; APOLINARIA AUSTRIA, Filipina, may sapat na gulang, may asawa, naninirahan sa Pasong Kawayan, Hen. Trias, Kabite; FLORENTINO LUMUBOS, Filipino, may sapat na gulang, asawa ni Encarnacion Magsino, at naninirahan din sa 809 L. Javier, Bagong Pook, San Antonio, Lungsod ng Kabite; ay Kusang loob na ibinibigay ko at ipinagkakaloob ng ganap at hindi na mababawi sa naulit ng apat na anak ko at sa kanilang mga tagamagmana (sic), ang aking isang lupang residential o tirahan sampu ng aking bahay nahan ng nakatirik doon na nasa Bagong Pook din, San Antonio, Lungsod ng Kabite, at nakikilala bilang Lote no. 7, Block no. 1, of Subdivision Plan Psd-12247; known as Cavite Beach Subdivision, being a portion of Lot No. 1055, of the Cadastral survey of Cavite, GLRO Cadastral Rec. no. 9539; 559 VOL. 375, FEBRUARY 1, 2002 559 Austria-Magat vs. Court of Appeals may sukat na 150 metros cuadrados, at nakatala sa pangalan ko sa Titulo Torrens bilang TCT-T-3268 (RT-4036) ng Lungsod ng Kabite;

Na ang Kaloob palang ito ay magkakabisa lamang simula sa araw na ako’y pumanaw sa mundo, at sa ilalim ng kondision na: Magbubuhat o babawasin sa halaga ng nasabing lupa at bahay ang anumang magugul o gastos sa aking libing at nicho at ang anumang matitira ay hahatiin ng APAT na parte, parepareho isang parte sa bawat anak kong nasasabi sa itaas nito upang maliwanang (sic) at walang makakalamang sinoman sa kanila; At kaming apat na anak na nakalagda o nakadiit sa kasulatang ito ay TINATANGGAP NAMIN ang kaloob-palang ito ng aming magulang na si Basilisa Comerciante, at tuloy pinasasalamatan namin siya ng taos sa (sic) puso dahil sa kagandahan look (sic) niyang ito sa amin. SA KATUNAYAN, ay nilagdaan o diniitan namin ito sa Nobeleta, Kabite, ngayong ika-17 ng Disyembre taong 1975. HER MARK HER MARK BASELISA COMERCIANTE ROSARIO AUSTRIA Tagapagkaloobpala (Sgd.) APOLINARIA AUSTRIA HER MARK Tagatanggap-pala CONSOLACION AUSTRIA (Sgd.) FLORENTINO LUMUBOS Tagatanggap-pala (Acknowledgment signed by Notary Public C.T. Viniegra is omitted).4Trial Court Records, p. 56. Basilisa and her said children likewise executed another notarized document denominated as “Kasulatan” which is attached to the deed of donation. The said document states that: KASULATAN TALASTASIN NG MADLA:

Na kaming mga nakalagda o nakadiit sa labak nito—sila Basilisa Comerciante at ang kanyang mga anak na sila: Rosario Austria, Consolacion Austria, Apolinaria Austria, at Florentino Lumubos, pawang may mga sapat na gulang, na lumagda o dumiit sa _______________ 4 Trial Court Records, p. 56. 560 560 SUPREME COURT REPORTS ANNOTATED Austria-Magat vs. Court of Appeals kasulatang kaloob pala, na sinangayunan namin sa harap ng Notario Publico, Carlos T. Viniegra, ay nagpapahayag ng sumusunod: Na ang titulo numero TCT-T-2260 (RT-4036) ng Lungsod ng Kabite, bahay sa loteng tirahan ng Bagong Pook na nababanggit sa nasabing kasulatan, ay mananatili sa poder o possession ng Ina, na si Basilisa Comerciante habang siya ay nabubuhay at Gayon din ang nasabing Titulo ay hindi mapapasangla o maipagbibili ang lupa habang maybuhay ang nasabing Basilisa Comerciante. Sa katunayan ang nagsilagda kaming lahat sa labak nito sa harap ng abogado Carlos T. Viniegra at dalawang saksi. Nobeleta, Kabite. Ika-17 ng Disyembre, 1975.5Records, p. 57. On February 6, 1979, Basilisa executed a Deed of Absolute Sale of the subject house and lot in favor of herein petitioner Apolinaria Austria-Magat for Five Thousand Pesos (P5,000.00). As the result of the registration of that sale,

Transfer Certificate of Title (TCT for brevity) No. RT-4036 in the name of the donor was cancelled and in lieu thereof TCT No. T-10434 was issued by the Register of Deeds of Cavite City in favor of petitioner Apolinaria Austria-Magat on February 8, 1979. On September 21, 1983, herein respondents Teodora Carampot, Domingo Comia, and Ernesto Apolo (representing their deceased mother Consolacion Austria), Ricardo, Mamerto and Segunda, all surnamed Sumpelo (representing their deceased mother Rosario Austria) and Florentino Lumubos filed before the Regional Trial Court of Cavite an action, docketed as Civil Case No. 4426 against the petitioner for annulment of TCT No. T-10434 and other relevant documents, and for reconveyance and damages. On August 15, 1986, the trial court dismissed Civil Case No. 4426 per its Decision, the dispositive portion of which reads: WHEREFORE, in view of the foregoing, this Court hereby renders judgment for defendant dismissing this case and ordering plaintiffs to pay the amount of P3,000.00 as attorney’s fees and the costs of suit. SO ORDERED.6Records, p. 114. _______________ 5 Records, p. 57. 6 Records, p. 114. 561 VOL. 375, FEBRUARY 1, 2002 561 Austria-Magat vs. Court of Appeals

According to the trial court, the donation is a donation mortis causa pursuant to Article 728 of the New Civil Code inasmuch as the same expressly provides that it would take effect upon the death of the donor; that the provision stating that the donor reserved the right to revoke the donation is a feature of a donation mortis causa which must comply with the formalities of a will; and that inasmuch as the donation did not follow the formalities pertaining to wills, the same is void and produced no effect whatsoever. Hence, the sale by the donor of the said property was valid since she remained to be the absolute owner thereof during the time of the said transaction. On appeal, the decision of the trial court was reversed by the Court of Appeals in its subject decision, the dispositive portion of which reads, to wit: WHEREFORE, in view of the foregoing, the appealed decision is hereby SET ASIDE and a new one rendered: 1. declaring null and void the Deed of Sale of Registered Land (Annex “B”) and Transfer Certificate of Title No. T-10434 of the Registry of Deeds of Cavite City (Annex “E”) and ordering the cancellation thereof; and 2. declaring appellants and appellee co-owners of the house and lot in question in accordance with the deed of donation executed by Basilisa Comerciante on December 17, 1975. No pronouncement as to costs. SO ORDERED.7Rollo, p. 24. The appellate court declared in its decision that: In the case at bar, the decisive proof that the deed is a donation inter vivos is in the provision that: Ibinibigay ko at ipinagkakaloob ng ganap at hindi mababawi sa naulit na apat na anak ko at sa kanilang mga tagapagmana, ang

aking lupang residential o tirahan sampu ng aking bahay nakatirik doon x x x. (emphasis supplied) This is a clear expression of the irrevocability of the conveyance. The irrevocability of the donation is a characteristic of a donation inter vivos. _______________ 7 Rollo, p. 24. 562 562 SUPREME COURT REPORTS ANNOTATED Austria-Magat vs. Court of Appeals By the words “hindi mababawi,” the donor expressly renounced the right to freely dispose of the house and lot in question. The right to dispose of a property is a right essential to full ownership. Hence, ownership of the house and lot was already with the donees even during the donor’s lifetime. x x x xxx xxx xxx In the attached document to the deed of donation, the donor and her children stipulated that: Gayon din ang nasabing titulo ay hindi mapapasangla o maipagbibili ang lupa habang may buhay ang nasabing Basilisa Comerciante.” The stipulation is a reiteration of the irrevocability of the dispossession on the part of the donor. On the other hand, the prohibition to encumber, alienate or sell the property during the lifetime of the donor is a recognition of the ownership over the house and lot in issue of the donees for only in the concept of an owner can one encumber or dispose a property.8Rollo, pp. 21-22.

Hence this appeal grounded on the following assignment of errors: I THE RESPONDENT COURT OF APPEALS, WITH DUE RESPECT, IGNORED THE RULES OF INTERPRETATION OF CONTRACTS WHEN IT CONSIDERED THE DONATION IN QUESTION AS INTER VIVOS. II THE RESPONDENT COURT OF APPEALS, AGAIN WITH DUE RESPECT, ERRED IN NOT HOLDING THAT THE PRESENT ACTION HAS PRESCRIBED UNDER THE STATUTE OF LIMITATIONS.9Rollo, pp. 6-7. Anent the first assignment of error, the petitioner argues that the Court of Appeals erred in ruling that the donation was a donation inter vivos. She claims that in interpreting a document, the _______________ 8 Rollo, pp. 21-22. 9 Rollo, pp. 6-7. 563 VOL. 375, FEBRUARY 1, 2002 563 Austria-Magat vs. Court of Appeals other relevant provisions therein must be read in conjunction with the rest. While the document indeed stated that the donation was irrevocable, that must be interpreted in the light of the provisions providing that the donation cannot be encumbered, alienated or sold by anyone, that the property donated shall remain in the possession of the donor while she is

alive, and that the donation shall take effect only when she dies. Also, the petitioner claims that the donation is mortis causa for the reason that the contemporaneous and subsequent acts of the donor, Basilisa Comerciante, showed such intention. Petitioner cites the testimony of Atty. Viniegra, who notarized the deed of donation, that it was the intent of the donor to maintain control over the property while she was alive; that such intent was shown when she actually sold the lot to herein petitioner. We affirm the appellate court’s decision. The provisions in the subject deed of donation that are crucial for the determination of the class to which the donation belongs are, as follows: xxx xxx xxx x x x (I)binibigay ko at ipinagkakaloob ng ganap at hindi mababawi sa naulit na apat na anak ko at sa kanilang mga tagapagmanana, ang aking lupang residential o tirahan sampu ng aking bahay nakatirik doon na nasa Bagong Pook din, San Antonio, Lungsod ng Kabite xxx xxx xxx Na ang Kaloob palang ito ay magkakabisa lamang Simula sa araw na ako’y pumanaw sa mundo, x x x. xxx xxx xxx Na ang titulo numero TCT-T-2260 (RT-4036) ng Lungsod ng Kabite, bahay sa loteng tirahan ng Bagong Pook na nababanggit sa nasabing kasulatan, ay mananatili sa poder o possesion ng Ina, na si Basilisa Comerciante habang siya ay nabubuhay at

Gayon din ang nasabing Titulo ay hindi mapapasangla o maipagbibili ang lupa habang maybuhay ang nasabing Basilisa Comerciante x x x. It has been held that whether the donation is inter vivos or mortis causa depends on whether the donor intended to transfer own564 564 SUPREME COURT REPORTS ANNOTATED Austria-Magat vs. Court of Appeals ership over the properties upon the execution of the deed.10Gestopa v. Court of Appeals, 342 SCRA 105, 110 (2000) citing Reyes v. Mosqueda, 187 SCRA 661, 671 (1990). In Bonsato v. Court of Appeals,1195 Phil. 481, 487 (1954). this Court enumerated the characteristics of a donation mortis causa, to wit: (1) It conveys no title or ownership to the transferee before the death of the transferor; or, what amounts to the same thing, that the transferor should retain the ownership (full or naked) and control of the property while alive; (2) That before his death, the transfer should be revocable by the transferor at will, ad nutum; but revocability may be provided for indirectly by means of a reserved power in the donor to dispose of the properties conveyed; (3) That the transfer should be void if the transferor should survive the transferee. Significant to the resolution of this issue is the irrevocable character of the donation in the case at bar. In Cuevas v. Cuevas,1298 Phil. 68, 70-71 (1955). we ruled that when the

deed of donation provides that the donor will not dispose or take away the property donated (thus making the donation irrevocable), he in effect is making a donation inter vivos. He parts away with his naked title but maintains beneficial ownership while he lives. It remains to be a donation inter vivos despite an express provision that the donor continues to be in possession and enjoyment of the donated property while he is alive. In the Bonsato case, we held that: (W)hat is most significant [in determining the type of donation] is the absence of stipulation that the donor could revoke the donations; on the contrary, the deeds expressly declare them to be “irrevocable,” a quality absolutely incompatible with the idea of conveyances mortis causa where revocability is of the essence of the act, to the extent that a testator can not lawfully waive or restrict his right of revocation (Old Civil Code, Art. 737; New Civil Code, Art. 828).13Supra, Note 11, pp. 487488. _______________ 10 Gestopa v. Court of Appeals, 342 SCRA 105, 110 (2000) citing Reyes v. Mosqueda, 187 SCRA 661, 671 (1990). 11 95 Phil. 481, 487 (1954). 12 98 Phil. 68, 70-71 (1955). 13 Supra, Note 11, pp. 487-488. 565 VOL. 375, FEBRUARY 1, 2002 565 Austria-Magat vs. Court of Appeals Construing together the provisions of the deed of donation, we find and so hold that in the case at bar the donation is inter

vivos. The express irrevocability of the same (“hindi na mababawi”) is the distinctive standard that identifies that document as a donation inter vivos. The other provisions therein which seemingly make the donation mortis causa do not go against the irrevocable character of the subject donation. According to the petitioner, the provisions which state that the same will only take effect upon the death of the donor and that there is a prohibition to alienate, encumber, dispose, or sell the same, are proofs that the donation is mortis causa. We disagree. The said provisions should be harmonized with its express irrevocability. In Bonsato where the donation per the deed of donation would also take effect upon the death of the donor with reservation for the donor to enjoy the fruits of the land, the Court held that the said statements only mean that “after the donor’s death, the donation will take effect so as to make the donees the absolute owners of the donated property, free from all liens and encumbrances; for it must be remembered that the donor reserved for himself a share of the fruits of the land donated.”14Id., p. 488. In Gestopa v. Court of Appeals,15Supra, Note 10, p. 111. this Court held that the prohibition to alienate does not necessarily defeat the inter vivos character of the donation. It even highlights the fact that what remains with the donor is the right of usufruct and not anymore the naked title of ownership over the property donated. In the case at bar, the provision in the deed of donation that the donated property will remain in the possession of the donor just goes to show that the donor has given up his naked title of ownership thereto and has maintained only the right to use (jus utendi) and possess (jus possidendi) the subject donated property.

Thus, we arrive at no other conclusion in that the petitioner’s cited provisions are only necessary assurances that during the donor’s lifetime, the latter would still enjoy the right of possession over the property; but, his naked title of ownership has been passed on to the donees; and that upon the donor’s death, the do_______________ 14 Id., p. 488. 15 Supra, Note 10, p. 111. 566 566 SUPREME COURT REPORTS ANNOTATED Austria-Magat vs. Court of Appeals nees would get all the rights of ownership over the same including the right to use and possess the same. Furthermore, it also appeared that the provision in the deed of donation regarding the prohibition to alienate the subject property is couched in general terms such that even the donor is deemed included in the said prohibition (“Gayon din ang nasabing Titulo ay hindi mapapasangla o maipagbibili ang lupa habang maybuhay ang nasabing Basilisa Comerciante”). Both the donor and the donees were prohibited from alienating and encumbering the property during the lifetime of the donor. If the donor intended to maintain full ownership over the said property until her death, she could have expressly stated therein a reservation of her right to dispose of the same. The prohibition on the donor to alienate the said property during her lifetime is proof that naked ownership over the property has been transferred to the donees. It also supports the irrevocable

nature of the donation considering that the donor has already divested herself of the right to dispose of the donated property. On the other hand, the prohibition on the donees only meant that they may not mortgage or dispose the donated property while the donor enjoys and possesses the property during her lifetime. However, it is clear that the donees were already the owners of the subject property due to the irrevocable character of the donation. The petitioner argues that the subsequent and contemporaneous acts of the donor would show that her intention was to maintain control over her properties while she was still living. We disagree. Respondent Domingo Comia testified that sometime in 1977 or prior to the sale of the subject house and lot, his grandmother, the donor in the case at bar, delivered the title of the said property to him; and that the act of the donor was a manifestation that she was acknowledging the ownership of the donees over the property donated.16TSN dated April 10, 1986, pp. 16-17. Moreover, Atty. Viniegra testified that when the donor sold the lot to the petitioner herein, she was not doing so in accordance with the agreement and intent of the parties in the deed of donation; that she was disregarding the provision in the deed of donation prohibiting the alienation of the subject property; and _______________ 16 TSN dated April 10, 1986, pp. 16-17. 567 VOL. 375, FEBRUARY 1, 2002 567 Austria-Magat vs. Court of Appeals

that she knew that the prohibition covers her as well as the donees.17Atty Viniegra testified: “She said, it was her right to disregard that prohibition but I reminded her that there was a sort of prohibition in that Kasulatan to the effect that nobody could dispose that but she insisted that it was her prerogative to ... Another indication in the deed of donation that the donation is inter vivos is the acceptance clause therein of the donees. We have ruled that an acceptance clause is a mark that the donation is inter vivos. Acceptance is a requirement for donations inter vivos. On the other hand, donations mortis causa, being in the form of a will, are not required to be accepted by the donees during the donor’s lifetime.18Alejandro v. Geraldez, 78 SCRA 245, 261 (1977). We now rule on whether the donor validly revoked the donation when one of her daughters and donees, Consolacion Austria, violated the prohibition to encumber the property. When Consolacion Austria mortgaged the subject property to a certain Baby Santos, the donor, Basilisa Comerciante, asked one of the respondents herein, Domingo Comia, to redeem the property, which the latter did. After the petitioner in turn redeemed the property from respondent Domingo, the donor, Basilisa, sold the property to the petitioner who is one of the donees. The act of selling the subject property to the petitioner herein cannot be considered as a valid act of revocation of the deed of donation for the reason that a formal case to revoke the donation must be filed pursuant to Article 764 of the Civil Code19Art. 764. The donation shall be revoked at the instance of the donor, when the donee fails to comply with any of the

conditions which the former imposed upon the latter.In this case, the property donated shall be returned to the donor, the alienation mad... which _______________ 17 Atty Viniegra testified: “She said, it was her right to disregard that prohibition but I reminded her that there was a sort of prohibition in that Kasulatan to the effect that nobody could dispose that but she insisted that it was her prerogative to dispose that the way she wanted to specially at the time she needs money x x x”; TSN dated March 1, 1985, p. 98. 18 Alejandro v. Geraldez, 78 SCRA 245, 261 (1977). 19 Art. 764. The donation shall be revoked at the instance of the donor, when the donee fails to comply with any of the conditions which the former imposed upon the latter. In this case, the property donated shall be returned to the donor, the alienation made by the donee and the mortgages imposed thereon by him being void, with the limitations established, with regard to third persons, by the Mortgage Law and the Land Registration laws. This action shall prescribe after four years from the noncompliance with the condition, may be transmitted to the heirs of the donor, and may be exercised against the donee’s heirs. (64a) 568 568 SUPREME COURT REPORTS ANNOTATED Austria-Magat vs. Court of Appeals speaks of an action that has a prescriptive period of four (4) years from non-compliance with the condition stated in the

deed of donation. The rule that there can be automatic revocation without benefit of a court action does not apply to the case at bar for the reason that the subject deed of donation is devoid of any provision providing for automatic revocation in event of non-compliance with the any of the conditions set forth therein. Thus, a court action is necessary to be filed within four (4) years from the non-compliance of the condition violated. As regards the ground of estoppel, the donor, Basilisa, cannot invoke the violation of the provision on the prohibition to encumber the subject property as a basis to revoke the donation thereof inasmuch as she acknowledged the validity of the mortgage executed by the donee, Consolacion Austria, when the said donor asked respondent Domingo Comia to redeem the same. Thereafter, the donor, Basilisa likewise asked respondent Florentino Lumubos and the petitioner herein to redeem the same.20TSN dated January 23, 1986, pp. 27-32. Those acts implied that the donees have the right of control and naked title of ownership over the property considering that the donor, Basilisa condoned and acknowledged the validity of the mortgage executed by one of the donees, Consolacion Austria. Anent the second issue, the petitioner asserts that the action, against the petitioner, for annulment of TCT No. T-10434 and other relevant documents, for reconveyance and damages, filed by the respondents on September 21, 1983 on the ground of fraud and/or implied trust has already prescribed. The sale happened on February 6, 1979 and its registration was made on February 8, 1979 when TCT No. RT-4036 in the name of the donor was cancelled and in lieu thereof TCT No. T-10434 in the name of the petitioner was issued. Thus, more than four (4) years have passed since the sale of the subject real estate

property was registered and the said new title thereto was issued to the petitioner. The petitioner contends that an action for reconveyance of property on the ground of alleged fraud must be filed within four (4) years from the discovery of fraud which is from the date of registration of the deed of sale on February 8, 1979; and that the same prescriptive period _______________ 20 TSN dated January 23, 1986, pp. 27-32. 569 VOL. 375, FEBRUARY 1, 2002 569 Austria-Magat vs. Court of Appeals also applies to a suit predicated on a trust relationship that is rooted on fraud of breach of trust. When one’s property is registered in another’s name without the former’s consent, an implied trust is created by law in favor of the true owner. Article. 1144 of the New Civil Code provides: Art. 1144. The following actions must be brought within ten years from the time the right of action accrues: (1) Upon a written contract; (2) Upon an obligation created by law; (3) Upon a judgment. (n) Thus, an action for reconveyance of the title to the rightful owner prescribes in ten (10) years from the issuance of the title.21A. TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THE PHILIPPINES, VOL. 4, Art. 1144 of the Civil Code (1991) citing Cañete v. Benedicto, 158 SCRA 575 (1989); Heirs of

Bartolome Infante v. Court of Appeals, 162 SCRA 431 (1988). It is only when fraud has been committed that the action will be barred after four (4) years.22Id. citing Damanon v. Butuan City Rural Bank, 119 SCRA 193 (1982); Marcopper Mining Corporation v. Garcia, 143 SCRA 178 (1986); Beaterio del Santisimo Rosario de Molo v. Court of Appeals, 137 SCRA 459 (1985); Cimafranca v. Intermediate Appellate Court, 147... However, the four-year prescriptive period is not applicable to the case at bar for the reason that there is no fraud in this case. The findings of fact of the appellate court which are entitled to great respect, are devoid of any finding of fraud. The records do not show that the donor, Basilisa, and the petitioner ever intended to defraud the respondents herein with respect to the sale and ownership of the said property. On the other hand, the sale was grounded upon their honest but erroneous interpretation of the deed of donation that it is mortis causa, not inter vivos; and that the donor still had the rights to sell or dispose of the donated property and to revoke the donation. There being no fraud in the trust relationship between the donor and the donees including the herein petitioner, the action for re_______________ 21 A. TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THE PHILIPPINES, VOL. 4, Art. 1144 of the Civil Code (1991) citing Cañete v. Benedicto, 158 SCRA 575 (1989); Heirs of Bartolome Infante v. Court of Appeals, 162 SCRA 431 (1988). 22 Id. citing Damanon v. Butuan City Rural Bank, 119 SCRA 193 (1982); Marcopper Mining Corporation v. Garcia, 143 SCRA 178 (1986); Beaterio del Santisimo Rosario de Molo v.

Court of Appeals, 137 SCRA 459 (1985); Cimafranca v. Intermediate Appellate Court, 147 SCRA 611 (1987). 570 570 SUPREME COURT REPORTS ANNOTATED Manila Electric Company vs. Barlis conveyance prescribes in ten (10) years. Considering that TCT No. T-10434 in the name of the petitioner and covering the subject property was issued only on February 8, 1979, the filing of the complaint in the case at bar in 1983 was well within the ten-year prescriptive period. The Court of Appeals, therefore, committed no reversible error in its appealed Decision. WHEREFORE, the appealed Decision dated June 30, 1989 of the Court of Appeals is hereby AFFIRMED. No pronouncement as to costs. SO ORDERED. Bellosillo (Chairman), Mendoza, Quisumbing and Buena, JJ., concur. Judgment affirmed. Note.—The donation is perfected once the acceptance by the donee is made known to the donor. (Quijada vs. Court of Appeals, 299 SCRA 695 1998]) [Austria-Magat vs. Court of Appeals, 375 SCRA 556(2002)]

G.R. No. 169454. December 27, 2007.*THIRD DIVISION. THE HEIRS OF MARCELINO DORONIO, NAMELY: REGINA AND FLORA, BOTH SURNAMED DORONIO, petitioners, vs. HEIRS OF FORTUNATO DORONIO, NAMELY: TRINIDAD ROSALINA DORONIO-BALMES, MODING DORONIO, FLORENTINA DORONIO, AND ANICETA ALCANTARA-MANALO, respondents. Evidence; Documentary Evidence; Official Language; Presumptions; Where a document in unoffic ial language, not so accompanied with a translation in English or Filipino, is offered in evidence and not objected to, either by the parties or the court, it must be presumed that the language in which the document is written is understood by all, and the document is admissible in evidence.—The requirement that documents written in an unofficial language must be accompanied with a translation in English or Filipino as a prerequisite for its admission in evidence must be insisted upon by the parties at the trial to enable the court, where a translation has been impugned as incorrect, to decide the issue. Where such document, not so accompanied with a translation in English or Filipino, is offered in evidence and not objected to, either by the parties or the court, it must be presumed that the language in which the document is written is understood by all, and the document is admissible in evidence. Same; Same; Same; The rule is that evidence not objected to may be deemed admitted and may be validly considered by the court in arriving at its judgment.—Since petitioners did not object to the offer of said documentary evidence on time, it is now too late in the day for them to question its admissibility. The rule is that evidence not objected to may be deemed

admitted and may be validly considered by the court in arriving at its judgment. This is true even if by its nature, the evidence is inadmissible and would have surely been rejected if it had been challenged at the proper time. Same; Same; Same; Evidence that was not objected to becomes property of the case, and all parties to the case are considered amenable to any favorable or unfavorable effects resulting from said evi_______________ * THIRD DIVISION. 480 480 SUPREME COURT REPORTS ANNOTATED Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio dence.—Instead of objecting, petitioners admitted the contents of Exhibit “A,” that is, OCT No. 352 in their comment on respondents’ formal offer of documentary evidence. In the said comment, petitioners alleged, among others, that “Exhibits “A,” “B,” “C,” “D,” “E,” “F” and “G,” are admitted but not for the purpose they are offered because these exhibits being public and official documents are the best evidence of that they contain and not for what a party would like it to prove.” Said evidence was admitted by the RTC. Once admitted without objection, even though not admissible under an objection, We are not inclined now to reject it. Consequently, the evidence that was not objected to became property of the case, and all parties to the case are considered amenable to any favorable or unfavorable effects resulting from the said evidence. Special Proceedings; Probate; Settlement of Estate; Reconveyance; A probate court, in the exercise of its limited

jurisdiction, is the best forum to ventilate and adjudge the issue of impairment of legitime as well as other related matters involving the settlement of estate; An action for reconveyance with damages is a civil action, whereas matters relating to settlement of the estate of a deceased person such as advancement of property made by the decedent, partake of the nature of a special proceeding.—Petitioners are correct in alleging that the issue regarding the impairment of legitime of Fortunato Doronio must be resolved in an action for the settlement of estates of spouses Simeon Doronio and Cornelia Gante. It may not be passed upon in an action for reconveyance and damages. A probate court, in the exercise of its limited jurisdiction, is the best forum to ventilate and adjudge the issue of impairment of legitime as well as other related matters involving the settlement of estate. An action for reconveyance with damages is a civil action, whereas matters relating to settlement of the estate of a deceased person such as advancement of property made by the decedent, partake of the nature of a special proceeding. Special proceedings require the application of specific rules as provided for in the Rules of Court. Same; Same; Same; Before any conclusion about the legal share due to a compulsory heir may be reached, it is necessary that certain steps be taken first—the net estate of the decedent must be first ascertained by deducting all payable obligations and charges from the value of the property owned by the deceased at the time of his death, then, all donations subject to collation would be added to it.—We 481 VOL. 541, DECEMBER 27, 2007 481

Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio likewise find merit in petitioners’ contention that before any conclusion about the legal share due to a compulsory heir may be reached, it is necessary that certain steps be taken first. The net estate of the decedent must be ascertained, by deducting all payable obligations and charges from the value of the property owned by the deceased at the time of his death; then, all donations subject to collation would be added to it. With the partible estate thus determined, the legitime of the compulsory heir or heirs can be established; and only then can it be ascertained whether or not a donation had prejudiced the legitimes. Contracts; Void Contracts; Parties; A void contract is inexistent from the beginning, and the right to set up the defense of its illegality cannot be waived; Persons who are not parties in the deed of donation can set up its nullity if they are directly affected by the same.—We cannot agree with petitioners’ contention that respondents may no longer question the validity of the deed of donation on the ground that they already impliedly admitted it. Under the provisions of the Civil Code, a void contract is inexistent from the beginning. The right to set up the defense of its illegality cannot be waived. The right to set up the nullity of a void or non-existent contract is not limited to the parties as in the case of annullable or voidable contracts; it is extended to third persons who are directly affected by the contract. Consequently, although respondents are not parties in the deed of donation, they can set up its nullity because they are directly affected by the same. The

subject of the deed being the land they are occupying, its enforcement will definitely affect them. Quieting of Title; Declaratory Relief; Reformation; An action for quieting of title is a case for declaratory relief.—Petitioners cannot also use the finality of the RTC decision in Petition Case No. U-920 as a shield against the verification of the validity of the deed of donation. According to petitioners, the said final decision is one for quieting of title. In other words, it is a case for declaratory relief under Rule 64 (now Rule 63) of the Rules of Court. Same; Parties; Due Process; Suits to quiet title, being against the person in respect of the res, are proceedings characterized as quasi in rem—the judgment in such proceedings is conclusive only between the parties; Generally accepted is the principle that no man shall be affected by any proceeding to which he is a stranger, and strangers to a case are not bound by judgment rendered by the court.—Suits to 482 482 SUPREME COURT REPORTS ANNOTATED Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio quiet title are not technically suits in rem, nor are they, strictly speaking, in personam, but being against the person in respect of the res, these proceedings are characterized as quasi in rem. The judgment in such proceedings is conclusive only between the parties. Thus, respondents are not bound by the decision in Petition Case No. U-920 as they were not made parties in the said case. The rules on quieting of title expressly provide that any declaration in a suit to quiet title shall not prejudice persons who are not parties to the action. That respondents

filed a subsequent pleading in the same Petition Case No. U920 after the decision there had become final did not change the fact that said decision became final without their being impleaded in the case. Said subsequent pleading was dismissed on the ground of finality of the decision. Thus, the RTC totally failed to give respondents their day in court. As a result, they cannot be bound by its orders. Generally accepted is the principle that no man shall be affected by any proceeding to which he is a stranger, and strangers to a case are not bound by judgment rendered by the court. Judgments; Res Judicata; Elements.—For the principle of res judicata to apply, the following must be present: (1) a decision on the merits; (2) by a court of competent jurisdiction; (3) the decision is final; and (4) the two actions involve identical parties, subject matter and causes of action. The fourth element is not present in this case. The parties are not identical because respondents were not impleaded in Petition Case No. U-920. While the subject matter may be the same property covered by OCT No. 352, the causes of action are different. Petition Case No. U-920 is an action for declaratory relief while the case below is for recovery of property. Appeals; Procedural Rules and Technicalities; The Supreme Court can suspend its own rules and except a case from their operation whenever the higher interests of justice so demand.—We are not persuaded by petitioners’ posture that the only issue in this action for reconveyance is who has a better right over the land; and that the validity of the deed of donation is beside the point. It is precisely the validity and enforceability of the deed of donation that is the determining factor in resolving the issue of who has a better right over the

property. Moreover, notwithstanding procedural lapses as to the appropriateness of the remedies prayed for in the petition filed before Us, this Court can brush aside the technicalities in the inter483 VOL. 541, DECEMBER 27, 2007 483 Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio est of justice. In some instances, this Court even suspended its own rules and excepted a case from their operation whenever the higher interests of justice so demanded. Pleadings and Practice; Assignment of Errors; A rudimentary doctrine on appealed cases is that the Supreme Court is clothed with ample authority to review matters, even if they are not assigned as errors on appeal, if it finds that their consideration is necessary at arriving at a just decision of the case; An unassigned error closely related to an error properly assigned or upon which the determination of the question raised by the error properly assigned is dependent, will be considered by the appellate court notwithstanding the failure to assign it as an error.—Although respondents did not directly raise the issue of validity of the deed of donation at the commencement of the case before the trial court, it was stipulated by the parties during the pre-trial conference. In any event, this Court has authority to inquire into any question necessary in arriving at a just decision of a case before it. Though not specifically questioned by the parties, additional issues may also be included, if deemed important for substantial justice to be rendered. Furthermore, this Court has held that although a factual issue is not squarely raised below, still in the interest of

substantial justice, this Court is not prevented from considering a pivotal factual matter. 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. A rudimentary doctrine on appealed cases is that this Court is clothed with ample authority to review matters, even if they are not assigned as errors on appeal, if it finds that their consideration is necessary at arriving at a just decision of the case. Also, an unassigned error closely related to an error properly assigned or upon which the determination of the question raised by the error properly assigned is dependent, will be considered by the appellate court notwithstanding the failure to assign it as an error. Contracts; Donations; Statutes; It is settled that only laws existing at the time of the execution of a contract are applicable to it and not the later statutes, unless the latter are specifically intended to have retroactive effect.—We now focus on the crux of the petition, which is the validity of the deed of donation. It is settled that only laws existing at the time of the execution of a contract are applicable to it and not the later statutes, unless the latter are specifically 484 484 SUPREME COURT REPORTS ANNOTATED Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio intended to have retroactive effect. Accordingly, the Old Civil Code applies in this case as the donation propter nuptias was executed in 1919, while the New Civil Code took effect only on August 30, 1950.

Marriages; Donations; A donation of real estate propter nuptias is void unless made by public instrument.—Under the Old Civil Code, donations propter nuptias must be made in a public instrument in which the property donated must be specifically described. Article 1328 of the Old Civil Code provides that gifts propter nuptias are governed by the rules established in Title 2 of Book 3 of the same Code. Article 633 of that title provides that the gift of real property, in order to be valid, must appear in a public document. It is settled that a donation of real estate propter nuptias is void unless made by public instrument. In the instant case, the donation propter nuptias did not become valid. Neither did it create any right because it was not made in a public instrument. Hence, it conveyed no title to the land in question to petitioners’ predecessors. Land Titles and Deeds; Torrens System; Prescription; A title once registered under the torrens system cannot be defeated even by adverse, open and notorious possession, and neither can it be defeated by prescription.—The claim of respondents that they became owners of the property by acquisitive prescription has no merit. Truth to tell, respondents cannot successfully invoke the argument of extinctive prescription. They cannot be deemed the owners by acquisitive prescription of the portion of the property they have been possessing. The reason is that the property was covered by OCT No. 352. A title once registered under the torrens system cannot be defeated even by adverse, open and notorious possession; neither can it be defeated by prescription. It is notice to the whole world and as such all persons are bound by it and no one can plead ignorance of the registration.

Same; Same; The torrens system is intended to guarantee the integrity and conclusiveness of the certificate of registration, and it cannot be used for the perpetration of fraud against the real owner of the registered land.—The torrens system is intended to guarantee the integrity and conclusiveness of the certificate of registration, but it cannot be used for the perpetration of fraud against the real owner of the registered land. The system merely confirms ownership and does not create it. Certainly, it cannot be used to divest the lawful owner of his title for the purpose of transferring it to another who 485 VOL. 541, DECEMBER 27, 2007 485 Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio has not acquired it by any of the modes allowed or recognized by law. It cannot be used to protect a usurper from the true owner, nor can it be used as a shield for the commission of fraud; neither does it permit one to enrich himself at the expense of another. Where such an illegal transfer is made, as in the case at bar, the law presumes that no registration has been made and so retains title in the real owner of the land. PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. De Guzman, Marinas, Soriano and Uglay Law Offices for petitioners. Public Attorney’s Office for respondent. REYES, J.: For Our review on certiorari is the Decision1Rollo, pp. 39-51. Dated January 26, 2005 in CA-G.R. CV No. 76200 entitled

“Heirs of Fortunato Doronio v. Heirs of Marcelino Doronio, et al.” Penned by Associate Justice Vicente S.E. Veloso, with Associate Justices Roberto A. Barrios and Amelita... of the Court of Appeals (CA) reversing that2Records, pp. 344-356. Dated June 28, 2002 in Civil Case No. U-6498. Penned by Judge Joven F. Costales. of the Regional Trial Court (RTC), Branch 45, Anonas, Urdaneta City, Pangasinan, in an action for reconveyance and damages. The CA declared respondents as rightful owners of one-half of the subject property and directed petitioners to execute a registerable document conveying the same to respondents. The Facts Spouses Simeon Doronio and Cornelia Gante, now both deceased, were the registered owners of a parcel of land located at Barangay Cabalitaan, Asingan, Pangasinan covered by _______________ 1 Rollo, pp. 39-51. Dated January 26, 2005 in CA-G.R. CV No. 76200 entitled “Heirs of Fortunato Doronio v. Heirs of Marcelino Doronio, et al.” Penned by Associate Justice Vicente S.E. Veloso, with Associate Justices Roberto A. Barrios and Amelita G. Tolentino, concurring. 2 Records, pp. 344-356. Dated June 28, 2002 in Civil Case No. U-6498. Penned by Judge Joven F. Costales. 486 486 SUPREME COURT REPORTS ANNOTATED Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio

Original Certificate of Title (OCT) No. 352.3Rollo, pp. 43-44, 48-49. The courts below described it as follows: “Un terreno (Lote 1018), situada en el municipio de Asingan, Linda por el NE; con propriedad de Gabriel Bernardino; con el SE con propriedad de Zacarias Najorda y Alejandro Najorda; por el SO con propriedad de Geminiano Mendoza y por el NO con el camino para Villasis; midiendo una extens ion superficial mil ciento cincuenta y dos metros cuadrados.”4Id., at pp. 48-49; Exhibits “A” & “7.... The spouses had children but the records fail to disclose their number. It is clear, however, that Marcelino Doronio and Fortunato Doronio, now both deceased, were among them and that the parties in this case are their heirs. Petitioners are the heirs of Marcelino Doronio, while respondents are the heirs of Fortunato Doronio. On April 24, 1919, a private deed of donation propter nuptias5Id., at p. 48; Exhibit “D.... was executed by spouses Simeon Doronio and Cornelia Gante in favor of Marcelino Doronio and the latter’s wife, Veronica Pico. One of the properties subject of said deed of donation is the one that it described as follows: “Fourth—A piece of residential land located in the barrio of Cabalitian but we did not measure it, the area is bounded on the north by Gabriel Bernardino; on the east by Fortunato Doronio; on the south by Geminiano Mendoza and on the west by a road to Villasis. Constructed on said land is a house of light materials—also a part of the dowry. Value …200.00.”6Id., at p. 49; Exhibits “D-4” & “6.... It appears that the property described in the deed of donation is the one covered by OCT No. 352. However, there is a

significant discrepancy with respect to the identity of the owner of adjacent property at the eastern side. Based on OCT No. 352, the adjacent owners are Zacarias Najorda and Ale_______________ 3 Rollo, pp. 43-44, 48-49. 4 Id., at pp. 48-49; Exhibits “A” & “7.” 5 Id., at p. 48; Exhibit “D.” 6 Id., at p. 49; Exhibits “D-4” & “6.” 487 VOL. 541, DECEMBER 27, 2007 487 Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio jandro Najorda, whereas based on the deed of donation, the owner of the adjacent property is Fortunato Doronio. Furthermore, said deed of donation remained a private document as it was never notarized.7Id.; CA Rollo, pp. 37-38. Both parties have been occupying the subject land for several decades8Id., at p. 44. although they have different theories regarding its present ownership. According to petitioners, they are now the owners of the entire property in view of the private deed of donation propter nuptias in favor of their predecessors, Marcelino Doronio and Veronica Pico. Respondents, on the other hand, claim that only half of the property was actually incorporated in the said deed of donation because it stated that Fortunato Doronio, instead of Zacarias Najorda and Alejandro Najorda, is the owner of the adjacent property at the eastern side. Respondents posit that the donors respected and segregated the possession of Fortunato Doronio of the eastern half of the land. They are the ones who have

been possessing said land occupied by their predecessor, Fortunato Doronio. Eager to obtain the entire property, the heirs of Marcelino Doronio and Veronica Pico filed, on January 11, 1993, before the RTC in Urdaneta, Pangasinan a petition “For the Registration of a Private Deed of Donation”9Id., at pp. 42-43; Exhibit “5.... docketed as Petition Case No. U-920. No respondents were named in the said petition10Id., at p. 45. although notices of hearing were posted on the bulletin boards of Barangay Cabalitaan, Municipalities of Asingan and Lingayen.11Id. During the hearings, no one interposed an objection to the petition.12Id. After the RTC ordered a general default,13Id. the peti_______________ 7 Id.; CA Rollo, pp. 37-38. 8 Id., at p. 44. 9 Id., at pp. 42-43; Exhibit “5.” 10 Id., at p. 45. 11 Id. 12 Id. 13 Id. 488 488 SUPREME COURT REPORTS ANNOTATED Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio tion was eventually granted on September 22, 1993. This led to the registration of the deed of donation, cancellation of OCT No. 352 and issuance of a new Transfer Certificate of Title

(TCT) No. 44481 in the names of Marcelino Doronio and Veronica Pico.14Id. Thus, the entire property was titled in the names of petitioners’ predecessors. On April 28, 1994, the heirs of Fortunato Doronio filed a pleading before the RTC in the form of a petition in the same Petition Case No. U-920. The petition was for the reconsideration of the decision of the RTC that ordered the registration of the subject deed of donation. It was prayed in the petition that an order be issued declaring null and void the registration of the private deed of donation and that TCT No. 44481 be cancelled. However, the petition was dismissed on May 13, 1994 on the ground that the decision in Petition Case No. U-920 had already become final as it was not appealed. Determined to remain in their possessed property, respondent heirs of Fortunato Doronio (as plaintiffs) filed an action for reconveyance and damages with prayer for preliminary injunction15Civil Case No. U-6498. against petitioner heirs of Marcelino Doronio (as defendants) before the RTC, Branch 45, Anonas, Urdaneta City, Pangasinan. Respondents contended, among others, that the subject land is different from what was donated as the descriptions of the property under OCT No. 352 and under the private deed of donation were different. They posited that spouses Simeon Doronio and Cornelia Gante intended to donate only one-half of the property. During the pre-trial conference, the parties stipulated, among others, that the property was originally covered by OCT No. 352 which was cancelled by TCT No. 44481. They also agreed that the issues are: (1) whether or not there was a variation in the description of the property subject of the private deed of donation and OCT No. 352; (2) whether or not

_______________ 14 Id. 15 Civil Case No. U-6498. 489 VOL. 541, DECEMBER 27, 2007 489 Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio respondents had acquired one-half of the property covered by OCT No. 352 by acquisitive prescription; (3) whether or not the transfer of the whole property covered by OCT No. 352 on the basis of the registration of the private deed of donation notwithstanding the discrepancy in the description is valid; (4) whether or not respondents are entitled to damages; and (5) whether or not TCT No. 44481 is valid.16Records, pp. 134135. RTC Decision After due proceedings, the RTC ruled in favor of petitioner heirs of Marcelino Doronio (defendants). It concluded that the parties admitted the identity of the land which they all occupy;17CA Rollo, p. 43; id., at p. 354. that a title once registered under the torrens system cannot be defeated by adverse, open and notorious possession or by prescription;18Id., at pp. 44-45; id., at pp. 354-356. that the deed of donation in consideration of the marriage of the parents of petitioners is valid, hence, it led to the eventual issuance of TCT No. 44481 in the names of said parents;19Id., at p. 45; id., at pp. 355-356. and that respondent heirs of Fortunato Doronio (plaintiffs) are not entitled to damages as they are not the

rightful owners of the portion of the property they are claiming.20Id., at p. 46; id., at p. 356. The RTC disposed of the case, thus: “WHEREFORE, premises considered, the Court hereby renders judgment DISMISSING the herein Complaint filed by plaintiffs against defendants.”21Id. Disagreeing with the judgment of the RTC, respondents appealed to the CA. They argued that the trial court erred in not finding that respondents’ predecessor-in-interest acquired _______________ 16 Records, pp. 134-135. 17 CA Rollo, p. 43; id., at p. 354. 18 Id., at pp. 44-45; id., at pp. 354-356. 19 Id., at p. 45; id., at pp. 355-356. 20 Id., at p. 46; id., at p. 356. 21 Id. 490 490 SUPREME COURT REPORTS ANNOTATED Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio one-half of the property covered by OCT No. 352 by tradition and/or intestate succession; that the deed of donation dated April 26, 1919 was null and void; that assuming that the deed of donation was valid, only one-half of the property was actually donated to Marcelino Doronio and Veronica Pico; and that respondents acquired ownership of the other half portion of the property by acquisitive prescription.22Id., at pp. 46-47; CA Rollo, pp. 19-20. CA Disposition

In a Decision dated January 26, 2005, the CA reversed the RTC decision with the following disposition: “WHEREFORE, the assailed Decision dated June 28, 2002 is REVERSED and SET ASIDE. Declaring the appellants as rightful owners of one-half of the property now covered by TCT No. 44481, the appellees are hereby directed to execute a registerable document conveying the same to appellants. SO ORDERED.”23Id., at p. 51. The appellate court determined that “(t)he intention to donate half of the disputed property to appellees’ predecessors can be gleaned from the disparity of technical descriptions appearing in the title (OCT No. 352) of spouses Simeon Doronio and Cornelia Gante and in the deed of donation propter nuptias executed on April 24, 1919 in favor of appellees’ predecessors.”24Id., at p. 48; CA Rollo, p. 100. The CA based its conclusion on the disparity of the following technical descriptions of the property under OCT No. 352 and the deed of donation, to wit: “The court below described the property covered by OCT No. 352 as follows: _______________ 22 Id., at pp. 46-47; CA Rollo, pp. 19-20. 23 Id., at p. 51. 24 Id., at p. 48; CA Rollo, p. 100. 491 VOL. 541, DECEMBER 27, 2007 491 Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio

“Un terreno (Lote 1018), situada en el municipio de Asingan, Linda por el NE; con propriedad de Gabriel Bernardino; con el SE con propriedad de Zacarias Najorda y Alejandro Najorda; por el SO con propriedad de Geminiano Mendoza y por el NO con el camino para Villasis; midiendo una extension superficial mil ciento cincuenta y dos metros cuadrados.” On the other hand, the property donated to appellees’ predecessors was described in the deed of donation as: “Fourth—A piece of residential land located in the barrio of Cabalitian but we did not measure it, the area is bounded on the north by Gabriel Bernardino; on the east by Fortunato Doronio; on the south by Geminiano Mendoza and on the west by a road to Villasis. Constructed on said land is a house of light materials—also a part of the dowry. Value …200.00.”25Id., at pp. 48-49; id., at pp. 100-101. (Emphasis ours) Taking note “that the boundaries of the lot donated to Marcelino Doronio and Veronica Pico differ from the boundaries of the land owned by spouses Simeon Doronio and Cornelia Gante,” the CA concluded that spouses Simeon Doronio and Cornelia Gante donated only half of the property covered by OCT No. 352.26Id. Regarding the allegation of petitioners that OCT No. 352 is inadmissible in evidence, the CA pointed out that, “while the OCT is written in the Spanish language, this document already forms part of the records of this case for failure of appellees to interpose a timely objection when it was offered as evidence in the proceedings a quo. It is a well-settled rule that any objection to the admissibility of such evidence not raised will be considered waived and said evidence will have to form part

of the records of the case as competent and admitted evidence.”27Id., at pp. 49-50; CA Rollo, pp. 101-102. _______________ 25 Id., at pp. 48-49; id., at pp. 100-101. 26 Id. 27 Id., at pp. 49-50; CA Rollo, pp. 101-102. 492 492 SUPREME COURT REPORTS ANNOTATED Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio The CA likewise ruled that the donation of the entire property in favor of petitioners’ predecessors is invalid on the ground that it impairs the legitime of respondents’ predecessor, Fortunato Doronio. On this aspect, the CA reasoned out: “Moreover, We find the donation of the entire property in favor of appellees’ predecessors invalid as it impairs the legitime of appellants’ predecessor. Article 961 of the Civil Code is explicit. “In default of testamentary heirs, the law vests the inheritance, x x x, in the legitimate x x x relatives of the deceased, x x x.” As Spouses Simeon Doronio and Cornelia Gante died intestate, their property shall pass to their lawful heirs, namely: Fortunato and Marcelino Doronio. Donating the entire property to Marcelino Doronio and Veronica Pico and excluding another heir, Fortunato, tantamounts to divesting the latter of his rightful share in his parents’ inheritance. Besides, a person’s prerogative to make donations is subject to certain limitations, one of which is that he cannot give by donation more than what he can give by will (Article 752, Civil Code). If he does, so much of what is donated as exceeds what he can

give by will is deemed inofficious and the donation is reducible to the extent of such excess.”28Id., at p. 50; id., at p. 102. Petitioners were not pleased with the decision of the CA. Hence, this petition under Rule 45. Issues Petitioners now contend that the CA erred in: 1. DECLARING ADMISSIBILITY OF THE ORIGINAL CERTIFICATE OF TITLE NO. 352 DESPITE OF LACK OF TRANSLATION THEREOF. 2. (RULING THAT) ONLY HALF OF THE DISPUTED PROPERTY WAS DONATED TO THE PREDECESSORSIN-INTEREST OF THE HEREIN APPELLANTS. _______________ 28 Id., at p. 50; id., at p. 102. 493 VOL. 541, DECEMBER 27, 2007 493 Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio 3. (ITS) DECLARATION THAT THE DONATION PROPTER NUPTIAS IS INNOFICIOUS, IS PREMATURE, AND THUS IT IS ILLEGAL AND UNPROCEDURAL.29Id., at p. 13. Our Ruling OCT No. 352 in Spanish Although Not Translated into English or Filipino Is Admissible For Lack of Timely Objection Petitioners fault the CA for admitting OCT No. 352 in evidence on the ground that it is written in Spanish language. They posit that “(d)ocumentary evidence in an unofficial

language shall not be admitted as evidence, unless accompanied with a translation into English or Filipino.”30Id., at p. 24. The argument is untenable. The requirement that documents written in an unofficial language must be accompanied with a translation in English or Filipino as a prerequisite for its admission in evidence must be insisted upon by the parties at the trial to enable the court, where a translation has been impugned as incorrect, to decide the issue.31Francisco, V.J., THE REVISED RULES OF COURT IN THE PHILIPPINES, Vol. VII, Part II, 1991 ed., p. 389. Where such document, not so accompanied with a translation in English or Filipino, is offered in evidence and not objected to, either by the parties or the court, it must be presumed that the language in which the document is written is understood by all, and the document is admissible in evidence.32Id. Moreover, Section 36, Rule 132 of the Revised Rules of Evidence provides: “SECTION 36. Objection.—Objection to evidence offered orally must be made immediately after the offer is made. _______________ 29 Id., at p. 13. 30 Id., at p. 24. 31 Francisco, V.J., THE REVISED RULES OF COURT IN THE PHILIPPINES, Vol. VII, Part II, 1991 ed., p. 389. 32 Id. 494 494 SUPREME COURT REPORTS ANNOTATED Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio

Objection to a question propounded in the course of the oral examination of a witness shall be made as soon as the grounds therefor shall become reasonably apparent. An offer of evidence in writing shall be objected to within three (3) days after notice of the offer unless a different period is allowed by the court. In any case, the grounds for the objections must be specified.” (Emphasis ours) Since petitioners did not object to the offer of said documentary evidence on time, it is now too late in the day for them to question its admissibility. The rule is that evidence not objected to may be deemed admitted and may be validly considered by the court in arriving at its judgment.33People v. Pansensoy, G.R. No. 140634, September 12, 2002, 388 SCRA 669, 689; People v. Barellano, G.R. No. 121204, December 2, 1999, 319 SCRA 567, 590. This is true even if by its nature, the evidence is inadmissible and would have surely been rejected if it had been challenged at the proper time.34Interpacific Transit, Inc. v. Aviles, G.R. No. 86062, June 6, 1990, 186 SCRA 385, 390. As a matter of fact, instead of objecting, petitioners admitted the contents of Exhibit “A,” that is, OCT No. 352 in their comment35Records, p. 188. on respondents’ formal offer of documentary evidence. In the said comment, petitioners alleged, among others, that “Exhibits “A,” “B,” “C,” “D,” “E,” “F” and “G,” are admitted but not for the purpose they are offered because these exhibits being public and official documents are the best evidence of that they contain and not for what a party would like it to prove.”36Id. Said evidence

was admitted by the RTC.37Id., at p. 189. Once admitted without objection, even though not admissible under an objection, We are not inclined now to _______________ 33 People v. Pansensoy, G.R. No. 140634, September 12, 2002, 388 SCRA 669, 689; People v. Barellano, G.R. No. 121204, December 2, 1999, 319 SCRA 567, 590. 34 Interpacific Transit, Inc. v. Aviles, G.R. No. 86062, June 6, 1990, 186 SCRA 385, 390. 35 Records, p. 188. 36 Id. 37 Id., at p. 189. 495 VOL. 541, DECEMBER 27, 2007 495 Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio reject it.38Interpacific Transit, Inc. v. Aviles, supra. Consequently, the evidence that was not objected to became property of the case, and all parties to the case are considered amenable to any favorable or unfavorable effects resulting from the said evidence.39Quebral v. Court of Appeals , G.R. No. 101941, January 25, 1996, 252 SCRA 353, 365. Issues on Impairment of Legitime Should Be Threshed Out in a Spe cial Proceeding, Not in Civil Action for Reconveyance and Damages On the other hand, petitioners are correct in alleging that the issue regarding the impairment of legitime of Fortunato Doronio must be resolved in an action for the settlement of

estates of spouses Simeon Doronio and Cornelia Gante. It may not be passed upon in an action for reconveyance and damages. A probate court, in the exercise of its limited jurisdiction, is the best forum to ventilate and adjudge the issue of impairment of legitime as well as other related matters involving the settlement of estate.40Natcher v. Court of Appeals, G.R. No. 133000, October 2, 2001, 366 SCRA 385, 394. An action for reconveyance with damages is a civil action, whereas matters relating to settlement of the estate of a deceased person such as advancement of property made by the decedent, partake of the nature of a special proceeding. Special proceedings require the application of specific rules as provided for in the Rules of Court.41Id., at p. 392. As explained by the Court in Natcher v. Court of Appeals:42Supra at pp. 391-392. Section 3, Rule 1 of the 1997 Rules of Civil Procedure defines civil action and special proceedings, in this wise: _______________ 38 Interpacific Transit, Inc. v. Aviles, supra. 39 Quebral v. Court of Appeals , G.R. No. 101941, January 25, 1996, 252 SCRA 353, 365. 40 Natcher v. Court of Appeals, G.R. No. 133000, October 2, 2001, 366 SCRA 385, 394. 41 Id., at p. 392. 42 Supra at pp. 391-392. 496 496 SUPREME COURT REPORTS ANNOTATED Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio

x x x a) A civil action is one by which a party sues another for the enforcement or protection of a right, or the prevention or redress of a wrong. A civil action may either be ordinary or special. Both are governed by the rules for ordinary civil actions, subject to specific rules prescribed for a special civil action. xxxx c) A special proceeding is a remedy by which a party seeks to establish a status, a right or a particular fact. As could be gleaned from the foregoing, there lies a marked distinction between an action and a special proceeding. An action is a formal demand of one’s right in a court of justice in the manner prescribed by the court or by the law. It is the method of applying legal remedies according to definite established rules. The term “special proceeding” may be defined as an application or proceeding to establish the status or right of a party, or a particular fact. Usually, in special proceedings, no formal pleadings are required unless the statute expressly so provides. In special proceedings, the remedy is granted generally upon an application or motion. Citing American Jurisprudence, a noted authority in Remedial Law expounds further: It may accordingly be stated generally that actions include those proceedings which are instituted and prosecuted according to the ordinary rules and provisions relating to actions at law or suits in equity, and that special proceedings include those proceedings which are not ordinary in this sense, but is instituted and prosecuted according to some special mode as in the case of proceedings commenced without summons and prosecuted without regular pleadings, which are

characteristics of ordinary actions x x x. A special proceeding must therefore be in the nature of a distinct and independent proceeding for particular relief, such as may be instituted independently of a pending action, by petition or motion upon notice. Applying these principles, an action for reconveyance and annulment of title with damages is a civil action, whereas matters relating to settlement of the estate of a deceased person such as advancement of property made by the decedent, partake of the na497 VOL. 541, DECEMBER 27, 2007 497 Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio ture of a special proceeding, which concomitantly requires the application of specific rules as provided for in the Rules of Court. Clearly, matters which involve settlement and distribution of the estate of the decedent fall within the exclusive province of the probate court in the exercise of its limited jurisdiction. Thus, under Section 2, Rule 90 of the Rules of Court, questions as to advancement made or alleged to have been made by the deceased to any heir may be heard and determined by the court having jurisdiction of the estate proceedings, and the final order of the court thereon shall be binding on the person raising the questions and on the heir. While it may be true that the Rules used the word “may,” it is nevertheless clear that the same provision contemplates a

probate court when it speaks of the “court having jurisdiction of the estate proceedings.” Corollarily, the Regional Trial Court in the instant case, acting in its general jurisdiction, is devoid of authority to render an adjudication and resolve the issue of advancement of the real property in favor of herein petitioner Natcher, inasmuch as Civil Case No. 71075 for reconveyance and annulment of title with damages is not, to our mind, the proper vehicle to thresh out said question. Moreover, under the present circumstances, the RTC of Manila, Branch 55, was not properly constituted as a probate court so as to validly pass upon the question of advancement made by the decedent Graciano Del Rosario to his wife, herein petitioner Natcher.” We likewise find merit in petitioners’ contention that before any conclusion about the legal share due to a compulsory heir may be reached, it is necessary that certain steps be taken first.43Natcher v. Court of Appeals, supra note 40, at p. 394; Pagkatipunan v. Intermediate Appellate Court, G.R. No. 70722, July 3, 1991, 198 SCRA 719, 729. The net estate of the decedent must be ascertained, by deducting all payable obligations and charges from the value of the property owned by the deceased at the time of his death; then, all donations subject to collation would be added to it. With the partible estate thus determined, the legitime of the compulsory heir or heirs can be established; _______________ 43 Natcher v. Court of Appeals, supra note 40, at p. 394; Pagkatipunan v. Intermediate Appellate Court, G.R. No. 70722, July 3, 1991, 198 SCRA 719, 729.

