G.R. No.

74761 November 6, 1990

NATIVIDAD V. ANDAMO and EMMANUEL R. ANDAMO, petitioners,
vs.
INTERMEDIATE APPELLATE COURT (First Civil Cases Division) and MISSIONARIES OF OUR LADY OF LA
SALETTE, INC., respondents.
Lope E. Adriano for petitioners.
Padilla Law Office for private respondent.

FERNAN, C.J.:
The pivotal issue in this petition for certiorari, prohibition and mandamus is whether a corporation, which has built
through its agents, waterpaths, water conductors and contrivances within its land, thereby causing inundation and
damage to an adjacent land, can be held civilly liable for damages under Articles 2176 and 2177 of the Civil Code
on quasi-delicts such that the resulting civil case can proceed independently of the criminal case.
+++++++++++
The antecedent facts are as follows:
Petitioner spouses Emmanuel and Natividad Andamo are the owners of a parcel of land situated in Biga (Biluso)
Silang, Cavite which is adjacent to that of private respondent, Missionaries of Our Lady of La Salette, Inc., a
religious corporation.
Within the land of respondent corporation, waterpaths and contrivances, including an artificial lake, were
constructed, which allegedly inundated and eroded petitioners' land, caused a young man to drown, damaged
petitioners' crops and plants, washed away costly fences, endangered the lives of petitioners and their laborers
during rainy and stormy seasons, and exposed plants and other improvements to destruction.
In July 1982, petitioners instituted a criminal action, docketed as Criminal Case No. TG-907-82, before the Regional
Trial Court of Cavite, Branch 4 (Tagaytay City), against Efren Musngi, Orlando Sapuay and Rutillo Mallillin, officers
and directors of herein respondent corporation, for destruction by means of inundation under Article 324 of the
Revised Penal Code.
Subsequently, on February 22, 1983, petitioners filed another action against respondent corporation, this time a
civil case, docketed as Civil Case No. TG-748, for damages with prayer for the issuance of a writ of preliminary
injunction before the same court. 1
On March 11, 1983, respondent corporation filed its answer to the complaint and opposition to the issuance of a
writ of preliminary injunction. Hearings were conducted including ocular inspections on the land. However, on April
26, 1984, the trial court, acting on respondent corporation's motion to dismiss or suspend the civil action, issued
an order suspending further hearings in Civil Case No, TG-748 until after judgment in the related Criminal Case No.
TG-907-82.
Resolving respondent corporation's motion to dismiss filed on June 22, 1984, the trial court issued on August 27,
1984 the disputed order dismissing Civil Case No. TG-748 for lack of jurisdiction, as the criminal case which was
instituted ahead of the civil case was still unresolved. Said order was anchored on the provision of Section 3 (a),
Rule III of the Rules of Court which provides that "criminal and civil actions arising from the same offense may be
instituted separately, but after the criminal action has been commenced the civil action cannot be instituted until
final judgment has been rendered in the criminal action." 2
Petitioners appealed from that order to the Intermediate Appellate Court.

On February 17, 1986, respondent Appellate Court, First Civil Cases Division, promulgated a decision 4 affirming
the questioned order of the trial court. 5 A motion for reconsideration filed by petitioners was denied by the
Appellate Court in its resolution dated May 19, 1986. 6
Directly at issue is the propriety of the dismissal of Civil Case No. TG-748 in accordance with Section 3 (a) of Rule
111 of the Rules of Court. Petitioners contend that the trial court and the Appellate Court erred in dismissing Civil
Case No. TG-748 since it is predicated on a quasi-delict. Petitioners have raised a valid point.
It is axiomatic that the nature of an action filed in court is determined by the facts alleged in the complaint as
constituting the cause of action. 7 The purpose of an action or suit and the law to govern it, including the period of
prescription, is to be determined not by the claim of the party filing the action, made in his argument or brief, but
rather by the complaint itself, its allegations and prayer for relief. 8 The nature of an action is not necessarily
determined or controlled by its title or heading but the body of the pleading or complaint itself. To avoid possible
denial of substantial justice due to legal technicalities, pleadings as well as remedial laws should be liberally
construed so that the litigants may have ample opportunity to prove their respective claims. 9
Quoted hereunder are the pertinent portions of petitioners' complaint in Civil Case No. TG-748:

4) That within defendant's land, likewise located at Biga (Biluso), Silang, Cavite, adjacent on the
right side of the aforesaid land of plaintiffs, defendant constructed waterpaths starting from the
middle-right portion thereof leading to a big hole or opening, also constructed by defendant, thru
the lower portion of its concrete hollow-blocks fence situated on the right side of its cemented
gate fronting the provincial highway, and connected by defendant to a man height interconnected cement culverts which were also constructed and lain by defendant cross-wise beneath
the tip of the said cemented gate, the left-end of the said inter-connected culverts again
connected by defendant to a big hole or opening thru the lower portion of the same concrete
hollowblocks fence on the left side of the said cemented gate, which hole or opening is likewise
connected by defendant to the cemented mouth of a big canal, also constructed by defendant,
which runs northward towards a big hole or opening which was also built by defendant thru the
lower portion of its concrete hollow-blocks fence which separates the land of plaintiffs from that
of defendant (and which serves as the exit-point of the floodwater coming from the land of
defendant, and at the same time, the entrance-point of the same floodwater to the land of
plaintiffs, year after year, during rainy or stormy seasons.
5) That moreover, on the middle-left portion of its land just beside the land of plaintiffs,
defendant also constructed an artificial lake, the base of which is soil, which utilizes the water
being channeled thereto from its water system thru inter-connected galvanized iron pipes (No. 2)
and complimented by rain water during rainy or stormy seasons, so much so that the water
below it seeps into, and the excess water above it inundates, portions of the adjoining land of
plaintiffs.
6) That as a result of the inundation brought about by defendant's aforementioned water
conductors, contrivances and manipulators, a young man was drowned to death, while herein
plaintiffs suffered and will continue to suffer, as follows:
a) Portions of the land of plaintiffs were eroded and converted to deep, wide
and long canals, such that the same can no longer be planted to any crop or
plant.
b) Costly fences constructed by plaintiffs were, on several occasions, washed
away.
c) During rainy and stormy seasons the lives of plaintiffs and their laborers are
always in danger.
d) Plants and other improvements on other portions of the land of plaintiffs are
exposed to destruction. ... 10
A careful examination of the aforequoted complaint shows that the civil action is one under Articles 2176 and 2177
of the Civil Code on quasi-delicts. All the elements of a quasi-delict are present, to wit: (a) damages suffered by
the plaintiff, (b) fault or negligence of the defendant, or some other person for whose acts he must respond; and
(c) the connection of cause and effect between the fault or negligence of the defendant and the damages incurred
by the plaintiff. 11
Clearly, from petitioner's complaint, the waterpaths and contrivances built by respondent corporation are alleged to
have inundated the land of petitioners. There is therefore, an assertion of a causal connection between the act of
building these waterpaths and the damage sustained by petitioners. Such action if proven constitutes fault or
negligence which may be the basis for the recovery of damages.
In the case of Samson vs. Dionisio, 12 the Court applied Article 1902, now Article 2176 of the Civil Code and held
that "any person who without due authority constructs a bank or dike, stopping the flow or communication between
a creek or a lake and a river, thereby causing loss and damages to a third party who, like the rest of the residents,
is entitled to the use and enjoyment of the stream or lake, shall be liable to the payment of an indemnity for loss
and damages to the injured party.
While the property involved in the cited case belonged to the public domain and the property subject of the instant
case is privately owned, the fact remains that petitioners' complaint sufficiently alleges that petitioners have
sustained and will continue to sustain damage due to the waterpaths and contrivances built by respondent
corporation. Indeed, the recitals of the complaint, the alleged presence of damage to the petitioners, the act or
omission of respondent corporation supposedly constituting fault or negligence, and the causal connection between
the act and the damage, with no pre-existing contractual obligation between the parties make a clear case of
a quasi delict or culpa aquiliana.
It must be stressed that the use of one's property is not without limitations. Article 431 of the Civil Code provides
that "the owner of a thing cannot make use thereof in such a manner as to injure the rights of a third person." SIC
UTERE TUO UT ALIENUM NON LAEDAS. Moreover, adjoining landowners have mutual and reciprocal duties which
require that each must use his own land in a reasonable manner so as not to infringe upon the rights and interests
of others. Although we recognize the right of an owner to build structures on his land, such structures must be so
constructed and maintained using all reasonable care so that they cannot be dangerous to adjoining landowners
and can withstand the usual and expected forces of nature. If the structures cause injury or damage to an
adjoining landowner or a third person, the latter can claim indemnification for the injury or damage suffered.
Article 2176 of the Civil Code imposes a civil liability on a person for damage caused by his act or omission
constituting fault or negligence, thus:
Article 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 pre-

existing contractual relation between the parties, is called a quasi-delict and is governed by the
provisions of this chapter.
Article 2176, whenever it refers to "fault or negligence", covers not only acts "not punishable by law" but also acts
criminal in character, whether intentional and voluntary or negligent. Consequently, a separate civil action lies
against the offender in a criminal act, whether or not he is criminally prosecuted and found guilty or acquitted,
provided that the offended party is not allowed, (if the tortfeasor is actually charged also criminally), to recover
damages on both scores, and would be entitled in such eventuality only to the bigger award of the two, assuming
the awards made in the two cases vary. 13
The distinctness of quasi-delicta is shown in Article 2177 of the Civil Code, which states:
Article 2177. Responsibility for fault or negligence under the preceding article is entirely separate
and distinct from the civil liability arising from negligence under the Penal Code. But the plaintiff
cannot recover damages twice for the same act or omission of the defendant.
According to the Report of the Code Commission "the foregoing provision though at first sight startling, is not so
novel or extraordinary when we consider the exact nature of criminal and civil negligence. The former is a violation
of the criminal law, while the latter is a distinct and independent negligence, which is a "culpa aquiliana" or quasidelict, of ancient origin, having always had its own foundation and individuality, separate from criminal negligence.
Such distinction between criminal negligence and "culpa extra-contractual" or "cuasi-delito" has been sustained by
decisions of the Supreme Court of Spain ... 14
In the case of Castillo vs. Court of Appeals, 15 this Court held that a quasi-delict or culpa aquiliana is a separate
legal institution under the Civil Code with a substantivity all its own, and individuality that is entirely apart and
independent from a delict or crime a distinction exists between the civil liability arising from a crime and the
responsibility for quasi-delicts or culpa extra-contractual. The same negligence causing damages may produce civil
liability arising from a crime under the Penal Code, or create an action for quasi-delicts or culpa extra-contractual
under the Civil Code. Therefore, the acquittal or conviction in the criminal case is entirely irrelevant in the civil
case, unless, of course, in the event of an acquittal where the court has declared that the fact from which the civil
action arose did not exist, in which case the extinction of the criminal liability would carry with it the extinction of
the civil liability.
In Azucena vs. Potenciano, 16 the Court declared that in quasi-delicts, "(t)he civil action is entirely independent of
the criminal case according to Articles 33 and 2177 of the Civil Code. There can be no logical conclusion than this,
for to subordinate the civil action contemplated in the said articles to the result of the criminal prosecution
whether it be conviction or acquittal would render meaningless the independent character of the civil action and
the clear injunction in Article 31, that his action may proceed independently of the criminal proceedings and
regardless of the result of the latter."
WHEREFORE, the assailed decision dated February 17, 1986 of the then Intermediate Appellate Court affirming the
order of dismissal of the Regional Trial Court of Cavite, Branch 18 (Tagaytay City) dated August 17, 1984 is hereby
REVERSED and SET ASIDE. The trial court is ordered to reinstate Civil Case No. TG-748 entitled "Natividad V.
Andamo and Emmanuel R. Andamo vs. Missionaries of Our Lady of La Salette Inc." and to proceed with the hearing
of the case with dispatch. This decision is immediately executory. Costs against respondent corporation.
SO ORDERED.
ANECO REALTY AND G.R. No. 165952
DEVELOPMENT
CORPORATION, Present:
Petitioner,
YNARES-SANTIAGO, J.,
Chairperson,

AUSTRIA-MARTINEZ,
- versus - CHICO-NAZARIO,

NACHURA, and
REYES, JJ.

LANDEX DEVELOPMENT Promulgated:

CORPORATION,
Respondent. July 28, 2008
x--------------------------------------------------x
DECISION
REYES, R.T., J.:

THIS is a simple case of a neighbor seeking to restrain the landowner from fencing his own property. The right to
fence flows from the right of ownership. Absent a clear legal and enforceable right, We will not unduly restrain the
landowner from exercising an inherent proprietary right.

Before Us is a petition for review on certiorari of the Decision[1] of the Court of Appeals (CA) affirming the
Order[2] of the Regional Trial Court (RTC) dismissing the complaint for injunction filed by petitioner Aneco Realty
and Development Corporation (Aneco) against respondent Landex Development Corporation (Landex).

Facts

Fernandez Hermanos Development, Inc. (FHDI) is the original owner of a tract of land in San Francisco Del
Monte, Quezon City. FHDI subdivided the land into thirty-nine (39) lots. [3] It later sold twenty-two (22) lots to
petitioner Aneco and the remaining seventeen (17) lots to respondent Landex.[4]

The dispute arose when Landex started the construction of a concrete wall on one of its lots. To restrain
construction of the wall, Aneco filed a complaint for injunction[5] with the RTC in Quezon City. Aneco later filed two
(2) supplemental complaints seeking to demolish the newly-built wall and to hold Landex liable for two million
pesos in damages.[6]

Landex filed its Answer[7] alleging, among others, that Aneco was not deprived access to its lots due to the
construction of the concrete wall. Landex claimed thatAneco has its own entrance to its property along Miller
Street, Resthaven Street, and San Francisco del Monte Street. The Resthaven access, however, was rendered
inaccessible when Aneco constructed a building on said street. Landex also claimed that FHDI sold ordinary lots,
not subdivision lots, to Aneco based on the express stipulation in the deed of sale that FHDI was not interested in
pursuing its own subdivision project.

RTC Disposition

On June 19, 1996, the RTC rendered a Decision[8] granting the complaint for injunction, disposing as follows:

Wherefore, premises considered, and in the light aforecited decision of the Supreme
Court judgment is hereby rendered in favor of the plaintiff and the defendant is hereby ordered:
1. To stop the completion of the concrete wall and excavation of the road lot in
question and if the same is already completed, to remove the same and to
return the lot to its original situation;
2. To pay actual and compensatory damage to the plaintiff in the total amount
of P50,000.00;
3. To pay attorneys fees in the amount of P20,000.00;
4. To pay the cost.
SO ORDERED.[9]

Landex moved for reconsideration.[10] Records reveal that Landex failed to include a notice of hearing in its motion
for reconsideration as required under Section 5, Rule 15 of the 1997 Rules of Civil Procedure. Realizing the
defect, Landex later filed a motion[11] setting a hearing for its motion for reconsideration. Anecocountered with a
motion for execution[12] claiming that the RTC decision is already final and executory.

Acting on the motion of Landex, the RTC set a hearing on the motion for reconsideration on August 28,
1996. Aneco failed to attend the slated hearing. TheRTC gave Aneco additional time to file a comment on the
motion for reconsideration.[13]

On March 13, 1997, the RTC issued an order[14] denying the motion for execution of Aneco.

On March 31, 1997, the RTC issued an order granting the motion for reconsideration of Landex and
dismissing the complaint of Aneco. In granting reconsideration, the RTC stated:

In previously ruling for the plaintiff, this Court anchored its decision on the ruling of the
Supreme Court in the case of White Plains Association vs. Legaspi, 193 SCRA 765, wherein the
issue involved was the ownership of a road lot, in an existing, fully developed and authorized
subdivision, which after a second look, is apparently inapplicable to the instant case at bar,
simply because the property in question never did exist as a subdivision. Since, the property in
question never did exist as a subdivision, the limitations imposed by Section 1 of Republic Act No.
440, that no portion of a subdivision road lot shall be closed without the approval of the Court is
clearly in appropriate to the case at bar.
The records show that the plaintiffs property has access to a public road as it has its own
ingress and egress along Miller St.; That plaintiffs property is not isolated as it is bounded by
Miller St. and Resthaven St. in San Francisco del Monte, Quezon City; that plaintiff could easily
make an access to a public road within the bounds and limits of its own property; and that the
defendant has not yet been indemnified whatsoever for the use of his property, as mandated by
the Bill of rights. The foregoing circumstances, negates the alleged plaintiffs right of way.[15]

Aneco appealed to the CA.[16]

CA Disposition

On March 31, 2003, the CA rendered a Decision [17] affirming the RTC order, disposing as follows:

WHEREFORE,
in
consideration
of
the
foregoing,
the
instant
perforce dismissed. Accordingly, the order dated 31 March 1996 is hereby affirmed.

appeal

is

SO ORDERED.[18]

In affirming the RTC dismissal of the complaint for injunction, the CA held that Aneco knew at the time of
the sale that the lots sold by FHDI were not subdivision units based on the express stipulation in the deed of sale
that FHDI, the seller, was no longer interested in pursuing its subdivision project, thus:

The subject property ceased to be a road lot when its former owner
(Fernandez Hermanos, Inc.) sold it to appellant Aneco not as subdivision lots and without the
intention of pursuing the subdivision project. The law in point is Article 624 of the New Civil Code,
which 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.
Viewed from the aforesaid law, there is no question that the law allows the continued
use of an apparent easement should the owner alienate the property to different persons. It is
noteworthy to emphasize that the lot in question was provided by the previous owner
(Fernandez Hermanos, Inc.) as a road lot because of its intention to convert it into a subdivision
project. The previous owner even applied for a development permit over the subject
property. However, when the twenty-two (22) lots were sold to appellantAneco, it was very clear
from the sellers deed of sale that the lots sold ceased to be subdivision lots. The seller even
warranted that it shall undertake to extend all the necessary assistance for the consolidation of
the subdivided lots, including the execution of the requisite manifestation before the appropriate
government agencies that the seller is no longer interested in pursuing the subdivision project. In
fine, appellant Aneco knew from the very start that at the time of the sale, the 22 lots sold to it
were not intended as subdivision units, although the titles to the different lots have yet to be
consolidated. Consequently, the easement that used to exist on the subject lot ceased when
appellant Aneco and the former owner agreed that the lots would be consolidated and would no
longer be intended as a subdivision project.
Appellant Aneco insists that it has the intention of continuing the subdivision project
earlier commenced by the former owner. It also holds on to the previous development permit
granted to Fernandez Hermanos, Inc. The insistence is futile. Appellant Aneco did not acquire any
right from the said previous owner since the latter itself expressly stated in their agreement that
it has no more intention of continuing the subdivision project. If appellant desires to convert its
property into a subdivision project, it has to apply in its own name, and must have its own
provisions for a road lot.[19]

Anent the issue of compulsory easement of right of way, the CA held that Aneco failed to prove the
essential requisites to avail of such right, thus:

An easement involves an abnormal restriction on the property of the servient owner and
is regarded as a charge or encumbrance on the servient owner and is regarded as a charge or
encumbrance on the servient estate (Cristobal v. CA, 291 SCRA 122). The essential requisites to
be entitled to a compulsory easement of way are: 1) that the dominant estate is surrounded by
other immovables and has no adequate outlet to a public highway; 2) that proper indemnity has
been paid; 3) that the isolation was not due to acts of the proprietor of the dominant estate; 4)
that the right of way claimed is at a point least prejudicial to the servient estate and in so far as
consistent with this rule, where the distance from the dominant estate to a public highway may
be the shortest (Cristobal v. Court of Appeals, 291 SCRA 122).
An in depth examination of the evidence adduced and offered by appellant Aneco,
showed that it had failed to prove the existence of the aforementioned requisites, as the burden
thereof lies upon the appellant Aneco.[20]

Aneco moved for reconsideration but its motion was denied. [21] Hence, the present petition or appeal
by certiorari under Rule 45.