498 498 SUPREME COURT REPORTS ANNOTATED Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio and only then can it be ascertained whether or not a donation had prejudiced the legitimes.44Id.; Mateo v. Lagua, G.R. No. L-26270, October 30, 1969, 29 SCRA 864, 870. Declaration of Validity of Donation Can Be Challenged by an Interested Party Not Impleaded in Petition for Quieting of Title or Declaratory Relief or Where There is No Res Judicata. Moreover, This Court Can Consider a Factual Matter or Unassigned Error in the Interest of Substantial Justice. Nevertheless, petitioners cannot preclude the determination of validity of the deed of donation on the ground that (1) it has been impliedly admitted by respondents; (2) it has already been determined with finality by the RTC in Petition Case No. U920; or (3) the only issue in an action for reconveyance is who has a better right over the land.45Rollo, p. 148. The validity of the private deed of donation propter nuptias in favor of petitioners’ predecessors was one of the issues in this case before the lower courts. The pre-trial order46Records, pp. 134-135. of the RTC stated that one of the issues before it is “(w)hether or not the transfer of the whole property covered by OCT No. 352 on the basis of the private deed of donation notwithstanding the discrepancy in the description is valid.” Before the CA, one of the errors assigned by respondents is that “THE TRIAL COURT ERRED IN NOT FINDING THAT

THE PRIVATE DEED OF DONATION DATED APRIL 26, 1919 WAS NULL AND VOID.”47Rollo, pp. 46-47. _______________ 44 Id.; Mateo v. Lagua, G.R. No. L-26270, October 30, 1969, 29 SCRA 864, 870. 45 Rollo, p. 148. 46 Records, pp. 134-135. 47 Rollo, pp. 46-47. 499 VOL. 541, DECEMBER 27, 2007 499 Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio The issue of the validity of donation is likewise brought to Us by petitioners as they stated in their Memorandum48Id., at p. 144. that one of the issues to be resolved is regarding the alleged fact that “THE HONORABLE COURT OF APPEALS ERRED IN FINDING THE DONATION INVALID.” We are thus poised to inspect the deed of donation and to determine its validity. We cannot agree with petitioners’ contention that respondents may no longer question the validity of the deed of donation on the ground that they already impliedly admitted it. Under the provisions of the Civil Code, a void contract is inexistent from the beginning. The right to set up the defense of its illegality cannot be waived.49CIVIL CODE, Art. 1409. The right to set up the nullity of a void or non-existent contract is not limited to the parties as in the case of annullable or voidable contracts; it is extended to third persons who are directly affected by the contract.50Manotok Realty, Inc. v. Court of Appeals, G.R. No.

L-45038, April 30, 1987, 149 SCRA 372, 377, citing Tolentino, Civil Code of the Philippines, Vol. IV, 1973 ed., p. 604. Consequently, although respondents are not parties in the deed of donation, they can set up its nullity because they are directly affected by the same.51Arsenal v. Intermediate Appellate Court, G.R. No. L-66696, July 14, 1986, 143 SCRA 40, 49, citing Tolentino, Civil Code of the Philippines, Vol. IV, 1973 ed., p. 604. The subject of the deed being the land they are occupying, its enforcement will definitely affect them. Petitioners cannot also use the finality of the RTC decision in Petition Case No. U-92052Records, p. 14; Exhibit “C.” Entitled “For the Registration of a Private Deed of Donation— The Heirs of Veronica Pico.... as a shield against the verification of the validity of the deed of donation. According to petitioners, the said final decision is one for quieting of title.53Rollo, p. 143. In _______________ 48 Id., at p. 144. 49 CIVIL CODE, Art. 1409. 50 Manotok Realty, Inc. v. Court of Appeals, G.R. No. L45038, April 30, 1987, 149 SCRA 372, 377, citing Tolentino, Civil Code of the Philippines, Vol. IV, 1973 ed., p. 604. 51 Arsenal v. Intermediate Appellate Court, G.R. No. L-66696, July 14, 1986, 143 SCRA 40, 49, citing Tolentino, Civil Code of the Philippines, Vol. IV, 1973 ed., p. 604. 52 Records, p. 14; Exhibit “C.” Entitled “For the Registration of a Private Deed of Donation—The Heirs of Veronica Pico.” 53 Rollo, p. 143.

500 500 SUPREME COURT REPORTS ANNOTATED Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio other words, it is a case for declaratory relief under Rule 64 (now Rule 63) of the Rules of Court, which provides: “SECTION 1. Who may file petition.—Any person interested under a deed, will, contract or other written instrument, or whose rights are affected by a statute, executive order or regulation, or ordinance, may, before breach or violation thereof, bring an action to determine any question of construction or validity arising under the instrument or statute and for a declaration of his rights or duties thereunder. An action for the reformation of an instrument, to quiet title to real property or remove clouds therefrom, or to consolidate ownership under Article 1607 of the Civil Code, may be brought under this rule. SECTION 2. Parties.—All persons shall be made parties who have or claim any interest which would be affected by the declaration; and no declaration shall, except as otherwise provided in these rules, prejudice the rights of persons not parties to the action.” (Emphasis ours) However, respondents were not made parties in the said Petition Case No. U-920. Worse, instead of issuing summons to interested parties, the RTC merely allowed the posting of notices on the bulletin boards of Barangay Cabalitaan, Municipalities of Asingan and Lingayen, Pangasinan. As pointed out by the CA, citing the ruling of the RTC: “x x x In the said case or Petition No. U-920, notices were posted on the bulletin boards of barangay Cabalitaan,

Municipalities of Asingan and Lingayen, Pangasinan, so that there was a notice to the whole world and during the initial hearing and/or hearings, no one interposed objection thereto.”54Id., at p. 45; CA Rollo, p. 97. Suits to quiet title are not technically suits in rem, nor are they, strictly speaking, in personam, but being against the person in respect of the res, these proceedings are character_______________ 54 Id., at p. 45; CA Rollo, p. 97. 501 VOL. 541, DECEMBER 27, 2007 501 Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio ized as quasi in rem.55Realty Sales Enterprise, Inc. v. Intermediate Appellate Court, G.R. No. L-67451, September 28, 1987, 154 SCRA 328, 348, citing McDaniel v. McElvy, 108 So. 820 (1926). The judgment in such proceedings is conclusive only between the parties.56Foster-Gallego v. Galang, G.R. No. 130228, July 27, 2004, 435 SCRA 275, 293; id.; Sandejas v. Robles, 81 Phil. 421, 424 (1948). Thus, respondents are not bound by the decision in Petition Case No. U-920 as they were not made parties in the said case. The rules on quieting of title57RULES OF COURT, Rule 64. expressly provide that any declaration in a suit to quiet title shall not prejudice persons who are not parties to the action. That respondents filed a subsequent pleading58Rollo, p. 45; Records, pp. 111-113. in the same Petition Case No. U-920 after the decision there had become final did not change the fact that said decision became final without their being

impleaded in the case. Said subsequent pleading was dismissed on the ground of finality of the decision.59Id.; CA Rollo, p. 97. Thus, the RTC totally failed to give respondents their day in court. As a result, they cannot be bound by its orders. Generally accepted is the principle that no man shall be affected by any proceeding to which he is a stranger, and strangers to a case are not bound by judgment rendered by the court.60Domingo v. Scheer, G.R. No. 154745, January 29, 2004, 421 SCRA 468, 483; Matuguina Integrated Wood Products, Inc. v. Court of Appeals, G.R. No. 98310, October 24, 1996, 263 SCRA 490, 505-506. Moreover, for the principle of res judicata to apply, the following must be present: (1) a decision on the merits; (2) by a court of competent jurisdiction; (3) the decision is final; and (4) the two actions involve identical parties, subject matter _______________ 55 Realty Sales Enterprise, Inc. v. Intermediate Appellate Court, G.R. No. L-67451, September 28, 1987, 154 SCRA 328, 348, citing McDaniel v. McElvy, 108 So. 820 (1926). 56 Foster-Gallego v. Galang, G.R. No. 130228, July 27, 2004, 435 SCRA 275, 293; id.; Sandejas v. Robles, 81 Phil. 421, 424 (1948). 57 RULES OF COURT, Rule 64. 58 Rollo, p. 45; Records, pp. 111-113. 59 Id.; CA Rollo, p. 97. 60 Domingo v. Scheer, G.R. No. 154745, January 29, 2004, 421 SCRA 468, 483; Matuguina Integrated Wood Products, Inc. v. Court of Appeals, G.R. No. 98310, October 24, 1996, 263 SCRA 490, 505-506.

502 502 SUPREME COURT REPORTS ANNOTATED Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio and causes of action.61Alejandrino v. Court of Appeals, G.R. No. 114151, September 17, 1998, 295 SCRA 536, 554; Bernardo v. National Labor Relations Commission, G.R. No. 105819, March 15, 1996, 255 SCRA 108, 118. The fourth element is not present in this case. The parties are not identical because respondents were not impleaded in Petition Case No. U-920. While the subject matter may be the same property covered by OCT No. 352, the causes of action are different. Petition Case No. U-920 is an action for declaratory relief while the case below is for recovery of property. We are not persuaded by petitioners’ posture that the only issue in this action for reconveyance is who has a better right over the land; and that the validity of the deed of donation is beside the point.62Rollo, p. 148. It is precisely the validity and enforceability of the deed of donation that is the determining factor in resolving the issue of who has a better right over the property. Moreover, notwithstanding procedural lapses as to the appropriateness of the remedies prayed for in the petition filed before Us, this Court can brush aside the technicalities in the interest of justice. In some instances, this Court even suspended its own rules and excepted a case from their operation whenever the higher interests of justice so demanded.63Government of the United States of America v. Purganan, G.R. No. 148571, September 24, 2002, 389 SCRA 623, 651; Fortich v. Corona, G.R. No. 131457, April 24, 1998,

289 SCRA 624, 646; Piczon v. Court of Appeals, G.R. Nos. 76378-81, September 24, 1990, 190 S... Moreover, although respondents did not directly raise the issue of validity of the deed of donation at the commencement of the case before the trial court, it was stipulated64Records, p. 134. by the parties during the pre-trial conference. In any event, this Court has authority to inquire into any question necessary in _______________ 61 Alejandrino v. Court of Appeals, G.R. No. 114151, September 17, 1998, 295 SCRA 536, 554; Bernardo v. National Labor Relations Commission, G.R. No. 105819, March 15, 1996, 255 SCRA 108, 118. 62 Rollo, p. 148. 63 Government of the United States of America v. Purganan, G.R. No. 148571, September 24, 2002, 389 SCRA 623, 651; Fortich v. Corona, G.R. No. 131457, April 24, 1998, 289 SCRA 624, 646; Piczon v. Court of Appeals, G.R. Nos. 7637881, September 24, 1990, 190 SCRA 31, 38. 64 Records, p. 134. 503 VOL. 541, DECEMBER 27, 2007 503 Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio arriving at a just decision of a case before it.65Serrano v. National Labor Relations Commission, G.R. No. 117040, May 4, 2000, 331 SCRA 331, 338, citing Korean Airlines Co., Ltd. v. Court of Appeals|, G.R. Nos. 114061 & 113842, August 3, 1994, 234 SCRA 717, 725; Vda. de Javellana v. Court of Appeals... Though not specifically questioned by the parties,

additional issues may also be included, if deemed important for substantial justice to be rendered.66Velarde v. Social Justice Society, G.R. No. 159357, April 28, 2004, 428 SCRA 283, 312. Furthermore, this Court has held that although a factual issue is not squarely raised below, still in the interest of substantial justice, this Court is not prevented from considering a pivotal factual matter. 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.67Abra Valley College, Inc. v. Aquino, G.R. No. L39086, June 15, 1988, 162 SCRA 106, 116; Perez v. Court of Appeals, G.R. No. L-56101, February 20, 1984, 127 SCRA 636, 645. A rudimentary doctrine on appealed cases is that this Court is clothed with ample authority to review matters, even if they are not assigned as errors on appeal, if it finds that their consideration is necessary at arriving at a just decision of the case.68Nordic Asia Limited v. Court of Appeals, G.R. No. 111159, June 10, 2003, 403 SCRA 390, 396. Also, an unassigned error closely related to an error properly assigned or upon which the determination of the question raised by the error properly assigned is dependent, will be considered by the appellate court notwithstanding the failure to assign it as an error.69Id.; Sesbreño v. Central Board of Assessment Appeals , G.R. No. 106588, March 24, 1997, 270 SCRA 360, 370; Roman Catholic Archbishop of Manila v. Court of Appeals, G.R. Nos. 77425 & 77450, June 19, 1991, 198 SCRA 300; Soco v. Militante, G.R. No. ... _______________

65 Serrano v. National Labor Relations Commission, G.R. No. 117040, May 4, 2000, 331 SCRA 331, 338, citing Korean Airlines Co., Ltd. v. Court of Appeals|, G.R. Nos. 114061 & 113842, August 3, 1994, 234 SCRA 717, 725; Vda. de Javellana v. Court of Appeals, G.R. No. L-60129, July 29, 1983, 123 SCRA 799, 805. 66 Velarde v. Social Justice Society, G.R. No. 159357, April 28, 2004, 428 SCRA 283, 312. 67 Abra Valley College, Inc. v. Aquino, G.R. No. L-39086, June 15, 1988, 162 SCRA 106, 116; Perez v. Court of Appeals, G.R. No. L-56101, February 20, 1984, 127 SCRA 636, 645. 68 Nordic Asia Limited v. Court of Appeals, G.R. No. 111159, June 10, 2003, 403 SCRA 390, 396. 69 Id.; Sesbreño v. Central Board of Assessment Appeals , G.R. No. 106588, March 24, 1997, 270 SCRA 360, 370; Roman Catholic Archbishop of Manila v. Court of Appeals, G.R. Nos. 77425 & 77450, June 19, 1991, 198 SCRA 300; Soco v. Militante, G.R. No. L-58961, 504 504 SUPREME COURT REPORTS ANNOTATED Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio Donation Propter Nuptias of Real Prop erty Made in a Private Instrument Before the New Civil Code Took Effect on August 30, 1950 is Void We now focus on the crux of the petition, which is the validity of the deed of donation. It is settled that only laws existing at the time of the execution of a contract are applicable to it and

not the later statutes, unless the latter are specifically intended to have retroactive effect.70Valencia v. Locquiao, G.R. No. 122134, October 3, 2003, 412 SCRA 600, 611; Ortigas & Co., Ltd. v. Court of Appeals , G.R. No. 126102, December 4, 2000, 346 SCRA 748, 755; Philippine Virginia Tobacco Administration v. Gonzales, G.R. No. L-34628, July 3... Accordingly, the Old Civil Code applies in this case as the donation propter nuptias was executed in 1919, while the New Civil Code took effect only on August 30, 1950. Under the Old Civil Code, donations propter nuptias must be made in a public instrument in which the property donated must be specifically described.71Valencia v. Locquiao, supra at p. 610. Article 1328 of the Old Civil Code provides that gifts propter nuptias are governed by the rules established in Title 2 of Book 3 of the same Code. Article 633 of that title provides that the gift of real property, in order to be valid, must appear in a public document.72Id.; Velasquez v. Biala , 18 Phil. 231, 234-235 (1911); Camagay v. Lagera, 7 Phil. 397 (1907). It is settled that a donation of real estate propter nuptias is void unless made by public instrument.73Valencia v. Locquiao, supra; Solis v. Barroso, 53 Phil. 912, 914 (1928); Velasquez v. Biala, supra; Camagay v. Lagera, supra at p. 398. In the instant case, the donation propter nuptias did not become valid. Neither did it create any right because it was _______________ June 28, 1983, 123 SCRA 160, 183; Ortigas, Jr. v. Lufthansa German Airlines, G.R. No. L-28773, June 30, 1975, 64 SCRA 610, 633. 70 Valencia v. Locquiao, G.R. No. 122134, October 3, 2003, 412 SCRA 600, 611; Ortigas & Co., Ltd. v. Court of Appeals ,

G.R. No. 126102, December 4, 2000, 346 SCRA 748, 755; Philippine Virginia Tobacco Administration v. Gonzales, G.R. No. L-34628, July 30, 1979, 92 SCRA 172, 185. 71 Valencia v. Locquiao, supra at p. 610. 72 Id.; Velasquez v. Biala , 18 Phil. 231, 234-235 (1911); Camagay v. Lagera, 7 Phil. 397 (1907). 73 Valencia v. Locquiao, supra; Solis v. Barroso, 53 Phil. 912, 914 (1928); Velasquez v. Biala, supra; Camagay v. Lagera, supra at p. 398. 505 VOL. 541, DECEMBER 27, 2007 505 Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio not made in a public instrument.74Solis v. Barroso, supra note 73. Hence, it conveyed no title to the land in question to petitioners’ predecessors. Logically, then, the cancellation of OCT No. 352 and the issuance of a new TCT No. 44481 in favor of petitioners’ predecessors have no legal basis. The title to the subject property should, therefore, be restored to its original owners under OCT No. 352. Direct reconveyance to any of the parties is not possible as it has not yet been determined in a proper proceeding who among the heirs of spouses Simeon Doronio and Cornelia Gante is entitled to it. It is still unproven whether or not the parties are the only ones entitled to the properties of spouses Simeon Doronio and Cornelia Gante. As earlier intimated, there are still things to be done before the legal share of all the heirs can

be properly adjudicated.75Pagkatipunan v. Intermediate Appellate Court, supra note 43, at p. 732. Titled Property Cannot Be Acquired By Another By Adverse Possession or Extinctive Prescription Likewise, the claim of respondents that they became owners of the property by acquisitive prescription has no merit. Truth to tell, respondents cannot successfully invoke the argument of extinctive prescription. They cannot be deemed the owners by acquisitive prescription of the portion of the property they have been possessing. The reason is that the property was covered by OCT No. 352. A title once registered under the torrens system cannot be defeated even by adverse, open and notorious possession; neither can it be defeated by prescription.76Ong v. Court of Appeals, G.R. No. 142056, April 19, 2001, 356 SCRA 768, 771; Brusas v. Court of Appeals, G.R. No. 126875, August It is notice to the whole world and as such all _______________ 74 Solis v. Barroso, supra note 73. 75 Pagkatipunan v. Intermediate Appellate Court, supra note 43, at p. 732. 76 Ong v. Court of Appeals, G.R. No. 142056, April 19, 2001, 356 SCRA 768, 771; Brusas v. Court of Appeals, G.R. No. 126875, August 506 506 SUPREME COURT REPORTS ANNOTATED Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio

persons are bound by it and no one can plead ignorance of the registration.77Brusas v. Court of Appeals, supra; Jacob v. Court of Appeals , G.R. No. 92159, July 1, 1993, 224 SCRA 189, 193-194. The torrens system is intended to guarantee the integrity and conclusiveness of the certificate of registration, but it cannot be used for the perpetration of fraud against the real owner of the registered land.78Francisco v. Court of Appeals, G.R. No. 130768, March 21, 2002, 379 SCRA 638, 646; Bayoca v. Nogales, G.R. No. 138210, September 12, 2000, 340 SCRA 154, 169. The system merely confirms ownership and does not create it. Certainly, it cannot be used to divest the lawful owner of his title for the purpose of transferring it to another who has not acquired it by any of the modes allowed or recognized by law. It cannot be used to protect a usurper from the true owner, nor can it be used as a shield for the commission of fraud; neither does it permit one to enrich himself at the expense of another.79Bayoca v. Nogales, supra. Where such an illegal transfer is made, as in the case at bar, the law presumes that no registration has been made and so retains title in the real owner of the land.80Balangcad v. Justices of the Court of Appeals, G.R. No. 84888, February 12, 1992, 206 SCRA 169, 175. Although We confirm here the invalidity of the deed of donation and of its resulting TCT No. 44481, the controversy between the parties is yet to be fully settled. The issues as to who truly are the present owners of the property and what is the extent of their ownership remain unresolved. The same may be properly threshed out in the settlement of the estates of the registered owners of the property, namely: spouses Simeon Doronio and Cornelia Gante.

WHEREFORE, the appealed Decision is REVERSED AND SET ASIDE. A new one is entered: _______________ 26, 1999, 313 SCRA 176, 183; Rosales v. Court of Appeals, G.R. No. 137566, February 28, 2001, 353 SCRA 179. 77 Brusas v. Court of Appeals, supra; Jacob v. Court of Appeals , G.R. No. 92159, July 1, 1993, 224 SCRA 189, 193194. 78 Francisco v. Court of Appeals, G.R. No. 130768, March 21, 2002, 379 SCRA 638, 646; Bayoca v. Nogales, G.R. No. 138210, September 12, 2000, 340 SCRA 154, 169. 79 Bayoca v. Nogales, supra. 80 Balangcad v. Justices of the Court of Appeals, G.R. No. 84888, February 12, 1992, 206 SCRA 169, 175. 507 VOL. 541, DECEMBER 27, 2007 507 Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio (1) Declaring the private deed of donation propter nuptias in favor of petitioners’ predecessors NULL AND VOID; and (2) Ordering the Register of Deeds of Pangasinan to: (a) CANCEL Transfer Certificate of Title No. 44481 in the names of Marcelino Doronio and Veronica Pico; and (b) RESTORE Original Certificate of Title No. 352 in the names of its original owners, spouses Simeon Doronio and Cornelia Gante. SO ORDERED. Ynares-Santiago (Chairperson), Austria-Martinez, ChicoNazario and Nachura, JJ., concur.

Judgment reversed and set aside. Notes.—A monetary claim against the person administering an estate, in relation to his or her acts of administration, in its ordinary course, can be filed at the court where a special proceeding for the settlement of the estate is pending. (Pascual vs. Court of Appeals, 300 SCRA 214 [1998]) A suit for quieting of title is an action quasi in rem that is binding only between the parties. (Seville vs. National Development Company, 351 SCRA 112 [2001]) Res judicata does not apply where the dismissal was on the ground of failure of petitioner to furnish a copy of her formal offer of evidence to the city prosecutor and the solicitor general since the decision does not constitute an adjudication on the merits, but a resolution only of an interlocutory matter. (PageTenorio vs. Tenorio, 443 SCRA 560 [2004]) [Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio, 541 SCRA 479(2007)]

No. L-35648. February 27,1987.*EN BANC. PERSHING TAN QUETO, petitioner, vs. COURT OF APPEALS, JUAN POMBUENA and RESTITUTA TACALINAR GUANGCO DE POMBUENA, respondents. Remedial Law; Evidence; Lower courts' finding of facts conclusive upon the Supreme Court, exceptions.—The finding by both the Court of First Instance and the Court of Appeals that the disputed lot is paraphernal and that TAN QUETO is a builder in bad faith were regarded by US in Our assailed decision as findings of facts and thus ordinarily conclusive on Us. Assuming they are factual findings, still if they are erroneous inferences from certain facts, they can not bind this Court. Civil Law; Property; Donation; Oral donation of an immovable property to be valid must be made in a public instrument as provided for in the Civil Code—The oral donation of the lot cannot be a valid donation intervivos because it was not executed in a public instrument (Art. 7497 Civil Code), nor as a valid donation mortis causa for the formalities of a will were not complied with. The allegation that the transfer was a conveyance to RESTITUTA of her hereditary share in the estate of her mother (or parents) cannot be sustained for the contractual transmission of future inheritance is generally prohibited. Same; Same; Tradition as a mode of acquiring ownership.— The fact is ownership was acquired by both JUAN and RESTITUTA by tradition (delivery) as a consequence of the contract of sale (See Art. 712, Civil Code) with P50.00 (then a considerable amount) as the cause or consideration of the transaction. The lot is therefore conjugal, having been acquired

by the spouses thru onerous title (the money used being presumably conjugal, there being no proof that RESTITUTA had paraphernal funds of her own). Same; Same; Possession; Concept of possessor or builder in good or bad faith presupposes ownership in another.— However, as already previously intimated, TAN QUETO having bartered his own lot and small house with the questioned lot with JUAN (who has been adverted to by a court decision and by the OCT a conjugal owner) may be said to be the OWNER-POSSESSOR of the lot. Certainly he is not _______________ * EN BANC. 55 VOL. 148, FEBRUARY 27, 1987 55 Pershing Tan Queto vs. Court of Appeals merely a possessor or builder in good faith (this phrase presupposes ownership in another); much less is he a builder in bad faith, He is a builder-possessor (jus possidendi) because he is the OWNER himself. Please note that the Chapter on Possession {jus possessionis, not jus possidendi) in the Civil Code refers to a possessor other than the owner. Please note further that the difference between a builder (or possessor) in good faith and one in bad faith is that the former is NOT AWARE of the defect or flaw in his title or mode of acquisition while the latter is AWARE of such defect or flaw (Art. 526, Civil Code). But in either case there is a flaw or defect In the case of TAN QUETO there is no such flaw or defect because it is he himself (not somebody else) who is the owner of the property.

PETITION to review the decision of the Court of Appeals. The facts are stated in the resolution of the Court. RESOLUTION PARAS, J.: This is a Motion for Reconsideration of the decision dated May 16,1983 of this Court**Affirming the Decision of the Court of Appeals in G.R. No. 39492-R penned by Justice Ramon C. Fernandez concurred in by Justices Hermogenes Concepcion, Jr. and Cecilia Muñoz Palma which affirmed the Decision of the Trial Judge Geronimo R. Marave. in the above-entitled case, asking f or the reversal of said decision on the following grounds: 1. Decision erred in disregarding the fact that Lot No. 304-B was registered in the name of the husband, Juan Pombuena, as per OCT No. 0-1160 issued pursuant to the November 22,1938 Decision (Exh. 3) of the Cadastral Court in Cadastral Case No. 12, G.L.R.O. Cad. Rec. No. 1638, and that petitioner had the right to rely on said OCT; 2. The Decision erred in misinterpreting the admission in the Answer of petitioner to the complaint in the unlawful detainer Case No. 448 (City Court of Ozamiz City) as his admission that Lot 304-B is the paraphernal property of the wife, Restituta Tacalinar; 3. The Decision erred in reforming the Contract of Sale (Exh. B) of Lot 304-B from Basilides Tacalinar (mother) to the respondent, Restituta Tacalinar Guangco de Pombuena, from a sale to a con _______________ ** Affirming the Decision of the Court of Appeals in G.R. No. 39492-R penned by Justice Ramon C. Fernandez concurred in

by Justices Hermogenes Concepcion, Jr. and Cecilia Muñoz Palma which affirmed the Decision of the Trial Judge Geronimo R. Marave. 56 56 SUPREME COURT REPORTS ANNOTATED Pershing Tan Queto vs. Court of Appeals veyance of the share of the wife Restituta Tacalinar (daughter) in the future hereditary estate of her parents; 4. The Decision erred in over-looking that the barter agreement is an onerous contract of exchange, whereby private respondents-spouses received valuable consideration, concessions and other benefits therefor and in concluding that 'the barter agreement has no effect;' 5. The Decision erred in disregarding the fact that petitioner constructed his concrete building on Lot No. 304-B in good faith relying OCT No. 0-1160, after the dismissal of the ejectment case and only after the execution of said barter agreement; 6. The Decision erred in confusing the conclusion of law that petitioner is a builder in bad faith with a finding of fact The rule is that questions of law are reviewable on appeal or by certiorari. Moreover, the rule on finding of fact is subject to well-settled exceptions. (pp. 257-258, Rollo) It will be recalled that the undisputed relevant facts indicate: (1) that Restituta Tagalinar Guangco de Pombuena (RESTITUTA, for short) received the questioned lot (no. 304B), of the Cadastre Survey of the Municipality of Centro, Misamis Occidental, either as a purported donation or by way

of purchase on (February 11,1927) (with P50.00) as the alleged consideration thereof; (2) that the transaction took place during her mother's lifetime, her father having pre-deceased the mother; (3) that the donation or sale was consummated while RESTITUTA was already married to her husband Juan Pombuena (JUAN, for short); (4) that on January 22, 1935, JUAN filed for himself and his supposed co-owner RESTITUTA an application for a Torrens Title over the land; (5) that under date of November 22, 1938 a decision was promulgated in G.L.R.C. No. 1638 (Cadastral Case No. 12) pronouncing JUAN ('married to RESTITUTA') as the owner of the land; (6) that on September 22,1949 a contract of lease over the lot was entered into between Pershing Tan Queto (TAN QUETO, for short, the herein petitioner) and RESTITUTA (with the consent of her husband JUAN) for a period of ten (10) years; (7) that on December 27, 1960 RESTITUTA sued TAN 57 VOL. 148, FEBRUARY 27, 1987 57 Pershing Tan Queto vs. Court of Appeals QUETO for unlawful detainer (the lease contract having expired) bef ore the Municipal Court of Ozamis City; (8) that as a consequence of the cadastral case, an Original Certificate of Title (Exh. 10) was issued in JUAN's name ("married to RESTITUTA") on April 22,1962;

(9) that the unlawful detainer case was won by the spouses in the Municipal Court; but on appeal in the Court of First Instance, the entire case was DISMISSED because of an understanding (barter) whereby TAN QUETO became the owner of the disputed lot, and the spouses RESTITUTA and JUAN in turn became the owners of a parcel of land (with the house constructed thereon) previously owned (that is, before the barter) by TAN QUETO; (10) that after the barter agreement dated October 10, 1962 between JUAN and TAN QUETO, the latter constructed (See p. 257, Rollo, Vol. II) on the disputed land a concrete building, without any objection on the part of RESTITUTA; (11) that later, RESTITUTA sued both JUAN and TAN QUETO for reconveyance of the title over the registered but disputed lot, for annulment of the barter, and for recovery of the land with damages. The two principal issues are clearly the following: (1) Is the questioned lot paraphernal or conjugal? (2) In having constructed the building on the lot, should TAN QUETO be regarded as a builder in good faith (and hence entitled to reimbursement) or a builder in bad faith (with no right to reimbursement)? The finding by both the Court of First Instance and the Court of Appeals that the disputed lot is paraphernal and that TAN QUETO is a builder in bad faith were regarded by Us in Our assailed decision as findings of facts and thus ordinarily conclusive on Us. Assuming they are factual findings, still if they are erroneous inferences from certain facts, they cannot bind this Court.