Issues

Petitioner Aneco assigns quadruple errors to the CA in the following tenor:

A.
THE
COURT
OF
APPEALS
GRAVELY
ERRED
IN
DISMISSING
PETITIONERS
APPEAL AND SUSTAINING THE TRIAL COURTS ORDER DATED 31 MARCH 1997GRANTING
RESPONDENTS MOTION FOR RECONSIDERATION WHICH IS FATALLY DEFECTIVE FOR LACK OF
NOTICE OF HEARING.
B.
THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE TRIAL COURTS ORDER WHICH
GAVE FULL WEIGHT AND CREDIT TO THE MISLEADINGAND ERRONEOUS CERTIFICATION ISSUED
BY GILDA E. ESTILO WHICH SHE LATER EXPRESSLY AND CATEGORICALLY RECANTED BY WAY OF
HERAFFIDAVIT.
C.

THE COURT OF APPEALS GRAVELY ERRED IN APPLYING THE LIBERAL CONSTRUCTION OF THE
RULES IN ORDER TO SUSTAIN THE TRIAL COURTSORDER DATED 31 MARCH 1997.
D.
THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE TRIAL COURTS ORDER THAT MADE
NO PRONOUNCEMENTS AS TO COSTS, AND IN DISREGARDING THE MERIT OF THE PETITIONERS
CAUSE OF ACTION.[22]

Our Ruling

The petition is without merit.

Essentially, two (2) issues are raised in this petition. The first is the procedural issue of whether or not
the RTC and the CA erred in liberally applying the rule on notice of hearing under Section 5, Rule 15 of the 1997
Rules of Civil Procedure. The second is the substantive issue of whether or not Aneco may enjoin Landexfrom
constructing a concrete wall on its own property.

We shall discuss the twin issues sequentially.

Strict vs. Liberal Construction of Procedural Rules;

Defective motion was cured when Aneco was given an
opportunity
to
comment
on
the
motion
for
reconsideration.

Section 5, Rule 15 of the 1997 Rules of Civil Procedure [23] requires a notice of hearing for a contested
motion filed in court. Records disclose that the motion for reconsideration filed by Landex of the RTC decision did
not contain a notice of hearing. There is no dispute that the motion for reconsideration is defective. TheRTC and the
CA ignored the procedural defect and ruled on the substantive issues raised by Landex in its motion for
reconsideration. The issue before Us is whether or not the RTC and the CA correctly exercised its discretion in
ignoring the procedural defect. Simply put, the issue is whether or not the requirement of notice of hearing should
be strictly or liberally applied under the circumstances.

Aneco bats for strict construction. It cites a litany of cases which held that notice of hearing is
mandatory. A motion without the required notice of hearing is a mere scrap of paper. It does not toll the running of
the period to file an appeal or a motion for reconsideration. It is argued that the original RTC decision is already
final and executory because of the defective motion.[24]

Landex counters for liberal construction. It similarly cites a catena of cases which held that procedural
rules may be relaxed in the interest of substantial justice.Landex asserts that the procedural defect was cured
when it filed a motion setting a hearing for its motion for reconsideration. It is claimed that Aneco was properly
informed of the pending motion for reconsideration and it was not deprived of an opportunity to be heard. [25]

It is true that appeals are mere statutory privileges which should be exercised only in the manner required
by law. Procedural rules serve a vital function in our judicial system. They promote the orderly resolution of

cases. Without procedure, there will be chaos. It thus behooves upon a litigant to follow basic procedural rules.Dire
consequences may flow from procedural lapses.

Nonetheless, it is also true that procedural rules are mere tools designed to facilitate the attainment of
justice. Their strict and rigid application should be relaxed when they hinder rather than promote substantial
justice. Public policy dictates that court cases should, as much as possible, be resolved on the merits not on mere
technicalities. Substantive justice trumps procedural rules. In Barnes v. Padilla,[26] this Court held:

Let it be emphasized that the rules of procedure should be viewed as mere tools
designed to facilitate the attainment of justice. Their strict and rigid application, which would
result in technicalities that tend to frustrate rather than promote substantial justice, must always
be eschewed. Even the Rules of Court reflect this principle. The power to suspend or even
disregard rules can be so pervasive and compelling as to alter even that which this Court itself
has already declared to be final x x x.
The emerging trend in the rulings of this Court is to afford every party litigant the
amplest opportunity for the proper and just determination of his cause, free from the constraints
of technicalities. Time and again, this Court has consistently held that rules must not be applied
rigidly so as not to override substantial justice.[27]

Here, We find that the RTC and the CA soundly exercised their discretion in opting for a liberal rather than a strict
application of the rules on notice of hearing. It must be stressed that there are no vested right to technicalities. It
is within the courts sound discretion to relax procedural rules in order to fully adjudicate the merits of a case. This
Court will not interfere with the exercise of that discretion absent grave abuse or palpable error. Section 6, Rule 1
of the 1997 Rules of Civil Procedure even mandates a liberal construction of the rules to promote their objectives of
securing a just, speedy, and inexpensive disposition of every action and proceeding.

To be sure, the requirement of a notice of hearing in every contested motion is part of due process of law. The
notice alerts the opposing party of a pending motion in court and gives him an opportunity to oppose it. What the
rule forbids is not the mere absence of a notice of hearing in a contested motion but the unfair surprise caused by
the lack of notice. It is the dire consequences which flow from the procedural error which is proscribed. If the
opposing party is given a sufficient opportunity to oppose a defective motion, the procedural lapse is deemed cured
and the intent of the rule is substantially complied. In E & L Mercantile, Inc. v. Intermediate Appellate Court,[28] this
Court held:

Procedural due process is not based solely on a mechanistic and literal application of a
rule such that any deviation is inexorably fatal. Rules of procedure, and this includes the three
(3) days notice requirement, are liberally construed in order to promote their object and to assist
the parties in obtaining just, speedy, and inexpensive determination of every action and
proceeding (Section 2, Rule 1, Rules of Court). In Case and Nantz v. Jugo (77 Phil. 517), this
Court made it clear that lapses in the literal observance of a rule of procedure may be overlooked
when they have not prejudiced the adverse party and have not deprived the court of its authority.
A party cannot ignore a more than sufficient opportunity to exercise its right to be heard
and once the court performs its duty and the outcome happens to be against that negligent party,
suddenly interpose a procedural violation already cured, insisting that everybody should again go
back to square one. Dilatory tactics cannot be the guiding principle.
The rule in De Borja v. Tan (93 Phil. 167), that what the law prohibits is not the absence
of previous notice, but the absolute absence thereof and lack of opportunity to be heard, is the
applicable doctrine. (See also Aguilar v. Tan, 31 SCRA 205; Omico v. Vallejos, 63 SCRA
285; Sumadchat v. Court of Appeals, 111 SCRA 488.) x x x[29]

We also find that the procedural lapse committed by Landex was sufficiently cured when it filed another motion
setting a hearing for its defective motion for reconsideration. Records reveal that the RTC set a hearing for the
motion for reconsideration but Anecos counsel failed to appear. The RTC then gave Anecoadditional time to file
comment on the motion for reconsideration. [30]

Aneco was afforded procedural due process when it was given an opportunity to oppose the motion for
reconsideration. It cannot argue unfair surprise because it was afforded ample time to file a comment, as it did
comment, on the motion for reconsideration. There being no substantial injury or unfair prejudice, the RTC and the
CA correctly ignored the procedural defect.

The RTC and the CA did not err in dismissing the

complaint
for
injunction;
factual
findings
and
conclusions of law of theRTC and the CA are afforded
great weight and respect.

Anent

the

substantive

issue, We agree

with

the RTC and

the

CA

that

the

complaint

for

injunction

against Landex should be dismissed for lack of merit. What is involved here is an undue interference on the
property rights of a landowner to build a concrete wall on his own property. It is a simple case of a neighbor,
petitionerAneco, seeking to restrain a landowner, respondent Landex, from fencing his own land.

Article 430 of the Civil Code gives every owner the right to enclose or fence his land or tenement by
means of walls, ditches, hedges or any other means. The right to fence flows from the right of ownership. As owner
of the land, Landex may fence his property subject only to the limitations and restrictions provided by law.Absent a
clear legal and enforceable right, as here, We will not interfere with the exercise of an essential attribute of
ownership.

Well-settled is the rule that factual findings and conclusions of law of the trial court when affirmed by the CA are
accorded great weight and respect. Here, We find no cogent reason to deviate from the factual findings and
conclusion of law of the trial court and the appellate court. We have meticulously reviewed the records and agree
that Aneco failed to prove any clear legal right to prevent, much less restrain, Landex from fencing its own
property.

Aneco cannot rely on the road lot under the old subdivision project of FHDI because it knew at the time of the sale
that it was buying ordinary lots, not subdivision lots, from FHDI. This is clear from the deed of sale between FHDI
and Aneco where

FHDI

manifested

that

it

was

no

longer

interested

in

pursuing

its

own

subdivision

project. If Aneco wants to transform its own lots into a subdivision project, it must make its own provision for road
lots. It certainly cannot piggy back on the road lot of the defunct subdivision project of FHDI to the detriment of
the new owner Landex. The RTC and the CA correctly dismissed the complaint for injunction of Anecofor lack of
merit.

WHEREFORE, the petition is DENIED and the appealed Decision AFFIRMED.

SO ORDERED.
BPI FAMILY BANK,

G.R. No. 123498

Petitioner,

Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

- versus -

AMADO FRANCO and COURT OF APPEALS,

Respondents.

Promulgated:
November 23, 2007

x------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:

Banks are exhorted to treat the accounts of their depositors with meticulous care and utmost fidelity. We reiterate
this exhortation in the case at bench.

Before us is a Petition for Review on Certiorari seeking the reversal of the Court of Appeals (CA) Decision [1] in CAG.R. CV No. 43424 which affirmed with modification the judgment [2] of the Regional Trial Court, Branch
55, Manila (Manila RTC), in Civil Case No. 90-53295.

This case has its genesis in an ostensible fraud perpetrated on the petitioner BPI Family Bank (BPI-FB) allegedly by
respondent Amado Franco (Franco) in conspiracy with other individuals, [3] some of whom opened and maintained
separate accounts with BPI-FB, San Francisco del Monte (SFDM) branch, in a series of transactions.

On August 15, 1989, Tevesteco Arrastre-Stevedoring Co., Inc. (Tevesteco) opened a savings and current account
with BPI-FB. Soon thereafter, or on August 25, 1989, First Metro Investment Corporation (FMIC) also opened a
time deposit account with the same branch of BPI-FB with a deposit of P100,000,000.00, to mature one year
thence.

Subsequently, on August 31, 1989, Franco opened three accounts, namely, a current, [4] savings,[5] and time
deposit,[6] with BPI-FB. The current and savings accounts were respectively funded with an initial deposit
of P500,000.00 each, while the time deposit account had P1,000,000.00 with a maturity date of August 31, 1990.
The total amount of P2,000,000.00 used to open these accounts is traceable to a check issued by Tevesteco
allegedly in consideration of Francos introduction of Eladio Teves, [7] who was looking for a conduit bank to facilitate

10

Tevestecos business transactions, to Jaime Sebastian, who was then BPI-FB SFDMs Branch Manager. In turn, the
funding for the P2,000,000.00 check was part of the P80,000,000.00 debited by BPI-FB from FMICs time deposit
account and credited to Tevestecos current account pursuant to an Authority to Debit purportedly signed by FMICs
officers.

It appears, however, that the signatures of FMICs officers on the Authority to Debit were forged. [8] On September
4, 1989, Antonio Ong,[9] upon being shown the Authority to Debit, personally declared his signature therein to be a
forgery. Unfortunately, Tevesteco had already effected several withdrawals from its current account (to which had
been credited the P80,000,000.00 covered by the forged Authority to Debit) amounting to P37,455,410.54,
including the P2,000,000.00 paid to Franco.

On September 8, 1989, impelled by the need to protect its interests in light of FMICs forgery claim, BPIFB, thru its Senior Vice-President, Severino Coronacion, instructed Jesus Arangorin [10] to debit Francos savings and
current accounts for the amounts remaining therein. [11] However, Francos time deposit account could not be debited
due to the capacity limitations of BPI-FBs computer.[12]

In the meantime, two checks [13] drawn by Franco against his BPI-FB current account were dishonored upon
presentment for payment, and stamped with a notation account under garnishment. Apparently, Francos current
account was garnished by virtue of an Order of Attachment issued by the Regional Trial Court of Makati (Makati
RTC) in Civil Case No. 89-4996 (Makati Case), which had been filed by BPI-FB against Franco et al.,[14] to recover
the P37,455,410.54 representing Tevestecos total withdrawals from its account.

Notably, the dishonored checks were issued by Franco and presented for payment at BPI-FB prior to
Francos receipt of notice that his accounts were under garnishment. [15] In fact, at the time the Notice of
Garnishment dated September 27, 1989 was served on BPI-FB, Franco had yet to be impleaded in the Makati case
where the writ of attachment was issued.

It was only on May 15, 1990, through the service of a copy of the Second Amended Complaint in Civil Case No. 894996, that Franco was impleaded in the Makaticase.[16] Immediately, upon receipt of such copy, Franco filed a
Motion to Discharge Attachment which the Makati RTC granted on May 16, 1990. The Order Lifting the Order of
Attachment was served on BPI-FB on even date, with Franco demanding the release to him of the funds in his
savings and current accounts. Jesus Arangorin, BPI-FBs new manager, could not forthwith comply with the demand
as the funds, as previously stated, had already been debited because of FMICs forgery claim. As such, BPI-FBs
computer at the SFDM Branch indicated that the current account record was not on file.

With respect to Francos savings account, it appears that Franco agreed to an arrangement, as a favor to Sebastian,
whereby P400,000.00 from his savings account was temporarily transferred to Domingo Quiaoits savings account,
subject to its immediate return upon issuance of a certificate of deposit which Quiaoit needed in connection with his
visa application at the Taiwan Embassy. As part of the arrangement, Sebastian retained custody of Quiaoits savings
account passbook to ensure that no withdrawal would be effected therefrom, and to preserve Francos deposits.

11

On May 17, 1990, Franco pre-terminated his time deposit account. BPI-FB deducted the amount of P63,189.00
from the remaining balance of the time deposit account representing advance interest paid to him.

These transactions spawned a number of cases, some of which we had already resolved.

FMIC filed a complaint against BPI-FB for the recovery of the amount of P80,000,000.00 debited from its account.
[17]

The case eventually reached this Court, and inBPI Family Savings Bank, Inc. v. First Metro Investment

Corporation,[18] we upheld the finding of the courts below that BPI-FB failed to exercise the degree of diligence
required by the nature of its obligation to treat the accounts of its depositors with meticulous care. Thus, BPI-FB
was found liable to FMIC for the debited amount in its time deposit. It was ordered to pay P65,332,321.99 plus
interest at 17% per annum from August 29, 1989 until fully restored. In turn, the 17% shall itself earn interest at
12% from October 4, 1989 until fully paid.

In a related case, Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica (Buenaventura, et al.),
[19]

recipients of a P500,000.00 check proceeding from theP80,000,000.00 mistakenly credited to Tevesteco,

likewise filed suit. Buenaventura et al., as in the case of Franco, were also prevented from effecting
withdrawals[20] from their current account with BPI-FB, Bonifacio Market, Edsa, Caloocan City Branch. Likewise,
when the case was elevated to this Court docketed as BPI Family Bank v. Buenaventura,[21] we ruled that BPI-FB
had no right to freeze Buenaventura, et al.s accounts and adjudged BPI-FB liable therefor, in addition to damages.

Meanwhile, BPI-FB filed separate civil and criminal cases against those believed to be the perpetrators of the multimillion peso scam.[22] In the criminal case, Franco, along with the other accused, except for Manuel Bienvenida who
was still at large, were acquitted of the crime of Estafa as defined and penalized under Article 351, par. 2(a) of the
Revised Penal Code.[23] However, the civil case[24] remains under litigation and the respective rights and liabilities of
the parties have yet to be adjudicated.

Consequently, in light of BPI-FBs refusal to heed Francos demands to unfreeze his accounts and release his
deposits therein, the latter filed on June 4, 1990 with the Manila RTC the subject suit. In his complaint, Franco
prayed for the following reliefs: (1) the interest on the remaining balance [25] of his current account which was
eventually released to him on October 31, 1991; (2) the balance [26] on his savings account, plus interest thereon;
(3) the advance interest[27] paid to him which had been deducted when he pre-terminated his time deposit account;
and (4) the payment of actual, moral and exemplary damages, as well as attorneys fees.

BPI-FB traversed this complaint, insisting that it was correct in freezing the accounts of Franco and refusing to
release his deposits, claiming that it had a better right to the amounts which consisted of part of the money
allegedly fraudulently withdrawn from it by Tevesteco and ending up in Francos accounts. BPI-FB asseverated that
the claimed consideration of P2,000,000.00 for the introduction facilitated by Franco between George Daantos and
Eladio Teves, on the one hand, and Jaime Sebastian, on the other, spoke volumes of Francos participation in the
fraudulent transaction.

On August 4, 1993, the Manila RTC rendered judgment, the dispositive portion of which reads as follows:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of [Franco] and
against [BPI-FB], ordering the latter to pay to the former the following sums:
1. P76,500.00 representing the legal rate of interest on the amount of P450,000.00 from May 18,
1990 to October 31, 1991;

12

2. P498,973.23 representing the balance on [Francos] savings account as of May 18, 1990,
together with the interest thereon in accordance with the banks guidelines on the payment
therefor;
3. P30,000.00 by way of attorneys fees; and
4. P10,000.00 as nominal damages.
The counterclaim of the defendant is DISMISSED for lack of factual and legal anchor.
Costs against [BPI-FB].
SO ORDERED.[28]

Unsatisfied with the decision, both parties filed their respective appeals before the CA. Franco confined his appeal
to the Manila RTCs denial of his claim for moral and exemplary damages, and the diminutive award of attorneys
fees. In affirming with modification the lower courts decision, the appellate court decreed, to wit:
WHEREFORE, foregoing considered, the appealed decision is hereby AFFIRMED with modification
ordering [BPI-FB] to pay [Franco] P63,189.00 representing the interest deducted from the time
deposit of plaintiff-appellant. P200,000.00 as moral damages and P100,000.00 as exemplary
damages, deleting the award of nominal damages (in view of the award of moral and exemplary
damages) and increasing the award of attorneys fees from P30,000.00 to P75,000.00.
Cost against [BPI-FB].
SO ORDERED.[29]

In this recourse, BPI-FB ascribes error to the CA when it ruled that: (1) Franco had a better right to the deposits in
the subject accounts which are part of the proceeds of a forged Authority to Debit; (2) Franco is entitled to interest
on his current account; (3) Franco can recover the P400,000.00 deposit in Quiaoits savings account; (4) the
dishonor of Francos checks was not legally in order; (5) BPI-FB is liable for interest on Francos time deposit, and
for moral and exemplary damages; and (6) BPI-FBs counter-claim has no factual and legal anchor.

The petition is partly meritorious.

We are in full accord with the common ruling of the lower courts that BPI-FB cannot unilaterally freeze Francos
accounts and preclude him from withdrawing his deposits. However, contrary to the appellate courts ruling, we hold
that Franco is not entitled to unearned interest on the time deposit as well as to moral and exemplary damages.

First. On the issue of who has a better right to the deposits in Francos accounts, BPI-FB urges us that the legal
consequence of FMICs forgery claim is that the money transferred by BPI-FB to Tevesteco is its own, and
considering that it was able to recover possession of the same when the money was redeposited by Franco, it had
the right to set up its ownership thereon and freeze Francos accounts.

BPI-FB contends that its position is not unlike that of an owner of personal property who regains possession after it
is stolen, and to illustrate this point, BPI-FB gives the following example: where Xs television set is stolen by Y who
thereafter sells it to Z, and where Z unwittingly entrusts possession of the TV set to X, the latter would have the
right to keep possession of the property and preclude Z from recovering possession thereof. To bolster its position,
BPI-FB cites Article 559 of the Civil Code, which provides:

Article 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.

13

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.

BPI-FBs argument is unsound. To begin with, the movable property mentioned in Article 559 of the Civil Code
pertains to a specific or determinate thing.[30] A determinate or specific thing is one that is individualized and can be
identified or distinguished from others of the same kind.[31]

In this case, the deposit in Francos accounts consists of money which, albeit characterized as a movable,
is generic and fungible. [32] The quality of being fungible depends upon the possibility of the property, because of its
nature or the will of the parties, being substituted by others of the same kind, not having a distinct individuality. [33]

Significantly, while Article 559 permits an owner who has lost or has been unlawfully deprived of a
movable to recover the exact same thing from the current possessor, BPI-FB simply claims ownership of the
equivalent amount of money, i.e., the value thereof, which it had mistakenly debited from FMICs account and
credited to Tevestecos, and subsequently traced to Francos account. In fact, this is what BPI-FB did in filing the
Makati Case against Franco, et al. It staked its claim on the money itself which passed from one account to
another, commencing with the forged Authority to Debit.

It bears emphasizing that money bears no earmarks of peculiar ownership, [34] and this characteristic is all
the more manifest in the instant case which involves money in a banking transaction gone awry. Its primary
function is to pass from hand to hand as a medium of exchange, without other evidence of its title. [35] Money, which
had passed through various transactions in the general course of banking business, even if of traceable origin, is no
exception.

Thus, inasmuch as what is involved is not a specific or determinate personal property, BPI-FBs illustrative
example, ostensibly based on Article 559, is inapplicable to the instant case.

There is no doubt that BPI-FB owns the deposited monies in the accounts of Franco, but not as a legal
consequence of its unauthorized transfer of FMICs deposits to Tevestecos account. BPI-FB conveniently forgets that
the deposit of money in banks is governed by the Civil Code provisions on simple loan or mutuum. [36] As there is a
debtor-creditor relationship between a bank and its depositor, BPI-FB ultimately acquired ownership of Francos
deposits, but such ownership is coupled with a corresponding obligation to pay him an equal amount on demand.
[37]

Although BPI-FB owns the deposits in Francos accounts, it cannot prevent him from demanding payment of BPI-

FBs obligation by drawing checks against his current account, or asking for the release of the funds in his savings
account. Thus, when Franco issued checks drawn against his current account, he had every right as creditor to
expect that those checks would be honored by BPI-FB as debtor.

14

More importantly, BPI-FB does not have a unilateral right to freeze the accounts of Franco based on its
mere suspicion that the funds therein were proceeds of the multi-million peso scam Franco was allegedly involved
in. To grant BPI-FB, or any bank for that matter, the right to take whatever action it pleases on deposits which it
supposes are derived from shady transactions, would open the floodgates of public distrust in the banking industry.

Our pronouncement in Simex International (Manila), Inc. v. Court of Appeals [38] continues to resonate,
thus:

The banking system is an indispensable institution in the modern world and plays a vital role in
the economic life of every civilized nation. Whether as mere passive entities for the safekeeping
and saving of money or as active instruments of business and commerce, banks have become an
ubiquitous presence among the people, who have come to regard them with respect and even
gratitude and, most of all, confidence. Thus, even the humble wage-earner has not hesitated to
entrust his lifes savings to the bank of his choice, knowing that they will be safe in its custody
and will even earn some interest for him. The ordinary person, with equal faith, usually maintains
a modest checking account for security and convenience in the settling of his monthly bills and
the payment of ordinary expenses. x x x.
In every case, the depositor expects the bank to treat his account with the utmost fidelity,
whether such account consists only of a few hundred pesos or of millions. The bank must record
every single transaction accurately, down to the last centavo, and as promptly as possible. This
has to be done if the account is to reflect at any given time the amount of money the depositor
can dispose of as he sees fit, confident that the bank will deliver it as and to whomever directs. A
blunder on the part of the bank, such as the dishonor of the check without good reason, can
cause the depositor not a little embarrassment if not also financial loss and perhaps even civil
and criminal litigation.
The point is that as a business affected with public interest and because of the nature of its
functions, the bank is under obligation to treat the accounts of its depositors with meticulous
care, always having in mind the fiduciary nature of their relationship. x x x.

Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to know the signatures of its
customers. Having failed to detect the forgery in the Authority to Debit and in the process inadvertently facilitate
the FMIC-Tevesteco transfer, BPI-FB cannot now shift liability thereon to Franco and the other payees of checks
issued by Tevesteco, or prevent withdrawals from their respective accounts without the appropriate court writ or a
favorable final judgment.

Further, it boggles the mind why BPI-FB, even without delving into the authenticity of the signature in the
Authority to Debit, effected the transfer ofP80,000,000.00 from FMICs to Tevestecos account, when FMICs account
was a time deposit and it had already paid advance interest to FMIC. Considering that there is as yet no indubitable
evidence establishing Francos participation in the forgery, he remains an innocent party. As between him and BPIFB, the latter, which made possible the present predicament, must bear the resulting loss or inconvenience.

Second. With respect to its liability for interest on Francos current account, BPI-FB argues that its noncompliance with the Makati RTCs Order Lifting the Order of Attachment and the legal consequences thereof, is a
matter that ought to be taken up in that court.

The argument is tenuous. We agree with the succinct holding of the appellate court in this respect. The
Manila RTCs order to pay interests on Francos current account arose from BPI-FBs unjustified refusal to comply
with its obligation to pay Franco pursuant to their contract of mutuum. In other words, from the time BPI-FB

15

refused Francos demand for the release of the deposits in his current account, specifically, from May 17, 1990,
interest at the rate of 12% began to accrue thereon.[39]

Undeniably, the Makati RTC is vested with the authority to determine the legal consequences of BPI-FBs
non-compliance with the Order Lifting the Order of Attachment. However, such authority does not preclude the
Manila RTC from ruling on BPI-FBs liability to Franco for payment of interest based on its continued and unjustified
refusal to perform a contractual obligation upon demand. After all, this was the core issue raised by Franco in his
complaint before the Manila RTC.

Third. As to the award to Franco of the deposits in Quiaoits account, we find no reason to depart from the
factual findings of both the Manila RTC and the CA.

Noteworthy is the fact that Quiaoit himself testified that the deposits in his account are actually owned by
Franco who simply accommodated Jaime Sebastians request to temporarily transfer P400,000.00 from Francos
savings account to Quiaoits account.[40] His testimony cannot be characterized as hearsay as the records reveal that
he had personal knowledge of the arrangement made between Franco, Sebastian and himself. [41]

BPI-FB makes capital of Francos belated allegation relative to this particular arrangement. It insists that
the transaction with Quiaoit was not specifically alleged in Francos complaint before the Manila RTC. However, it
appears that BPI-FB had impliedly consented to the trial of this issue given its extensive cross-examination of
Quiaoit.

Section 5, Rule 10 of the Rules of Court provides:

Section 5. Amendment to conform to or authorize presentation of evidence. When issues not

raised by the pleadings are tried with the 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 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 now within the issues made
by the pleadings, the court may allow the pleadings to be amended and shall do so with liberality
if the presentation of the merits of the action and the ends of substantial justice will be subserved
thereby. The court may grant a continuance to enable the amendment to be made. (Emphasis
supplied)

In all, BPI-FBs argument that this case is not the right forum for Franco to recover the P400,000.00 begs the issue.
To reiterate, Quiaoit, testifying during the trial, unequivocally disclaimed ownership of the funds in his account, and
pointed to Franco as the actual owner thereof. Clearly, Francos action for the recovery of his deposits appropriately
covers the deposits in Quiaoits account.

Fourth. Notwithstanding all the foregoing, BPI-FB continues to insist that the dishonor of Francos checks
respectively dated September 11 and 18, 1989 was legally in order in view of the Makati RTCs supplemental writ of
attachment issued on September 14, 1989. It posits that as the party that applied for the writ of attachment before

16

the Makati RTC, it need not be served with the Notice of Garnishment before it could place Francos accounts under
garnishment.

The argument is specious. In this argument, we perceive BPI-FBs clever but transparent ploy to circumvent Section
4,[42] Rule 13 of the Rules of Court. It should be noted that the strict requirement on service of court papers upon
the parties affected is designed to comply with the elementary requisites of due process. Franco was entitled, as a
matter of right, to notice, if the requirements of due process are to be observed. Yet, he received a copy of the
Notice of Garnishment only on September 27, 1989, several days after the two checks he issued were dishonored
by BPI-FB on September 20 and 21, 1989. Verily, it was premature for BPI-FB to freeze Francos accounts without
even awaiting service of the Makati RTCs Notice of Garnishment on Franco.

Additionally, it should be remembered that the enforcement of a writ of attachment cannot be made without
including in the main suit the owner of the property attached by virtue thereof. Section 5, Rule 13 of the Rules of
Court specifically provides that no levy or attachment pursuant to the writ issued x x x shall be enforced unless it is
preceded, or contemporaneously accompanied, by service of summons, together with a copy of the complaint, the
application for attachment, on the defendant within the Philippines.

Franco was impleaded as party-defendant only on May 15, 1990. The Makati RTC had yet to acquire jurisdiction
over the person of Franco when BPI-FB garnished his accounts. [43] Effectively, therefore, the Makati RTC had no
authority yet to bind the deposits of Franco through the writ of attachment, and consequently, there was no legal
basis for BPI-FB to dishonor the checks issued by Franco.

Fifth. Anent the CAs finding that BPI-FB was in bad faith and as such liable for the advance interest it deducted
from Francos time deposit account, and for moral as well as exemplary damages, we find it proper to reinstate the
ruling of the trial court, and allow only the recovery of nominal damages in the amount of P10,000.00. However,
we retain the CAs award of P75,000.00 as attorneys fees.
In granting Francos prayer for interest on his time deposit account and for moral and exemplary damages, the CA
attributed bad faith to BPI-FB because it (1) completely disregarded its obligation to Franco; (2) misleadingly
claimed that Francos deposits were under garnishment; (3) misrepresented that Francos current account was not
on file; and (4) refused to return the P400,000.00 despite the fact that the ostensible owner, Quiaoit, wanted the
amount returned to Franco.

In this regard, we are guided by Article 2201 of the Civil Code which provides:

Article 2201. In contracts and quasi-contracts, 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 reasonable foreseen at the time
the obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible
for all damages which may be reasonably attributed to the non-performance of the
obligation. (Emphasis supplied.)

17

We find, as the trial court did, that BPI-FB acted out of the impetus of self-protection and not out of malevolence or
ill will. BPI-FB was not in the corrupt state of mind contemplated in Article 2201 and should not be held liable for all
damages now being imputed to it for its breach of obligation. For the same reason, it is not liable for the unearned
interest on the time deposit.

Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral
obliquity and conscious doing of wrong; it partakes of the nature of fraud. [44] We have held that it is a breach of a
known duty through some motive of interest or ill will. [45] In the instant case, we cannot attribute to BPI-FB fraud or
even a motive of self-enrichment. As the trial court found, there was no denial whatsoever by BPI-FB of the
existence of the accounts. The computer-generated document which indicated that the current account was not on
file resulted from the prior debit by BPI-FB of the deposits. The remedy of freezing the account, or the
garnishment, or even the outright refusal to honor any transaction thereon was resorted to solely for the purpose
of holding on to the funds as a security for its intended court action, [46] and with no other goal but to ensure the
integrity of the accounts.

We have had occasion to hold that in the absence of fraud or bad faith, [47] moral damages cannot be awarded; and
that the adverse result of an action does not per se make the action wrongful, or the party liable for it. One may
err, but error alone is not a ground for granting such damages.[48]
An award of moral damages contemplates the existence of the following requisites: (1) there must be an injury
clearly sustained by the claimant, whether physical, mental or psychological; (2) there must be a culpable act or
omission factually established; (3) the wrongful act or omission of the defendant is the proximate cause of the
injury sustained by the claimant; and (4) the award for damages is predicated on any of the cases stated in Article
2219 of the Civil Code.[49]

Franco could not point to, or identify any particular circumstance in Article 2219 of the Civil Code, [50] upon which to
base his claim for moral damages.

Thus, not having acted in bad faith, BPI-FB cannot be held liable for moral damages under Article 2220 of the Civil
Code for breach of contract.[51]

We also deny the claim for exemplary damages. Franco should show that he is entitled to moral, temperate, or
compensatory damages before the court may even consider the question of whether exemplary damages should be
awarded to him.[52] As there is no basis for the award of moral damages, neither can exemplary damages be
granted.

18

While it is a sound policy not to set a premium on the right to litigate, [53] we, however, find that Franco is entitled to
reasonable attorneys fees for having been compelled to go to court in order to assert his right. Thus, we affirm the
CAs grant of P75,000.00 as attorneys fees.

Attorneys fees may be awarded when a party is compelled to litigate or incur expenses to protect his interest, [54] or
when the court deems it just and equitable. [55] In the case at bench, BPI-FB refused to unfreeze the deposits of
Franco despite the Makati RTCs Order Lifting the Order of Attachment and Quiaoits unwavering assertion that
the P400,000.00 was part of Francos savings account. This refusal constrained Franco to incur expenses and
litigate for almost two (2) decades in order to protect his interests and recover his deposits. Therefore, this Court
deems it just and equitable to grant Franco P75,000.00 as attorneys fees. The award is reasonable in view of the
complexity of the issues and the time it has taken for this case to be resolved. [56]

Sixth. As for the dismissal of BPI-FBs counter-claim, we uphold the Manila RTCs ruling, as affirmed by the CA, that
BPI-FB is not entitled to recover P3,800,000.00 as actual damages. BPI-FBs alleged loss of profit as a result of
Francos suit is, as already pointed out, of its own making. Accordingly, the denial of its counter-claim is in order.

WHEREFORE, the petition is PARTIALLY GRANTED. The Court of Appeals Decision dated November 29,
1995 is AFFIRMED with the MODIFICATIONthat the award of unearned interest on the time deposit and of moral
and exemplary damages is DELETED.

No pronouncement as to costs.

SO ORDERED.
G.R. No. 200894

November 10, 2014

LUZVIMINDA APRAN CANLAS, Petitioner,

vs.
REPUBLIC OF THE PHILIPPINES, Respondent.
DECISION
LEONEN, J.:
This resolves the petition for review on certiorari under Rule 45 of the Rules of Court, assailing the decision 1dated
November 10, 2011 and resolution2 dated February 23, 2012 of the Court of Appeals. The Court of Appeals
reversed the trial court's decision dated January 30, 2008 in LRC Case No. N-06-003 3 and dismissed petitioner's
application for registration of title:
We restate the pertinent facts in this case.
On August 22, 2006, petitioner Luzviminda A. Canlas (Canlas) applied for the original registration of title, under
Presidential Decree No. 1529,4 of the 9,751-square-meter parcel of land located in Barrio Macamot, Municipality of
Binangonan, Province of Rizal, and technically described as Cadastral Lot No. 11566, Psu-04-006561. 5
There was no opposition to Canlas application. Respondent Republic of the Philippines (Republic) did not submit its
comment or opposition despite the opportunity given by the trial court. 6 The case was then submitted for decision. 7
The Regional Trial Court granted Canlas application 8 and held that:
We GRANT the application. We ORDER the Register of Deeds of Rizal (Binangonan) to cause the registration of the
property, described in Cadastral Lot No. 11566 of the subdivision plan, Psu-04-006561, in the name of the