A second hard look at the circumstances of the case has constrained Us to rule as follows: (1) The land is conjugal, not paraphernal. How was ownership transferred, if at all, from her mother to RESTITUTA? The oral donation of the lot cannot be a valid donation inter58 58 SUPREME COURT REPORTS ANNOTATED Pershing Tan Queto vs. Court of Appeals vivos because it was not executed in a public instrument (Art. 749, Civil Code), nor as a valid donation mortis causa for the formalities of a will were not complied with. The allegation that the transfer was a conveyance to RESTITUTA of her hereditary share in the estate of her mother (or parents) cannot be sustained for the contractual transmission of future inheritance is generally prohibited. The fact is ownership was acquired by both JUAN and RESTITUTA by tradition (delivery) as a consequence of the contract of sale (See Art. 712, Civil Code) with P50.00 (then a considerable amount) as the cause or consideration of the transaction. The lot is therefore conjugal, having been acquired by the spouses thru onerous title (the money used being presumably conjugal, there being no proof that RESTITUTA had paraphernal funds of her own). The contention that the sale was fictitious or simulated (and therefore void) is bankrupt. Firstly, there was a valid consideration therefor. Secondly, assuming that there had indeed been a simulation, the parties thereto cannot use said simulation to prejudice a stranger to said strategem (like petitioner herein).

One nagging question has been posed. But did not TAN QUETO admit in his Answer that RESTITUTA was the owner of the lot. This is not so. He admitted RESTITUTA was "an owner" (not the owner) of the lot, and this is true, for she was a co-owner (with JUAN, and therefore "an owner." Surely, there is no admission of RESTITUTA's exclusive ownership. And yet this is the basis of the trial court's conclusion that the lot was indeed paraphernal (2) Was Tan Queto a possessor and builder in good faith or in bad faith? Even assuming that despite registration of the lot as conjugal, Tan Queto nursed the belief that the lot was actually RESTITUTA's (making him in bad faith), still RESTITUTA's failure to prohibit him from building despite her knowledge that construction was actually being done, makes her also in bad faith. The net resultant of mutual bad faith would entitle TAN QUETO to the rights of a builder in good faith (Art. 448, Civil Code), ergo, reimbursement should be given him if RESTITUTA decides to appropriate the building for herself 59 VOL. 148, FEBRUARY 27, 1987 59 Pershing Tan Queto vs. Court of Appeals (Art. 448, Civil Code). However, as already previously intimated, TAN QUETO having bartered his own lot and small house with the questioned lot with JUAN (who has been adverted to by a court decision and by the OCT a conjugal owner) may be said to be the OWNER-POSSESSOR of the lot. Certainly he is not

merely a possessor or builder in good faith (this phrase presupposes ownership in another); much less is he a builder in bad faith. He is a builder-possessor (jus possidendi) because he is the OWNER himself. Please note that the Chapter on Possession (jus possessionis, not jus possidendi) in the Civil Code refers to a possessor other than the owner, Please note further that the difference between a builder (or possessor) in good faith and one in bad faith is that the former is NOT AWARE of the def ect or flaw in his title or mode of acquisition while the latter is AWARE of such defect or flaw (Art. 526, Civil Code). But in either case there is a flaw or defect, In the case of TAN QUETO there is no such flaw or defect because it is he himself (not somebody else) who is the owner of the property. WHEREFORE, Our decision promulgated on May 16,1983 is hereby SET ASIDE, and a new one is hereby rendered declaring the questioned lot together with the building thereon, as TAN QUETO's exclusive property. No costs. SO ORDERED. Teehankee, C.J., Yap, Fernan, Narvasa, Alampay, Cruz, Feliciano, Gancayco, Bidin and Sarmiento, JJ., concur. Melencio-Herrera, J., I vote to uphold the Decision of May 16,1983 and to deny reconsideration. Gutierrez, Jr., J., I reiterate my vote in the decision sought to be reconsidered & dissent herein. Padilla, J., no part. (Atty. Ambrosio Padilla counsel for the petitioner is related to me.) Cortes, J., no part. I was not in the Supreme Court when this was taken up. Decision set aside.

60 60 SUPREME COURT REPORTS ANNOTATED People vs. Veloso Notes.—This is the kind of delivery contemplated in article 1462, when it provides that the thing shall be understood as delivered when it is placed in the control and possession of the vendee. The delivery from hand to hand, as well as the realization of the purchaser of those material acts known as "taking possession" with respect to immovables, in the presence and with the consent of the vendor, can mean no more than the placing of the thing in the control and possession of the vendee. Thus, where the vendee placed the things in the warehouse of the vendee, leaving them entirely under the latter's control, or where logs were placed along a vessel of the vendee, as stipulated in the contract, and they were thus placed under the control of the vendee, whose employees attempted to load equipment, there was sufficient delivery, there being no necessity of showing actual acceptance by the vendee. (Tolentino: Commentaries and Jurisprudence on the Civil Code of the Philippines, pp. 425-426.) ——o0o—— [Pershing Tan Queto vs. Court of Appeals, 148 SCRA 54(1987)]

G.R. No. 192916. October 11, 2010.* MANUEL A. ECHAVEZ, petitioner, vs. DOZEN CONSTRUCTION AND DEVELOPMENT CORPORATION and THE REGISTER OF DEEDS OF CEBU CITY, respondents. Civil Law; Donations; Donation Mortis Causa; A donation mortis causa must comply with the formalities prescribed by law for the validity of wills, “otherwise the donation is void and would produce no effect.”—The CA correctly declared that a donation mortis causa must comply with the formalities prescribed by law for the validity of wills, “otherwise, the donation is void and would produce no effect.” Articles 805 and 806 of the Civil Code should have been applied. Same; Same; That the requirements of attestation and acknowledgement are embodied in two separate provisions of the Civil Code (Article 805 and 806, respectively) indicates that the law contemplates two distinct acts that serve different purposes.—Even granting that the Acknowledgment embodies what the attestation clause requires, we are not prepared to hold that an attestation clause and an acknowledgment can be merged in one statement. That the requirements of attestation and acknowledgment are embodied in two separate provisions of the Civil Code (Articles 805 and 806, respectively) indicates that the law contemplates two distinct acts that serve different purposes. An acknowledgment is made by one executing a deed, declaring before a competent officer or court that the deed or act is his own. On the other hand, the attestation of a will refers to the act of the instrumental witnesses themselves who certify to the execution of the instrument before them and to the manner of its execution.

PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. Rex J.M.A. Fernandez for petitioner. Manuel P. Legaspi for respondent. 595 VOL. 632, OCTOBER 11, 2010595 Echavez vs. Dozen Construction and Development Corporation RESOLUTION BRION, J.: Vicente Echavez (Vicente) was the absolute owner of several lots in Cebu City, which includes Lot No. 1956-A and Lot No. 1959 (subject lots). On September 7, 1985, Vicente donated the subject lots to petitioner Manuel Echavez (Manuel) through a Deed of Donation Mortis Causa.1 Manuel accepted the donation. In March 1986, Vicente executed a Contract to Sell over the same lots in favor of Dozen Construction and Development Corporation (Dozen Corporation). In October 1986, they executed two Deeds of Absolute Sale over the same properties covered by the previous Contract to Sell. On November 6, 1986, Vicente died. Emiliano Cabanig, Vicente’s nephew, filed a petition for the settlement of Vicente’s intestate estate. On the other hand, Manuel filed a petition to approve Vicente’s donation mortis causa in his favor and an action to annul the contracts of sale Vicente executed in favor of Dozen Corporation. These cases were jointly heard. The Regional Trial Court (RTC) dismissed Manuel’s petition to approve the donation and his action for

_______________ * THIRD DIVISION. 1 The deed of donation partly states that: [T]he DONOR, VICENTE S. ECHAVEZ, for and in consideration of the love and affection upon and unto the DONEE, MANUEL A. ECHAVEZ, and of the uncertainty of life and inevitableness of death that may strike a man at the most unexpected moment, and wishing to give DONEE while able to do so, to take effect after death, the DONOR, do hereby give, transfer and convey by way of donation the following personal and real properties to wit: x x x [Emphasis in the original.], Rollo, p. 90. 596 596SUPREME COURT REPORTS ANNOTATED Echavez vs. Dozen Construction and Development Corporation annulment of the contracts of sale.2 The RTC found that the execution of a Contract to Sell in favor of Dozen Corporation, after Vicente had donated the lots to Manuel, was an equivocal act that revoked the donation. The Court of Appeals (CA) affirmed the RTC’s decision.3 The CA held that since the donation in favor of Manuel was a donation mortis causa, compliance with the formalities for the validity of wills should have been observed. The CA found that the deed of donation did not contain an attestation clause and was therefore void. The Petition for Review on Certiorari Manuel claims that the CA should have applied the rule on substantial compliance in the construction of a will to Vicente’s donation mortis causa. He insists that the strict construction of a will was not warranted in the absence of any

indication of bad faith, fraud, or substitution in the execution of the Deed of Donation Mortis Causa. He argues that the CA ignored the Acknowledgment portion of the deed of donation, which contains the “import and purpose” of the attestation clause required in the execution of wills. The Acknowledgment reads: “BEFORE ME, Notary Public, this 7th day of September 1985 at Talisay, Cebu, personally appeared VICENTE S. Echavez with Res. Cert. No. 16866094 issued on April 10, 1985 at [sic] Talisay, Cebu known to me to be the same person who executed the foregoing instrument of Deed of Donation Mortis Causa before the Notary Public and in the presence of the foregoing three (3) witnesses who signed this instrument before and in the presence of each other and of the Notary Public and all of them acknowledge to me that the same is their voluntary act and deed.” [Emphasis in the original.] _______________ 2 In SP Proc. No. 1776-CEB dated December 27, 1996, Rollo, pp. 25-28. 3 In CA-G.R. CV No. 58328 dated May 29, 2000, id., at pp. 84-97. 597 VOL. 632, OCTOBER 11, 2010597 Echavez vs. Dozen Construction and Development Corporation The Court’s Ruling The CA correctly declared that a donation mortis causa must comply with the formalities prescribed by law for the validity of wills,4 “otherwise, the donation is void and would produce

no effect.”5 Articles 805 and 806 of the Civil Code should have been applied. As the CA correctly found, the purported attestation clause embodied in the Acknowledgment portion does not contain the number of pages on which the deed was written. The exception to this rule in Singson v. Florentino6 and Taboada v. Hon. Rosal,7 cannot be applied to the present case, as the facts of this case are not similar with those of Singson and Taboada. In those cases, the Court found that although the attestation clause failed to state the number of pages upon which the will was written, the number of pages was stated in one portion of the will. This is not the factual situation in the present case. Even granting that the Acknowledgment embodies what the attestation clause requires, we are not prepared to hold that an attestation clause and an acknowledgment can be merged in one statement. That the requirements of attestation and acknowledgment are embodied in two separate provisions of the Civil Code (Articles 805 and 806, respectively) indicates that the law contemplates two distinct acts that serve different purposes. An acknowledgment is made by one executing a deed, declaring before a competent officer or court _______________ 4 Civil Code, Article 728, which states: Donations which are to take effect upon the death of the donor partake the nature of testamentary provisions, and shall be governed by the rules established in the Title on Succession. 5 Maglasang v. Heirs of Corazon Cabatingan, G.R. No. 131953, June 5, 2002, 383 SCRA 6, citing The National Treasurer of the Phils. v. Vda. de Meimban, No. L-61023, August 22, 1984, 131 SCRA 264.

6 92 Phil. 161 (1952). 7 No. L-36033, November 5, 1982, 118 SCRA 195. 598 598SUPREME COURT REPORTS ANNOTATED Echavez vs. Dozen Construction and Development Corporation that the deed or act is his own. On the other hand, the attestation of a will refers to the act of the instrumental witnesses themselves who certify to the execution of the instrument before them and to the manner of its execution.8 Although the witnesses in the present case acknowledged the execution of the Deed of Donation Mortis Causa before the notary public, this is not the avowal the law requires from the instrumental witnesses to the execution of a decedent’s will. An attestation must state all the details the third paragraph of Article 805 requires. In the absence of the required avowal by the witnesses themselves, no attestation clause can be deemed embodied in the Acknowledgement of the Deed of Donation Mortis Causa. Finding no reversible error committed by the CA, the Court hereby DENIES Manuel’s petition for review on certiorari. SO ORDERED. Carpio-Morales, Bersamin, Villarama, Jr. and Sereno, JJ., concur. Petition denied. Note.—The donation being then mortis causa, the formalities of a will should have been observed but they were not, as it was witnessed by only two, not three or more witnesses following Article 805 of the Civil Code. (Aluad vs. Aluad, 569

SCRA 697 [2008]) ——o0o—— [Echavez vs. Dozen Construction and Development Corporation, 632 SCRA 594(2010)]

G.R. No. 169454. December 27, 2007.*THIRD DIVISION. THE HEIRS OF MARCELINO DORONIO, NAMELY: REGINA AND FLORA, BOTH SURNAMED DORONIO, petitioners, vs. HEIRS OF FORTUNATO DORONIO, NAMELY: TRINIDAD ROSALINA DORONIO-BALMES, MODING DORONIO, FLORENTINA DORONIO, AND ANICETA ALCANTARA-MANALO, respondents. Evidence; Documentary Evidence; Official Language; Presumptions; Where a document in unoffic ial language, not so accompanied with a translation in English or Filipino, is offered in evidence and not objected to, either by the parties or the court, it must be presumed that the language in which the document is written is understood by all, and the document is admissible in evidence.—The requirement that documents written in an unofficial language must be accompanied with a translation in English or Filipino as a prerequisite for its admission in evidence must be insisted upon by the parties at the trial to enable the court, where a translation has been impugned as incorrect, to decide the issue. Where such document, not so accompanied with a translation in English or Filipino, is offered in evidence and not objected to, either by the parties or the court, it must be presumed that the language in which the document is written is understood by all, and the document is admissible in evidence. Same; Same; Same; The rule is that evidence not objected to may be deemed admitted and may be validly considered by the court in arriving at its judgment.—Since petitioners did not object to the offer of said documentary evidence on time, it is now too late in the day for them to question its admissibility. The rule is that evidence not objected to may be deemed

admitted and may be validly considered by the court in arriving at its judgment. This is true even if by its nature, the evidence is inadmissible and would have surely been rejected if it had been challenged at the proper time. Same; Same; Same; Evidence that was not objected to becomes property of the case, and all parties to the case are considered amenable to any favorable or unfavorable effects resulting from said evi_______________ * THIRD DIVISION. 480 480 SUPREME COURT REPORTS ANNOTATED Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio dence.—Instead of objecting, petitioners admitted the contents of Exhibit “A,” that is, OCT No. 352 in their comment on respondents’ formal offer of documentary evidence. In the said comment, petitioners alleged, among others, that “Exhibits “A,” “B,” “C,” “D,” “E,” “F” and “G,” are admitted but not for the purpose they are offered because these exhibits being public and official documents are the best evidence of that they contain and not for what a party would like it to prove.” Said evidence was admitted by the RTC. Once admitted without objection, even though not admissible under an objection, We are not inclined now to reject it. Consequently, the evidence that was not objected to became property of the case, and all parties to the case are considered amenable to any favorable or unfavorable effects resulting from the said evidence. Special Proceedings; Probate; Settlement of Estate; Reconveyance; A probate court, in the exercise of its limited

jurisdiction, is the best forum to ventilate and adjudge the issue of impairment of legitime as well as other related matters involving the settlement of estate; An action for reconveyance with damages is a civil action, whereas matters relating to settlement of the estate of a deceased person such as advancement of property made by the decedent, partake of the nature of a special proceeding.—Petitioners are correct in alleging that the issue regarding the impairment of legitime of Fortunato Doronio must be resolved in an action for the settlement of estates of spouses Simeon Doronio and Cornelia Gante. It may not be passed upon in an action for reconveyance and damages. A probate court, in the exercise of its limited jurisdiction, is the best forum to ventilate and adjudge the issue of impairment of legitime as well as other related matters involving the settlement of estate. An action for reconveyance with damages is a civil action, whereas matters relating to settlement of the estate of a deceased person such as advancement of property made by the decedent, partake of the nature of a special proceeding. Special proceedings require the application of specific rules as provided for in the Rules of Court. Same; Same; Same; Before any conclusion about the legal share due to a compulsory heir may be reached, it is necessary that certain steps be taken first—the net estate of the decedent must be first ascertained by deducting all payable obligations and charges from the value of the property owned by the deceased at the time of his death, then, all donations subject to collation would be added to it.—We 481 VOL. 541, DECEMBER 27, 2007 481

Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio likewise find merit in petitioners’ contention that before any conclusion about the legal share due to a compulsory heir may be reached, it is necessary that certain steps be taken first. The net estate of the decedent must be ascertained, by deducting all payable obligations and charges from the value of the property owned by the deceased at the time of his death; then, all donations subject to collation would be added to it. With the partible estate thus determined, the legitime of the compulsory heir or heirs can be established; and only then can it be ascertained whether or not a donation had prejudiced the legitimes. Contracts; Void Contracts; Parties; A void contract is inexistent from the beginning, and the right to set up the defense of its illegality cannot be waived; Persons who are not parties in the deed of donation can set up its nullity if they are directly affected by the same.—We cannot agree with petitioners’ contention that respondents may no longer question the validity of the deed of donation on the ground that they already impliedly admitted it. Under the provisions of the Civil Code, a void contract is inexistent from the beginning. The right to set up the defense of its illegality cannot be waived. The right to set up the nullity of a void or non-existent contract is not limited to the parties as in the case of annullable or voidable contracts; it is extended to third persons who are directly affected by the contract. Consequently, although respondents are not parties in the deed of donation, they can set up its nullity because they are directly affected by the same. The

subject of the deed being the land they are occupying, its enforcement will definitely affect them. Quieting of Title; Declaratory Relief; Reformation; An action for quieting of title is a case for declaratory relief.—Petitioners cannot also use the finality of the RTC decision in Petition Case No. U-920 as a shield against the verification of the validity of the deed of donation. According to petitioners, the said final decision is one for quieting of title. In other words, it is a case for declaratory relief under Rule 64 (now Rule 63) of the Rules of Court. Same; Parties; Due Process; Suits to quiet title, being against the person in respect of the res, are proceedings characterized as quasi in rem—the judgment in such proceedings is conclusive only between the parties; Generally accepted is the principle that no man shall be affected by any proceeding to which he is a stranger, and strangers to a case are not bound by judgment rendered by the court.—Suits to 482 482 SUPREME COURT REPORTS ANNOTATED Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio quiet title are not technically suits in rem, nor are they, strictly speaking, in personam, but being against the person in respect of the res, these proceedings are characterized as quasi in rem. The judgment in such proceedings is conclusive only between the parties. Thus, respondents are not bound by the decision in Petition Case No. U-920 as they were not made parties in the said case. The rules on quieting of title expressly provide that any declaration in a suit to quiet title shall not prejudice persons who are not parties to the action. That respondents

filed a subsequent pleading in the same Petition Case No. U920 after the decision there had become final did not change the fact that said decision became final without their being impleaded in the case. Said subsequent pleading was dismissed on the ground of finality of the decision. Thus, the RTC totally failed to give respondents their day in court. As a result, they cannot be bound by its orders. Generally accepted is the principle that no man shall be affected by any proceeding to which he is a stranger, and strangers to a case are not bound by judgment rendered by the court. Judgments; Res Judicata; Elements.—For the principle of res judicata to apply, the following must be present: (1) a decision on the merits; (2) by a court of competent jurisdiction; (3) the decision is final; and (4) the two actions involve identical parties, subject matter and causes of action. The fourth element is not present in this case. The parties are not identical because respondents were not impleaded in Petition Case No. U-920. While the subject matter may be the same property covered by OCT No. 352, the causes of action are different. Petition Case No. U-920 is an action for declaratory relief while the case below is for recovery of property. Appeals; Procedural Rules and Technicalities; The Supreme Court can suspend its own rules and except a case from their operation whenever the higher interests of justice so demand.—We are not persuaded by petitioners’ posture that the only issue in this action for reconveyance is who has a better right over the land; and that the validity of the deed of donation is beside the point. It is precisely the validity and enforceability of the deed of donation that is the determining factor in resolving the issue of who has a better right over the

property. Moreover, notwithstanding procedural lapses as to the appropriateness of the remedies prayed for in the petition filed before Us, this Court can brush aside the technicalities in the inter483 VOL. 541, DECEMBER 27, 2007 483 Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio est of justice. In some instances, this Court even suspended its own rules and excepted a case from their operation whenever the higher interests of justice so demanded. Pleadings and Practice; Assignment of Errors; A rudimentary doctrine on appealed cases is that the Supreme Court is clothed with ample authority to review matters, even if they are not assigned as errors on appeal, if it finds that their consideration is necessary at arriving at a just decision of the case; An unassigned error closely related to an error properly assigned or upon which the determination of the question raised by the error properly assigned is dependent, will be considered by the appellate court notwithstanding the failure to assign it as an error.—Although respondents did not directly raise the issue of validity of the deed of donation at the commencement of the case before the trial court, it was stipulated by the parties during the pre-trial conference. In any event, this Court has authority to inquire into any question necessary in arriving at a just decision of a case before it. Though not specifically questioned by the parties, additional issues may also be included, if deemed important for substantial justice to be rendered. Furthermore, this Court has held that although a factual issue is not squarely raised below, still in the interest of

substantial justice, this Court is not prevented from considering a pivotal factual matter. 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. A rudimentary doctrine on appealed cases is that this Court is clothed with ample authority to review matters, even if they are not assigned as errors on appeal, if it finds that their consideration is necessary at arriving at a just decision of the case. Also, an unassigned error closely related to an error properly assigned or upon which the determination of the question raised by the error properly assigned is dependent, will be considered by the appellate court notwithstanding the failure to assign it as an error. Contracts; Donations; Statutes; It is settled that only laws existing at the time of the execution of a contract are applicable to it and not the later statutes, unless the latter are specifically intended to have retroactive effect.—We now focus on the crux of the petition, which is the validity of the deed of donation. It is settled that only laws existing at the time of the execution of a contract are applicable to it and not the later statutes, unless the latter are specifically 484 484 SUPREME COURT REPORTS ANNOTATED Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio intended to have retroactive effect. Accordingly, the Old Civil Code applies in this case as the donation propter nuptias was executed in 1919, while the New Civil Code took effect only on August 30, 1950.

Marriages; Donations; A donation of real estate propter nuptias is void unless made by public instrument.—Under the Old Civil Code, donations propter nuptias must be made in a public instrument in which the property donated must be specifically described. Article 1328 of the Old Civil Code provides that gifts propter nuptias are governed by the rules established in Title 2 of Book 3 of the same Code. Article 633 of that title provides that the gift of real property, in order to be valid, must appear in a public document. It is settled that a donation of real estate propter nuptias is void unless made by public instrument. In the instant case, the donation propter nuptias did not become valid. Neither did it create any right because it was not made in a public instrument. Hence, it conveyed no title to the land in question to petitioners’ predecessors. Land Titles and Deeds; Torrens System; Prescription; A title once registered under the torrens system cannot be defeated even by adverse, open and notorious possession, and neither can it be defeated by prescription.—The claim of respondents that they became owners of the property by acquisitive prescription has no merit. Truth to tell, respondents cannot successfully invoke the argument of extinctive prescription. They cannot be deemed the owners by acquisitive prescription of the portion of the property they have been possessing. The reason is that the property was covered by OCT No. 352. A title once registered under the torrens system cannot be defeated even by adverse, open and notorious possession; neither can it be defeated by prescription. It is notice to the whole world and as such all persons are bound by it and no one can plead ignorance of the registration.

Same; Same; The torrens system is intended to guarantee the integrity and conclusiveness of the certificate of registration, and it cannot be used for the perpetration of fraud against the real owner of the registered land.—The torrens system is intended to guarantee the integrity and conclusiveness of the certificate of registration, but it cannot be used for the perpetration of fraud against the real owner of the registered land. The system merely confirms ownership and does not create it. Certainly, it cannot be used to divest the lawful owner of his title for the purpose of transferring it to another who 485 VOL. 541, DECEMBER 27, 2007 485 Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio has not acquired it by any of the modes allowed or recognized by law. It cannot be used to protect a usurper from the true owner, nor can it be used as a shield for the commission of fraud; neither does it permit one to enrich himself at the expense of another. Where such an illegal transfer is made, as in the case at bar, the law presumes that no registration has been made and so retains title in the real owner of the land. PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. De Guzman, Marinas, Soriano and Uglay Law Offices for petitioners. Public Attorney’s Office for respondent. REYES, J.: For Our review on certiorari is the Decision1Rollo, pp. 39-51. Dated January 26, 2005 in CA-G.R. CV No. 76200 entitled

“Heirs of Fortunato Doronio v. Heirs of Marcelino Doronio, et al.” Penned by Associate Justice Vicente S.E. Veloso, with Associate Justices Roberto A. Barrios and Amelita... of the Court of Appeals (CA) reversing that2Records, pp. 344-356. Dated June 28, 2002 in Civil Case No. U-6498. Penned by Judge Joven F. Costales. of the Regional Trial Court (RTC), Branch 45, Anonas, Urdaneta City, Pangasinan, in an action for reconveyance and damages. The CA declared respondents as rightful owners of one-half of the subject property and directed petitioners to execute a registerable document conveying the same to respondents. The Facts Spouses Simeon Doronio and Cornelia Gante, now both deceased, were the registered owners of a parcel of land located at Barangay Cabalitaan, Asingan, Pangasinan covered by _______________ 1 Rollo, pp. 39-51. Dated January 26, 2005 in CA-G.R. CV No. 76200 entitled “Heirs of Fortunato Doronio v. Heirs of Marcelino Doronio, et al.” Penned by Associate Justice Vicente S.E. Veloso, with Associate Justices Roberto A. Barrios and Amelita G. Tolentino, concurring. 2 Records, pp. 344-356. Dated June 28, 2002 in Civil Case No. U-6498. Penned by Judge Joven F. Costales. 486 486 SUPREME COURT REPORTS ANNOTATED Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio

Original Certificate of Title (OCT) No. 352.3Rollo, pp. 43-44, 48-49. The courts below described it as follows: “Un terreno (Lote 1018), situada en el municipio de Asingan, Linda por el NE; con propriedad de Gabriel Bernardino; con el SE con propriedad de Zacarias Najorda y Alejandro Najorda; por el SO con propriedad de Geminiano Mendoza y por el NO con el camino para Villasis; midiendo una extens ion superficial mil ciento cincuenta y dos metros cuadrados.”4Id., at pp. 48-49; Exhibits “A” & “7.... The spouses had children but the records fail to disclose their number. It is clear, however, that Marcelino Doronio and Fortunato Doronio, now both deceased, were among them and that the parties in this case are their heirs. Petitioners are the heirs of Marcelino Doronio, while respondents are the heirs of Fortunato Doronio. On April 24, 1919, a private deed of donation propter nuptias5Id., at p. 48; Exhibit “D.... was executed by spouses Simeon Doronio and Cornelia Gante in favor of Marcelino Doronio and the latter’s wife, Veronica Pico. One of the properties subject of said deed of donation is the one that it described as follows: “Fourth—A piece of residential land located in the barrio of Cabalitian but we did not measure it, the area is bounded on the north by Gabriel Bernardino; on the east by Fortunato Doronio; on the south by Geminiano Mendoza and on the west by a road to Villasis. Constructed on said land is a house of light materials—also a part of the dowry. Value …200.00.”6Id., at p. 49; Exhibits “D-4” & “6.... It appears that the property described in the deed of donation is the one covered by OCT No. 352. However, there is a

significant discrepancy with respect to the identity of the owner of adjacent property at the eastern side. Based on OCT No. 352, the adjacent owners are Zacarias Najorda and Ale_______________ 3 Rollo, pp. 43-44, 48-49. 4 Id., at pp. 48-49; Exhibits “A” & “7.” 5 Id., at p. 48; Exhibit “D.” 6 Id., at p. 49; Exhibits “D-4” & “6.” 487 VOL. 541, DECEMBER 27, 2007 487 Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio jandro Najorda, whereas based on the deed of donation, the owner of the adjacent property is Fortunato Doronio. Furthermore, said deed of donation remained a private document as it was never notarized.7Id.; CA Rollo, pp. 37-38. Both parties have been occupying the subject land for several decades8Id., at p. 44. although they have different theories regarding its present ownership. According to petitioners, they are now the owners of the entire property in view of the private deed of donation propter nuptias in favor of their predecessors, Marcelino Doronio and Veronica Pico. Respondents, on the other hand, claim that only half of the property was actually incorporated in the said deed of donation because it stated that Fortunato Doronio, instead of Zacarias Najorda and Alejandro Najorda, is the owner of the adjacent property at the eastern side. Respondents posit that the donors respected and segregated the possession of Fortunato Doronio of the eastern half of the land. They are the ones who have

been possessing said land occupied by their predecessor, Fortunato Doronio. Eager to obtain the entire property, the heirs of Marcelino Doronio and Veronica Pico filed, on January 11, 1993, before the RTC in Urdaneta, Pangasinan a petition “For the Registration of a Private Deed of Donation”9Id., at pp. 42-43; Exhibit “5.... docketed as Petition Case No. U-920. No respondents were named in the said petition10Id., at p. 45. although notices of hearing were posted on the bulletin boards of Barangay Cabalitaan, Municipalities of Asingan and Lingayen.11Id. During the hearings, no one interposed an objection to the petition.12Id. After the RTC ordered a general default,13Id. the peti_______________ 7 Id.; CA Rollo, pp. 37-38. 8 Id., at p. 44. 9 Id., at pp. 42-43; Exhibit “5.” 10 Id., at p. 45. 11 Id. 12 Id. 13 Id. 488 488 SUPREME COURT REPORTS ANNOTATED Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio tion was eventually granted on September 22, 1993. This led to the registration of the deed of donation, cancellation of OCT No. 352 and issuance of a new Transfer Certificate of Title