19

applicant Luzviminda A. Canlas with the reservation that it shall be subject of easement to public use. Once this
judgment becomes final and executory, we shall issue a decree of registration and then order the issuance of an
original certificate of title in her name.9 (Emphasis and underscoring in the original)
According to the trial court, Canlas complied with the procedural requirements and substantiated her
application.10She sufficiently proved that, through her predecessors-in-interest, she has been in "open, continuous,
exclusive and notorious possession of an alienable and disposable parcel of land of the public domain under a bona
fide claim of ownership for more than 30 years." 11
The Republic of the Philippines, however, filed a notice of appeal on February 29, 2008. 12 Acting on the Republics
appeal, the Court of Appeals reversed and set aside the decision of the trial court. The Court of Appeals held that
Canlas was not able to prove open, continuous, exclusive, and notorious possession and occupation of the
property.13 According to the Court of Appeals, Canlas failed to discharge the burden of proof placed on applicants
for land registration.14
The Court of Appeals also found that Canlas admitted during cross examination that she has not resided on the
property since she got married in 1966 and left for San Francisco Del Monte, Quezon City.15 During the same crossexamination, Canlas contradicted her allegations in the application as to knowledge of any mortgage,
encumbrance, or interest of other persons in the property in question. 16 Moreover, she did not show "any acts of
occupation, development, cultivation or maintenance over the property." 17
The dispositive portion of the Court of Appeals decision reads:
WHEREFORE, the appeal is GRANTED. The Decision dated January 30, 2008 in LRC Case No. N-06-003 is
REVERSED and SET ASIDE. Accordingly, the Application of Registration of Title of Luzviminda A. Canlas is
DISMISSED.
SO ORDERED.18 (Emphasis in the original)
The Court of Appeals denied on February 23, 2012 Canlas December 7, 2011 motion for reconsideration. 19
Canlas comes before this court, arguing that she has duly overcome the burden of proof by showing open,
continuous, exclusive, adverse, and notorious possession and occupation of the property. This is allegedly shown in
the following acts of Canlas and her predecessors-in-interest since the 1900s: declaring the property in their
names, paying taxes due on the property, having the property surveyed, and allowing the excavation in the
property for the retrieval and hauling of "pulang lupa" for the making of clay pots. 20
Canlas argued further that "residence" is not synonymous with "possession and occupation" as implied by the Court
of Appeals.21 Presidential Decree No. 1529 does not require the applicant to reside on the land being
registered.22 The law also does not require that a relative of the applicant be present to oversee the property.23
On March 4, 2013, this court resolved, among others, to require the Republic to submit its comment, without
necessarily giving due course, within 10 days from notice. 24
In its comment, the Republic argued that "[Canlas] failed to present sufficient and convincing evidence to support
her application for registration of the subject parcel of land." 25 Canlas must offer more than a bare assertion of
possession and occupation.26
In addition, the property had been sporadically and irregularly declared for tax purposes under the name of
Honorio Apran from 1949 until 1999.27 Realty taxes on the property were paid only in 2003.28 The Republic
observed that the tax declarations presented by Canlas had been made a few months before the application for
registration was made and served only to establish a weak claim for a registrable title for her.29
On October 23, 2013, this court resolved to require Canlas to file her reply.30 In her reply31 dated December 13,
2013, she claimed that she "suddenly realized that she has a significant document that she believes would . . .
change the complexion of the instant case."32 This document is the Land Registration Authoritys report and motion
dated May 12, 2009 and was allegedly prepared after the Land Registration Authoritys receipt of the trial court
decision dated January 30, 2008.33
The Land Registration Authority, through its Director for Registration, 34 stated that the land described as Psu-04006561 located in Barrio Macamot,35 Municipality of Bingangonan, Province of Rizal, is found entirely within the
land denominated as Lot 16 of the subdivision plan Psd-240150 covered by Transfer Certificate of Title (TCT) No.
M-00861 and is under the name of the "Heirs of Francisco Guido and Hermogenes Guido." 36
TCT No. M-00861 was derived from a mother title, TCT No. 23377,37 which was the subject of Republic v. Court of
Appeals and Guido, et al.38 The case stemmed from a complaint, filed by the Republic of the Philippines, for
declaration of nullity of Decree No. 6145, the owner's duplicate copy of TCT No. 23377, and all titles derived from
the decree.39 The Republic also prayed that the land covered by the decree be declared in its name, except those
parcels of land validly acquired by third persons. According to the Republic, Decree No. 6145 was spurious and
false and, in turn, the reconstituted TCT No. 23377, aswell as the derivative titles, was invalid. 40 Both the trial court
and the Court of Appeals found that Decree No. 6145 and TCT No. 23377 were genuine and authentic. 41
This court in Republicupheld the authenticity and validity of Decree No. 6145 and TCT No. 23377. However, in
affirming respondent heirs title, this court recognized the waiver of certain parts of the land covered by TCT No.
23377 in favor of bona fide occupants. The court held that: Moreover, conscious of the resulting "large scale
dispossession and social displacement of several hundreds of bona fide occupants and their families" which the
Solicitor General pointed out, the private respondent agreed unanimously to accept the alternative prayer of the

20

petitioner in their joint memorandum (pp. 624636, Rollo). This agreement by private respondents takes the form
of a waiver. Though a valid and clear right over the property exists in their favors, they seemingly have voluntarily
abandoned the same in favor of: 1) those who possessed and actually occupied specific portions and obtained
torrens certificates of titles, and 2) those who possessed certain specific portions for such lengths of time as to
amount to full ownership. The waiver, not being contrary to law, morals, good customs and good policy, isvalid and
binding on the private respondents.
However, with respect to the second set of possessors, whose alleged bona fide occupancy of specific portions of
the property is not evidenced by Torrens Titles, it is imperative that their claims/occupancy be duly proven in an
appropriate proceeding.
ACCORDINGLY, the decision of the Court of Appeals in CA-G.R. No. 12933 is AFFIRMED subject to the herein
declared superior rights of bona fide occupants with registered titles within the area covered by the questioned
decree and bona fide occupants therein with length of possession which had ripened to ownership, the latter to be
determined in an appropriate proceeding.
SO ORDERED.42 (Emphasis supplied)
Citing the case above, the Land Registration Authority prayed the following before the trial court in its report and
motion:
WHEREFORE,it is respectfully prayed of this Honorable Court to issue an order (1) directing the Register of Deeds
of Rizal, Binangonan, Rizal to annotate on TCT No. M-2106the following memorandum:
By virtue of the decision of the Court dated January 30, 2008 in Land Reg. Case No. 06-003, LRC Record No. N78156, LUZVIMINDA A. CANLAS, applicant, Psu-04-006561, has been adjudicated in favor of the applicant and
pursuant to the decision of the Supreme Court in G.R. No. 84966, promulgated on November 21, 1991, entitled
Republic of the Philippines vs. Court of Appeals and Antonina Guido, et al., (204 SCRA160), afore-said [sic] lot is
deemed excluded from this certificate of title.
and (2) Authorizing this Authority to issue the corresponding decree of registration for the land embraced in plan
Psu-04-006561, in accordance with the adjudication of the Honorable Court in its decision January 30,
2008.43(Emphasis and italics in the original)
According to Canlas, she falls under the second set of possessors described in Republic bona fide occupants
whose possession of specific portions for such lengths of time amounted to full ownership but whose occupancy
must be duly provedin appropriate proceedings.44
In sum, Canlas changed the theory of her case from an application for original registration of land, to a declaration
of a right to an indefeasible registrable title of the land described in plan Psu-04-006561 and covered by TCT No.
23377.
Despite the change in Canlas theory, the main issues to be resolved are: 1) whether petitioner Luzviminda A.
Canlas has proven open, continuous, exclusive, and notorious possession and occupation of the land described in
plan Psu-04-006561; and 2) whether Psu-04-006561 is covered by TCT No. 23377 wherein she is one of the bona
fide occupants whose possession and occupation ripened into an indefeasible right to title as pronounced in
Republic.
After considering the parties arguments and the records of this case, this court resolves to grant the petition. The
assailed decision and resolution of the Court of Appeals are reversed and set aside. The case is remanded to the
trial court for further proceedings with regard to the determination of whether Psu-04-006561 is covered by TCT
No. 23377.
At the outset, the issue on sufficiency of evidence is factual in nature and is generally outside the province of this
courts review of petitions under Rule 45 of the Rules of Court.45 However, exceptions are allowed when the findings
of the trial court and Court of Appeals are conflicting with each other 46 or when the assailed judgment isbased on a
misapprehension of facts,47 such as the case at bar.
Section 14 of Presidential Decree No. 152948 or the Property Registration Decree governs the applications for
registration of title to land:
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 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 June 12, 1945, or earlier. (2) Those who have acquired
ownership of private lands by prescription under the provision 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.
(4) Those who have acquired ownership of land in any other manner provided for by law. Where the land
is owned in common, all the co-owners shall file the application jointly.

21

Section 14(1) of Presidential Decree No. 1529 proceeds from Section 48(b) of Commonwealth Act No. 141 or The
Public Land Act, as amended, which provides for the grant of the substantive right of title to land to qualified
persons:
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 title therefor under the Land Registration Act, to wit:
....
(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, since June 12, 1945, immediately preceding the filing of the application for confirmation
of title, except when prevented by war or force majeure. Those 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. (As amended by P.D. 1073.)
In land registration cases, the applicants legal basis is important in determining the required number of years or
the reference point for possession or prescription. This court has delineated the differences in the modes of
acquiring imperfect titles under Section 14 of Presidential Decree No. 1529. Heirs of Mario Malabanan v.
Republic49 extensively discussed the distinction between Section 14(1) and Section 14(2) of Presidential Decree No.
1529. Thus, this court laid down rules to guide the public:
(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.
(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 isalready
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.
(a) Patrimonial property is private property of the government. The person [who] 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 [the] 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 persons uninterrupted adverse
possession of patrimonial property for at least thirty (30) years, regardless of good faith or just
title, ripens into ownership.50
In Republic v. Gielczyk,51 this court summarized and affirmed the differences between Section 14(1) and Section
14(2) of Presidential Decree No. 1529 as discussed in Heirs of Malabanan:
In Heirs of Mario Malabanan v. Republic, the Court further clarified the difference between Section 14(1) and
Section 14(2) of P.D. No. 1529. The former refers to registration of title on the basis of possession, while the latter
entitles the applicant to the registration of his property on the basis of prescription. Registration under the first
mode is extended under the aegis of the P.D. No. 1529 and the Public Land Act (PLA) while under the second mode
is made available both by P.D. No. 1529 and the Civil Code. Moreover, under Section 48(b) of the PLA, as amended
by Republic Act No. 1472, the 30-year period is in relation to possession without regard to the Civil Code, while
under Section 14(2) of P.D. No. 1529, the 30-year period involves extraordinary prescription under the Civil Code,
particularly Article 1113 in relation to Article 1137.52
In this case, neither the trial court nor the Court of Appeals clarified under which paragraph of Section 14 of
Presidential Decree No. 1529 the land was being registered. However, petitioners allegations in the application filed
on August 22, 2006 established Section 14(1) of Presidential Decree No. 1529 as her legal basis. 53
An applicant for land registration or judicial confirmation of incomplete or imperfect title under Section 14(1) of
Presidential Decree No. 1529 must prove the following requisites:"(1) that the subject land forms part of the
disposable and alienable lands of the public domain, and (2) that [the applicant has] been in open, continuous,
exclusive and notorious possession and occupation of the same under a bona fide claim of ownership since June 12,

22

1945, or earlier." 54 Concomitantly, the burden to prove these requisites rests on the applicant. 55 With regard to the
first requisite, it is undisputed that the land subject of registration is part of the alienable and disposable lands of
the public domain. The trial court found the Department of Environment and Natural Resources report sufficient to
prove the existence of the first requisite. 56 The Court of Appeals decision was silent on this matter. Respondent
failed to make objections on the issue as well. Thus, we do not see any reason to deviate from the findings of the
lower courts.
As to the second requisite, petitioner claims that she "by herself, and through [her] predecessors-in-interest, had
since June 12, 1945 or earlier[,] been in open[,] continuous, exclusive and notorious possession of the . . . parcel
of land."57 However, the Court of Appeals found that petitioner failed to prove with sufficient evidence her open,
continuous, exclusive, and notorious possession and occupation of the land. Likewise, respondent argued that
petitioners allegations ofpossession and occupation were mere conclusions and unsubstantiated.
Petitioner has sufficiently overcome the burden of proof required in a judicial confirmation of incomplete or
imperfect title to land.
Contrary to respondents arguments, the trial court specifically found that petitioners possession and occupation,
through her predecessors-ininterest, started earlier than June12, 1945. The trial court found:
Applicants evidence shows that she complied with the notice requirements (Exhibits "A" to ["]M,"inclusive of
submarkings) and she was able to substantiate the allegations in her application (Exhibits "N" to "II," inclusive of
submarkings). In a nutshell, applicant acquired the property by inheritance from Honorio and Gregorio S. Apran
and she and her predecessors-in-interest have been in its continuous possession since 1900(Exhibits "Q" to "HH,"
inclusive of submarkings). . . . The testimonies of the applicant and her witnesses proved that the applicant
through her predecessors-in-interest have been in open, continuous, exclusive and notorious possession of an
alienable and disposable parcel of land of the public domain under a bona fide claim of ownership for more than 30
years.After considering the report and the evidence, we find that the applicant has sufficient title proper for
registration, and we render judgment confirming it.58 (Emphasis and italics supplied)
Possession involves committing acts of dominion over a parcel of land in such a way that an owner would perform
over his or her property.59 In explaining the nature of the terms "possession and occupation" provided in law, this
court has held that:
The law speaks of possession and occupation. Since these words are separated by the conjunction and, the clear
intention of the law is not to make one synonymous with the other. Possession is broader than occupation because
it includes constructive possession. When, therefore, the law adds the word occupation, it seeks to delimit the all
encompassing effect of constructive possession. Taken together with the words open, continuous, exclusive and
notorious, the word occupation serves to highlight the fact that for an applicant to qualify, his possession must not
be a mere fiction. Actual possession ofa land consists in the manifestation of acts of dominion over it of such a
nature as a party would naturally exercise over his own property.60 (Italics in the original)
Moreover, to qualify as open, continuous, exclusive, and notorious possession and occupation, the possession must
be of the following character:
Possession is open when it is patent, visible, apparent, notorious and not clandestine. It is continuous when
uninterrupted, unbroken and not intermittent or occasional; exclusive when the adverse possessor can show
exclusive dominion over the land and an appropriation of it to his own use and benefit; and notorious when it is so
conspicuous that it is generally known and talked of by the public or the people in the neighborhood. 61
In reversing the trial courts decision, the Court of Appeals found that petitioner "failed to address the issue of
whether she had . . . an open, continuous, exclusive and notorious possession and occupation of the subject
property. . . . [Petitioner] could have advanced proofs or arguments to the contrary." 62 Thus, she "had not shown
any acts of occupation, development, cultivation or maintenance over the property." 63
This court puts more premium on the findings of the trial court that petitioner has sufficiently shown acts of
dominion before 1945 and throughout the years. It is settled that the trial courts appreciation of the evidence
presented is entitled to great respect since it is in a better position to evaluate the testimonies of witnesses. 64
Petitioner has sufficiently shown that she, through her predecessors in-interest, have been in open, continuous,
exclusive, and notorious possession and occupation of the 9,751-square-meter parcel of land located in Barrio
Macamot, Municipality of Binangonan, Province of Rizal, since June 12, 1945 or earlier.65 Documentary evidence to
prove possession was presented and substantiated by the witnesses testimonies. 66 There were sufficient pieces of
evidence to show that petitioner and her predecessors-ininterest exercised specific acts of ownership such as:
farming activities; allowing the excavation of land for "pulang lupa" to make clay pots; paying realty taxes;
declaring the property for tax purposes; employing a caretaker; causing corrections in entries in public documents
with regard to the land; and demanding unlawful occupants to vacate the premises. 67
The fact of actual possession and occupation can also be gleaned from petitioners judicial affidavit:
Q : When you inherited the property, who was in possession and cultivation thereof?
A : My father? [sic]
Q : When did he possess the property?
A : When he was born thereat and lived there, and when he grew up he cultivated it.

23

Q : When was he born?

A : May 16, 1918, Sir.
Q : Before your father, who?
A : My grandfather, Honorio Apran.
Q : Since when?
A : Approximately 1900s, Sir.
Q : What was done by your grandfather on the property?
A : He tilled the land by growing palay on rainy days, and kamatis, and sometimes watermelon on
summer days.
Q : What happened to those farming activities when your grandfather Honorio died?
A : My father continued the farming activities and so did I until I transferred to Quezon City sometime
year 2000.
Q : How young were you then in the 1900s?
A : I was not yet even born, Sir.
Q : When were you born?
A : February 26, 1944, Sir.
....
Q : After your father, who possessed and cultivated the property?
A : I, Sir.68
In its assailed decision, the Court of Appeals found that petitioner was not in possession of the propertyto the
exclusion of others.69 It relied on petitioners statements during cross-examination before the trial court on the
following matters: that a conditional sale was made between petitioner and Maura F. Reyes and Lorenza F. Reyes in
197670 and that the property had other occupants.71 The Court of Appeals alsostated that it "received an Appeal in
Intervention filed by the heirs of Lorenza F. Reyes and the [h]eirs of Maura F. Reyes." 72
The totality of petitioners evidence trumps any doubt as to the exclusivity and continuity of petitioners possession
with regard to other occupants and an alleged failed conditional sale executed in 1976 between petitioner and third
parties, Lorenza F. Reyes and Maura F. Reyes. We observe that no oppositors appeared during the initial hearing on
petitioners application.73 Aside from petitioners statement during cross-examination that the sale did not push
through due to non-payment of the full purchase price, the Court of Appeals did not refer to other evidence to
establish the conditional sale.
In addition, the Court of Appeals did not allow the intervention of the heirs of Lorenza F. Reyes and Maura F.
Reyes.74 No third parties intervened in the present case.75
Respondents claim that the tax declarations presented by petitioner were sporadic and irregular deserves scant
consideration. The Court of Appeals observed that:
The OSG likewise claims that [petitioner] failed to show her ownership and possession of the property in question,
since the subject property was declared for tax purposes only in 1949, 1966, 1974, 1980, 1985, 19941999 under
the name of Honorio Apan and in 2004 under the name of [petitioner]. . . .
We do not see the point of the OSG in attacking the tax declarations. We do not understand why it harps on the
fact that the property was declared for taxation purposes only in 1948. We do not see any irregularity here. It
would have helped Usa lot had the OSG been more specific and did not leave Us ina guessing and explorative
game. To Our mind, what matters here is that the tax declarations from 1948 up to the latest are in the correct
series one tax declaration cancels the immediately previously issued tax declaration which in effect also cancels
all the previously issued tax declarations.
Further, We find it misleading for OSG to claim that the realty taxes were only paid a few months before the filing
of the application. Per records of this case, the recent payment was on October 22, 2003 while the application for
registration was filed on August 22, 2006 or almost three years after.76 (Italics supplied)
It is settled that tax declarationsare not conclusive evidence of ownership. 77 Other evidence may be appreciated to
determine actual possession and occupation. Documentary evidence, such as tax declarations, when coupled with
positive and clear testimonies of the applicant and his or her witnesses,may be weighed in favor of the applicant. 78

24

The fact that a parcel of land is not declared for tax purposes regularly, or that realty taxes are not paid on a
regular basis, does not automaticallycontradict the claim of possession. Tax declarations serve as additional indicia
of ownership. It is not conclusive as to the fact of possession, occupation, or ownership.
Likewise, to solely rely on tax declarations and payment of realty taxes would mean that petitioners possession of
the land should be reckoned from 1949 or the year the earliest tax declaration was made. Such interpretation is
untenable and goes beyond the text of Section 14(1) of Presidential Decree No. 1529. Moreover, as shown in the
records, petitioner, through her predecessors-in-interest, has been in possession of the land since the early 1900s.
We remand the issue of the inclusion of plan Psu-04-006561 in TCT No. 23377, as allegedly certified by the Land
Registration Authority, to the trial court of origin.
Generally, the remand of a case will not be permitted if "in the interest of justice, the Supreme Court itself can
resolve the dispute based on the records before it." 79 Thus, remand may not be allowed in the following instances:
"(a) where the ends of justice would not be subserved by a remand; or (b) where public interest demands an early
disposition of the case; or (c) where the trial court had already received all the evidence presented by both parties,
and the Supreme Court is in a position, based upon said evidence, to decidethe case on its merits." 80None of these
are present in this case.
The trial court is in the best position to ascertain the validity and authenticity of the alleged Land Registration
Authority report and motion, as well as the truth and probative weight of the statements contained in the
document. A reading of Republic v. Court of Appeals and Guido, et al., invoked by petitioner, does not revealthe
precise metes and bounds of the property under TCT No. 23377 and whether plan Psu-04-006561 is covered by the
title.
It does not escape this courts attention considering the length of time the document was in petitioners
possession that the document was presented by petitioner at this latestage in the Court of Appeals proceedings.
Records show that petitioner was aware of this development as early as 2009 or even before the appeal to the
Court of Appeals.81 There has been no mention of this document before the Court of Appeals or in the present
petition.
The concealment of a document that changes a partys theory of the case is highly improper, if not misleading, and
should not be tolerated. In Multi-Realty Development Corporation v. The Makati Tuscany Condominium
Corporation,82 this court said that:
[s]ettled is the rule that no questions will be entertained on appeal unless they have been raised below. Points of
law, theories, issues and arguments not adequately brought to the attention of the lower court need not be
considered by the reviewing court as they cannot be raised for the first time on appeal. Basic considerations of due
process impel this rule.83
However, the ends of substantial justice would be better served when the threshing of the issue before the trial
court is allowed, to give all parties due process and avoid multiplicity of suits in the future.
WHEREFORE, the petition is GRANTED. The assailed decision dated November 10, 2011 and resolution. dated
February 23, 2012 of the Court of Appeals are REVERSED and SET ASIDE. The case is, however, REMANDED to the
trial court for presentation of evidence to determine whether the 9,751-square-meter parcel of land located in
Barrio Macamot, Municipality of Binangonan, Province of Rizal, technically described as Cadastral Lot No. 11566,
Psu-04-006561, is included in TCT No. 23377, and to proceed accordingly with this court's ruling in Republic v.
Court of Appeals and Guido, et al.84
SO ORDERED.
G.R. No. 180269

February 20, 2013

JOSE Z. CASILANG, SR., substituted by his heirs, namely: FELICIDAD CUD lAMA T VDA. DE CASILANG,
JOSE C. CASILANG, JR., RICARDO C. CASILANG, MARIA LOURDES C. CASILANG, CHRISTOPHER C.
CASILANG, BEN C. CASILANG, DANTE C. CASILANG, GREGORIO C. CASILANG, HERALD C. CASILANG;
and FELICIDAD Z. CASILANG, MARCELINA Z. CASILANG, JACINTA Z. CASILANG, BONIFACIO Z.
CASILANG, LEONORA Z. CASILANG, and FLORA Z. CASILANG, Petitioners,
vs.
ROSARIO Z. CASILANG-DIZON, MARIO A. CASILANG, ANGELO A. CASILANG, RODOLFO A. CASILANG,
and ATTY. ALICIA B. FABIA, in her capacity as Clerk of Court and Ex-Officio Sheriff of Pangasinan
and/or her duly authorized representative, Respondents.
DECISION
REYES, J.:
Before us is a petition for review of the Decision 1 dated July 19, 2007 of the Court of Appeals (CA) in CA-G.R. CV
No. 79619, which reversed and set aside the Decision 2 dated April 21, 2003 of the Regional Trial Court (RTC) of
Dagupan City, Branch 41, in Civil Case No. 98-02371-D.
Antecedent Facts
The late spouses Liborio Casilang (Liborio) and Francisca Zacarias (Francisca) had eight (8) children, namely:
Felicidad Casilang (Felicidad), Ireneo Casilang (Ireneo), Marcelina Casilang (Marcelina), Jacinta Casilang (Jacinta),
Bonifacio Casilang (Bonifacio), Leonora Casilang (Leonora), Jose Casilang (Jose) and Flora Casilang (Flora). Liborio

25

died intestate on October 11, 1982 at the age of 83, followed not long after by his wife Francisca on December 25,
1982. Their son Bonifacio also died in 1986, survived by his child Bernabe Casilang (Bernabe), while son Ireneo
died on June 11, 1992, survived by his four (4) children, namely: Mario Casilang (Mario), Angelo Casilang (Angelo),
Rosario Casilang-Dizon (Rosario) and Rodolfo Casilang (Rodolfo), herein respondents.
The estate of Liborio, which left no debts, consisted of three (3) parcels of land located in Barangay Talibaew,
Calasiao, Pangasinan, namely: (1) Lot No. 4676, with an area of 4,164 square meters; (2) Lot No. 4704, containing
1,164 sq m; and (3) Lot No. 4618, with 897 sq m.
On May 26, 1997, respondent Rosario filed with the Municipal Trial Court (MTC) of Calasiao, Pangasinan a complaint
for unlawful detainer, docketed as Civil Case No. 847, to evict her uncle, petitioner Jose from Lot No. 4618. Rosario
claimed that Lot No. 4618 was owned by her father Ireneo, as evidenced by Tax Declaration (TD) No. 555 issued in
1994 under her fathers name. On April 3, 1997, the respondents executed a Deed of Extrajudicial Partition
with Quitclaim3 whereby they adjudicated Lot No. 4618 to themselves. In the same instrument, respondents Mario,
Angelo and Rodolfo renounced their respective shares in Lot No. 4618 in favor of Rosario.
In his Answer, Jose raised the defense that he was the "lawful, absolute, exclusive owner and in actual possession"
of the said lot, and that he acquired the same "through intestate succession from his late father." 4For some reason,
however, he and his lawyer, who was from the Public Attorneys Office, failed to appear at the scheduled pre-trial
conference, and Jose was declared in default; thus, the adverse judgment against him. 5
On February 18, 1998, the MTC rendered judgment finding Rosario to be the owner of Lot No. 4618, and ordering
Jose to remove his house, vacate Lot No. 4618, and pay Rosario P500.00 in monthly rentals from the filing of the
complaint until she was placed in possession, plus attorneys fees of P5,000.00, litigation expenses and costs. On
March 23, 1998, the MTC issued a writ of execution; and on August 28, 1998, a Writ of Demolition 6was issued.
On June 2, 1998, the petitioners, counting 7 of the 8 children of Liborio and Francisca, 7 filed with the RTC of
Dagupan City a Complaint,8 docketed as Civil Case No. 98-02371-D for "Annulment of Documents, Ownership and
Peaceful Possession with Damages" against the respondents. On June 10, 1998, the petitioners moved for the
issuance of a writ of preliminary injunction or temporary restraining order, which the RTC however denied on June
23, 1998.
Among the documents sought to be annulled was the 1997 Deed of Extrajudicial Partition executed by Ireneos
children over Lot No. 4618, as well as TD No. 555, and by necessary implication its derivatives, TD No. 15177 (for
the lot) and TD No. 15176 (for the house), both of which were issued in 1998 in the name of Rosario CasilangDizon.9
The petitioners alleged in their complaint that all eight (8) children of Liborio entered into a verbal partition of his
estate, pursuant to which Jose was allotted Lot No. 4618 as his share; that Ireneo never claimed ownership of Lot
No. 4618, nor took possession of it, because his share was the southwestern 1/5 portion of Lot No. 4676,
containing an area of 1,308 sq m,10 of which he took exclusive possession during his lifetime; that Jose has always
resided in Lot No. 4618 since childhood, where he built his familys semi-concrete house just a few steps away from
his parents old bamboo hut; that he took in and cared for his aged parents in his house until their deaths in 1982;
that one of his children has also built a house on the lot.11 Jose, said to be the most educated of the Casilang
siblings, worked as an insurance agent. 12 The complete disposition of the intestate estate of Liborio per the parties
verbal partition appears as follows:
1. Lot No. 4676, with 4,164 sq m, declared under TD No. 534 in Liborios name, 13 was verbally partitioned
among Marcelina (236 sq m), Leonora (1,965 sq m), Flora (655 sq m), and Ireneo, represented by his
children, the herein respondents-defendants (1,308 sq m), as shown in a Deed of Extrajudicial Partition
with Quitclaim dated January 8, 1998, subsequently executed by all the Casilang siblings and their
representatives.
2. Lot No. 4704, with 1,164 sq m, declared under TD No. 276 in Liborios name, 14 was divided among
Jacinta and Bonifacio, who died in 1986 and is now represented by his son Bernabe; and
3. Lot No. 4618, containing 897 sq m, declared since 1994 under TD No. 555 in Ireneos name, 15 is now
the subject of the controversy below. Jose insists that he succeeded to it per verbal partition, and that he
and his family have always occupied the same peacefully, adversely and exclusively even while their
parents were alive.16
For her part, Rosario alleged in her answer with counterclaim, 17 which she filed on September 15, 1998, that:
a) She is the actual and lawful owner of Lot No. 4618 with an area of 897 square meters, having acquired
the same by way of a Deed of Extra judicial Partition with Quitclaim dated 3 April 1997 which was duly
executed among herein Appellant ROSARIO and her brothers, namely, MARIO, ANGELO and RODOLFO, all
surnamed CASILANG;
b) Her ownership over subject property could be traced back to her late father IR[E]NEO which the latter
inherited by way of intestate succession from his deceased father LIBORIO sometime in 1992; that the
residential house described in herein Appellee JOSEs complaint is an illegal structure built by him in 1997
without her (ROSARIOs) knowledge and consent; that in fact, an ejectment suit was filed against Appellee
JOSE with the Municipal Trial Court in Calasiao, Pangasinan in Civil Case No. 847;
c) The subject lot is never a portion of Appellee JOSEs share from the intestate of his deceased father,
LIBORIO; that on the contrary, the lot is his deceased brother IR[E]NEOs share from the late LIBORIOs
intestate estate; that in fact, the property has long been declared in the name of the late IRENEO as
shown by Tax Declaration No. 555 long before his children ROSARIO DIZON, MARIO, ANGELO and

26

RODOLFO, all surnamed CASILANG, executed the Deed of Partition dated 18 February 1998; that Appellee
JOSE had actually consumed his shares which he inherited from his late father, and after a series of sales
and dispositions of the same made by him, he now wants to take Appellants property;
d) Appellee JOSE is never the rightful owner of the lot in question and has not shown any convincing proof
of his supposed ownership; that the improvements introduced by him, specifically the structures he cited
are the subject of a Writ of Demolition dated 28 August 1998 pursuant to the Order dated 17 August 1998
of the MTC of Calasiao, Pangasinan;
e) No protestation or objection was ever made by Appellee JOSE in Civil Case No. 847 (Unlawful
Detainercase) where he was the defendant; that the truth was that his possession of the subject property
was upon the tolerance and benevolence of his late brother IRENEO during the latters lifetime and that
Appellant ROSARIO;
f) The RTC Clerk of Court and Ex-officio Provincial Sheriff would just be doing her job if she and her
deputies would implement the writ of execution/demolition issued by the MTC of Calasiao, Pangasinan
since it is its ministerial duty to do so;
g) The Appellees have no cause of action; not having shown in their complaint the basis, the reason and
the very core of their claim as to why the questioned document should be nullified. 18 (Citation omitted)
In their reply19 to Rosarios aforesaid answer, the petitioners asserted that the MTC committed a grave error in
failing to consider a material fact-that Jose had long been in prior possession under a claim of title which he
obtained by partition.
At the pre-trial conference in Civil Case No. 98-02371-D, the parties entered into the following stipulations:
1. That the late LIBORIO is the father of FELICIDAD, MARCELINA, JUANITA, LEONORA, FLORA and
IRENEO, all surnamed CASILANG;
2. That the late LIBORIO died in 1982; That the late LIBORIO and his family resided on Lot [No.] 4618 up
to his death in 1982; That the house of the late LIBORIO is located on Lot [No.] 4618;
3. That Plaintiff JOSE used to reside on the lot in question because there was a case for ejectment filed
against him;
4. That the house which was demolished is the family house of the late LIBORIO and FRANCISCA
ZACARIAS with the qualification that it was given to the defendants;
5. That the action involves members of the same family; and
6. That no earnest efforts were made prior to the institution of the case in court. 20
Ruling of the RTC
After a full trial on the merits, the RTC in its Decision 21 dated April 21, 2003 decreed as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against the
defendants as follows:
1. Declaring the Deed of Extrajudicial Partition with Quitclaim dated April 3, 1997 null and void;
2. Declaring plaintiff Jose Z. Casilang Sr. as the lawful owner and possessor of the subject Lot No. 4618
and as such, entitled to the peaceful possession of the same;
3. Ordering the defendants to pay to plaintiff Jose Z. Casilang Sr. attorneys fees in the amount
ofP20,000.00 and litigation expenses in the amount of P5,000.00, and to pay the costs of suit.
SO ORDERED.22
The RTC affirmed Joses ownership and possession of Lot No. 4618 by virtue of the oral partition of the estate of
Liborio by all the siblings. In the Deed of Extrajudicial Partition with Quitclaim23 dated January 8, 1998,
subsequently executed by all the eight (8) Casilang siblings and their legal representativeswith Ireneo
represented by his four (4) children, and Bonifacio by his son Bernabepetitioners Jose, Felicidad, Jacinta and
Bernabe, acknowledged that they had already received their respective shares of inheritance in advance,"24 and
therefore, renounced their claims over Lot No. 4676 in favor of co-heirs Marcelina, Leonora, Flora and Ireneo, as
follows:
We hereby RENOUNCED, WAIVED AND QUITCLAIM, all our rights, interests and participations over the WHOLE
parcel of land [Lot No. 4676], left by the late, LIBORIO CASILANG, in favor of our coheirs, namely: MARCELINA Z.
CASILANG-PARAYNO, LEONORA Z. CASILANG-SARMIENTO, FLORA Z. CASILANG, MARIO A. CASILANG, ANGELO A.
CASILANG, ROSARIO A. CASILANGDIZON AND RODOLFO A. CASILANG.25
Thus, Jose expressly renounced his share in Lot No. 4676, which has an area of 4,164 sq m, because he had
already received in advance his share in his fathers estate, Lot No. 4618 with 897 sq m:

27

To the mind of the court, Jose Casilang could have not [sic] renounced and waived his rights and interests over Lot
[No.] 4676 if he believes that Lot [No.] 4618 is not his, while the other lot, Lot [No.] 470[4], was divided between
sister Jacinta Casilang and brother Bonifacio Casilang[,] Sr., who was represented by his son. In the same [way] as
testified to by plaintiffs Felicidad Casilang and Jacinta Casilang, they signed the Deed of Extrajudicial Partition with
Quitclaim wherein they waived and renounced their rights and interests over Lot [No.] 4676 because they have
already received their share, which is Lot [No.] 470[4]. 26
The RTC found baseless the claim of Rosario that Lot No. 4618 was an inheritance of her father Ireneo considering
that a tax declaration is not conclusive proof of ownership. The RTC even noted that the tax declaration of Ireneo
started only in 1994, although he had been dead since 1992. "Such being the case, the heirs of Ir[e]neo Casilang
has [sic] no basis in adjudicating unto themselves Lot No. 4618 and partitioning the same by executing the Deed of
Extrajudicial Partition with Quitclaim." 27
Appeal to the CA
Undeterred, Rosario appealed to the CA averring that: (1) the lower court erred in declaring the Deed of
Extrajudicial Partition with Quitclaim dated April 3, 1997 as null and void; and (2) the lower court erred in declaring
Jose as the lawful owner and possessor of the subject Lot No. 4618. 28
In the now assailed decision, the CA reversed the RTC by relying mainly on the factual findings and conclusions of
the MTC in Civil Case No. 847, viz:
Per the records, the above described property was subject of Civil Case No. 847 decided by the MTC of Calasiao,
First Judicial Region, Province of Pangasinan which rendered a judgment, supra, in favor of Appellant ROSARIO
ordering herein Appellee JOSE and all persons claiming rights under him to vacate the land of Appellant ROSARIO.
It was found by the MTC that the latter is the owner of the subject parcel of land located at Talibaew, Calasiao,
Pangasinan; that the former owner of the land is the late IRENEO (who died on 11 June 1992), father of Appellant
ROSARIO; that Extra Judicial Partition with Quitclaim was executed by and among the heirs of the late IRENEO;
that MAURO [sic], ANGELO and RODOLFO, all surnamed CASILANG waived and quitclaimed their respective shares
over the subject property in favor of Appellant ROSARIO; that Appellee JOSE was allowed by the late IRENEO
during his lifetime to occupy a portion of the land without a contract of lease and no rentals being paid by the
former; that Appellant ROSARIO allowed Appellee JOSE to continue occupying the land after the Extra Judicial
Partition with Quitclaim was executed.29
Moreover, noting that the decision in Civil Case No. 847 in favor of Rosario was issued on February 18, 1998 while
the petitioners complaint in Civil Case No. 98-02371-D was filed on June 2, 1998, the CA concluded that the latter
case was a mere afterthought:
If the latter has really a strong and valid reason to question the validity of the Deed of Extra Judicial Partition with
Quitclaim, supra, he could have done it soon after the said Deed was executed on 3 April 1997. However, curiously
enough, it was only when the MTC ordered his eviction from the subject property that he decided to file the instant
case against the Appellants.30
Petition for Review in the Supreme Court
Now in this petition for review on certiorari, petitioners maintain that:
IN UPHOLDING THE LEGALITY [OF] THE DEED OF EXTRAJUDICIAL PARTITION AND QUITCLAIM DATED APRIL 3,
1997, THE HONORABLE COURT OF APPEALS GROSSLY VIOLATED THE SUBSTANTIVE RIGHT OF JOSE Z. CASILANG,
SR. AS DIRECT COMPULSORY HEIR.31
Our Ruling and Discussions
There is merit in the petition.
Inferior courts are empowered to rule on the question of ownership raised by the defendant in an
ejectment suit, but only to resolve the issue of possession; its determination is not conclusive on the
issue of ownership.
It is well to be reminded of the settled distinction between a summary action of ejectment and a plenary action for
recovery of possession and/or ownership of the land. What really distinguishes an action for unlawful detainer from
a possessory action (accion publiciana) and from a reinvindicatory action (accion reinvindicatoria) is that the first is
limited to the question of possession de facto. Unlawful detainer suits (accion interdictal) together with forcible
entry are the two forms of ejectment suit that may be filed to recover possession of real property. Aside from the
summary action of ejectment, accion publiciana or the plenary action to recover the right of possession and accion
reinvindicatoria or the action to recover ownership which also includes recovery of possession, make up the three
kinds of actions to judicially recover possession.32
Under Section 3 of Rule 70 of the Rules of Court, the Summary Procedure governs the two forms of ejectment suit,
the purpose being to provide an expeditious means of protecting actual possession or right to possession of the
property. They are not processes to determine the actual title to an estate. If at all, inferior courts are empowered
to rule on the question of ownership raised by the defendant in such suits, only to resolve the issue of possession
and its determination on the ownership issue is not conclusive. 33 As thus provided in Section 16 of Rule 70:
Sec. 16. Resolving defense of ownership.When the defendant raises the defense of ownership in his pleadings
and the question of possession cannot be resolved without deciding the issue of ownership, the issue of ownership
shall be resolved only to determine the issue of possession.