(TCT) No. 44481 in the names of Marcelino Doronio and Veronica Pico.14Id. Thus, the entire property was titled in the names of petitioners’ predecessors. On April 28, 1994, the heirs of Fortunato Doronio filed a pleading before the RTC in the form of a petition in the same Petition Case No. U-920. The petition was for the reconsideration of the decision of the RTC that ordered the registration of the subject deed of donation. It was prayed in the petition that an order be issued declaring null and void the registration of the private deed of donation and that TCT No. 44481 be cancelled. However, the petition was dismissed on May 13, 1994 on the ground that the decision in Petition Case No. U-920 had already become final as it was not appealed. Determined to remain in their possessed property, respondent heirs of Fortunato Doronio (as plaintiffs) filed an action for reconveyance and damages with prayer for preliminary injunction15Civil Case No. U-6498. against petitioner heirs of Marcelino Doronio (as defendants) before the RTC, Branch 45, Anonas, Urdaneta City, Pangasinan. Respondents contended, among others, that the subject land is different from what was donated as the descriptions of the property under OCT No. 352 and under the private deed of donation were different. They posited that spouses Simeon Doronio and Cornelia Gante intended to donate only one-half of the property. During the pre-trial conference, the parties stipulated, among others, that the property was originally covered by OCT No. 352 which was cancelled by TCT No. 44481. They also agreed that the issues are: (1) whether or not there was a variation in the description of the property subject of the private deed of donation and OCT No. 352; (2) whether or not

_______________ 14 Id. 15 Civil Case No. U-6498. 489 VOL. 541, DECEMBER 27, 2007 489 Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio respondents had acquired one-half of the property covered by OCT No. 352 by acquisitive prescription; (3) whether or not the transfer of the whole property covered by OCT No. 352 on the basis of the registration of the private deed of donation notwithstanding the discrepancy in the description is valid; (4) whether or not respondents are entitled to damages; and (5) whether or not TCT No. 44481 is valid.16Records, pp. 134135. RTC Decision After due proceedings, the RTC ruled in favor of petitioner heirs of Marcelino Doronio (defendants). It concluded that the parties admitted the identity of the land which they all occupy;17CA Rollo, p. 43; id., at p. 354. that a title once registered under the torrens system cannot be defeated by adverse, open and notorious possession or by prescription;18Id., at pp. 44-45; id., at pp. 354-356. that the deed of donation in consideration of the marriage of the parents of petitioners is valid, hence, it led to the eventual issuance of TCT No. 44481 in the names of said parents;19Id., at p. 45; id., at pp. 355-356. and that respondent heirs of Fortunato Doronio (plaintiffs) are not entitled to damages as they are not the

rightful owners of the portion of the property they are claiming.20Id., at p. 46; id., at p. 356. The RTC disposed of the case, thus: “WHEREFORE, premises considered, the Court hereby renders judgment DISMISSING the herein Complaint filed by plaintiffs against defendants.”21Id. Disagreeing with the judgment of the RTC, respondents appealed to the CA. They argued that the trial court erred in not finding that respondents’ predecessor-in-interest acquired _______________ 16 Records, pp. 134-135. 17 CA Rollo, p. 43; id., at p. 354. 18 Id., at pp. 44-45; id., at pp. 354-356. 19 Id., at p. 45; id., at pp. 355-356. 20 Id., at p. 46; id., at p. 356. 21 Id. 490 490 SUPREME COURT REPORTS ANNOTATED Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio one-half of the property covered by OCT No. 352 by tradition and/or intestate succession; that the deed of donation dated April 26, 1919 was null and void; that assuming that the deed of donation was valid, only one-half of the property was actually donated to Marcelino Doronio and Veronica Pico; and that respondents acquired ownership of the other half portion of the property by acquisitive prescription.22Id., at pp. 46-47; CA Rollo, pp. 19-20. CA Disposition

In a Decision dated January 26, 2005, the CA reversed the RTC decision with the following disposition: “WHEREFORE, the assailed Decision dated June 28, 2002 is REVERSED and SET ASIDE. Declaring the appellants as rightful owners of one-half of the property now covered by TCT No. 44481, the appellees are hereby directed to execute a registerable document conveying the same to appellants. SO ORDERED.”23Id., at p. 51. The appellate court determined that “(t)he intention to donate half of the disputed property to appellees’ predecessors can be gleaned from the disparity of technical descriptions appearing in the title (OCT No. 352) of spouses Simeon Doronio and Cornelia Gante and in the deed of donation propter nuptias executed on April 24, 1919 in favor of appellees’ predecessors.”24Id., at p. 48; CA Rollo, p. 100. The CA based its conclusion on the disparity of the following technical descriptions of the property under OCT No. 352 and the deed of donation, to wit: “The court below described the property covered by OCT No. 352 as follows: _______________ 22 Id., at pp. 46-47; CA Rollo, pp. 19-20. 23 Id., at p. 51. 24 Id., at p. 48; CA Rollo, p. 100. 491 VOL. 541, DECEMBER 27, 2007 491 Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio

“Un terreno (Lote 1018), situada en el municipio de Asingan, Linda por el NE; con propriedad de Gabriel Bernardino; con el SE con propriedad de Zacarias Najorda y Alejandro Najorda; por el SO con propriedad de Geminiano Mendoza y por el NO con el camino para Villasis; midiendo una extension superficial mil ciento cincuenta y dos metros cuadrados.” On the other hand, the property donated to appellees’ predecessors was described in the deed of donation as: “Fourth—A piece of residential land located in the barrio of Cabalitian but we did not measure it, the area is bounded on the north by Gabriel Bernardino; on the east by Fortunato Doronio; on the south by Geminiano Mendoza and on the west by a road to Villasis. Constructed on said land is a house of light materials—also a part of the dowry. Value …200.00.”25Id., at pp. 48-49; id., at pp. 100-101. (Emphasis ours) Taking note “that the boundaries of the lot donated to Marcelino Doronio and Veronica Pico differ from the boundaries of the land owned by spouses Simeon Doronio and Cornelia Gante,” the CA concluded that spouses Simeon Doronio and Cornelia Gante donated only half of the property covered by OCT No. 352.26Id. Regarding the allegation of petitioners that OCT No. 352 is inadmissible in evidence, the CA pointed out that, “while the OCT is written in the Spanish language, this document already forms part of the records of this case for failure of appellees to interpose a timely objection when it was offered as evidence in the proceedings a quo. It is a well-settled rule that any objection to the admissibility of such evidence not raised will be considered waived and said evidence will have to form part

of the records of the case as competent and admitted evidence.”27Id., at pp. 49-50; CA Rollo, pp. 101-102. _______________ 25 Id., at pp. 48-49; id., at pp. 100-101. 26 Id. 27 Id., at pp. 49-50; CA Rollo, pp. 101-102. 492 492 SUPREME COURT REPORTS ANNOTATED Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio The CA likewise ruled that the donation of the entire property in favor of petitioners’ predecessors is invalid on the ground that it impairs the legitime of respondents’ predecessor, Fortunato Doronio. On this aspect, the CA reasoned out: “Moreover, We find the donation of the entire property in favor of appellees’ predecessors invalid as it impairs the legitime of appellants’ predecessor. Article 961 of the Civil Code is explicit. “In default of testamentary heirs, the law vests the inheritance, x x x, in the legitimate x x x relatives of the deceased, x x x.” As Spouses Simeon Doronio and Cornelia Gante died intestate, their property shall pass to their lawful heirs, namely: Fortunato and Marcelino Doronio. Donating the entire property to Marcelino Doronio and Veronica Pico and excluding another heir, Fortunato, tantamounts to divesting the latter of his rightful share in his parents’ inheritance. Besides, a person’s prerogative to make donations is subject to certain limitations, one of which is that he cannot give by donation more than what he can give by will (Article 752, Civil Code). If he does, so much of what is donated as exceeds what he can

give by will is deemed inofficious and the donation is reducible to the extent of such excess.”28Id., at p. 50; id., at p. 102. Petitioners were not pleased with the decision of the CA. Hence, this petition under Rule 45. Issues Petitioners now contend that the CA erred in: 1. DECLARING ADMISSIBILITY OF THE ORIGINAL CERTIFICATE OF TITLE NO. 352 DESPITE OF LACK OF TRANSLATION THEREOF. 2. (RULING THAT) ONLY HALF OF THE DISPUTED PROPERTY WAS DONATED TO THE PREDECESSORSIN-INTEREST OF THE HEREIN APPELLANTS. _______________ 28 Id., at p. 50; id., at p. 102. 493 VOL. 541, DECEMBER 27, 2007 493 Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio 3. (ITS) DECLARATION THAT THE DONATION PROPTER NUPTIAS IS INNOFICIOUS, IS PREMATURE, AND THUS IT IS ILLEGAL AND UNPROCEDURAL.29Id., at p. 13. Our Ruling OCT No. 352 in Spanish Although Not Translated into English or Filipino Is Admissible For Lack of Timely Objection Petitioners fault the CA for admitting OCT No. 352 in evidence on the ground that it is written in Spanish language. They posit that “(d)ocumentary evidence in an unofficial

language shall not be admitted as evidence, unless accompanied with a translation into English or Filipino.”30Id., at p. 24. The argument is untenable. The requirement that documents written in an unofficial language must be accompanied with a translation in English or Filipino as a prerequisite for its admission in evidence must be insisted upon by the parties at the trial to enable the court, where a translation has been impugned as incorrect, to decide the issue.31Francisco, V.J., THE REVISED RULES OF COURT IN THE PHILIPPINES, Vol. VII, Part II, 1991 ed., p. 389. Where such document, not so accompanied with a translation in English or Filipino, is offered in evidence and not objected to, either by the parties or the court, it must be presumed that the language in which the document is written is understood by all, and the document is admissible in evidence.32Id. Moreover, Section 36, Rule 132 of the Revised Rules of Evidence provides: “SECTION 36. Objection.—Objection to evidence offered orally must be made immediately after the offer is made. _______________ 29 Id., at p. 13. 30 Id., at p. 24. 31 Francisco, V.J., THE REVISED RULES OF COURT IN THE PHILIPPINES, Vol. VII, Part II, 1991 ed., p. 389. 32 Id. 494 494 SUPREME COURT REPORTS ANNOTATED Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio

Objection to a question propounded in the course of the oral examination of a witness shall be made as soon as the grounds therefor shall become reasonably apparent. An offer of evidence in writing shall be objected to within three (3) days after notice of the offer unless a different period is allowed by the court. In any case, the grounds for the objections must be specified.” (Emphasis ours) Since petitioners did not object to the offer of said documentary evidence on time, it is now too late in the day for them to question its admissibility. The rule is that evidence not objected to may be deemed admitted and may be validly considered by the court in arriving at its judgment.33People v. Pansensoy, G.R. No. 140634, September 12, 2002, 388 SCRA 669, 689; People v. Barellano, G.R. No. 121204, December 2, 1999, 319 SCRA 567, 590. This is true even if by its nature, the evidence is inadmissible and would have surely been rejected if it had been challenged at the proper time.34Interpacific Transit, Inc. v. Aviles, G.R. No. 86062, June 6, 1990, 186 SCRA 385, 390. As a matter of fact, instead of objecting, petitioners admitted the contents of Exhibit “A,” that is, OCT No. 352 in their comment35Records, p. 188. on respondents’ formal offer of documentary evidence. In the said comment, petitioners alleged, among others, that “Exhibits “A,” “B,” “C,” “D,” “E,” “F” and “G,” are admitted but not for the purpose they are offered because these exhibits being public and official documents are the best evidence of that they contain and not for what a party would like it to prove.”36Id. Said evidence

was admitted by the RTC.37Id., at p. 189. Once admitted without objection, even though not admissible under an objection, We are not inclined now to _______________ 33 People v. Pansensoy, G.R. No. 140634, September 12, 2002, 388 SCRA 669, 689; People v. Barellano, G.R. No. 121204, December 2, 1999, 319 SCRA 567, 590. 34 Interpacific Transit, Inc. v. Aviles, G.R. No. 86062, June 6, 1990, 186 SCRA 385, 390. 35 Records, p. 188. 36 Id. 37 Id., at p. 189. 495 VOL. 541, DECEMBER 27, 2007 495 Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio reject it.38Interpacific Transit, Inc. v. Aviles, supra. Consequently, the evidence that was not objected to became property of the case, and all parties to the case are considered amenable to any favorable or unfavorable effects resulting from the said evidence.39Quebral v. Court of Appeals , G.R. No. 101941, January 25, 1996, 252 SCRA 353, 365. Issues on Impairment of Legitime Should Be Threshed Out in a Spe cial Proceeding, Not in Civil Action for Reconveyance and Damages On the other hand, petitioners are correct in alleging that the issue regarding the impairment of legitime of Fortunato Doronio must be resolved in an action for the settlement of

estates of spouses Simeon Doronio and Cornelia Gante. It may not be passed upon in an action for reconveyance and damages. A probate court, in the exercise of its limited jurisdiction, is the best forum to ventilate and adjudge the issue of impairment of legitime as well as other related matters involving the settlement of estate.40Natcher v. Court of Appeals, G.R. No. 133000, October 2, 2001, 366 SCRA 385, 394. An action for reconveyance with damages is a civil action, whereas matters relating to settlement of the estate of a deceased person such as advancement of property made by the decedent, partake of the nature of a special proceeding. Special proceedings require the application of specific rules as provided for in the Rules of Court.41Id., at p. 392. As explained by the Court in Natcher v. Court of Appeals:42Supra at pp. 391-392. Section 3, Rule 1 of the 1997 Rules of Civil Procedure defines civil action and special proceedings, in this wise: _______________ 38 Interpacific Transit, Inc. v. Aviles, supra. 39 Quebral v. Court of Appeals , G.R. No. 101941, January 25, 1996, 252 SCRA 353, 365. 40 Natcher v. Court of Appeals, G.R. No. 133000, October 2, 2001, 366 SCRA 385, 394. 41 Id., at p. 392. 42 Supra at pp. 391-392. 496 496 SUPREME COURT REPORTS ANNOTATED Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio

x x x a) A civil action is one by which a party sues another for the enforcement or protection of a right, or the prevention or redress of a wrong. A civil action may either be ordinary or special. Both are governed by the rules for ordinary civil actions, subject to specific rules prescribed for a special civil action. xxxx c) A special proceeding is a remedy by which a party seeks to establish a status, a right or a particular fact. As could be gleaned from the foregoing, there lies a marked distinction between an action and a special proceeding. An action is a formal demand of one’s right in a court of justice in the manner prescribed by the court or by the law. It is the method of applying legal remedies according to definite established rules. The term “special proceeding” may be defined as an application or proceeding to establish the status or right of a party, or a particular fact. Usually, in special proceedings, no formal pleadings are required unless the statute expressly so provides. In special proceedings, the remedy is granted generally upon an application or motion. Citing American Jurisprudence, a noted authority in Remedial Law expounds further: It may accordingly be stated generally that actions include those proceedings which are instituted and prosecuted according to the ordinary rules and provisions relating to actions at law or suits in equity, and that special proceedings include those proceedings which are not ordinary in this sense, but is instituted and prosecuted according to some special mode as in the case of proceedings commenced without summons and prosecuted without regular pleadings, which are

characteristics of ordinary actions x x x. A special proceeding must therefore be in the nature of a distinct and independent proceeding for particular relief, such as may be instituted independently of a pending action, by petition or motion upon notice. Applying these principles, an action for reconveyance and annulment of title with damages is a civil action, whereas matters relating to settlement of the estate of a deceased person such as advancement of property made by the decedent, partake of the na497 VOL. 541, DECEMBER 27, 2007 497 Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio ture of a special proceeding, which concomitantly requires the application of specific rules as provided for in the Rules of Court. Clearly, matters which involve settlement and distribution of the estate of the decedent fall within the exclusive province of the probate court in the exercise of its limited jurisdiction. Thus, under Section 2, Rule 90 of the Rules of Court, questions as to advancement made or alleged to have been made by the deceased to any heir may be heard and determined by the court having jurisdiction of the estate proceedings, and the final order of the court thereon shall be binding on the person raising the questions and on the heir. While it may be true that the Rules used the word “may,” it is nevertheless clear that the same provision contemplates a

probate court when it speaks of the “court having jurisdiction of the estate proceedings.” Corollarily, the Regional Trial Court in the instant case, acting in its general jurisdiction, is devoid of authority to render an adjudication and resolve the issue of advancement of the real property in favor of herein petitioner Natcher, inasmuch as Civil Case No. 71075 for reconveyance and annulment of title with damages is not, to our mind, the proper vehicle to thresh out said question. Moreover, under the present circumstances, the RTC of Manila, Branch 55, was not properly constituted as a probate court so as to validly pass upon the question of advancement made by the decedent Graciano Del Rosario to his wife, herein petitioner Natcher.” We likewise find merit in petitioners’ contention that before any conclusion about the legal share due to a compulsory heir may be reached, it is necessary that certain steps be taken first.43Natcher v. Court of Appeals, supra note 40, at p. 394; Pagkatipunan v. Intermediate Appellate Court, G.R. No. 70722, July 3, 1991, 198 SCRA 719, 729. The net estate of the decedent must be ascertained, by deducting all payable obligations and charges from the value of the property owned by the deceased at the time of his death; then, all donations subject to collation would be added to it. With the partible estate thus determined, the legitime of the compulsory heir or heirs can be established; _______________ 43 Natcher v. Court of Appeals, supra note 40, at p. 394; Pagkatipunan v. Intermediate Appellate Court, G.R. No. 70722, July 3, 1991, 198 SCRA 719, 729.

498 498 SUPREME COURT REPORTS ANNOTATED Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio and only then can it be ascertained whether or not a donation had prejudiced the legitimes.44Id.; Mateo v. Lagua, G.R. No. L-26270, October 30, 1969, 29 SCRA 864, 870. Declaration of Validity of Donation Can Be Challenged by an Interested Party Not Impleaded in Petition for Quieting of Title or Declaratory Relief or Where There is No Res Judicata. Moreover, This Court Can Consider a Factual Matter or Unassigned Error in the Interest of Substantial Justice. Nevertheless, petitioners cannot preclude the determination of validity of the deed of donation on the ground that (1) it has been impliedly admitted by respondents; (2) it has already been determined with finality by the RTC in Petition Case No. U920; or (3) the only issue in an action for reconveyance is who has a better right over the land.45Rollo, p. 148. The validity of the private deed of donation propter nuptias in favor of petitioners’ predecessors was one of the issues in this case before the lower courts. The pre-trial order46Records, pp. 134-135. of the RTC stated that one of the issues before it is “(w)hether or not the transfer of the whole property covered by OCT No. 352 on the basis of the private deed of donation notwithstanding the discrepancy in the description is valid.” Before the CA, one of the errors assigned by respondents is that “THE TRIAL COURT ERRED IN NOT FINDING THAT

THE PRIVATE DEED OF DONATION DATED APRIL 26, 1919 WAS NULL AND VOID.”47Rollo, pp. 46-47. _______________ 44 Id.; Mateo v. Lagua, G.R. No. L-26270, October 30, 1969, 29 SCRA 864, 870. 45 Rollo, p. 148. 46 Records, pp. 134-135. 47 Rollo, pp. 46-47. 499 VOL. 541, DECEMBER 27, 2007 499 Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio The issue of the validity of donation is likewise brought to Us by petitioners as they stated in their Memorandum48Id., at p. 144. that one of the issues to be resolved is regarding the alleged fact that “THE HONORABLE COURT OF APPEALS ERRED IN FINDING THE DONATION INVALID.” We are thus poised to inspect the deed of donation and to determine its validity. We cannot agree with petitioners’ contention that respondents may no longer question the validity of the deed of donation on the ground that they already impliedly admitted it. Under the provisions of the Civil Code, a void contract is inexistent from the beginning. The right to set up the defense of its illegality cannot be waived.49CIVIL CODE, Art. 1409. The right to set up the nullity of a void or non-existent contract is not limited to the parties as in the case of annullable or voidable contracts; it is extended to third persons who are directly affected by the contract.50Manotok Realty, Inc. v. Court of Appeals, G.R. No.

L-45038, April 30, 1987, 149 SCRA 372, 377, citing Tolentino, Civil Code of the Philippines, Vol. IV, 1973 ed., p. 604. Consequently, although respondents are not parties in the deed of donation, they can set up its nullity because they are directly affected by the same.51Arsenal v. Intermediate Appellate Court, G.R. No. L-66696, July 14, 1986, 143 SCRA 40, 49, citing Tolentino, Civil Code of the Philippines, Vol. IV, 1973 ed., p. 604. The subject of the deed being the land they are occupying, its enforcement will definitely affect them. Petitioners cannot also use the finality of the RTC decision in Petition Case No. U-92052Records, p. 14; Exhibit “C.” Entitled “For the Registration of a Private Deed of Donation— The Heirs of Veronica Pico.... as a shield against the verification of the validity of the deed of donation. According to petitioners, the said final decision is one for quieting of title.53Rollo, p. 143. In _______________ 48 Id., at p. 144. 49 CIVIL CODE, Art. 1409. 50 Manotok Realty, Inc. v. Court of Appeals, G.R. No. L45038, April 30, 1987, 149 SCRA 372, 377, citing Tolentino, Civil Code of the Philippines, Vol. IV, 1973 ed., p. 604. 51 Arsenal v. Intermediate Appellate Court, G.R. No. L-66696, July 14, 1986, 143 SCRA 40, 49, citing Tolentino, Civil Code of the Philippines, Vol. IV, 1973 ed., p. 604. 52 Records, p. 14; Exhibit “C.” Entitled “For the Registration of a Private Deed of Donation—The Heirs of Veronica Pico.” 53 Rollo, p. 143.

500 500 SUPREME COURT REPORTS ANNOTATED Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio other words, it is a case for declaratory relief under Rule 64 (now Rule 63) of the Rules of Court, which provides: “SECTION 1. Who may file petition.—Any person interested under a deed, will, contract or other written instrument, or whose rights are affected by a statute, executive order or regulation, or ordinance, may, before breach or violation thereof, bring an action to determine any question of construction or validity arising under the instrument or statute and for a declaration of his rights or duties thereunder. An action for the reformation of an instrument, to quiet title to real property or remove clouds therefrom, or to consolidate ownership under Article 1607 of the Civil Code, may be brought under this rule. SECTION 2. Parties.—All persons shall be made parties who have or claim any interest which would be affected by the declaration; and no declaration shall, except as otherwise provided in these rules, prejudice the rights of persons not parties to the action.” (Emphasis ours) However, respondents were not made parties in the said Petition Case No. U-920. Worse, instead of issuing summons to interested parties, the RTC merely allowed the posting of notices on the bulletin boards of Barangay Cabalitaan, Municipalities of Asingan and Lingayen, Pangasinan. As pointed out by the CA, citing the ruling of the RTC: “x x x In the said case or Petition No. U-920, notices were posted on the bulletin boards of barangay Cabalitaan,

Municipalities of Asingan and Lingayen, Pangasinan, so that there was a notice to the whole world and during the initial hearing and/or hearings, no one interposed objection thereto.”54Id., at p. 45; CA Rollo, p. 97. Suits to quiet title are not technically suits in rem, nor are they, strictly speaking, in personam, but being against the person in respect of the res, these proceedings are character_______________ 54 Id., at p. 45; CA Rollo, p. 97. 501 VOL. 541, DECEMBER 27, 2007 501 Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio ized as quasi in rem.55Realty Sales Enterprise, Inc. v. Intermediate Appellate Court, G.R. No. L-67451, September 28, 1987, 154 SCRA 328, 348, citing McDaniel v. McElvy, 108 So. 820 (1926). The judgment in such proceedings is conclusive only between the parties.56Foster-Gallego v. Galang, G.R. No. 130228, July 27, 2004, 435 SCRA 275, 293; id.; Sandejas v. Robles, 81 Phil. 421, 424 (1948). Thus, respondents are not bound by the decision in Petition Case No. U-920 as they were not made parties in the said case. The rules on quieting of title57RULES OF COURT, Rule 64. expressly provide that any declaration in a suit to quiet title shall not prejudice persons who are not parties to the action. That respondents filed a subsequent pleading58Rollo, p. 45; Records, pp. 111-113. in the same Petition Case No. U-920 after the decision there had become final did not change the fact that said decision became final without their being

impleaded in the case. Said subsequent pleading was dismissed on the ground of finality of the decision.59Id.; CA Rollo, p. 97. Thus, the RTC totally failed to give respondents their day in court. As a result, they cannot be bound by its orders. Generally accepted is the principle that no man shall be affected by any proceeding to which he is a stranger, and strangers to a case are not bound by judgment rendered by the court.60Domingo v. Scheer, G.R. No. 154745, January 29, 2004, 421 SCRA 468, 483; Matuguina Integrated Wood Products, Inc. v. Court of Appeals, G.R. No. 98310, October 24, 1996, 263 SCRA 490, 505-506. Moreover, for the principle of res judicata to apply, the following must be present: (1) a decision on the merits; (2) by a court of competent jurisdiction; (3) the decision is final; and (4) the two actions involve identical parties, subject matter _______________ 55 Realty Sales Enterprise, Inc. v. Intermediate Appellate Court, G.R. No. L-67451, September 28, 1987, 154 SCRA 328, 348, citing McDaniel v. McElvy, 108 So. 820 (1926). 56 Foster-Gallego v. Galang, G.R. No. 130228, July 27, 2004, 435 SCRA 275, 293; id.; Sandejas v. Robles, 81 Phil. 421, 424 (1948). 57 RULES OF COURT, Rule 64. 58 Rollo, p. 45; Records, pp. 111-113. 59 Id.; CA Rollo, p. 97. 60 Domingo v. Scheer, G.R. No. 154745, January 29, 2004, 421 SCRA 468, 483; Matuguina Integrated Wood Products, Inc. v. Court of Appeals, G.R. No. 98310, October 24, 1996, 263 SCRA 490, 505-506.