28

It is apropos, then, to note that in contrast to Civil Case No. 847, which is an ejectment case, Civil Case No. 9802371-D is for "Annulment of Documents, Ownership and Peaceful Possession;" it is an accion reinvindicatoria, or
action to recover ownership, which necessarily includes recovery of possession 34 as an incident thereof. Jose asserts
his ownership over Lot No. 4618 under a partition agreement with his co-heirs, and seeks to invalidate Ireneos
"claim" over Lot No. 4618 and to declare TD No. 555 void, and consequently, to annul the Deed of Extrajudicial
Partition and Quitclaim executed by Ireneos heirs.
It is imperative to review the CAs factual conclusions since they are entirely contrary to those of the
RTC, they have no citation of specific supporting evidence, and are premised on the supposed absence
of evidence, particularly on the parties verbal partition, but are directly contradicted by the evidence
on record.
It must be noted that the factual findings of the MTC, which the CA adopted without question, were obtained
through Summary Procedure and were based solely on the complaint and affidavits of Rosario, after Jose had been
declared in default. But since a full trial was had in Civil Case No. 98-02371-D, the CA should have pointed out the
specific errors and weaknesses in the RTCs factual conclusions before it could rule that Jose was unable to present
"any evidentiary support" to establish his title, and that his continued possession of Lot No. 4618 was by mere
tolerance of Rosario. At most, however, the CA only opined that it was conjectural for the RTC to conclude, that
Jose had already received his inheritance when he renounced his share in Lot No. 4676. It then ruled that the RTC
erred in not considering the findings of the MTC in Civil Case No. 847-that Joses possession over subject property
was by mere tolerance. Said the appellate court:
Given the claim of the Appellee that Lot [No.] 4618 was orally given/assigned to him by his deceased father
LIBORIO, or that his claim was corroborated by his sisters (his co-plaintiffs-Appellees), or that their claim is
indubitably tied up with the Deed of Extrajudicial Partition with Quitclaim over Lot No. 4676, still We cannot fully
agree with the pronouncement of the court a quo that Appellee JOSE could not have renounced and waived his
rights and interest over Lot [No.] 4676 if he believes that Lot [No.] 4618 is not his. Wanting any evidentiary
support, We find this stance as conjectural being unsubstantiated by law or convincing evidence. At the most and
taking the factual or legal circumstances as shown by the records, We hold that the court a quo erred in not
considering the findings of the MTC in Civil Case No. 847 ruling that herein Appellee JOSEs possession over subject
property was by mere tolerance. Based as it is on mere tolerance, Appellee JOSEs possession therefore could not,
in any way, ripen into ownership.35 (Citations omitted)
By relying solely on the MTCs findings, the CA completely ignored the testimonial, documentary and circumstantial
evidence of the petitioners, obtained by the RTC after a full trial on the merits. More importantly, the CA did not
point to any evidence of Rosario that Ireneo had inherited Lot No. 4618 from Liborio. All it did was adopt the
findings of the MTC.
The Supreme Court is not a trier of facts, and unless the case falls under any of the well-defined exceptions, the
Supreme Court will not delve once more into the findings of facts. In Sps. Sta. Maria v. CA,36 this Court stated:
Settled is the rule that the jurisdiction of this Court in cases brought before it from the Court of Appeals via Rule 45
of the Rules of Court is limited to reviewing errors of law. Findings of fact of the latter are conclusive, except in the
following instances: (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 fact 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 those of 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 petitioners main and reply briefs are not disputed by the respondent;
and (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the
evidence on record.37 (Citation omitted)
In the instant case, the factual findings of the CA and the RTC are starkly contrasting. Moreover, we find that the
CA decision falls under exceptions (7), (8) and (10) above, which warrants another review of its factual findings.
The evidence supporting Rosarios claim of sole ownership of Lot No. 4618 is the Deed of Extrajudicial Partition with
Quitclaim, which she executed with her brothers Mario, Angelo and Rodolfo. There is no question that by itself, the
said document would have fully conveyed to Rosario whatever rights her brothers might have in Lot No. 4618. But
what needs to be established first is whether or not Ireneo did in fact own Lot No. 4618 through succession, as
Rosario claims. And here now lies the very crux of the controversy.
A review of the parties evidence shows that they entered into an oral partition, giving Lot No. 4618 to
Jose as his share, whereas Rosario presented no proof whatsoever that her father inherited Lot No.
4618 from his father Liborio.
Rosarios only proof of Ireneos ownership is TD No. 555, issued in his name, but she did not bother to explain why
it was dated 1994, although Ireneo died on June 11, 1992. Liborios ownership of Lot No. 4618 is admitted by all
the parties, but it must be asked whether in his lifetime Liborio did in fact transmit it to Ireneo, and if not, whether
it was conveyed to him by Liborios heirs. It is imperative for Rosario to have presented proof of this transfer to
Ireneo, in such a form as would have vested ownership in him. We find, instead, a preponderance of contrary
evidence.
1. In his testimony, Jose claimed that his parents bamboo house in Lot No. 4618 disintegrated from wear
and tear; so he took them in to his semi-concrete house in the same lot, which was just a few steps away,
and he cared for them until they died; shortly before Liborios death, and in the presence of all his
siblings, his father Liborio assigned Lot No. 4618 to him as his inheritance; his house was demolished in
1998 as a result of the ejectment case filed against him; but his family continued to live thereat after
reconstructing the house; Ireneo and his family did not live in Lot No. 4618; although Joses job as an

29

insurance agent took him around Pangasinan, he always came home to his family in his house in Lot No.
4618, which he used as his permanent address; only Lot No. 4676 was included in the Deed of
Extrajudicial Partition dated January 8, 1998 because Lot No. 4618 had already been distributed to Jose,
and Lot No. 4704 had already been assigned to Jacinta and Bonifacio as their share in their fathers
estate.38
2. Joses testimony was corroborated by petitioners Felicidad, 39 Jacinta,40 Leonora,41 and Flora,42 who all
confirmed that their brother Jose has always resided in Lot No. 4618 from his childhood up to the present,
that he took their aged parents into his house after their bamboo house was destroyed, and he attended
to their needs until they died in 1982. The sisters were also one in saying that their father Liborio verbally
willed Lot No. 4618 to Jose as his share in his estate, and that their actual partition affirmed their fathers
dispositions. Jacinta claimed that she and Bonifacio have since taken possession of Lot No. 4704 pursuant
to their partition, and have also declared their respective portions for tax purposes. 43 Flora corroborated
Jacinta on their taking possession of Lot No. 4704, as well as that Jose built his house on Lot No. 4618
next to his parents and they came to live with him in their old age. Flora affirmed that Exhibit "F" correctly
reflects their verbal partition of Lot No. 4676, and that she was fully in accord with it. She added that
Felicidad and Marcelina had since constructed their own houses on the portions of Lot No. 4676 assigned
to them.44 Felicidad mentioned that in their partition, Ireneo was given a portion of Lot No. 4676, while Lot
No. 4704 was divided between Jacinta and Bonifacio, and Jose alone got Lot No. 4618. Leonora confirmed
that they were all present when their father made his above dispositions of his estate.
3. Benjamin Lorenzo, a long-time neighbor of the Casilangs testified that Joses house stands on Lot No.
4618 and Ireneo did not live with his family on the said lot but was a tenant in another farm some
distance away.45
4. For her part, Rosario merely asserted that her father Ireneo succeeded to Lot No. 4618 from Liborio, as
shown in TD No. 555 (Exhibit "1"); that she and her brothers extra-judicially settled Ireneos estate, and
that they each waived their shares in her favor; and, that she has been paying taxes on Lot No. 4618.
Rosario admitted, however, that Jose has lived in the lot since he was a child, and he has reconstructed his
house thereon after its court-ordered demolition. 46 But Rosario on cross-examination backtracked by
claiming that it was her father Ireneo and grandfather Liborio who built the old house in Lot No. 4618,
where Ireneo resided until his death; he even planted various fruit trees. Yet, there is no mention
whatsoever to this effect by any of the witnesses. Rosario also contradicted herself when she denied that
Jose lived there because his job as insurance agent took him away often and yet admitted that Joses
house stands there, which he reconstructed after it was ordered demolished by the MTC. Inexplicably,
Rosario disclaimed knowledge of Ireneos share in Lot No. 4676, although she was a signatory, along with
her brothers and all the petitioners, in the deed of partition of the said lot, whereby she got 1,308 sq m.
Rosario also admitted that taxes were paid on the lot only beginning in 1997, not before. 47
5. Benjamin Dizon, husband of Rosario, testified that Rosario was losing appetite and sleep because of the
case filed by Jose; that Ireneo died in another farm; that Ireneo had a house in Lot No. 4618 but Jose
took over the house after he died in 1992.48 Respondent Angelo, brother of Rosario, claimed that when he
was 13 or 14 years old, he heard his grandfather tell his father Ireneo that he would inherit Lot No. 4618.
On cross-examination, Angelo insisted that his father had always lived with his family in his grandfathers
house in Lot No. 4618, that Jose did not live there but was given another lot, although he could not say
which lot it was; he admitted that his grandmother lived with Jose when she died, and Ireneos share was
in Lot No. 4676.49
6. On rebuttal, Jose recounted that after his four children were married, Ireneo lived as a tenant in
another farm; that during a period of illness he lived in Manila for some time, and later resided in Cagayan
with his two married sons; and lastly on his return, worked as a tenant of the Maningding family for about
10 years in Calasiao, staying in a hut one kilometer away. Jose also claimed that Ireneo had asked Liborio
for a portion of Lot No. 4676, a lot which is bigger than Lot No. 4618 by several hundreds of square
meters.50
7. On sur-rebuttal, Rosario claimed that her grandparents, father and mother lived in Lot No. 4618 when
she was a child until she married and left in 1976; that her uncle Jose asked permission from Liborio to be
allowed to stay there with his family. She admitted that Jose built his house in 1985, three years after
Liborio died, but as if to correct herself, she also claimed that Jose built his house in Lot No. 4676,
and notin Lot No. 4618. (Contrarily, her aunt Leonora testified that Jose built his house in Lot No. 4618
while their parents were alive.)51 Moreover, if such was the case, Rosario did not explain why she filed Civil
Case No. 847, if she thought her uncle built his house in Lot No. 4676, and not in Lot No. 4618. 52 Rosario
also claimed that Ireneo always came home in the evenings to his father Liborios house from the
Maningding farm, which he tenanted for 10 years, but obviously, by then Liborios house had long been
gone. Again, confusedly, Rosario denied that she knew of her fathers share in Lot No. 4676.
From the testimonies of the parties, we are convinced that the conclusion of the RTC is well-supported that there
was indeed a verbal partition among the heirs of Liborio, pursuant to which each of his eight children received his
or her share of his estate, and that Joses share was Lot No. 4618.
The parties verbal partition is valid, and has been ratified by their taking possession of their respective
shares.
The validity of an oral partition is well-settled in our jurisdiction. In Vda. de Espina v. Abaya,53 this Court declared
that an oral partition is valid:
Anent the issue of oral partition, We sustain the validity of said partition. "An agreement of partition may be made
orally or in writing. An oral agreement for the partition of the property owned in common is valid and enforceable
upon the parties. The Statute of Frauds has no operation in this kind of agreements, for partition is not a

30

conveyance of property but simply a segregation and designation of the part of the property which belong to the
co-owners."54
In Maestrado v. CA,55 the Supreme Court upheld the partition after it found that it conformed to the alleged oral
partition of the heirs, and that the oral partition was confirmed by the notarized quitclaims executed by the heirs
subsequently.56 In Maglucot-Aw v. Maglucot,57 the Supreme Court elaborated on the validity of parol partition:
On general principle, independent and in spite of the statute of frauds, courts of equity have enforce [sic] oral
partition when it has been completely or partly performed.
Regardless of whether a parol partition or agreement to partition is valid and enforceable at law, equity will [in]
proper cases, where the parol partition has actually been consummated by the taking of possession in severalty
and the exercise of ownership by the parties of the respective portions set off to each, recognize and enforce such
parol partition and the rights of the parties thereunder. Thus, it has been held or stated in a number of cases
involving an oral partition under which the parties went into possession, exercised acts of ownership, or otherwise
partly performed the partition agreement, that equity will confirm such partition and in a proper case decree title in
accordance with the possession in severalty.
In numerous cases it has been held or stated that parol partition may be sustained on the ground of estoppel of
the parties to assert the rights of a tenant in common as to parts of land divided by parol partition as to which
possession in severalty was taken and acts of individual ownership were exercised. And a court of equity will
recognize the agreement and decree it to be valid and effectual for the purpose of concluding the right of the
parties as between each other to hold their respective parts in severalty.
A parol partition may also be sustained on the ground that the parties thereto have acquiesced in and ratified the
partition by taking possession in severalty, exercising acts of ownership with respect thereto, or otherwise
recognizing the existence of the partition.
A number of cases have specifically applied the doctrine of part performance, or have stated that a part
performance is necessary, to take a parol partition out of the operation of the statute of frauds. It has been held
that where there was a partition in fact between tenants in common, and a part performance, a court of equity
would have regard to and enforce such partition agreed to by the parties. 58
Joses possession of Lot No. 4618 under a claim of ownership is well borne out by the records. It is also consistent
with the claimed verbal partition with his siblings, and fully corroborated by his sisters Felicidad, Jacinta, Leonora,
and Flora, who further testified that they each had taken possession of their own shares and built their houses
thereon.
A possessor of real estate property is presumed to have title thereto unless the adverse claimant establishes a
better right.59 Moreover, under Article 541 of the Civil Code, one who possesses in the concept of owner has in his
favor the legal presumption that he possesses with a just title, and he cannot be obliged to show or prove it.
Similarly, Article 433 of the Civil Code provides that actual possession under a claim of ownership raises a
disputable presumption of ownership. Thus, actual possession and exercise of dominion over definite portions of
the property in accordance with an alleged partition are considered strong proof of an oral partition 60 which the
Court will not hesitate to uphold.
Tax declarations and tax receipts are not conclusive evidence of ownership.
It is settled that tax declarations and tax receipts alone are not conclusive evidence of ownership. They are
merely indicia of a claim of ownership,61 but when coupled with proof of actual possession of the property, they can
be the basis of claim of ownership through prescription. 62 In the absence of actual, public and adverse possession,
the declaration of the land for tax purposes does not prove ownership. 63 We have seen that there is no proof that
Liborio, or the Casilang siblings conveyed Lot No. 4618 to Ireneo. There is also no proof that Ireneo himself
declared Lot No. 4618 for tax purposes, and even if he or his heirs did, this is not enough basis to claim ownership
over the subject property. The Court notes that TO No. 555 was issued only in 1994, two years after Ireneo's
death. Rosario even admitted that she began paying taxes only in 1997. 64 More impmiantly, Ireneo never claimed
Lot No. 4618 nor took possession of it in the concept of owner.
WHEREFORE, premises considered, the Petition is GRANTED. The Decision dated July 19, 2007 of the Court of
Appeals in CA-G.R. CV No. 79619 is hereby REVERSED and SET ASIDE, and the Decision dated April 21, 2003 of
the Regional Trial Court of Dagupan City, Branch 41 in Civil Case No. 98-02371-D is REINSTATED.
SO ORDERED.
MARGARITA F. CASTRO,

G.R. No. 183719

Petitioner,

Present:
CARPIO, J.,
Chairperson,
NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.

- versus -

Promulgated:

NAPOLEON A. MONSOD,
Respondent.

February 2, 2011

31

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

DECISION

NACHURA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the
Decision[1] dated May 25, 2007 and the Resolution [2] dated July 14, 2008 of the Court of Appeals (CA) in CA-G.R.
CV No. 83973.

32

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 Pias
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 Pias City. There is a concrete fence, more or less two (2)
meters high, dividing Manuela Homesfrom 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 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 petitioners property. [4] Respondent also filed a
complaint for malicious mischief and malicious destruction before the office of the barangaychairman.[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 Pias City. Petitioner also prayed that the Register of Deeds of Las Pias
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. 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 inManuela 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]

33

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 latters 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:
WHEREFORE, premises considered, this court hereby renders judgment: (1) ordering the
cancellation of [respondents] adverse claim at the back of Transfer Certificate of Title No. T36071 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
[petitioners] claim for actual damages, attorneys fees, litigation costs and costs of suit and
[respondents] 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 Decision [14] 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 Pias City dated October 11, 2004 isREVERSED and SET
ASIDE. The Court hereby orders the retention of the annotation at the back of Transfer
Certificate of Title No. T-36071, 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. [Petitioners] claim for damages is likewise DISMISSED.

SO ORDERED.[15]

The CA ruled that while respondents 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]

34

On June 15, 2007, petitioner filed a motion for reconsideration. However, the CA denied the same in a
Resolution[17] 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:

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 Pias City and the
same proved futile. [23]

Respondents 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 1529 [24] requires a claim on the title of 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 petitioners 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 according to source. An easement is

35

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 neighbors 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 petitioners 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]

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 sixtyfive (65) square meters, more or less, of the property of petitioner Margarita F. Castro, is hereby ordered removed.

SO ORDERED.
G.R. No. 184203

November 26, 2014

CITY OF LAPU-LAPU, Petitioner,

vs.
PHILIPPINE ECONOMIC ZONE AUTHORITY, Respondent.
x-----------------------x
G.R. No. 187583

36

PROVINCE OF BATAAN, represented by GOVERNOR ENRIQUE T. GARCIA, JR., and EMERLINDA S.