502 502 SUPREME COURT REPORTS ANNOTATED Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio and causes of action.61Alejandrino v. Court of Appeals, G.R. No. 114151, September 17, 1998, 295 SCRA 536, 554; Bernardo v. National Labor Relations Commission, G.R. No. 105819, March 15, 1996, 255 SCRA 108, 118. The fourth element is not present in this case. The parties are not identical because respondents were not impleaded in Petition Case No. U-920. While the subject matter may be the same property covered by OCT No. 352, the causes of action are different. Petition Case No. U-920 is an action for declaratory relief while the case below is for recovery of property. We are not persuaded by petitioners’ posture that the only issue in this action for reconveyance is who has a better right over the land; and that the validity of the deed of donation is beside the point.62Rollo, p. 148. It is precisely the validity and enforceability of the deed of donation that is the determining factor in resolving the issue of who has a better right over the property. Moreover, notwithstanding procedural lapses as to the appropriateness of the remedies prayed for in the petition filed before Us, this Court can brush aside the technicalities in the interest of justice. In some instances, this Court even suspended its own rules and excepted a case from their operation whenever the higher interests of justice so demanded.63Government of the United States of America v. Purganan, G.R. No. 148571, September 24, 2002, 389 SCRA 623, 651; Fortich v. Corona, G.R. No. 131457, April 24, 1998,

289 SCRA 624, 646; Piczon v. Court of Appeals, G.R. Nos. 76378-81, September 24, 1990, 190 S... Moreover, although respondents did not directly raise the issue of validity of the deed of donation at the commencement of the case before the trial court, it was stipulated64Records, p. 134. by the parties during the pre-trial conference. In any event, this Court has authority to inquire into any question necessary in _______________ 61 Alejandrino v. Court of Appeals, G.R. No. 114151, September 17, 1998, 295 SCRA 536, 554; Bernardo v. National Labor Relations Commission, G.R. No. 105819, March 15, 1996, 255 SCRA 108, 118. 62 Rollo, p. 148. 63 Government of the United States of America v. Purganan, G.R. No. 148571, September 24, 2002, 389 SCRA 623, 651; Fortich v. Corona, G.R. No. 131457, April 24, 1998, 289 SCRA 624, 646; Piczon v. Court of Appeals, G.R. Nos. 7637881, September 24, 1990, 190 SCRA 31, 38. 64 Records, p. 134. 503 VOL. 541, DECEMBER 27, 2007 503 Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio arriving at a just decision of a case before it.65Serrano v. National Labor Relations Commission, G.R. No. 117040, May 4, 2000, 331 SCRA 331, 338, citing Korean Airlines Co., Ltd. v. Court of Appeals|, G.R. Nos. 114061 & 113842, August 3, 1994, 234 SCRA 717, 725; Vda. de Javellana v. Court of Appeals... Though not specifically questioned by the parties,

additional issues may also be included, if deemed important for substantial justice to be rendered.66Velarde v. Social Justice Society, G.R. No. 159357, April 28, 2004, 428 SCRA 283, 312. Furthermore, this Court has held that although a factual issue is not squarely raised below, still in the interest of substantial justice, this Court is not prevented from considering a pivotal factual matter. 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.67Abra Valley College, Inc. v. Aquino, G.R. No. L39086, June 15, 1988, 162 SCRA 106, 116; Perez v. Court of Appeals, G.R. No. L-56101, February 20, 1984, 127 SCRA 636, 645. A rudimentary doctrine on appealed cases is that this Court is clothed with ample authority to review matters, even if they are not assigned as errors on appeal, if it finds that their consideration is necessary at arriving at a just decision of the case.68Nordic Asia Limited v. Court of Appeals, G.R. No. 111159, June 10, 2003, 403 SCRA 390, 396. Also, an unassigned error closely related to an error properly assigned or upon which the determination of the question raised by the error properly assigned is dependent, will be considered by the appellate court notwithstanding the failure to assign it as an error.69Id.; Sesbreño v. Central Board of Assessment Appeals , G.R. No. 106588, March 24, 1997, 270 SCRA 360, 370; Roman Catholic Archbishop of Manila v. Court of Appeals, G.R. Nos. 77425 & 77450, June 19, 1991, 198 SCRA 300; Soco v. Militante, G.R. No. ... _______________

65 Serrano v. National Labor Relations Commission, G.R. No. 117040, May 4, 2000, 331 SCRA 331, 338, citing Korean Airlines Co., Ltd. v. Court of Appeals|, G.R. Nos. 114061 & 113842, August 3, 1994, 234 SCRA 717, 725; Vda. de Javellana v. Court of Appeals, G.R. No. L-60129, July 29, 1983, 123 SCRA 799, 805. 66 Velarde v. Social Justice Society, G.R. No. 159357, April 28, 2004, 428 SCRA 283, 312. 67 Abra Valley College, Inc. v. Aquino, G.R. No. L-39086, June 15, 1988, 162 SCRA 106, 116; Perez v. Court of Appeals, G.R. No. L-56101, February 20, 1984, 127 SCRA 636, 645. 68 Nordic Asia Limited v. Court of Appeals, G.R. No. 111159, June 10, 2003, 403 SCRA 390, 396. 69 Id.; Sesbreño v. Central Board of Assessment Appeals , G.R. No. 106588, March 24, 1997, 270 SCRA 360, 370; Roman Catholic Archbishop of Manila v. Court of Appeals, G.R. Nos. 77425 & 77450, June 19, 1991, 198 SCRA 300; Soco v. Militante, G.R. No. L-58961, 504 504 SUPREME COURT REPORTS ANNOTATED Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio Donation Propter Nuptias of Real Prop erty Made in a Private Instrument Before the New Civil Code Took Effect on August 30, 1950 is Void We now focus on the crux of the petition, which is the validity of the deed of donation. It is settled that only laws existing at the time of the execution of a contract are applicable to it and

not the later statutes, unless the latter are specifically intended to have retroactive effect.70Valencia v. Locquiao, G.R. No. 122134, October 3, 2003, 412 SCRA 600, 611; Ortigas & Co., Ltd. v. Court of Appeals , G.R. No. 126102, December 4, 2000, 346 SCRA 748, 755; Philippine Virginia Tobacco Administration v. Gonzales, G.R. No. L-34628, July 3... Accordingly, the Old Civil Code applies in this case as the donation propter nuptias was executed in 1919, while the New Civil Code took effect only on August 30, 1950. Under the Old Civil Code, donations propter nuptias must be made in a public instrument in which the property donated must be specifically described.71Valencia v. Locquiao, supra at p. 610. Article 1328 of the Old Civil Code provides that gifts propter nuptias are governed by the rules established in Title 2 of Book 3 of the same Code. Article 633 of that title provides that the gift of real property, in order to be valid, must appear in a public document.72Id.; Velasquez v. Biala , 18 Phil. 231, 234-235 (1911); Camagay v. Lagera, 7 Phil. 397 (1907). It is settled that a donation of real estate propter nuptias is void unless made by public instrument.73Valencia v. Locquiao, supra; Solis v. Barroso, 53 Phil. 912, 914 (1928); Velasquez v. Biala, supra; Camagay v. Lagera, supra at p. 398. In the instant case, the donation propter nuptias did not become valid. Neither did it create any right because it was _______________ June 28, 1983, 123 SCRA 160, 183; Ortigas, Jr. v. Lufthansa German Airlines, G.R. No. L-28773, June 30, 1975, 64 SCRA 610, 633. 70 Valencia v. Locquiao, G.R. No. 122134, October 3, 2003, 412 SCRA 600, 611; Ortigas & Co., Ltd. v. Court of Appeals ,

G.R. No. 126102, December 4, 2000, 346 SCRA 748, 755; Philippine Virginia Tobacco Administration v. Gonzales, G.R. No. L-34628, July 30, 1979, 92 SCRA 172, 185. 71 Valencia v. Locquiao, supra at p. 610. 72 Id.; Velasquez v. Biala , 18 Phil. 231, 234-235 (1911); Camagay v. Lagera, 7 Phil. 397 (1907). 73 Valencia v. Locquiao, supra; Solis v. Barroso, 53 Phil. 912, 914 (1928); Velasquez v. Biala, supra; Camagay v. Lagera, supra at p. 398. 505 VOL. 541, DECEMBER 27, 2007 505 Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio not made in a public instrument.74Solis v. Barroso, supra note 73. Hence, it conveyed no title to the land in question to petitioners’ predecessors. Logically, then, the cancellation of OCT No. 352 and the issuance of a new TCT No. 44481 in favor of petitioners’ predecessors have no legal basis. The title to the subject property should, therefore, be restored to its original owners under OCT No. 352. Direct reconveyance to any of the parties is not possible as it has not yet been determined in a proper proceeding who among the heirs of spouses Simeon Doronio and Cornelia Gante is entitled to it. It is still unproven whether or not the parties are the only ones entitled to the properties of spouses Simeon Doronio and Cornelia Gante. As earlier intimated, there are still things to be done before the legal share of all the heirs can

be properly adjudicated.75Pagkatipunan v. Intermediate Appellate Court, supra note 43, at p. 732. Titled Property Cannot Be Acquired By Another By Adverse Possession or Extinctive Prescription Likewise, the claim of respondents that they became owners of the property by acquisitive prescription has no merit. Truth to tell, respondents cannot successfully invoke the argument of extinctive prescription. They cannot be deemed the owners by acquisitive prescription of the portion of the property they have been possessing. The reason is that the property was covered by OCT No. 352. A title once registered under the torrens system cannot be defeated even by adverse, open and notorious possession; neither can it be defeated by prescription.76Ong v. Court of Appeals, G.R. No. 142056, April 19, 2001, 356 SCRA 768, 771; Brusas v. Court of Appeals, G.R. No. 126875, August It is notice to the whole world and as such all _______________ 74 Solis v. Barroso, supra note 73. 75 Pagkatipunan v. Intermediate Appellate Court, supra note 43, at p. 732. 76 Ong v. Court of Appeals, G.R. No. 142056, April 19, 2001, 356 SCRA 768, 771; Brusas v. Court of Appeals, G.R. No. 126875, August 506 506 SUPREME COURT REPORTS ANNOTATED Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio

persons are bound by it and no one can plead ignorance of the registration.77Brusas v. Court of Appeals, supra; Jacob v. Court of Appeals , G.R. No. 92159, July 1, 1993, 224 SCRA 189, 193-194. The torrens system is intended to guarantee the integrity and conclusiveness of the certificate of registration, but it cannot be used for the perpetration of fraud against the real owner of the registered land.78Francisco v. Court of Appeals, G.R. No. 130768, March 21, 2002, 379 SCRA 638, 646; Bayoca v. Nogales, G.R. No. 138210, September 12, 2000, 340 SCRA 154, 169. The system merely confirms ownership and does not create it. Certainly, it cannot be used to divest the lawful owner of his title for the purpose of transferring it to another who has not acquired it by any of the modes allowed or recognized by law. It cannot be used to protect a usurper from the true owner, nor can it be used as a shield for the commission of fraud; neither does it permit one to enrich himself at the expense of another.79Bayoca v. Nogales, supra. Where such an illegal transfer is made, as in the case at bar, the law presumes that no registration has been made and so retains title in the real owner of the land.80Balangcad v. Justices of the Court of Appeals, G.R. No. 84888, February 12, 1992, 206 SCRA 169, 175. Although We confirm here the invalidity of the deed of donation and of its resulting TCT No. 44481, the controversy between the parties is yet to be fully settled. The issues as to who truly are the present owners of the property and what is the extent of their ownership remain unresolved. The same may be properly threshed out in the settlement of the estates of the registered owners of the property, namely: spouses Simeon Doronio and Cornelia Gante.

WHEREFORE, the appealed Decision is REVERSED AND SET ASIDE. A new one is entered: _______________ 26, 1999, 313 SCRA 176, 183; Rosales v. Court of Appeals, G.R. No. 137566, February 28, 2001, 353 SCRA 179. 77 Brusas v. Court of Appeals, supra; Jacob v. Court of Appeals , G.R. No. 92159, July 1, 1993, 224 SCRA 189, 193194. 78 Francisco v. Court of Appeals, G.R. No. 130768, March 21, 2002, 379 SCRA 638, 646; Bayoca v. Nogales, G.R. No. 138210, September 12, 2000, 340 SCRA 154, 169. 79 Bayoca v. Nogales, supra. 80 Balangcad v. Justices of the Court of Appeals, G.R. No. 84888, February 12, 1992, 206 SCRA 169, 175. 507 VOL. 541, DECEMBER 27, 2007 507 Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio (1) Declaring the private deed of donation propter nuptias in favor of petitioners’ predecessors NULL AND VOID; and (2) Ordering the Register of Deeds of Pangasinan to: (a) CANCEL Transfer Certificate of Title No. 44481 in the names of Marcelino Doronio and Veronica Pico; and (b) RESTORE Original Certificate of Title No. 352 in the names of its original owners, spouses Simeon Doronio and Cornelia Gante. SO ORDERED. Ynares-Santiago (Chairperson), Austria-Martinez, ChicoNazario and Nachura, JJ., concur.

Judgment reversed and set aside. Notes.—A monetary claim against the person administering an estate, in relation to his or her acts of administration, in its ordinary course, can be filed at the court where a special proceeding for the settlement of the estate is pending. (Pascual vs. Court of Appeals, 300 SCRA 214 [1998]) A suit for quieting of title is an action quasi in rem that is binding only between the parties. (Seville vs. National Development Company, 351 SCRA 112 [2001]) Res judicata does not apply where the dismissal was on the ground of failure of petitioner to furnish a copy of her formal offer of evidence to the city prosecutor and the solicitor general since the decision does not constitute an adjudication on the merits, but a resolution only of an interlocutory matter. (PageTenorio vs. Tenorio, 443 SCRA 560 [2004]) ——o0o—— [Heirs of Marcelino Doronio vs. Heirs of Fortunato Doronio, 541 SCRA 479(2007)]

G.R. No. 77425. June 19, 1991.*SECOND DIVISION. THE ROMAN CATHOLIC ARCHBISHOP OF MANILA, THE ROMAN CATHOLIC BISHOP OF IMUS, and the SPOUSES FLORENCIO IGNAO and SOLEDAD C. IGNAO, petitioners, vs. HON. COURT OF APPEALS, THE ESTATE OF DECEASED SPOUSES EUSEBIO DE CASTRO and MARTINA RIETA, represented by MARINA RIETA GRANADOS and THERESA RIETA TOLENTINO, respondents. G.R. No. 77450. June 19, 1991.*SECOND DIVISION. THE ROMAN CATHOLIC ARCHBISHOP OF MANILA, THE ROMAN CATHOLIC BISHOP OF IMUS, and the SPOUSES FLORENCIO IGNAO and SOLEDAD C. IGNAO, petitioners, vs. HON. COURT OF APPEALS, THE ESTATE OF DECEASED SPOUSES EUSEBIO DE CASTRO and MARTINA RIETA, represented by MARINA RIETA GRANADOS and THERESA RIETA TOLENTINO, respondents. Civil Law; Donation; Rescission; Article 764 of the Civil Code not applicable in the case at bar; The deed of donation expressly provides for automatic reversion of the property donated in case of violation of the condition therein, hence a judicial declaration revoking the same is not necessary.–– Although it is true that under Article 764 of the Civil Code an action for the revocation of a donation must be brought within four (4) years from the non-compliance of the conditions of the donation, the same is not applicable in the case at bar. The deed of donation involved herein expressly provides for automatic reversion of the property donated in case of violation of the

condition therein, hence a judicial declaration revoking the same is not necessary. Same; Same; Same; Same; There is nothing in the law that prohibits the parties from entering into an agreement that a violation of the terms of the contract would cause its cancellation even without court intervention.––In support of its aforesaid position, respondent court relied on the rule that a judicial action for rescission of a contract is not necessary where the contract provides that it may be revoked and _______________ * SECOND DIVISION. 301 VOL. 198, JUNE 19, 1991 301 Roman Catholic Archbishop of Manila vs. Court of Appeals cancelled for violation of any of its terms and conditions. It called attention to the holding that there is nothing in the law that prohibits the parties from entering into an agreement that a violation of the terms of the contract would cause its cancellation even without court intervention, and that it is not always necessary for the injured party to resort to court for rescission of the contract. It reiterated the doctrine that a judicial action is proper only when there is absence of a special provision granting the power of cancellation. Same; Same; Same; Same; Validity of a stipulation in the deed of donation providing for the automatic reversion of the donated property to the donor upon non-compliance of the condition was upheld in the recent case of De Luna et. al, vs Abrigo, et. al.––The validity of such a stipulation in the deed of donation providing for the automatic reversion of the donated

property to the donor upon non-compliance of the condition was upheld in the recent case of De Luna, et al. vs. Abrigo, et al. It was held therein that said stipulation is in the nature of an agreement granting a party the right to rescind a contract unilaterally in case of breach, without need of going to court, and that, upon the happening of the resolutory condition or non-compliance with the conditions of the contract, the donation is automatically revoked without need of a judicial declaration to that effect. Same; Same; Same; Same; In contracts providing for automatic revocation, judicial intervention is necessary in order to determine whether or not the rescission was proper.––The rationale for the foregoing is that in contracts providing for automatic revocation, judical intervention is necessary not for purposes of obtaining a judicial declaration rescinding a contract already deemed rescinded by virtue of an agreement providing for rescission even without judicial intervention, but in order to determine whether or not the rescission was proper. Same; Same; Same; When the deed of donation expressly provides for automatic revocation and reversion of the property donated, the rules on contract and the general rules on prescription should apply and not Article 764 of the Civil Code.––When a deed of donation, as in this case, expressly provides for automatic revocation and reversion of the property donated, the rules on contract and the general rules on prescription should apply, and not Article 764 of the Civil Code. Same; Same; Same; Stipulation of the parties providing for automatic revocation of the deed of donation without prior judicial action

302 302 SUPREME COURT REPORTS ANNOTATED Roman Catholic Archbishop of Manila vs. Court of Appeals for that purpose is valid subject to the determination of the propriety of the rescission sought.––Since Article 1306 of said Code authorizes the parties to a contract to establish such stipulations, clauses, terms and conditions not contrary to law, morals, good customs, public order or public policy, we are of the opinion that, at the very least, that stipulation of the parties providing for automatic revocation of the deed of donation, without prior judicial action for that purpose, is valid subject to the determination of the propriety of the rescission sought. Where such propriety is sustained, the decision of the court will be merely declaratory of the revocation, but it is not in itself the revocatory act. Same; Same; Prescription; Court of Appeals committed no error in holding that the cause of action of private respondents has not yet prescribed since an action to enforce a written contract prescribed in ten (10) years.––On the foregoing ratiocinations, the Court of Appeals committed no error in holding that the cause of action of herein private respondents has not yet prescribed since an action to enforce a written contract prescribes in ten (10) years. It is our view that Article 764 was intended to provide a judicial remedy in case of nonfulfillment or contravention of conditions specified in the deed of donation if and when the parties have not agreed on the automatic revocation of such donation upon the occurrence of the contingency contemplated therein. That is not the situation in the case at bar.

Same; Same; The condition imposed in the deed of donation in this case constitutes a patently unreasonable and undue restriction on the right of the donee to dispose of the property donated.––Donation, as a mode of acquiring ownership, results in an effective transfer of title over the property from the donor to the donee. Once a donation is accepted, the donee becomes the absolute owner of the property donated. Although the donor may impose certain conditions in the deed of donation, the same must not be contrary to law, morals, good customs, public order and public policy. The condition imposed in the deed of donation in the case before us constitutes a patently unreasonable and undue restriction on the right of the donee to dispose of the property donated, which right is an indispensable attribute of ownership. Such a prohibition against alienation, in order to be valid, must not be perpetual or for an unreasonable period of time. Same; Same; Same; The prohibition in the deed of donation against the alienation of the property for an entire century should be declared as an illegal or impossible condition within the contemplation of Article 303 VOL. 198, JUNE 19, 1991 303 Roman Catholic Archbishop of Manila vs. Court of Appeals 727 of the Civil Code.––In the case at bar, we hold that the prohibition in the deed of donation against the alienation of the property for an entire century, being an unreasonable emasculation and denial of an integral attribute of ownership, should be declared as an illegal or impossible condition within the contemplation of Article 727 of the Civil Code.

Consequently, as specifically stated in said statutory provision, such condition shall be considered as not imposed. No reliance may accordingly be placed on said prohibitory paragraph in the deed of donation. Remedial Law; Appeal; Court is clothed with ample authority to review matters even if they are not assigned as errors on appeal if it finds that their consideration is necessary in arriving at a just decision of the case.––This Court is clothed with ample authority to review matters, even if they are not assigned as errors on appeal, if it finds that their consideration is necessary in arriving at a just decision of the case: Thus, we have held that an unassigned error closely related to an error properly assigned, or upon which the determination of the question properly assigned is dependent, will be considered by the appellate court notwithstanding the failure to assign it as error. Same; Same; Same; Remand of the case to the lower court for further reception of evidence not necessary where the court is in a position to resolve the dispute based on the records before it.––Additionally, we have laid down the rule that the remand of the case to the lower court for further reception of evidence is not necessary where the Court is in a position to resolve the dispute based on the records before it. On many occasions, the Court, in the public interest and for the expeditious administration of justice, has resolved actions on the merits instead of remanding them to the trial court for further proceedings, such as where the ends of justice, would not be subserved by the remand of the case. PETITIONS for review on certiorari to overturn the decision of the Court of Appeals.

The facts are stated in the opinion of the Court. Severino C. Dominguez for petitioner Roman Catholic Bishop of Imus, Cavite. Dolorfino and Dominguez Law Offices for Sps. Ignao. Joselito R. Enriquez for private respondents. 304 304 SUPREME COURT REPORTS ANNOTATED Roman Catholic Archbishop of Manila vs. Court of Appeals REGALADO, J.: These two petitions for review on certiorari1G.R. No. 77425 was filed by petitioner Roman Catholic Bishop of Imus, and G.R. No. 77450 by petitioners Florencio and Soledad C. Ignao. seek to overturn the decision of the Court of Appeals in CAG.R. CV No. 05456 2Penned by Justice Felipe B. Kalalo, with the concurrence of Justices Floreliana Castro-Bartolome and Esteban M. Lising. which reversed and set aside the order of the Regional Trial Court of Imus, Cavite dismissing Civil Case No. 095-84, as well as the order of said respondent court denying petitioner’s motions for the reconsideration of its aforesaid decision. On November 29, 1984, private respondents as plaintiffs, filed a complaint for nullification of deed of donation, rescission of contract and reconveyance of real property with damages against petitioners Florencio and Soledad C. Ignao and the Roman Catholic Bishop of Imus, Cavite, together with the Roman Catholic Archbishop of Manila, before the Regional Trial Court, Branch XX, Imus, Cavite and which was docketed as Civil Case No. 095-84 therein.3Original Record, 1-9.

In their complaint, private respondents alleged that on August 23, 1930, the spouses Eusebio de Castro and Martina Rieta, now both deceased, executed a deed of donation in favor of therein defendant Roman Catholic Archbishop of Manila covering a parcel of land (Lot No. 626, Cadastral Survey of Kawit), located at Kawit, Cavite, containing an area of 964 square meters, more or less. The deed of donation allegedly provides that the donee shall not dispose or sell the property within a period of one hundred (100) years from the execution of the deed of donation, otherwise a violation of such condition would render ipso facto null and void the deed of donation and the property would revert to the estate of the donors. It is further alleged that on or about June 30, 1980, and while still within the prohibitive period to dispose of the property, petitioner Roman Catholic Bishop of Imus, in whose administration all properties within the province of Cavite owned by the Archdiocese of Manila was allegedly transferred on April _______________ 1 G.R. No. 77425 was filed by petitioner Roman Catholic Bishop of Imus, and G.R. No. 77450 by petitioners Florencio and Soledad C. Ignao. 2 Penned by Justice Felipe B. Kalalo, with the concurrence of Justices Floreliana Castro-Bartolome and Esteban M. Lising. 3 Original Record, 1-9. 305 VOL. 198, JUNE 19, 1991 305 Roman Catholic Archbishop of Manila vs. Court of Appeals

26, 1962, executed a deed of absolute sale of the property subject of the donation in favor of petitioners Florencio and Soledad C. Ignao in consideration of the sum of P114,000.00. As a consequence of the sale, Transfer Certificate of Title No. 115990 was issued by the Register of Deeds of Cavite on November 15, 1980 in the name of said petitioner spouses. What transpired thereafter is narrated by respondent court in its assailed decision.4Rollo, G.R. No. 77425, 20. On December 17, 1984, petitioners Florencio Ignao and Soledad C. Ignao filed a motion to dismiss based on the grounds that (1) herein private respondents, as plaintiffs therein, have no legal capacity to sue; and (2) the complaint states no cause of action. On December 19, 1984, petitioner Roman Catholic Bishop of Imus also filed a motion to dismiss on three (3) grounds, the first two (2) grounds of which were identical to that of the motion to dismiss filed by the Ignao spouses, and the third ground being that the cause of action has prescribed. On January 9, 1985, the Roman Catholic Archbishop of Manila likewise filed a motion to dismiss on the ground that he is not a real party in interest and, therefore, the complaint does not state a cause of action against him. After private respondents had filed their oppositions to the said motions to dismiss and the petitioners had countered with their respective replies, with rejoinders thereto by private respondents, the trial court issued an order dated January 31, 1985, dismissing the complaint on the ground that the cause of action has prescribed.5Original Record, 71-74. Private respondents thereafter appealed to the Court of Appeals raising the issues on (a) whether or not the action for rescission of contracts (deed of donation and deed of sale) has prescribed;

and (b) whether or not the dismissal of the action for rescission of contracts (deed of donation and deed of sale) on the ground of prescription carries with it the dismissal of the main action for reconveyance of real property.6Rollo, G.R. No. 77425, 2728. On December 23, 1986, respondent Court of Appeals, holding ________________ 4 Rollo, G.R. No. 77425, 20. 5 Original Record, 71-74. 6 Rollo, G.R. No. 77425, 27-28. 306 306 SUPREME COURT REPORTS ANNOTATED Roman Catholic Archbishop of Manila vs. Court of Appeals that the action has not yet prescibed, rendered a decision in favor of private respondents, with the following dispositive portion: “WHEREFORE, the Order of January 31, 1985 dismissing appellants’ complaint is SET ASIDE and Civil Case No. 09584 is hereby ordered REINSTATED and REMANDED to the lower court for further proceedings. No costs.”7Ibid., id., 30. Petitioners Ignao and the Roman Catholic Bishop of Imus then filed their separate motions for reconsideration which were denied by respondent Court of Appeals in its resolution dated February 6, 1987,8Ibid., id., 32. hence, the filing of these appeals by certiorari. It is the contention of petitioners that the cause of action of herein private respondents has already prescribed, invoking Article 764 of the Civil Code which provides that “(t)he

donation shall be revoked at the instance of the donor, when the donee fails to comply with any of the conditions which the former imposed upon the latter,” and that “(t)his action shall prescribe after four years from the non-compliance with the condition, may be transmitted to the heirs of the donor, and may be exercised against the donee’s heirs.” We do not agree. Although it is true that under Article 764 of the Civil Code an action for the revocation of a donation must be brought within four (4) years from the non-compliance of the conditions of the donation, the same is not applicable in the case at bar. The deed of donation involved herein expressly provides for automatic reversion of the property donated in case of violation of the condition therein, hence a judicial declaration revoking the same is not necessary. As aptly stated by the Court of Appeals: “By the very express provision in the deed of donation itself that the violation of the condition thereof would render ipso facto null and void the deed of donation, WE are of the opinion that there would be no legal necessity anymore to have the donation judicially declared _______________ 7 Ibid., id., 30. 8 Ibid., id., 32. 307 VOL. 198, JUNE 19, 1991 307 Roman Catholic Archbishop of Manila vs. Court of Appeals null and void for the reason that the very deed of donation itself declares it so. For where (sic) it otherwise and that the donors

and the donee contemplated a court action during the execution of the deed of donation to have the donation judicially rescinded or declared null and void should the condition be violated, then the phrase reading ‘would render ipso facto null and void’ would not appear in the deed of donation.”9Ibid., id., 28. In support of its aforesaid position, respondent court relied on the rule that a judicial action for rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions.10Lopez vs. Commissioner of Customs, et al., 37 SCRA 327 (1971). It called attention to the holding that there is nothing in the law that prohibits the parties from entering into an agreement that a violation of the terms of the contract would cause its cancellation even without court intervention, and that it is not always necessary for the injured party to resort to court for rescission of the contract.11Froilan vs. Pan Oriental Shipping Co., et al., 12 SCRA 276 (1964). It reiterated the doctrine that a judicial action is proper only when there is absence of a special provision granting the power of cancellation.12De la Rama Steamship Co., Inc. vs. Tan, etc., et al., 99 Phil. 1034 (1956). It is true that the aforesaid rules were applied to the contracts involved therein, but we see no reason why the same should not apply to the donation in the present case. Article 732 of the Civil Code provides that donations inter vivos shall be governed by the general provisions on contracts and obligations in all that is not determined in Title III, Book III on donations. Now, said Title III does not have an explicit provision on the matter of a donation with a resolutory

condition and which is subject to an express provision that the same shall be considered ipso facto revoked upon the breach of said resolutory condition imposed in the deed therefor, as is the case of the deed presently in question. The suppletory application of the foregoing doctrinal rul-ings to the present controversy is consequently justified. _______________ 9 Ibid., id., 28. 10 Lopez vs. Commissioner of Customs, et al., 37 SCRA 327 (1971). 11 Froilan vs. Pan Oriental Shipping Co., et al., 12 SCRA 276 (1964). 12 De la Rama Steamship Co., Inc. vs. Tan, etc., et al., 99 Phil. 1034 (1956). 308 308 SUPREME COURT REPORTS ANNOTATED Roman Catholic Archbishop of Manila vs. Court of Appeals The validity of such a stipulation in the deed of donation providing for the automatic reversion of the donated property to the donor upon non-compliance of the condition was upheld in the recent case of De Luna, et al. vs. Abrigo, et al.13181 SCRA 150 (1990). It was held therein that said stipulation is in the nature of an agreement granting a party the right to rescind a contract unilaterally in case of breach, without need of going to court, and that, upon the happening of the resolutory condition or non-compliance with the conditions of the contract, the donation is automatically revoked without need of a judicial declaration to that effect. While what was the subject

of that case was an onerous donation which, under Article 733 of the Civil Code is governed by the rules on contracts, since the donation in the case at bar is also subject to the same rules because of its provision on automatic revocation upon the violation of a resolutory condition, from parity of reasons said pronouncements in De Luna pertinently apply. The rationale for the foregoing is that in contracts providing for automatic revocation, judical intervention is necessary not for purposes of obtaining a judicial declaration rescinding a contract already deemed rescinded by virtue of an agreement providing for rescission even without judicial intervention, but in order to determine whether or not the rescission was proper.14University of the Philippines vs. Angeles, etc., et al., 35 SCRA 102 (1970). When a deed of donation, as in this case, expressly provides for automatic revocation and reversion of the property donated, the rules on contract and the general rules on prescription should apply, and not Article 764 of the Civil Code. Since Article 1306 of said Code authorizes the parties to a contract to establish such stipulations, clauses, terms and conditions not contrary to law, morals, good customs, public order or public policy, we are of the opinion that, at the very least, that stipulation of the parties providing for automatic revocation of the deed of donation, without prior judicial action for that purpose, is valid subject to the determination of the propriety of the rescission sought. Where such propriety is sustained, the decision of the ________________ 13 181 SCRA 150 (1990).

14 University of the Philippines vs. Angeles, etc., et al., 35 SCRA 102 (1970). 309 VOL. 198, JUNE 19, 1991 309 Roman Catholic Archbishop of Manila vs. Court of Appeals court will be merely declaratory of the revocation, but it is not in itself the revocatory act. On the foregoing ratiocinations, the Court of Appeals committed no error in holding that the cause of action of herein private respondents has not yet prescribed since an action to enforce a written contract prescribes in ten (10) years.15Art. 1144(1), Civil Code. It is our view that Article 764 was intended to provide a judicial remedy in case of non-fulfillment or contravention of conditions specified in the deed of donation if and when the parties have not agreed on the automatic revocation of such donation upon the occurrence of the contingency contemplated therein. That is not the situation in the case at bar. Nonetheless, we find that although the action filed by private respondents may not be dismissed by reason of prescription, the same should be dismissed on the ground that private respondents have no cause of action against petitioners. The cause of action of private respondents is based on the alleged breach by petitioners of the resolutory condition in the deed of donation that the property donated should not be sold within a period of one hundred (100) years from the date of execution of the deed of donation. Said condition, in our opinion, constitutes an undue restriction on the rights arising

from ownership of petitioners and is, therefore, contrary to public policy. Donation, as a mode of acquiring ownership, results in an effective transfer of title over the property from the donor to the donee. Once a donation is accepted, the donee becomes the absolute owner of the property donated. Although the donor may impose certain conditions in the deed of donation, the same must not be contrary to law, morals, good customs, public order and public policy. The condition imposed in the deed of donation in the case before us constitutes a patently unreasonable and undue restriction on the right of the donee to dispose of the property donated, which right is an indispensable attribute of ownerhsip. Such a prohibition against alienation, in order to be valid, must not be perpetual or for an unreasonable period of time. _______________ 15 Art. 1144(1), Civil Code. 310 310 SUPREME COURT REPORTS ANNOTATED Roman Catholic Archbishop of Manila vs. Court of Appeals Certain provisions of the Civil Code illustrative of the aforesaid policy may be considered applicable by analogy. Under the third paragraph of Article 494, a donor or testator may prohibit partition for a period which shall not exceed twenty (20) years. Article 870, on its part, declares that the dispositions of the testator declaring all or part of the estate inalienable for more than twenty (20) years are void.

It is significant that the provisions therein regarding a testator also necessarily involve, in the main, the devolution of property by gratuitous title hence, as is generally the case of donations, being an act of liberality, the imposition of an unreasonable period of prohibition to alienate the property should be deemed anathema to the basic and actual intent of either the donor or testator. For that reason, the regulatory arm of the law is or must be interposed to prevent an unreasonable departure from the normative policy expressed in the aforesaid Articles 494 and 870 of the Code. In the case at bar, we hold that the prohibition in the deed of donation against the alienation of the property for an entire century, being an unreasonable emasculation and denial of an integral attribute of ownership, should be declared as an illegal or impossible condition within the contemplation of Article 727 of the Civil Code. Consequently, as specifically stated in said statutory provision, such condition shall be considered as not imposed. No reliance may accordingly be placed on said prohibitory paragraph in the deed of donation. The net result is that, absent said proscription, the deed of sale supposedly constitutive of the cause of action for the nullification of the deed of donation is not in truth violative of the latter hence, for lack of cause of action, the case for private respondents must fail. It may be argued that the validity of such prohibitory provision in the deed of donation was not specifically put in issue in the pleadings of the parties. That may be true, but such oversight or inaction does not prevent this Court from passing upon and resolving the same.

It will readily be noted that the provision in the deed of donation against alienation of the land for one hundred (100) years was the very basis for the action to nullify the deed of donation. At the same time, it was likewise the controverted fundament of the motion to dismiss the case a quo, which motion was sus311 VOL. 198, JUNE 19, 1991 311 Roman Catholic Archbishop of Manila vs. Court of Appeals tained by the trial court and set aside by respondent court, both on the issue of prescription. That ruling of respondent court interpreting said provision was assigned as an error in the present petition. While the issue of the validity of the same provision was not squarely raised, it is ineluctably related to petitioner’s aforesaid assignment of error since both issues are grounded on and refer to the very same provision. This Court is clothed with ample authority to review matters, even if they are not assigned as errors on appeal, if it finds that their consideration is necessary in arriving at a just decision of the case:16Insular Life Assurance Co., Ltd. Employees-NATU vs. Insular Life Assurance Co., Ltd., et al., 76 SCRA 50 (1977). Thus, we have held that an unassigned error closely related to an error properly assigned,17Philippine Commercial and International Bank vs. Court of Appeals, et al, 159 SCRA 24 (1988). or upon which the determination of the question properly assigned is dependent, will be considered by the appellate court notwithstanding the failure to assign it as error.18Soco vs. Militante, etc., et al., 123 SCRA 160 (1983);

Ortigas, Jr. vs. Lufthansa German Airlines, 64 SCRA 610 (1975). Additionally, we have laid down the rule that the remand of the case to the lower court for further reception of evidence is not necessary where the Court is in a position to resolve the dispute based on the records before it. On many occasions, the Court, in the public interest and for the expeditious administration of justice, has resolved actions on the merits instead of remanding them to the trial court for further proceedings, such as where the ends of justice, would not be subserved by the remand of the case.19Escudero, et al. vs. Dulay, etc., et al., 158 SCRA 69 (1988); Lianga Bay Logging Co., Inc. vs. Court of Appeals, et al., 157 SCRA 357 (1988). The aforestated considerations obtain in and apply to the present case with respect to the matter of the validity of the resolutory condition in question. WHEREFORE, the judgment of respondent court is SET ASIDE and another judgment is hereby rendered DISMISSING Civil Case No. 095-84 of the Regional Trial Court, Branch XX, Imus, Cavite. _______________ 16 Insular Life Assurance Co., Ltd. Employees-NATU vs. Insular Life Assurance Co., Ltd., et al., 76 SCRA 50 (1977). 17 Philippine Commercial and International Bank vs. Court of Appeals, et al, 159 SCRA 24 (1988). 18 Soco vs. Militante, etc., et al., 123 SCRA 160 (1983); Ortigas, Jr. vs. Lufthansa German Airlines, 64 SCRA 610 (1975). 19 Escudero, et al. vs. Dulay, etc., et al., 158 SCRA 69 (1988); Lianga Bay Logging Co., Inc. vs. Court of Appeals, et al., 157 SCRA 357 (1988).

312 312 SUPREME COURT REPORTS ANNOTATED Mendoza vs. Court of Appeals SO ORDERED. Melencio-Herrera (Chairman) and Paras, JJ., concur. Padilla, J., No part, former counsel of RCAM and RCBI. Sarmiento, J., On leave. Judgment set aside. Note.––The power to rescind contracts is not absolute, it is always subject to scrutiny and review by the proper court. (Delta Motor Corporation vs. Genuino, 170 SCRA 29.) ––––o0o–––– [Roman Catholic Archbishop of Manila vs. Court of Appeals, 198 SCRA 300(1991)]

G.R. No. 105944. February 9, 1996.*THIRD DIVISION. SPOUSES ROMULO AND SALLY EDUARTE, petitioners, vs. THE HONORABLE COURT OF APPEALS and PEDRO CA-LAPINE (substituted by ALEXANDER CALAPINE and ARTEMIS CALAPINE), respondents. Donations; Revocation of Donation; All crimes which offend the donor show ingratitude and are causes for revocation.—As noted in the aforecited opinion “all crimes which offend the donor show ingratitude and are causes for revocation.” Petitioners’ attempt to categorize the offenses according to their classification under the Revised Penal Code is therefore unwarranted considering that illegal detention, threats and coercion are considered as crimes against the person of the donor despite the fact that they are classified as crimes against personal liberty and security under the Revised Penal Code. Same; Evidence; Witnesses; Expert Testimony; Handwriting Experts; The value of the opinion of a handwriting expert depends not upon his mere statements of whether a writing is genuine or false, but upon the assistance he may afford in pointing out distinguishing marks, characteristics and discrepancies in and between genuine and false specimens of writing which would ordinarily escape notice or detection from an unpracticed observer.—In gauging the relative weight to be given to the opinion of handwriting experts, we adhere to the following standards: “We have held that the value of the opinion of a handwriting expert depends not upon his mere state_______________ * THIRD DIVISION. 392

392 SUPREME COURT REPORTS ANNOTATED Eduarte vs. Court of Appeals ments of whether a writing is genuine or false, but upon the assistance he may afford in pointing out distinguishing marks, characteristics and discrepancies in and between genuine and false specimens of writing which would ordinarily escape notice or detection from an unpracticed observer. The test of genuineness ought to be the resemblance, not the formation of letters in some other specimens but to the general character of writing, which is impressed on it as the involuntary and unconscious result of constitution, habit or other permanent course, and is, therefore itself permanent.” Land Titles; Ownership; Possession; The rule is well-settled that mere possession cannot defeat the title of a holder of a registered torrens title to real property.—We agree with petitioners. The rule is well-settled that mere possession cannot defeat the title of a holder of a registered torrens title to real property. Moreover, reliance on the doctrine that a forged deed can legally be the root of a valid title is squarely in point in this case: “Although generally a forged or fraudulent deed is a nullity and conveys no title, however there are instances when such a fraudulent document may become the root of a valid title. One such instance is where the certificate of title was already transferred from the name of the true owner to the forger, and while it remained that way, the land was subsequently sold to an innocent purchaser. For then, the vendee had the right to rely upon what appeared in the certificate.

Same; Sales; The fact that the vendor’s title was fraudulently secured cannot prejudice the rights of the purchasers absent any showing that they had knowledge or participation in such irregularity.—When herein petitioners purchased the subject property from Helen Doria, the same was already covered by TCT No. T-23205 under the latter’s name. And although Helen Doria’s title was fraudulently secured, such fact cannot prejudice the rights of herein petitioners absent any showing that they had any knowledge or participation in such irregularity. Thus, they cannot be obliged to look beyond the certificate of title which appeared to be valid on its face and sans any annotation or notice of private respondents’ adverse claim. Contrary therefore to the conclusion of respondent Court, petitioners are purchasers in good faith and for value as they bought the disputed property without notice that some other person has a right or interest in such property, and paid a full price for the same at the time of the purchase or before they had notice of the claim or interest of some other person in the property. 393 VOL. 253, FEBRUARY 9, 1996 393 Eduarte vs. Court of Appeals Same; Same; The established rule is that the rights of an innocent purchaser for value must be respected and protected notwithstanding the fraud employed by the seller in securing his title.—Respondent Court therefore committed a reversible error when it affirmed the ruling of the trial court annulling and setting aside the deed of absolute sale dated March 25, 1988 between petitioners and Helen Doria, as well as the Transfer

Certificate of Title No. T-27434 issued under petitioner’s name, the established rule being that the rights of an innocent purchaser for value must be respected and protected notwithstanding the fraud employed by the seller in securing his title. Same; Same; Assurance Fund; Remedies of the owner of a parcel of land who was prejudiced and fraudulently dispossessed of his property.—In this regard, it has been held that the proper recourse of the true owner of the property who was prejudiced and fraudulently dispossessed of the same is to bring an action for damages against those who caused or employed the fraud, and if the latter are insolvent, an action against the Treasurer of the Philippines may be filed for recovery of damages against the Assurance Fund. PETITION for review of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. Makalintal, Barot, Torres & Ibarra for petitioners. Roberto E. Gomez for private respondents. FRANCISCO, J.: A donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it.1Article 725, New Civil Code. On the part of the donor, it is an exercise of one’s generosity. However, on several occasions, instead of being accorded recognition and appreciation for this act of beneficence, the donor ends up as a victim of greed and ingratitude. This was the fate that befell Pedro Calapine (herein original plaintiff) constraining him to cause the revocation of the donation that he made to his niece in 1984. The instant petition _______________

1 Article 725, New Civil Code. 394 394 SUPREME COURT REPORTS ANNOTATED Eduarte vs. Court of Appeals for certiorari is interposed by the spouses Romulo and Sally Eduarte, assailing the decision of the Court of Appeals in CAG.R. CV No. 29175 which affirmed the revocation of the donation made by Pedro Calapine to his niece, Helen Doria, and at the same time declared petitioners as purchasers in bad faith of the property donated. As set out in the appealed decision, the undisputed facts are as follows: “Pedro Calapine was the registered owner of a parcel of land located in San Cristobal, San Pablo City, with an area of 12,199 square meters, as evidenced by Original Certificate of Title No. P-2129 (Exhibits A and 1). On April 26, 1984, he executed a deed entitled ‘Pagbibigay-Pala (Donacion InterVivos)’ ceding one-half portion thereof to his niece Helen S. Doria (Exhibit B). “On July 26, 1984, another deed identically entitled was purportedly executed by Pedro Calapine ceding unto Helen S. Doria the whole of the parcel of land covered by OCT No. P2129 (Exhibits C and D), on the basis of which said original certificate was cancelled and in lieu thereof Transfer Certificate of Title No. T-23205 was issued in her name (Exhibits G and 2). “On February 26, 1986, Helen S. Doria donated a portion of 157 square meters of the parcel of land covered by TCT No. T-

23205 to the Calauan Christian Reformed Church, Inc. (Exhibit H), on the basis of which said transfer certificate of title was cancelled and TCT No. T-24444 was issued in its name covering 157 square meters (Exhibit 2-A) and TCT No. T24445, in the name of Helen S. Doria covering the remaining portion of 12,042 square meters (Exhibit 3). “On March 25, 1988, Helen S. Doria sold, transferred and conveyed unto the spouses Romulo and Sally Eduarte the parcel of land covered by TCT No. T-24445, save the portion of 700 square meters on which the vendor’s house had been erected (Exhibits 1 and 3-F), on the basis of which TCT No. 24445 was cancelled and in lieu thereof TCT No. T-27434, issued in the name of the vendees (Exhibit 4). “Claiming that his signature to the deed of donation (Exhibits C and D) was a forgery and that she was unworthy of his liberality, Pedro Calapine brought suit against Helen S. Doria, the Calauan Christian Reformed Church, Inc. and the spouses Romulo and Sally Eduarte to revoke the donation made in favor of Helen S. Doria 395 VOL. 253, FEBRUARY 9, 1996 395 Eduarte vs. Court of Appeals (Exhibit B), to declare null and void the deeds of donation and sale that she had executed in favor of the Calauan Christian Reformed Church, Inc. and the spouses Romulo and Sally Eduarte (Exhibits H, I and 3-F) and to cancel TCT Nos. T24444, 24445 and T-27434.

“Answering the complaint, the defendants spouses denied knowledge of the first deed of donation and alleged that after a part of the property was donated to the defendant Calauan Christian Reformed Church, Inc., the remaining portion thereof was sold to them by the defendant Helen S. Doria; and that the plaintiff’s purported signature in the second deed of donation was his own, hence genuine. They prayed that the complaint against them be dismissed; that upon their counterclaim, the plaintiff be ordered to pay them moral and exemplary damages and attorney’s fees; and that upon their cross-claim the defendant Helen S. Doria be ordered to reimburse them the purchase price of P110,000 and to pay them moral and exemplary damages and attorney’s fees (pp. 23-31, rec.). “The defendant Calauan Christian Reformed Church, Inc. manifested in its answer the willingness to reconvey to the plaintiff that part of the property donated to it by Helen S. Doria (pp. 36-38, rec.). And having executed the corresponding deed of reconveyance, the case as against it was dismissed (pp. 81-83; 84, rec.). “The defendants Helen S. Doria and the City Assessor and the Registrar of Deeds of San Pablo City did not file answers to the plaintiff’s complaint. “After the plaintiff’s death on August 27, 1989, on motion, he was substituted by his nephews Alexander and Artemis Calapine upon order of the Court (pp. 147-152; 250, rec.). “After trial, the Regional Trial Court, Fourth Judicial Region, Branch 30, San Pablo City rendered judgment, the dispositive part of which provides:

WHEREFORE, premises considered, judgment is hereby rendered by the Court in the instant case in favor of plaintiff and against defendant Eduartes to wit: 1. DECLARING as it is hereby declared, the revocation of the Deed of Donation dated April 26, 1984; 2. ANNULLING, voiding, setting aside and declaring of no force and effect the Deed of Donation dated July 26, 1984, the deed of absolute sale executed on March 25, 1988 by and between spouses Eduartes and Helen Doria, and the Transfer 396 396 SUPREME COURT REPORTS ANNOTATED Eduarte vs. Court of Appeals Certificate of Title No. T-27434 issued under the name of spouses Romulo and Sally Eduarte; 3. ORDERING the office of the Register of Deeds, San Pablo City, to cancel TCT No. T-27434 or any other adverse title emanating from OCT No. P-2129 and in lieu thereof, to issue a new transfer certificate of title covering the subject property under the names of the substitute-plaintiffs Alexander and Artemis both surnamed Calapine, after payment of the corresponding fees and taxes therefor; and 4. ORDERING defendant Helen Doria to pay substituteplaintiffs the sum of P200,000.00 as and for attorney’s fees. Judgment on the cross-claim of defendant Eduartes against Helen Doria is further rendered by ordering the latter to pay the former the sum of P110,000.00 with legal interest thereon starting from March 25, 1988 until full payment, and the further sum of P20,000.00 as and for attorney’s fees.

The counterclaim of defendant Eduartes against plaintiff is hereby dismissed for lack of merit. Costs against defendant Helen Doria in both the complaint and the cross-claim (pp. 11-12, decision, pp. 264-265, rec.). “Only the defendants Eduarte spouses took an appeal (p. 266, rec.), claiming that the trial court erred— 1. In annulling, voiding, setting aside, and declaring of no force and effect— (a) the deed of donation (Exhibit C and 1-A), dated July 26, 1984; (b) the deed of absolute sale (Exhibit 1 and 3-E) executed on March 25, 1988 by and between Spouses Eduartes and Helen Doria; (c) TCT No. T-27434 (Exhibit 4) issued in the name of spouses Romulo Eduarte and Sally Eduarte; and in revoking the deed of donation (Exhibit B) dated April 26, 1984; 2. In declaring the appellants Eduartes buyers in bad faith; 3. In not finding the plaintiffs guilty of estoppel by silence and/or guilty of suppression of evidence instead of find397 VOL. 253, FEBRUARY 9, 1996 397 Eduarte vs. Court of Appeals ing the appellants Eduartes guilty of suppression of evidence; and 4. In finding that the signature of Pedro Calapine in the deed of donation (Exhibits C and 1-A) dated July 26, 1984 a forgery based on the opposite findings of the hand writing experts presented by each party and in the absence of the testimony of

Pedro Calapine who was then still alive (pp. 1-2, appellants’ brief.)”2Decision, pp. 1-5, Rollo, pp. 32-36. In its decision dated April 22, 1992,3Rollo, p. 32. respondent Court of Appeals dismissed petitioners’ appeal and affirmed the decision of the trial court. Respondent court was in complete accord with the trial court in giving more credence to the testimony of private respondents’ expert witness, NBI document examiner Bienvenido Albacea, who found Pedro Calapine’s signature in the second deed of donation to be a forgery. It also ruled that by falsifying Pedro Calapine’s signature, Helen Doria committed an act of ingratitude which is a valid ground for revocation of the donation made in her favor in accordance with Article 765 of the Civil Code. Furthermore, respondent court upheld the trial court’s finding that petitioners are not buyers in good faith of the donated property as they failed to exercise due diligence in verifying the true ownership of the property despite the existence of circumstances that should have aroused their suspicions. Petitioners are now before us taking exception to the foregoing findings of respondent Court of Appeals and contending that the same are not in accord with the law and evidence on record. Anent the revocation of the first deed of donation, petitioners submit that paragraph (1) of Article 765 of the Civil Code does not apply in this case because the acts of ingratitude referred to therein pertain to offenses committed by the donee against the person or property of the donor. Petitioners argue that as the offense imputed to herein donee Helen Doria—falsification of a public document—is neither a crime against _______________ 2 Decision, pp. 1-5, Rollo, pp. 32-36.

3 Rollo, p. 32. 398 398 SUPREME COURT REPORTS ANNOTATED Eduarte vs. Court of Appeals the person nor property of the donor but is a crime against public interest under the Revised Penal Code, the same is not a ground for revocation. In support of this contention, petitioners cite the following portions found in Tolentino’s Commentaries and Jurisprudence on the Civil Code: “Offense against Donor—x x x. The crimes against the person of the donor would include not only homicide and physical injuries, but also illegal detention, threats and coercion; and those against honor include offenses against chastity and those against the property, include robbery, theft, usurpation, swindling, arson, damages, etc. (5 Manresa 175176).”4Petition, p. 11; Rollo, p. 23, citing Vol. II, ed., p. 550. This assertion, however, deserves scant consideration. The full text of the very same commentary cited by petitioners belies their claim that falsification of the deed of donation is not an act of ingratitude, to wit: “Offense Against Donor.—All crimes which offend the donor show ingratitude and are causes for revocation. There is no doubt, therefore, that the donee who commits adultery with the wife of the donor, gives cause for revocation by reason of ingratitude. The crimes against the person of the donor would include not only homicide and physical injuries, but also illegal detention, threats, and coercion; those against honor include

offenses against chastity; and those against the property, include robbery, theft, usurpation, swindling, arson, damages, etc. [Manresa 175-176].5Vol. II, 1983 Ed., p. 538. (Italics supplied). Obviously, the first sentence was deleted by petitioners because it totally controverts their contention. As noted in the aforecited opinion “all crimes which offend the donor show ingratitude and are causes for revocation.” Petitioners’ attempt to categorize the offenses according to their classification under the Revised Penal Code is therefore unwarranted considering that illegal detention, threats and coercion are considered as crimes against the person of the donor despite _______________ 4 Petition, p. 11; Rollo, p. 23, citing Vol. II, ed., p. 550. 5 Vol. II, 1983 Ed., p. 538. 399 VOL. 253, FEBRUARY 9, 1996 399 Eduarte vs. Court of Appeals the fact that they are classified as crimes against personal liberty and security under the Revised Penal Code.6See Revised Penal Code, Title Nine—Crimes Against Personal Liberty and Security; Articles 267, 268, 282, 283, 286, 287, 289. Petitioners also impute grave error to respondent Court of Appeals in finding that the second deed of donation dated July 26, 1984 was falsified. Petitioners deplore the fact that more credence was given to the testimony of the NBI handwriting expert who found Pedro Calapine’s signature in the second

deed of donation to be a forgery despite the existence of controverting testimony by PC-INP Crime Laboratory (PCCL) Chief Document Examiner which petitioners adduced as evidence on their part. We are not persuaded. Respondent Court of Appeals and the trial court cannot be faulted for giving more weight and credence to the testimony of the NBI handwriting expert considering that the examination of the said witness proved to be complete, thorough and scientific. In gauging the relative weight to be given to the opinion of handwriting experts, we adhere to the following standards: “We have held that the value of the opinion of a handwriting expert depends not upon his mere statements of whether a writing is genuine or false, but upon the assistance he may afford in pointing out distinguishing marks, characteristics and discrepancies in and between genuine and false specimens of writing which would ordinarily escape notice or detection from an unpracticed observer. The test of genuineness ought to be the resemblance, not the formation of letters in some other specimens but to the general character of writing, which is impressed on it as the involuntary and unconscious result of constitution, habit or other permanent course, and is, therefore itself permanent.”7People vs. Domasian, 219 SCRA 245, 252 (1993) citing Alcos v. IAC, 162 SCRA 823, Moran, Comments on Rules of Court, 434, Nolasco ed., 1980; People v. Bustos, 45 Phil. 9 (1983). _______________ 6 See Revised Penal Code, Title Nine—Crimes Against Personal Liberty and Security; Articles 267, 268, 282, 283, 286, 287, 289.

7 People vs. Domasian, 219 SCRA 245, 252 (1993) citing Alcos v. IAC, 162 SCRA 823, Moran, Comments on Rules of Court, 434, Nolasco ed., 1980; People v. Bustos, 45 Phil. 9 (1983). 400 400 SUPREME COURT REPORTS ANNOTATED Eduarte vs. Court of Appeals Confronted with contradicting testimonies from two handwriting experts, the trial court and respondent Court of Appeals were convinced by the opinion of the NBI handwriting expert as it was more exhaustive, in contrast with the testimony of petitioners’ witness from the PCCL which was discarded on account of the following flaws: “The Court is not convinced with Cruz’s explanations. Apart from the visual inconsistencies, i.e., the strokes with which some letters were made, the variety in the sizes of the letters, the depth, the difference in the slant which the Court itself observed in its own examination of both the questioned signatures and those standard specimen signatures, there is evidence showing that Cruz did not make a thorough examination of all the signatures involved in this particular issue. Thus even in the report submitted by the PCCL it was admitted that they omitted or overlooked the examination of at least three (3) standard specimen signatures of Pedro Calapine which were previously subject of the NBI examination marked as Exhibits ‘S-9,’ ‘S-10’ and ‘S-11.’ When questioned regarding this oversight, Cruz testified that in his opinion, the inclusion or non-inclusion of said exhibits in their examination

will not affect the same and they would have arrived at the same conclusion anyway. Again, when asked why they did not bother to have the original copies of the documents being questioned (Exhs. ‘Q-1’ through ‘Q-3’) for their examination, Cruz replied that they are using a special film so it will not matter whether the documents being examined are the original or a mere photocopy (TSN 8, 10, 12 and 26, Hearing of Nov. 23, 1989). “The Court will not attempt to make its own conclusion or resolution on such a technical issue as the matter at hand in the light of the cavalier attitude of Cruz. In fine, between the examinations made by the two witnesses, that of Albacea’s proved to be complete, thorough and scientific and is worthy of credence and belief.”8Decision, pp. 5-6, Rollo, pp. 36-37. The afore-quoted findings confirm beyond doubt the failure of petitioners’ expert witness to satisfy the above-mentioned criteria for evaluating the opinion of handwriting experts. At the same time, petitioners’ witness failed to rebut the convincing testimony of the NBI handwriting expert presented by _______________ 8 Decision, pp. 5-6, Rollo, pp. 36-37. 401 VOL. 253, FEBRUARY 9, 1996 401 Eduarte vs. Court of Appeals private respondents. We therefore find no reason to deviate from the assailed conclusions as the same are amply supported by the evidence on record.

Finally, proceeding to the crucial issue that directly affects herein petitioners, it is reiterated that petitioners are buyers in good faith of the donated property, and therefore, it was grave error to annul and set aside the deed of sale executed between petitioners and donee Helen Doria. In adjudging petitioners as buyers in bad faith, respondent Court of Appeals affirmed the trial court’s finding that the attendant circumstances, that is, the presence of other occupants as well as houses built of strong materials and fruit bearing trees in the subject land, should have aroused the suspicion of petitioners and impelled them to exercise due diligence in verifying the true ownership of the property being sold. Petitioners dispute the lower court’s conclusion and argue that although there were other occupants in the subject property, no adverse claim was made by the latter as they were mere tenants therein, thus, petitioners were not obliged to make any further inquiry because the property being sold was covered by a certificate of title under Helen Doria’s name. We agree with petitioners. The rule is well-settled that mere possession cannot defeat the title of a holder of a registered torrens title to real property.9Abad vs. Court of Appeals, 179 SCRA 817, 826 (1989) citing J.M. Tuason & Co., Inc. vs. Court of Appeals, 93 SCRA 146 (1979). Moreover, reliance on the doctrine that a forged deed can legally be the root of a valid title is squarely in point in this case: “Although generally a forged or fraudulent deed is a nullity and conveys no title, however there are instances when such a fraudulent document may become the root of a valid title. One such instance is where the certificate of title was already transferred from the name of the true owner to the forger, and

while it remained that way, the land was subsequently sold to an innocent purchaser. For then, the vendee had the right to rely upon what appeared in the certificate. _______________ 9 Abad vs. Court of Appeals, 179 SCRA 817, 826 (1989) citing J.M. Tuason & Co., Inc. vs. Court of Appeals, 93 SCRA 146 (1979). 402 402 SUPREME COURT REPORTS ANNOTATED Eduarte vs. Court of Appeals “Where there was nothing in the certificate of title to indicate any cloud or vice in the ownership of the property, or any encumbrance thereon, the purchaser is not required to explore further than what the Torrens Title upon its face indicates in quest for any hidden defect or inchoate right that may subsequently defeat his right thereto. If the rule were otherwise, the efficacy and conclusiveness of the certificate of title which the Torrens System seeks to insure would entirely be futile and nugatory.”10Philippine National Bank vs. Court of Appeals, et al., 187 SCRA 735, 740 (1990) citing Fule vs. Legare, 7 SCRA 351. When herein petitioners purchased the subject property from Helen Doria, the same was already covered by TCT No. T23205 under the latter’s name. And although Helen Doria’s title was fraudulently secured, such fact cannot prejudice the rights of herein petitioners absent any showing that they had any knowledge or participation in such irregularity. Thus, they cannot be obliged to look beyond the certificate of title which

appeared to be valid on its face and sans any annotation or notice of private respondents’ adverse claim. Contrary therefore to the conclusion of respondent Court, petitioners are purchasers in good faith and for value as they bought the disputed property without notice that some other person has a right or interest in such property, and paid a full price for the same at the time of the purchase or before they had notice of the claim or interest of some other person in the property.11Tenio-Obsequio vs. Court of Appeals, 230 SCRA 550, 556 (1994) citing De Santos vs. Intermediate Appellate Court, et al., 157 SCRA 295; Co, et al. vs. Court of Appeals, et al., 196 SCRA 705; Casupit, et al. vs. Court of Appeals, 204 SCRA 684. Respondent Court therefore committed a reversible error when it affirmed the ruling of the trial court annulling and setting aside the deed of absolute sale dated March 25, 1988 between petitioners and Helen Doria, as well as the Transfer Certificate of Title No. T-27434 issued under petitioner’s name, the established rule being that the rights of an innocent purchaser for value must be respected and protected _______________ 10 Philippine National Bank vs. Court of Appeals, et al., 187 SCRA 735, 740 (1990) citing Fule vs. Legare, 7 SCRA 351. 11 Tenio-Obsequio vs. Court of Appeals, 230 SCRA 550, 556 (1994) citing De Santos vs. Intermediate Appellate Court, et al., 157 SCRA 295; Co, et al. vs. Court of Appeals, et al., 196 SCRA 705; Casupit, et al. vs. Court of Appeals, 204 SCRA 684. 403

VOL. 253, FEBRUARY 9, 1996 403 Eduarte vs. Court of Appeals notwithstanding the fraud employed by the seller in securing his title.12Pino vs. Court of Appeals, 198 SCRA 434, 440 citing Director of Lands vs. Abache, et al., 73 Phil. 606. In this regard, it has been held that the proper recourse of the true owner of the property who was prejudiced and fraudulently dispossessed of the same is to bring an action for damages against those who caused or employed the fraud, and if the latter are insolvent, an action against the Treasurer of the Philippines may be filed for recovery of damages against the Assurance Fund.13Philippine National Bank vs. Court of Appeals, et al., supra, citing Blanco, et al. vs. Esquierdo, 110 Phil. 494; Tenio-Obsequio vs. Court of Appeals, supra. Conformably with the foregoing, having established beyond doubt that Helen Doria fraudulently secured her title over the disputed property which she subsequently sold to petitioners, Helen Doria should instead be adjudged liable to private respondents, and not to petitioners as declared by the trial court and respondent Court of Appeals, for the resulting damages to the true owner and original plaintiff, Pedro Calapine. ACCORDINGLY, the petition is GRANTED and the appealed decision is hereby MODIFIED. The portions of the decision of the Regional Trial Court of San Pablo City, Branch 30, as affirmed by the Court of Appeals in CA-G.R. CV No. 29175 which ordered the following: “x x x xxx x x x; “2. ANNULLING, voiding, setting aside and declaring of no force and effect x x x, the deed of absolute sale executed on

March 25, 1988 by and between spouses Eduartes and Helen Doria, and the Transfer Certificate of Title No. T-27434 issued under the name of spouses Romulo and Sally Eduarte; “3. ORDERING the office of the Register of Deeds, San Pablo City, to cancel TCT No. T-27434 or any other adverse title emanating from OCT No. P-2129 and in lieu thereof, to issue a new transfer certificate of title covering the subject property under the names of the substitute-plaintiffs Alexander and Artemis both surnamed Ca_______________ 12 Pino vs. Court of Appeals, 198 SCRA 434, 440 citing Director of Lands vs. Abache, et al., 73 Phil. 606. 13 Philippine National Bank vs. Court of Appeals, et al., supra, citing Blanco, et al. vs. Esquierdo, 110 Phil. 494; TenioObsequio vs. Court of Appeals, supra. 404 404 SUPREME COURT REPORTS ANNOTATED Eduarte vs. Court of Appeals lapine, after payment of the corresponding fees and taxes therefor; and “4. x x x xxx x x x. “Judgment on the cross-claim of defendant Eduartes against Helen Doria is further rendered by ordering the latter to pay the former the sum of P110,000.00 with legal interest thereon starting from March 25, 1988 until full payment, x x x.” are hereby REVERSED and SET ASIDE. Instead, Helen Doria is hereby ordered to pay herein private respondents the sum of P110,000.00 with legal interest counted

from March 25, 1988 until full payment, as damages for the resulting loss to original plaintiff Pedro Calapine. In all other respects, the appealed decision is hereby affirmed. SO ORDERED. Narvasa (C.J., Chairman), Davide, Jr., Melo and Panganiban, JJ., concur. Petition granted, judgment modified. Notes.—It would be manifestly unfair for the Republic, as donee, alleged to have violated the conditions under which it received gratuitously certain property, thereafter to put as a barrier the concept of non-suability. That would be a purely one-sided arrangement offensive to one’s sense of justice. Such conduct, whether proceeding from an individual or governmental agency, is to be condemned. As a matter of fact, in case it is the latter that is culpable, the affront to decency is even more manifest. (Santiago vs. Republic, 87 SCRA 294 [1978]) Only the donor or his heirs have the personality to question the violation of any restriction in the deed of donation. (Gar-rido vs. Court of Appeals, 236 SCRA 450 [1994]) ——o0o—— [Eduarte vs. Court of Appeals, 253 SCRA 391(1996)]

G.R. No. 164693. March 23, 2011.* JOSEFA S. ABALOS** AND THE DEVELOPMENT BANK OF THE PHILIPPINES, petitioners, vs. SPS. LOMANTONG DARAPA AND SINAB DIMAKUTA, respondents. Appeals; Questions of Law; Words and Phrases; A question of law arises when there is doubt as to what the law is on a certain state of facts—this is in contradistinction from a question of fact which arises from doubt as to the truth or falsity of the alleged facts.—It is fundamental procedural law that a petition for review on certiorari filed with this Court under Rule 45 of the Rules of Civil Procedure shall, as a general rule, raise only questions of law. A question of law arises when there is doubt as to what the law is on a certain state of facts—this is in contradistinction from a question of fact which arises from doubt as to the truth or falsity of the alleged facts. A question of law does not involve an examination of the probative value of the evidence presented by the litigants or any of them and the resolution of the issue must rest solely on what the law provides on the given set of circumstances. Same; The Court of Appeals’ factual findings, affirming that of the trial court, are final and conclusive on the Supreme Court and _______________ * FIRST DIVISION. ** The Court’s Resolution dated 13 February 2006 dropped Josefa S. Abalos participation as party-petitioner due to her abandonment pending appeal with the Court of Appeals. 201 VOL. 646, MARCH 23, 2011201 Abalos vs. Darapa

may not be reviewed on appeal, except for the most compelling of reasons.—Petitioners ought to remember that the Court of Appeals’ factual findings, affirming that of the trial court, are final and conclusive on this Court and may not be reviewed on appeal, except for the most compelling of reasons, such as when: (1) the conclusion is grounded on speculations, surmises or conjectures; (2) the inference is manifestly mistaken, absurd or impossible; (3) there is grave abuse of discretion; (4) the judgment is based on a misapprehension of facts; (5) the findings of fact are conflicting; (6) there is no citation of specific evidence on which the factual findings are based; (7) the findings of absence of facts are contradicted by the presence of evidence on record; (8) the findings of the Court of Appeals are contrary to those of the trial court; (9) the Court of Appeals manifestly overlooked certain relevant and undisputed facts that, if properly considered, would justify a different conclusion; (10) the findings of the Court of Appeals are beyond the issues of the case; and (11) such findings are contrary to the admissions of both parties. None of the exceptions is present in this petition. Equity; Estoppel; Elements.—In Pacific Mills, Inc. v. Court of Appeals, 477 SCRA 414 (2005), we laid down the requisites of estoppel as follows: (a) conduct amounting to false representation or concealment of material facts or at least calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (b) intent, or at least expectation that this conduct shall be acted upon, or at least influenced by the other

party; and (c) knowledge, actual or constructive, of the factual facts. Same; Laches; Laches is a doctrine meant to bring equity—not to further oppress those who already are; The elements of laches must be proved positively because it is evidentiary in nature and cannot be established by mere allegations in the pleadings.—Laches, on the other hand, is a doctrine meant to bring equity—not to further oppress those who already are. Laches has been defined as neglect or omission to assert a right, taken in conjunction with lapse of time and other circumstances causing prejudice to an adverse party, as will operate as a bar in equity. It is a delay in the assertion of a right which works disadvantage to another because of the inequity founded on some change in the condition or relations of the property or parties. The elements of laches must, however, be proved posi202 202SUPREME COURT REPORTS ANNOTATED Abalos vs. Darapa tively because it is evidentiary in nature and cannot be established by mere allegations in the pleadings. These are but factual in nature which the Court cannot grant without violating the basic procedural tenet that, as discussed, the Court is not trier of facts. Yet again, the records as established by the trial court show that it was rather the DBP’s tactic which delayed the institution of the action. DBF made the spouses believe that there was no need to institute any action for the land would be returned to the spouses soon, only to be told, after ten (10) years of naiveté, that reconveyance would no

longer be possible for the same land was already sold to Abalos, an alleged purchaser in good faith and for value. Reconveyance; Prescription; The 10-year prescriptive period applies only when the reconveyance is based on fraud which makes a contract voidable (and that the aggrieved party is not in possession of the land whose title is to be actually reconveyed)—it does not apply to an action to nullify a contract which is void ab initio.—The DBP contends that the prescriptive period for the reconveyance of fraudulently registered real property is ten (10) years reckoned from the date of the issuance of the certificate of title. While the above disquisition of the DBP is true, the 10-year prescriptive period applies only when the reconveyance is based on fraud which makes a contract voidable (and that the aggrieved party is not in possession of the land whose title is to be actually, reconveyed). It does not apply to an action to nullify a contract which is void ab initio, as in the present petition. Article 1410 of the Civil Code categorically states that an action for the declaration of the inexistence of a contract does not prescribe. PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. Benilda A. Tajena, Mariano S. Guerrero, Jr. and Wilson C. Namocot for petitioner. Federico R. Maranda for respondents. 203 VOL. 646, MARCH 23, 2011203 Abalos vs. Darapa PEREZ,

J.:

The petitioner, Development Bank of the Philippines (DBP), files the present petition for review on certiorari via Rule 45 of the Rules of Court,1 asking us to reverse and set aside the Court of Appeals’ decision in CA-G.R. CV. No. 70693 dated 26 September 20032 which affirmed the decision of the Regional Trial Court (RTC), Branch 3, Iligan City.3 Background Facts On 25 June 1962, petitioner DBP, Ozamis Branch, granted a P31,000.00 loan to respondent spouses Lomantong Darapa and Sinab Dimakuta (spouses) who executed therefore a real and chattel mortgage contract, which covered, among others, the following: “A warehouse to house the rice and corn mill, xxx constructed on a 357 square meter lot situated at poblacion, Linamon, Lanao del Norte which lot is covered by Tax Declaration No. A-148 of Linamon, Lanao del Norte. The equity rights, participation, and interest of the mortgagors over the above-mentioned parcel of land on which the bodega is constructed situated in the Municipality of Linamon, Province of Lanao del Norte, containing an area of 357 square meters, more or less, declared for tax purposes in the name of Sinab Dimakuta and assessed at P2,430.00 per Tax Declaration No. A-148 for the year 1961 and bounded as follows: on the North by Rafael Olaybar; on the South, by National Road[;] on the East by Ulpiano Jimenez; on the West, by Rafael Olaybar; of which property the mortgagors are in complete and absolute possession, xxx. The aforesaid equity rights, participation and interest of the mortgagors in said parcel of land are not registered under the _______________

1 Petition. Rollo, pp. 9-36. 2 Penned by Associate Justice Andres B. Reyes with Associate Justices Buenaventura J. Guerrero and Regalado E. Maambong, concurring. Id., at pp. 39-54. 3 Id., at p. 54. 204 204SUPREME COURT REPORTS ANNOTATED Abalos vs. Darapa Spanish Mortgage Law nor under Act 496 and the parties hereto hereby agree that this instrument shall be registered under Act 3344, as amended. It is further the agreement of the parties that immediately after the mortgagors acquire absolute ownership of the land abovementioned on which the aforementioned building is erected by means of a free or sales patent or any other title vesting them with ownership in fee simple, the Mortgagors shall execute a Real Estate Mortgage thereon in favor of the Mortgagee, the Development Bank of the Philippines, to replace and substitute only, this portion of the herein mortgage contract.”4 The assignment of the spouses’ equity rights over the land covered by Tax Declaration No. A-148 in DBP’s favor was embedded in the Deed of Assignment of Rights and Interests5 which the spouses executed simultaneous with the real and chattel mortgage contract. In 1970, the spouses applied for the renewal and increase of their loan using Sinab Dimakuta’s (Dimakuta) Transfer Certificate of Title (TCT) No. T-1,997 as additional collateral. The DBP disapproved the loan application without returning, however, Dimakuta’s TCT.

When the spouses failed to pay their loan, DBP extrajudicially foreclosed the mortgages on 16 September 1971, which, unknown to the spouses, included the TCT No. T-1,997. The spouses failed to redeem the land under TCT No. T-1,997 which led to its cancellation, and, the eventual issuance of TCT No. T-7746 in DBP’s name. In 1984, the spouses discovered all these and they immediately consulted a lawyer who forthwith sent a demand letter to the bank for the reconveyance of the land. The bank assured them of the return of the land. In 1994, however, a bank officer told them that such is no longer possible as the _______________ 4 Mortgage of Contract. Id., at p. 134 (at the back page). 5 Records, p. 206. Exhibit “II.” 205 VOL. 646, MARCH 23, 2011205 Abalos vs. Darapa land has already been bought by Abalos, daughter of the then provincial governor. On 12 May 1994,6 the DBP sold the land to its co-petitioner Josefa Abalos (Abalos). The TCT No. T-7746 (originally TCT No. T-1,997) was cancelled and on 6 July 1994, T-16,280 was issued in Abalos’ name.7 On 20 August 1994,8 the spouses filed with the RTC of Iligan City, a Complaint for Annulment of Title, Recovery of Possession and Damages, against DBP and Abalos.9 The spouses averred that TCT No. T-1,997 was not one of the mortgaged properties, and, thus, its foreclosure by DBP and its eventual sale to Abalos was null and void.

On the other hand, DBP countered that TCT No. T-1,997 had its roots in Tax Declaration No. A-148, which the spouses mortgaged with the DBP in 1962 as evidenced by the Real Estate Mortgage and the Deed of Assignment. Abalos, on her part, contended that she was an innocent purchaser for value who relied in good faith on the cleanliness of the DBP’s Title. The RTC, in a Decision dated 29 November 2000, annulled the DBP’s foreclosure sale of the land under TCT No. T-1,997 and its sale to Abalos; further, it declared Dimakuta as the land’s lawful owner. Thus: “WHEREFORE, premises all considered Judgment is hereby rendered: 1. Declaring the foreclosure of TCT No. T-1,997, the Sheriffs Certificate of Sale dated September 20, 1971 as far as TCT No. T-1,997 is concerned and the Affidavit of Consolidation of Ownership dated October 19, 1978, also insofar as it included TCT No. T-1,997 null and void ab initio; _______________ 6 Petition. Rollo, p. 15. 7 Transfer of Certificate of Title No. T-16,280. Id., at p. 133. 8 Records, p. 7. 9 Id., at pp. 1-8. 206 206SUPREME COURT REPORTS ANNOTATED Abalos vs. Darapa 2. Annulling TCT No. T-7746 in the name of DBP and TCT No. T-16,280 in the name of defendant Josepha S. Abalos; 3. Declaring plaintiff Sinab Dimakuta the lawful owner of the land covered by TCT No. T-1,997. For this purpose, the

Registrar of Deeds of Lanao del Norte is ordered to reinstate TCT No. T-1,997 in the name of Sinab Dimakuta and perforce cancel TCT No. T-16,280 in the name of Josefa Abalos and the latter to surrender possession of the lot covered by TCT No. 1,997 to plaintiff Sinab Di[m]akuta; 4. Ordering DBP to pay plaintiffs P50,000.00 moral damages; P20,000.00 exemplary damages and P20,000.00 attorney’s fees; 5. Directing DBP to pay defendant Josefa Abalos the current fair market value of TCT No. T-1,997 plus actual damages of P50,000.00; moral damages of P50,000.00, exemplary damages of P20,000.00 and attorney’s fees of P20,000.00.10 The DBP and Abalos assailed the RXC decision before the Court of Appeals; Abalos, however, later abandoned her appeal. The Court of Appeals denied the petition in a Decision dated 26 September 2003. It ratiocinated that DBP had no right to foreclose the land under TCT No. T-1,997, it not having been mortgaged:11 “WHEREFORE, premises considered, the instant appeal is hereby DISMISSED for lack of merit. The assailed 29 November 2000 Decision of the court is hereby AFFIRMED.”12 Hence, this petition for review on certiorari. _______________ 10 Decision of the RTC. Id., at pp. 263-264. 11 Rollo, p. 51. 12 Id., at p. 54. 207 VOL. 646, MARCH 23, 2011207

Abalos vs. Darapa In the main, DBP wants to convince this Court that the land covered by Tax Declaration No. A-148 mortgaged in 1962, then untitled, is the same land now covered by TCT No. T1,99713 and that DBP came to its possession when the spouses voluntarily delivered the title in 1970 to the bank’s manager, Tauti R. Derico, who executed an affidavit which stated that: “x x x the land covered by Tax Declaration No. A-148 and TCT No. T-1,997 are one and the same parcel of land which was mortgaged to the Development Bank of the Philippines.”14 Our Ruling We find the petition unmeritorious, and thus, affirm the Court of Appeals. It is fundamental procedural law that a petition for review on certiorari filed with this Court under Rule 45 of the Rules of Civil Procedure shall, as a general rule, raise only questions of law.15 A question of law arises when there is doubt as to what the law is on a certain state of facts16—this is in contradistinction from a question of fact which arises from doubt as to the truth _______________ 13 Id., at pp. 19-23. 14 Id., at p. 13. 15 The 1997 Revised Rules of Court, Rule 45. Section 1. Filing of petition with the Supreme Court.—A party desiring to appeal by certiorari from a judgment or final order or resolution of the Court of Appeals, the Sandiganbayan, the Regional Trial Court or other courts whenever authorized

by law, may file with the Supreme Court a verified petition for review on certiorari. The petition shall raise only questions of law which must be distinctly set forth. 16 Marcelo v. Bunguhong, G.R. No. 175201, 23 April 2008, 552 SCRA 589, 605. 208 208SUPREME COURT REPORTS ANNOTATED Abalos vs. Darapa or falsity of the alleged facts.17 A question of law does not involve an examination of the probative value of the evidence presented by the litigants or any of them18 and the resolution of the issue must rest solely on what the law provides on the given set of circumstances.19 The DBP’s insistence that TCT No. T-1,997 is the same land covered by Tax Declaration No. A-148 is to ask the Court to evaluate the pieces of evidence passed upon by the RTC and the Court of Appeals. To grant this petition will entail the Court’s review and determination of the weight, credence, and probative value of the evidence presented at the trial court— matters which, without doubt, are factual and, therefore, outside the ambit of Rule 45. Petitioners ought to remember that the Court of Appeals’ factual findings, affirming that of the trial court, are final and conclusive on this Court and may not be reviewed on appeal, except for the most compelling of reasons, such as when: (1) the conclusion is grounded on speculations, surmises or conjectures; (2) the inference is manifestly mistaken, absurd or impossible; (3) there is grave abuse of discretion; (4) the judgment is based on a misapprehension of facts; (5) the

findings of fact are conflicting; (6) there is no citation of specific evidence on which the factual findings are based; (7) the findings of absence of facts are contradicted by the presence of evidence on record; (8) the findings of the Court of Appeals are contrary to those of the trial court; (9) the Court of Appeals manifestly overlooked certain relevant and undisputed facts that, if properly considered, would justify a different conclusion; (10) the findings of the Court of Appeals are beyond the issues of the case; and (11) such findings are con_______________ 17 Vector Shipping Corporation v. Macasa, G.R. No. 160219, 21 July 2008, 97 SCRA 105. 18 Binay v. Odeña, G.R. No. 163683, 8 June 2007, 524 SCRA 248, 255-256. 19 Id. 209 VOL. 646, MARCH 23, 2011209 Abalos vs. Darapa trary to the admissions of both parties.20 None of the exceptions is present in this petition. In any event, we have meticulously reviewed the case’s records and found no reason to disturb the findings of the RTC as affirmed by the Court of Appeals. The records reveal that the land covered by TCT No. T-1,997 was not among the properties, the spouses mortgaged with the DBP in 1962.21 No less than the 1962 mortgage contract and its accompanying deed of assignment show that the land covered by Tax Declaration No. A-148 is located in Linamon, Lanao del Norte with an area of 357 square meters and bounded “on the north

by Rafael Olaybar; on the south, by National Road; on the east by Ulpiano Jimenez; and, on the west, by Rafael Olaybar.”22 On the other hand, the land covered by TCT No. T-1,997 is situated in Barrio Buru-an, Municipality of lligan, Lanao del Norte and contains an area of 342 square meters.23 TCT No. T-1,997 traces its roots in Original Certificate of Title (OCT) No. RP-407 (244), pursuant to a Homestead patent granted by the President of the Philippines in 1933 under Act No. 2874, and which was registered as early as 26 June 1933 as recorded in Registration Book No. 1, page 137 of the Office of the Register of Deeds, Lanao del Norte.24 That TCT No. T-1,997 was not included in the 1962 mortgage was also admitted by the DBP’s former property examiner and appraiser, Mamongcarao Blo, who testified that he was the person who examined and appraised the lands which the spouses mortgaged with the DBP, and that he never ex_______________ 20 International Container Terminal Services, Inc. v. FGU Insurance Corporation, G.R. No. 161539, 28 June 2008, 556 SCRA 194, 119. 21 Rollo, p. 53. 22 Id., at p. 11. 23 Id., at p. 125. 24 Id., at p. 125. 210 210SUPREME COURT REPORTS ANNOTATED Abalos vs. Darapa amined any land in Barrio Buru-an, Linamon, as described in TCT No. T-1,997.25 Even the bank’s own witness, Marie

Magsangcay (Magsangcay), the DBP’s Executive Officer, claimed during the direct examination that the questioned TCT originated from OCT No. P-1485, an entirely different land as the trial court would later discover.26 Magsangcay’s testimony contradicted the bank’s consistent claim that TCT No. T-1,997 originated from Tax Declaration No. A-148. These blatant inconsistencies make the DBP’s contention incredulous. Other than the questionable annotation at the back of Dimakuta’s TCT No. T-1,997, claiming that this TCT originated from Tax Declaration No. A-148, DBP submitted nothing more to substantiate its claim that these two documents refer to the land mortgaged in 1962; DBP did not even bother to submit the Tax Declaration, under which its claim is based. The annotation of such unilateral claim at the back of Dimakuta’s TCT cannot improve petitioners’ position. This undated annotation should have been disallowed outright for being violative of Sections 6027 in relation to Section 54, and Section 6128 of the Presidential Decree No. 1529,29 otherwise _______________ 25 Records, p. 13. 26 Id., at p. 33. 27 Sec. 60. Mortgage or lease of registered land.— Mortgages and leases shall be registered in the manner provided in Section 54 of this Decree. The owner of the registered land may mortgage or lease it by executing the deed in a form sufficient in law. Such deed of mortgage or lease and all instruments which assign, extend discharge or otherwise deal with the mortgage or lease shall be registered, and shall take effect upon the title only from time of registration.

28 Sec. 61. Registration.—Upon presentation for registration of the deed of mortgage or lease together with the owner’s duplicate, the Register of Deeds shall enter upon the Original Certificate of title and also upon the owner’s duplicate certificate a memorandum thereof, the date and time of filing and the file number assigned to the deed, and shall sign the said memorandum. He shall also note on 211 VOL. 646, MARCH 23, 2011211 Abalos vs. Darapa known as the Property Registration Decree—basic provisions, which every Register of Deeds is presumed to know. The DBP’s annotation that the property originally covered by Tax Declaration No. A-148 is now covered by TCT No. T-1,99730 is neither the deed nor the instrument referred to by Sections 60 and 61 of the above quoted law and such annotation will in no way change the fact that the two documents refer to different lands: one, which was indeed a subject of the mortgage contract; and two, which Dimakuta had delivered to DBP in 1970 supposedly for another loan, but, which was, however, disapproved. It should be underscored that it was this annotation, albeit irregular, that paved to the sale of the land now in question. Needless to say, the bank utterly failed to establish, by preponderance of evidence, that TCT No. T-1,997 originated from Tax Declaration No. A-148. Thus, we find no reversible error in the RTC and the Court of Appeals findings that the DBP’s foreclosure sale of the land under TCT No. T-1,997 was null and void.

The Court also finds unmeritorious the DBP’s contention that the spouses’ cause of action is barred by estoppel, laches and prescription. DBP claims that the failure of the spouses to redeem their property estopped them from questioning the validity of the foreclosure sale; and, that laches and prescription have already set in because the spouses filed their action only after the lapse of 16 years31 from the issuance of DBP’s title. _______________ the deed the date and time of filing and a reference to the volume and page of the registration book in which it is registered. 29 Amending and Codifying the Laws Relative to Registration of Property and for Other Purposes. Signed into law on June 11, 1978. 30 Rollo, p. 125 (at the back page). 31 Id., at p. 130. 212 212SUPREME COURT REPORTS ANNOTATED Abalos vs. Darapa In Pacific Mills, Inc. v. Court of Appeals,32 we laid down the requisites of estoppel as follows: (a) conduct amounting to false representation or concealment of material facts or at least calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (b) intent, or at least expectation that this conduct shall be acted upon, or at least influenced by the other party; and (c) knowledge, actual or constructive, of the factual facts.33

In the present petition, it cannot be concluded that the spouses are guilty of estoppel for the requisites are not attendant. Laches, on the other hand, is a doctrine meant to bring equity—not to further oppress those who already are. Laches has been defined as neglect or omission to assert a right, taken in conjunction with lapse of time and other circumstances causing prejudice to an adverse party, as will operate as a bar in equity.34 It is a delay in the assertion of a right which works disadvantage to another because of the inequity founded on some change in the condition or relations of the property or parties.35 The elements of laches must, however, be proved positively because it is evidentiary in nature and cannot be established by mere allegations in the pleadings.36 These are but factual in nature which the Court cannot grant without violating the basic procedural tenet that, as discussed, the Court is not trier of facts. Yet again, the records as established by the trial court show that it was rather the DBP’s tactic which delayed _______________ 32 513 Phil. 534; 477 SCRA 414 (2005). 33 Id., at p. 544; p. 425 . 34 De Vera-Cruz v. Miguel, G.R. No. 144103, 31 August 2005. 468 SCRA 506, 518. 35 Id. 36 Department of Education v. Oñate, G.R. No. 161758, 8 June 2007, 524 SCRA 200, 216. 213 VOL. 646, MARCH 23, 2011213 Abalos vs. Darapa

the institution of the action. DBF made the spouses believe that there was no need to institute any action for the land would be returned to the spouses soon, only to be told, after ten (10) years of naiveté, that reconveyance would no longer be possible for the same land was already sold to Abalos, an alleged purchaser in good faith and for value. The Court also disagrees with the DBP’s contention that for failure to institute the action within ten years from the accrual of the right thereof, prescription has set in, barring the spouses from vindicating their transgressed rights. The DBP contends that the prescriptive period for the reconveyance of fraudulently registered real property is ten (10) years reckoned from the date of the issuance of the certificate of title.37 While the above disquisition of the DBP is true, the 10-year prescriptive period applies only when the reconveyance is based on fraud which makes a contract voidable (and that the aggrieved party is not in possession of the land whose title is to be actually, reconveyed). It does not apply to an action to nullify a contract which is void ab initio, as in the present petition. Article 1410 of the Civil Code categorically states that an action for the declaration of the inexistence of a contract does not prescribe.38 The spouses’ action is an action for “Annulment of Title, Recovery of Possession and Damages,”39 grounded on the theory that the DBP foreclosed their land covered by TCT No. T-1,997 without any legal right to do so, rendering the sale and the subsequent issuance of TCT in DBP’s name void ab initio and subject to attack at any time conformably to the rule in Article 1410 of the Civil Code.

_______________ 37 Rollo, p. 30. 38 Art. 1410. The action or defense for the declaration of the inexistence of a contract does not prescribe. 39 Rollo, p. 58. 214 214SUPREME COURT REPORTS ANNOTATED Abalos vs. Darapa In finis, the Court notes that Abalos, DBP’s co-defendant, was ordered by the RTC to return to the spouses the land she bought from DBP; the RTC also ordered the cancellation of Abalos’ title. Abalos, however, abandoned her appeal then pending before the Court of Appeals, resulting in its dismissal. In this Court’s Resolution dated 13 February 2006, she was subsequently dropped as party-petitioner. By abandoning her appeal, the RTC decision with respect to her, thus, became final. IN LIGHT OF THE FOREGOING, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV. No. 70693 dated 26 September 2003 is AFFIRMED. SO ORDERED. Corona (C.J., Chairperson), Velasco, Jr., Leonardo-De Castro and Del Castillo, JJ., concur. Petition denied, judgment affirmed. Notes.—The doctrine of apparent authority is a species of the doctrine of estoppel. (Nogales vs. Capitol Medical Center, 511 SCRA 204 [2006]) Unless there are intervening rights of third persons which may be affected or prejudiced by a decision ordering the return of

the lots to the registered owner, the equitable defense of laches will not apply as against the latter. (D’Oro Land Realty and Development Corporation vs. Claunan, 516 SCRA 681 [2007]) ——o0o—— [Abalos vs. Darapa, 646 SCRA 200(2011)]