TALENTO, in her capacity as Provincial Treasurer of Bataan, Petitioners,
vs.
PHILIPPINE ECONOMIC ZONE AUTHORITY, Respondent.
DECISION
LEONEN, J.:
The Philippine Economic Zone Authority is exempt from payment of real property taxes.
These are consolidated1 petitions for review on certiorari the City of Lapu-Lapu and the Province of Bataan
separately filed against the Philippine Economic Zone Authority (PEZA).
In G.R. No. 184203, the City of Lapu-Lapu (the City) assails the Court of Appeals decision 2 dated January 11, 2008
and resolution3 dated August 6, 2008, dismissing the Citys appeal for being the wrong mode of appeal. The City
appealed the Regional Trial Court,Branch 111, Pasay Citys decision finding the PEZA exempt from payment of real
property taxes.
In G.R. No. 187583, the Province of Bataan (the Province) assails the Court of Appeals decision 4 dated August 27,
2008 and resolution5 dated April 16, 2009, granting the PEZAs petition for certiorari. The Court of Appeals ruled
that the Regional Trial Court, Branch 115, Pasay City gravely abused its discretion in finding the PEZA liable for real
property taxes to the Province of Bataan.
Facts common to the consolidated petitions
In the exercise of his legislative powers,6 President Ferdinand E. Marcos issued Presidential Decree No. 66 in 1972,
declaring as government policy the establishment of export processing zones in strategic locations in the
Philippines. Presidential Decree No. 66 aimed "to encourage and promote foreign commerce as a means of making
the Philippines a center of international trade, of strengthening our export trade and foreign exchange position, of
hastening industrialization,of reducing domestic unemployment, and of accelerating the development of the
country."7
To carry out this policy, the Export Processing Zone Authority (EPZA) was created to operate, administer, and
manage the export processing zones established in the Port of Mariveles, Bataan 8 and such other export processing
zones that may be created by virtue of the decree.9
The decree declared the EPZA non-profit in character10 with all its revenues devoted to its development,
improvement, and maintenance.11 To maintain this non-profit character, the EPZA was declared exempt from all
taxes that may be due to the Republic of the Philippines, its provinces, cities, municipalities, and other government
agencies and instrumentalities. 12 Specifically, Section 21 of Presidential Decree No. 66 declared the EPZA exempt
from payment of real property taxes:
Section 21. Non-profit Character of the Authority; Exemption from Taxes. The Authority shall be non-profit and
shall devote and use all its returns from its capital investment, as well as excess revenues from its operations, for
the development, improvement and maintenance and other related expenditures of the Authority to pay its
indebtedness and obligations and in furtherance and effective implementation of the policy enunciated in Section 1
of this Decree. In consonance therewith, the Authority is hereby declared exempt:
....
(b) From all income taxes, franchise taxes, realty taxes and all other kinds of taxes and licenses to be paid to the
National Government, its provinces, cities, municipalities and other government agenciesand instrumentalities[.]
In 1979, President Marcos issued Proclamation No. 1811, establishing the Mactan Export Processing Zone. Certain
parcels of land of the public domain located in the City of Lapu-Lapuin Mactan, Cebu were reserved to serve as site
of the Mactan Export Processing Zone.
In 1995, the PEZA was created by virtue of Republic Act No. 7916 or "the Special Economic Zone Act of 1995" 13to
operate, administer, manage, and develop economic zones in the country.14 The PEZA was granted the power to
register, regulate, and supervise the enterprises located in the economic zones. 15 By virtue of the law, the export
processing zone in Mariveles, Bataan became the Bataan Economic Zone 16 and the Mactan Export Processing Zone
the Mactan Economic Zone.17
As for the EPZA, the law required it to "evolve into the PEZA in accordance with the guidelines and regulations set
forth in an executive order issued for [the] purpose."18
On October 30, 1995, President Fidel V. Ramos issued Executive Order No. 282, directing the PEZA to assume and
exercise all of the EPZAs powers, functions, and responsibilities "as provided in Presidential Decree No. 66, as
amended, insofar as they are not inconsistent with the powers, functions, and responsibilities of the PEZA, as
mandated under [the Special Economic Zone Act of 1995]." 19 All of EPZAs properties, equipment, and assets,
among others, were ordered transferred to the PEZA.20
Facts of G.R. No. 184203

37

In the letter21 dated March 25, 1998, the City of Lapu-Lapu, through the Office of the Treasurer, demanded from
the PEZA 32,912,350.08 in real property taxes for the period from 1992 to 1998 on the PEZAs properties located
in the Mactan Economic Zone.
The City reiterated its demand in the letter22 dated May 21, 1998. It cited Sections 193 and 234 of the Local
Government Code of 1991 that withdrew the real property tax exemptions previously granted to or presently
enjoyed by all persons. The City pointed out that no provision in the Special Economic Zone Act of 1995 specifically
exempted the PEZA from payment of real property taxes, unlike Section 21 of Presidential Decree No. 66 that
explicitly provided for EPZAs exemption. Since no legal provision explicitly exempted the PEZA from payment of
real property taxes, the City argued that it can tax the PEZA.
The City made subsequent demands23 on the PEZA. In its last reminder24 dated May 13, 2002, the City assessed
the PEZA 86,843,503.48 as real property taxes for the period from 1992 to 2002.
On September 11, 2002, the PEZAfiled a petition for declaratory Relief 25 with the Regional Trial Court of Pasay City,
praying that the trial court declare it exempt from payment ofreal property taxes. The case was raffled to Branch
111.
The City answered26 the petition, maintaining that the PEZA is liable for real property taxes. To support its
argument, the City cited a legal opinion dated September 6, 1999 issued by the Department of Justice, 27 which
stated that the PEZA is not exempt from payment of real property taxes. The Department of Justice based its
opinion on Sections 193 and 234 of the Local Government Code that withdrew the tax exemptions, including real
property tax exemptions, previously granted to all persons.
A reply28 was filed by the PEZA to which the City filed a rejoinder.29
Pursuant to Rule 63, Section 3 of Rules of Court,30 the Office of the Solicitor General filed a comment31 on the
PEZAs petition for declaratory relief. It agreed that the PEZA is exempt from payment of real property taxes, citing
Sections 24 and 51 of the Special Economic Zone Act of 1995.
The trial court agreed with the Solicitor General. Section 24 of the Special Economic Zone Act of 1995 provides:
SEC. 24. Exemption from National and Local Taxes. Except for real property taxes on land owned by developers,
no taxes, local and national, shall be imposed on business establishments operating within the ECOZONE. In lieu
thereof, five percent (5%) of the gross income earned by all business enterprises within the ECOZONE shall be paid
and remitted as follows:
a. Three percent (3%) to the National Government;
b. Two percent (2%) which shall be directly remitted by the business establishments to the treasurers
office of the municipality or city where the enterprise is located.
Section 51 of the law, on the other hand, provides:
SEC. 51. Ipso-Facto Clause. All privileges, benefits, advantages or exemptions granted to special economic zones
under Republic Act No. 7227, shall ipso-facto be accorded to special economic zones already created or to be
created under this Act. The free port status shall not be vested upon new special economic zones.
Based on Section 51, the trial court held that all privileges, benefits, advantages, or exemptions granted tospecial
economic zones created under the Bases Conversion and Development Act of 1992 apply to special economic zones
created under the Special Economic ZoneAct of 1995.
Since these benefits include exemption from payment of national or local taxes, these benefits apply to special
economic zones owned by the PEZA.
According to the trial court, the PEZA remained tax-exempt regardless of Section 24 of the Special Economic Zone
Act of 1995. It ruled that Section 24, which taxes real property owned by developers of economic zones, only
applies to private developers of economic zones, not to public developers like the PEZA. The PEZA, therefore, is not
liable for real property taxes on the land it owns.
Characterizing the PEZA as an agency of the National Government, the trial court ruled that the City had no
authority to tax the PEZA under Sections 133(o) and 234(a) of the Local Government Code of 1991.
In the resolution32 dated June 14, 2006, the trial court granted the PEZAs petition for declaratory relief and
declared it exempt from payment of real property taxes.
The City filed a motion for reconsideration,33 which the trial court denied in its resolution34 dated September 26,
2006.
The City then appealed35 to the Court of Appeals.
The Court of Appeals noted the following issues the City raised in its appellants brief: (1) whether the trial court
had jurisdiction over the PEZAs petition for declaratory relief; (2) whether the PEZA is a government agency
performing governmental functions; and (3) whether the PEZA is exempt from payment of real property taxes.

38

The issues presented by the City, according to the Court of Appeals, are pure questions of law which should have
been raised in a petition for review on certiorari directly filed before this court. Since the City availed itself of the
wrong mode of appeal, the Court of Appeals dismissed the Citys appeal in the decision 36 dated January 11, 2008.
The City filed a motion for extension of time to file a motion for reconsideration, 37 which the Court of Appeals
denied in the resolution38 dated April 11, 2008.
Despite the denial of its motion for extension, the City filed a motion for reconsideration. 39 In the resolution40 dated
August 6, 2008, the Court of Appeals denied that motion.
In its petition for review on certiorari with this court, 41 the City argues that the Court of Appeals "hid under the
skirts of technical rules"42 in resolving its appeal. The City maintains that its appeal involved mixed questions of fact
and law. According to the City, whether the PEZA performed governmental functions "cannot completely be
addressed by law but [by] the factual and actual activities [the PEZA is] carrying out." 43
Even assuming that the petition involves pure questions of law, the City contends that the subject matter of the
case "is of extreme importance with [far-reaching] consequence that [its magnitude] would surely shape and
determine the course ofour nations future."44 The Court of Appeals, the City argues, should have resolved the case
on the merits.
The City insists that the trial court had no jurisdiction to hear the PEZAs petition for declaratory relief. According to
the City, the case involves real property located in the City of Lapu-Lapu. The petition for declaratory relief should
have been filed before the Regional Trial Court of the City of Lapu-Lapu. 45
Moreover, the Province of Bataan, the City of Baguio, and the Province of Cavite allegedly demanded real property
taxes from the PEZA. The City argues that the PEZA should have likewise impleaded these local government units
as respondents in its petition for declaratory relief. For its failure to do so, the PEZA violated Rule 63, Section 2 of
the Rules of Court, and the trial court should have dismissed the petition. 46
This court ordered the PEZA to comment on the Citys petition for review on certiorari. 47
At the outset of its comment, the PEZA argues that the Court of Appeals decision dated January 11, 2008 had
become final and executory. After the Court of Appeals had denied the Citys appeal, the City filed a motion for
extension of time to file a motion for reconsideration. Arguing that the time to file a motion for reconsideration is
not extendible, the PEZA filed its motion for reconsideration out of time. The Cityhas no more right to appeal to this
court.48
The PEZA maintains that the City availed itself of the wrong mode of appeal before the Court of Appeals. Since the
City raised pure questions of law in its appeal, the PEZA argues that the proper remedy is a petition for review on
certiorari with this court, not an ordinary appeal before the appellate court. The Court of Appeals, therefore,
correctly dismissed outright the Citys appeal under Rule 50, Section 2 of the Rules of Court. 49
On the merits, the PEZA argues that it is an agency and instrumentality of the National Government. It is therefore
exempt from payment of real property taxes under Sections 133(o) and 234(a) of the Local Government Code. 50It
adds that the tax privileges under Sections 24 and 51 of the Special Economic Zone Act of 1995 applied to it. 51
Considering that the site of the Mactan Economic Zoneis a reserved land under Proclamation No. 1811, the PEZA
claims that the properties sought to be taxed are lands of public dominion exempt from real property taxes. 52
As to the jurisdiction issue, the PEZA counters that the Regional Trial Court of Pasay had jurisdiction to hear its
petition for declaratory relief under Rule 63, Section 1 of the Rules of Court.[53]] It also argued that it need not
implead the Province of Bataan, the City of Baguio, and the Province of Cavite as respondents considering that
their demands came after the PEZA had already filed the petition in court. 54
Facts of G.R. No. 187583
After the City of Lapu-Lapu had demanded payment of real property taxes from the PEZA, the Province of Bataan
followed suit. In its letter55 dated May 29, 2003, the Province, through the Office of the Provincial Treasurer,
informed the PEZA that it would be sending a real property tax billing to the PEZA. Arguing that the PEZA is a
developer of economic zones, the Province claimed that the PEZA is liable for real property taxes under Section 24
of the Special Economic Zone Act of 1995.
In its reply letter56 dated June 18, 2003, the PEZA requested the Province to suspend the service of the real
property tax billing. It cited its petition for declaratory relief against the City of Lapu-Lapu pending before the
Regional Trial Court, Branch 111, Pasay City as basis.
The Province argued that serving a real property tax billing on the PEZA "would not in any way affect [its] petition
for declaratory relief before [the Regional Trial Court] of Pasay City." 57 Thus, in its letter58 dated June 27, 2003, the
Province notified the PEZAof its real property tax liabilities for June 1, 1995 to December 31, 2002
totallingP110,549,032.55.
After having been served a tax billing, the PEZA again requested the Province to suspend collecting its alleged real
property tax liabilities until the Regional Trial Court of Pasay Cityresolves its petition for declaratory relief. 59
The Province ignored the PEZAs request. On January 20, 2004, the Province served on the PEZA a statement of
unpaid real property tax for the period from June 1995 to December 2004. 60

39

The PEZA again requested the Province to suspend collecting its alleged real property taxes. 61 The Province denied
the request in its letter62 dated January 29, 2004, then servedon the PEZA a warrant of levy 63 covering the PEZAs
real properties located in Mariveles, Bataan.
The PEZAs subsequent requests64 for suspension of collection were all denied by the Province. 65 The Province then
served on the PEZA a notice of delinquency in the payment of real property taxes 66 and a notice of sale of real
property for unpaid real property tax.67 The Province finally sent the PEZA a notice of public auction of the latters
properties in Mariveles, Bataan.68
On June 14, 2004, the PEZA filed a petition for injunction 69 with prayer for issuance of a temporary restraining
order and/or writ of preliminary injunction before the Regional Trial Court of Pasay City, arguing that it is exempt
from payment ofreal property taxes. It added that the notice of sale issued by the Province was void because it was
not published in a newspaper ofgeneral circulation asrequired by Section 260 of the Local Government Code. 70
The case was raffled to Branch 115.
In its order71 dated June 18, 2004, the trial court issued a temporary restraining order against the Province. After
the PEZA had filed a P100,000.00 bond,72 the trial court issued a writ of preliminary injunction, 73 enjoining the
Province from selling the PEZAs real properties at public auction.
On March 3, 2006, the PEZA and Province both manifested that each would file a memorandum after which the
case would be deemed submitted for decision. The parties then filed their respective memoranda. 74
In the order75 dated January 31, 2007, the trial court denied the PEZAs petition for injunction. The trial court ruled
that the PEZA is not exempt from payment of real property taxes. According to the trial court, Sections 193 and
234 of the Local Government Code had withdrawn the real property tax exemptions previously granted to all
persons, whether natural or juridical. 76 As to the tax exemptions under Section 51 of the Special Economic Zone Act
of 1995, the trial court ruled that the provision only applies to businesses operating within the economic zones, not
to the PEZA.77
The PEZA filed before the Court of Appeals a petition for certiorari 78 with prayer for issuance of a temporary
restraining order.
The Court of Appeals issued a temporary restraining order, enjoining the Province and its Provincial Treasurer from
selling PEZA's properties at public auction scheduled on October 17, 2007. 79 It also ordered the Province to
comment on the PEZAs petition.
In its comment,80 the Province alleged that it received a copy of the temporary restraining order only on October
18, 2007 when it had already sold the PEZAs properties at public auction. Arguing that the act sought to be
enjoined was already fait accompli, the Province prayed for the dismissal of the petition for certiorari.
The PEZA then filed a supplemental petition for certiorari, prohibition, and mandamus 81 against the Province,
arguing that the Provincial Treasurer of Bataan acted with grave abuse of discretion in issuing the notice of
delinquency and notice of sale. It maintained that it is exempt from payment of real property taxes because it is a
government instrumentality. It added that its lands are property of public dominion which cannot be sold at public
auction.
The PEZA also filed a motion82 for issuance of an order affirming the temporary restraining order and a writ of
preliminary injunction to enjoin the Province from consolidating title over the PEZAs properties.
In its resolution83 dated January 16, 2008,the Court of Appeals admitted the supplemental petition for certiorari,
prohibition, and mandamus. It required the Province to comment on the supplemental petition and to file a
memorandum on the PEZAs prayer for issuance of temporary restraining order.
The Province commented84 on the PEZAs supplemental petition, to which the PEZA replied. 85
The Province then filed a motion86 for leave to admit attached rejoinder with motion to dismiss. In the rejoinder
with motion to dismiss,87 the Province argued for the first time that the Court of Appeals had no jurisdiction over
the subject matter of the action.
According to the Province, the PEZA erred in filing a petition for certiorari. Arguing that the PEZA sought to reverse
a Regional Trial Court decision in a local tax case, the Province claimed that the court with appellate jurisdiction
over the action is the Court of Tax Appeals. The PEZA then prayed that the Court of Appeals dismiss the petition for
certiorari for lack of jurisdiction over the subject matter of the action.
The Court of Appeals held that the issue before it was whether the trial court judge gravely abused his discretion in
dismissing the PEZAs petition for prohibition. This issue, according to the Court of Appeals, is properly addressed in
a petition for certiorari over which it has jurisdiction to resolve. It, therefore, maintained jurisdiction to resolve the
PEZAs petition for certiorari.88
Although it admitted that appeal, not certiorari, was the PEZAs proper remedy to reverse the trial courts
decision,89 the Court of Appeals proceeded to decide the petition for certiorari in "the broader interest of justice." 90
The Court of Appeals ruled that the trial court judge gravely abused his discretion in dismissing the PEZAs petition
for prohibition. It held that Section 21 of Presidential Decree No. 66 and Section 51 of the Special Economic Zone
Act of 1995 granted the PEZA exemption from payment of real property taxes. 91 Based on the criteria set in Manila

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International Airport Authority v. Court of Appeals, 92 the Court of Appeals found that the PEZA is an instrumentality
of the national government. No taxes, therefore, could be levied on it by local government units. 93
In the decision94 dated August 27, 2008, the Court of Appeals granted the PEZAs petition for certiorari. It set aside
the trial courts decision and nullified all the Provinces proceedings with respect to the collection of real property
taxes from the PEZA.
The Province filed a motion for reconsideration, 95 which the Court of Appeals denied in the resolution 96 dated April
16, 2009 for lack of merit.
In its petition for review on certiorari with this court, 97 the Province of Bataan insists that the Court of Appeals had
no jurisdiction to take cognizance of the PEZAs petition for certiorari. The Province maintains that the Court of Tax
Appeals had jurisdiction to hear the PEZAs petition since it involved a local tax case decided by a Regional Trial
Court.98
The Province reiterates that the PEZA is not exempt from payment of real property taxes. The Province points out
that the EPZA, the PEZAs predecessor, had to be categorically exempted from payment of real property taxes. The
EPZA, therefore, was not inherently exempt from payment of real property taxes and so is the PEZA. Since
Congress omitted from the Special Economic Zone Act of 1995 a provision specifically exempting the PEZA from
payment of real property taxes, the Province argues that the PEZA is a taxable entity. It cited the rule in statutory
construction that provisions omitted in revised statutes are deemed repealed. 99
With respect to Sections 24 and 51 of the Special Economic Zone Act of 1995 granting tax exemptions and
benefits, the Province argues that these provisions only apply to business establishments operating within special
economic zones,100 not to the PEZA.
This court ordered the PEZA tocomment on the Provinces petition for review on certiorari. 101 In its comment,102the
PEZA argues that the Court of Appeals had jurisdiction to hear its petition for certiorari since the issue was whether
the trial court committed grave abuse of discretion in denying its petition for injunction. The PEZA maintains thatit
is exempt from payment of real property taxes under Section 21 of Presidential Decree No. 66 and Section 51 of
the Special Economic Zone Act of 1995.
The Province filed its reply,103 reiterating its arguments in its petition for review on certiorari. On the PEZAs
motion,104 this court consolidated the petitions filed by the City of Lapu-Lapu and the Province of Bataan. 105
The issues for our resolution are the following:
I. Whether the Court of Appeals erred in dismissing the City of Lapu-Lapus appeal for raising pure
questions of law;
II. Whether the Regional Trial Court, Branch 111, Pasay City had jurisdiction to hear, try, and decide the
City of Lapu-Lapus petition for declaratory relief;
III. Whether the petition for injunction filed before the Regional Trial Court, Branch 115, Pasay City, is a
local tax case appealable to the Court of Tax Appeals; and
IV. Whether the PEZA is exempt from payment of real property taxes.
We deny the consolidated petitions.
I.
The Court of Appeals did not err in
dismissing the City of Lapu-Lapus
appeal for raising pure questions of law
Under the Rules of Court, there are three modes of appeal from Regional Trial Court decisions. The first mode is
through an ordinary appeal before the Court of Appeals where the decision assailed was rendered in the exercise of
the Regional Trial Courts original jurisdiction. Ordinary appeals are governed by Rule 41, Sections 3 to 13 of the
Rules of Court. In ordinary appeals, questions of fact or mixed questions of fact and law may be raised. 106
The second mode is through a petition for review before the Court of Appeals where the decision assailed was
rendered by the Regional Trial Court in the exercise of its appellate jurisdiction. Rule 42 of the Rules of Court
governs petitions for review before the Court of Appeals. In petitions for review under Rule 42, questions of fact, of
law, or mixed questions of fact and law may be raised. 107
The third mode is through an appealby certiorari before this court under Rule 45 where only questions of law shall
be raised.108
A question of fact exists when there is doubt as to the truth or falsity of the alleged facts. 109 On the other hand,
there is a question of law if the appeal raises doubt as to the applicable law on a certain set of facts. 110
Under Rule 50, Section 2, an improper appeal before the Court of Appeals is dismissed outright and shall not be
referred to the proper court:

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SEC. 2. Dismissal of improper appeal to the Court of Appeals. An appeal under Rule 41 taken from the Regional
Trial Court to the Court of Appeals raising only questions of law shall be dismissed, issues purely of law not being
reviewable by said court. Similarly, an appeal by notice of appeal instead of by petition for review from the
appellate judgment of a Regional Trial Court shall be dismissed.
An appeal erroneously taken to the Court of Appeals shall not be transferred to the appropriate court but shall be
dismissed outright.
Rule 50, Section 2 repealed Rule 50, Section 3 of the 1964 Rules of Court, which provided that improper appeals to
the Court of Appeals shall not be dismissed but shall be certified to the proper court for resolution:
Sec. 3. Where appealed case erroneously, brought. Where the appealed case has been erroneously brought to
the Court of Appeals, it shall not dismiss the appeal, but shall certify the case to the proper court, with a specific
and clear statement of the grounds therefor.
With respect to appeals by certiorari directly filed before this court but which raise questions of fact, paragraph
4(b) of Circular No. 2-90 dated March 9, 1990 states that this court "retains the option, in the exercise of its sound
discretion and considering the attendant circumstances, either itself to take cognizance of and decide such issues
or to refer them to the Court of Appeals for determination." In Indoyon, Jr. v. Court of Appeals, 111 we said that this
court "cannot tolerate ignorance of the law on appeals." 112 It is not this courts task to determine for litigants their
proper remedies under the Rules.113
We agree that the City availed itself of the wrong mode of appeal before the Court of Appeals. The City raised pure
questions of law in its appeal. The issue of whether the Regional Trial Court of Pasay had jurisdiction over the
PEZAs petition for declaratory relief is a question of law, jurisdiction being a matter of law.114 The issue of whether
the PEZA is a government instrumentality exempt from payment of real property taxes is likewise a question of law
since this question is resolved by examining the provisions of the PEZAs charter as well as other laws relating to
the PEZA.115
The Court of Appeals, therefore, did not err in dismissing the Citys appeal pursuant to Rule 50, Section 2 of the
Rules of Court.
Nevertheless, considering the important questions involved in this case, we take cognizance of the Citys petition
for review on certiorari in the interest of justice.
In Municipality of Pateros v. The Honorable Court of Appeals, 116 the Municipality of Pateros filed an appeal under
Rule 42 before the Court of Appeals, which the Court of Appeals denied outright for raising pure questions of law.
This court agreed that the Municipality of Pateros "committed a procedural infraction" 117 and should have directly
filed a petition for review on certiorari before this court. Nevertheless, "in the interest of justice and in order to
write finisto [the] controversy," 118 this court "opt[ed] to relax the rules"119 and proceeded to decide the case. This
court said:
While it is true that rules of procedure are intended to promote rather than frustrate the ends of justice, and while
the swift unclogging of the dockets of the courts is a laudable objective, it nevertheless must not be met at the
expense of substantial justice.
The Court has allowed some meritorious cases to proceed despite inherent procedural defects and lapses. Thisis in
keeping with the principle that rules of procedure are mere tools designed to facilitate the attainment of justice,
and that strict and rigid application ofrules which should result in technicalities that tend to frustrate rather than
promote substantial justice must always be avoided. It is a far better and more prudent cause of action for the
court to excuse a technical lapse and afford the parties a review of the case to attain the ends of justice, rather
than dispose of the case on technicality and cause grave injustice to the parties, giving a false impression of
speedy disposal of cases while actually resulting in more delay, if not a miscarriage of justice. 120
Similar to Municipality of Pateros, we opt to relax the rules in this case. The PEZA operates or otherwise
administers special economic zones all over the country. Resolving the substantive issue of whether the PEZA is
taxable for real property taxes will clarify the taxing powers of all local government units where special economic
zones are operated. This case, therefore, should be decided on the merits.
II.
The Regional Trial Court of Pasay had no
jurisdiction to hear, try, and decide the
PEZAs petition for declaratory relief
against the City of Lapu-Lapu
Rule 63 of the Rules of Court governs actions for declaratory relief. Section 1 of Rule 63 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, ordinance, or any other governmental
regulation may, before breach or violation, thereof, bring an action in the appropriate Regional Trial Court to
determine any question of construction or validity arising, and for a declaration of his rights or duties, thereunder.
An action for 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.

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The court with jurisdiction over petitions for declaratory relief is the Regional Trial Court, the subject matter of
litigation in an action for declaratory relief being incapable of pecuniary estimation. 121 Section 19 of the Judiciary
Reorganization Act of 1980 provides:
SEC. 19. Jurisdiction in Civil Cases. Regional Trial Courts shall exercise exclusive original jurisdiction:
(1) In all civil actions in which the subject of litigation is incapable of pecuniary estimation[.]
Consistent with the law, the Rules state that a petition for declaratory relief is filed "in the appropriate Regional
Trial Court."122
A special civil action for declaratory relief is filed for a judicial determination of any question of construction or
validity arising from, and for a declaration of rights and duties, under any of the following subject matters: a deed,
will, contract or other written instrument, statute, executive order or regulation, ordinance, orany other
governmental regulation.123 However, a declaratory judgment may issue only if there has been "no breach of the
documents in question."124 If the contract or statute subject matter of the action has already been breached, the
appropriate ordinary civil action must be filed. 125 If adequate relief is available through another form of action or
proceeding, the other action must be preferred over an action for declaratory relief.126
In Ollada v. Central Bank of the Philippines, 127 the Central Bank issued CB-IED Form No. 5 requiring certified public
accountants to submit an accreditation under oath before they were allowed to certify financial statements
submitted to the bank. Among those financial statements the Central Bank disallowed were those certified by
accountant Felipe B. Ollada. 128 Claiming that the requirement "restrained the legitimate pursuit of ones trade," 129
Ollada filed a petition for declaratory relief against the Central Bank.
This court ordered the dismissal of Olladas petition "without prejudice to [his] seeking relief in another appropriate
action."130 According to this court, Olladas right had already been violated when the Central Bank refused to accept
the financial statements he prepared. Since there was already a breach, a petition for declaratory relief was not
proper. Ollada must pursue the "appropriate ordinary civil action or proceeding." 131 This court explained:
Petitioner commenced this action as, and clearly intended it to be one for Declaratory Relief under the provisions of
Rule 66 of the Rules of Court. On the question of when a special civil action of this nature would prosper, we have
already held that the complaint for declaratory relief will not prosper if filed after a contract, statute or right has
been breached or violated. In the present case such is precisely the situation arising from the facts alleged in the
petition for declaratory relief. As vigorously claimed by petitioner himself, respondent had already invaded or
violated his right and caused him injury all these giving him a complete cause of action enforceable in an
appropriate ordinary civil action or proceeding. The dismissal of the action was, therefore, proper in the lightof our
ruling in De Borja vs. Villadolid, 47 O.G. (5) p. 2315, and Samson vs. Andal, G.R. No. L-3439, July 31, 1951, where
we held that an action for declaratory relief should be filed before there has been a breach of a contract, statutes
or right, and that it is sufficient tobar such action, that there had been a breach which would constitute
actionable violation. The rule is that an action for Declaratory Relief is proper only if adequate relief is not available
through the means of other existing forms of action or proceeding (1 C.J.S. 1027-1028). 132
It is also required that the parties to the action for declaratory relief be those whose rights or interests are affected
by the contract or statute in question.133 "There must be an actual justiciable controversy or the ripening seeds of
one"134 between the parties. The issue between the parties "must be ripe for judicial determination." 135 An action for
declaratory relief based on theoreticalor hypothetical questions cannot be filed for our courts are not advisory
courts.136
In Republic v. Roque,137 this court dismissed respondents petition for declaratory relief for lack of justiciable
controversy. According to this court, "[the respondents] fear of prospective prosecution [under the Human Security
Act] was solely based on remarks of certain government officials which were addressed to the general public." 138
In Velarde v. Social Justice Society,139 this court refused to resolve the issue of "whether or not [a religious leaders
endorsement] of a candidate for elective office or in urging or requiring the members of his flock to vote for a
specific candidate is violative [of the separation clause]." 140 According to the court, there was no justiciable
controversy and ordered the dismissal of the Social Justice Societys petition for declaratory relief. This court
explained: Indeed, SJS merely speculated or anticipated without factual moorings that, as religious leaders, the
petitioner and his co-respondents below had endorsed or threatened to endorse a candidate or candidates for
elective offices; and that such actual or threatened endorsement "will enable [them] to elect men to public office
who [would] in turn be forever beholden to their leaders, enabling them to control the government"[;] and
"pos[ing] a clear and present danger ofserious erosion of the peoples faith in the electoral process[;] and
reinforc[ing] their belief that religious leaders determine the ultimate result of elections," which would then be
violative of the separation clause.
Such premise is highly speculative and merely theoretical, to say the least. Clearly, it does not suffice to constitute
a justiciable controversy. The Petition does not even allege any indication or manifest intent on the part of any of
the respondents below to champion an electoral candidate, or to urge their so-called flock to vote for, or not to vote
for, a particular candidate. It is a time-honored rule that sheer speculation does not give rise to an actionable right.
Obviously, there is no factual allegation that SJS rights are being subjected to any threatened, imminent and
inevitable violation that should be prevented by the declaratory relief sought. The judicial power and duty of the
courts to settle actual controversies involving rights that are legally demandable and enforceable cannot be
exercised when there is no actual or threatened violation of a legal right.
All that the 5-page SJS Petition prayed for was "that the question raised in paragraph 9 hereof be resolved." In
other words, it merely sought an opinion of the trial court on whether the speculated acts of religious leaders

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endorsing elective candidates for political offices violated the constitutional principle on the separation of church
and state. SJS did not ask for a declaration of its rights and duties; neither did it pray for the stoppage of any
threatened violation of its declared rights. Courts, however, are proscribed from rendering an advisory opinion. 141In
sum, a petition for declaratory relief must satisfy six requisites:
[F]irst, the subject matter of the controversy must be a deed, will, contract or other written instrument, statute,
executive order or regulation, or ordinance; second, the terms of said documents and the validity thereof are
doubtful and require judicial construction; third, there must have been no breach of the documents in question;
fourth, there must be an actual justiciable controversy or the "ripening seeds" of one between persons whose
interests are adverse; fifth, the issue must be ripe for judicial determination; and sixth, adequate relief is not
available through other means or other forms of action or proceeding.142 (Emphases omitted)
We rule that the PEZA erred in availing itself of a petition for declaratory relief against the City. The City had
already issued demand letters and real property tax assessment against the PEZA, in violation of the PEZAs alleged
tax-exempt status under its charter. The Special Economic Zone Act of 1995, the subject matter of PEZAs petition
for declaratory relief, had already been breached. The trial court, therefore, had no jurisdiction over the petition for
declaratory relief. There are several aspects of jurisdiction. 143 Jurisdiction over the subject matter is "the power to
hear and determine cases of the general class to which the proceedings in question belong." 144 It is conferred by
law, which may either be the Constitution or a statute.145 Jurisdiction over the subject matter means "the nature of
the cause of action and the relief sought."146 Thus, the cause of action and character of the relief sought as alleged
in the complaint are examinedto determine whether a court had jurisdiction over the subject matter.147 Any decision
rendered by a court without jurisdiction over the subjectmatter of the action is void. 148
Another aspect of jurisdiction is jurisdiction over the person. It is "the power of [a] court to render a personal
judgment or to subject the parties in a particular action to the judgment and other rulings rendered in the
action."149 A court automatically acquires jurisdiction over the person of the plaintiff upon the filing of the initiatory
pleading.150 With respect to the defendant, voluntary appearance in court or a valid service of summons vests the
court with jurisdiction over the defendants person.151 Jurisdiction over the person of the defendant is indispensable
in actions in personamor those actions based on a partys personal liability.152 The proceedings in an action in
personamare void if the court had no jurisdiction over the person of the defendant. 153
Jurisdiction over the resor the thing under litigation is acquired either "by the seizure of the property under legal
process, whereby it is brought into actual custody of the law; or asa result of the institution of legal proceedings, in
which the power of the court is recognized and made effective." 154 Jurisdiction over the res is necessary in actions
in remor those actions "directed against the thing or property or status of a person and seek judgments with
respect thereto as against the whole world."155 The proceedings in an action in rem are void if the court had no
jurisdiction over the thing under litigation. 156
In the present case, the Regional Trial Court had no jurisdiction over the subject matter of the action, specifically,
over the remedy sought. As this court explained in Malana v. Tappa: 157
. . . an action for declaratory relief presupposes that there has been no actual breach of the instruments involved
or of rights arising thereunder. Since the purpose of an action for declaratory relief is to secure an authoritative
statement of the rights and obligations of the parties under a statute, deed, or contract for their guidance in the
enforcement thereof, or compliance therewith, and not to settle issues arising from an alleged breach thereof, it
may be entertained only before the breach or violation of the statute, deed, or contract to which it refers. A petition
for declaratory relief gives a practical remedy for ending controversies that have not reached the state where
another relief is immediately available; and supplies the need for a form of action that will set controversies at rest
before they lead to a repudiation of obligations, an invasion of rights, and a commission of wrongs.
Where the law or contract has already been contravened prior to the filing of an action for declaratory relief, the
courts can no longer assume jurisdiction over the action. In other words, a court has no more jurisdiction over an
action for declaratory relief if its subject has already been infringed or transgressed before the institution of the
action.158 (Emphasis supplied)
The trial court should have dismissed the PEZAs petition for declaratory relief for lack of jurisdiction.
Once an assessment has already been issued by the assessor, the proper remedy of a taxpayer depends on
whether the assessment was erroneous or illegal.
An erroneous assessment "presupposes that the taxpayer is subject to the tax but is disputing the correctness of
the amount assessed."159 With an erroneous assessment, the taxpayer claims that the local assessor erred in
determining any of the items for computing the real property tax, i.e., the value of the real property or the portion
thereof subject to tax and the proper assessment levels. In case of an erroneous assessment, the taxpayer must
exhaust the administrative remedies provided under the Local Government Code before resorting to judicial action.
The taxpayer must first pay the realproperty tax under protest. Section 252 of the Local Government Code
provides:
SECTION 252. Payment Under Protest. -(a) No protest shall be entertained unless the taxpayer first paysthe tax.
There shall be annotated on the tax receipts the words "paid under protest". The protest in writing must be filed
within thirty (30) days from payment of the tax to the provincial, city treasurer or municipal treasurer, in the case
of a municipality within Metropolitan Manila Area, who shall decide the protest within sixty (60) days from receipt.
(b) The tax or a portion thereof paidunder protest, shall be held in trust by the treasurer concerned.

44

(c) In the event that the protest is finally decided in favor of the taxpayer, the amount or portion of the
tax protested shall be refunded to the protestant, or applied as tax credit against his existing or future tax
liability.
(d) In the event that the protest is denied or upon the lapse of the sixty day period prescribed in
subparagraph (a), the taxpayer may avail of the remedies as provided for in Chapter 3, Title II, Book II of
this Code.
Should the taxpayer find the action on the protest unsatisfactory, the taxpayer may appeal with the Local Board of
Assessment Appeals within 60 days from receipt of the decision on the protest:
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 provincial 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.
Payment under protest and appeal to the Local Board of Assessment Appeals are "successive administrative
remedies to a taxpayer who questions the correctness of an assessment." 160 The Local Board Assessment Appeals
shall not entertain an appeal "without the action of the local assessor" 161 on the protest.
If the taxpayer is still unsatisfied after appealing with the Local Board of Assessment Appeals, the taxpayer may
appeal with the Central Board of Assessment Appeals within 30 days from receipt of the Local Boards decision:
SECTION 229. Action by the Local Board of Assessment Appeals. - (a) The Board shall decide the appeal within one
hundred twenty (120) days from the date of receipt of such appeal. The Board, after hearing, shall render its
decision based on substantial evidence or such relevant evidence on record as a reasonable mind might accept as
adequate to support the conclusion. (b) In the exercise ofits appellate jurisdiction, the Board shall have the power
to summon witnesses, administer oaths, conduct ocular inspection, take depositions, and issue subpoena and
subpoena duces tecum. The proceedings of the Board shall be conducted solely for the purpose of ascertaining the
facts without necessarily adhering to technical rules applicable in judicial proceedings.
(c) The secretary of the Board shall furnish the owner of the property or the person having legal interest therein
and the provincial or city assessor with a copy of the decision of the Board. In case the provincial or city assessor
concurs in the revision or the assessment, it shall be his duty to notify the owner of the property or the person
having legal interest therein of such factusing the form prescribed for the purpose. The owner of the property or
the person having legal interest therein or the assessor who is not satisfied with the decision of the Board, may,
within thirty (30) days after receipt of the decision of said Board, appeal to the Central Board of Assessment
Appeals, as herein provided. The decision of the Central Board shall be final and executory. (Emphasis supplied)
On the other hand, an assessment is illegal if it was made without authority under the law. 162 In case of an illegal
assessment, the taxpayer may directly resort to judicial action without paying under protest the assessed tax and
filing an appeal with the Local and Central Board of Assessment Appeals.
In Ty v. Trampe,163 the Municipal Assessor of Pasig sent Alejandro B. Ty a notice of assessment with respect to Tys
real properties in Pasig. Without resorting to the administrative remedies under the Local Government Code, Ty
filed before the Regional Trial Court a petition, praying that the trial court nullify the notice of assessment. In
assessing the real property taxes due, the Municipal Assessor used a schedule of market values solely prepared by
him. This, Ty argued, was void for being contrary to the Local Government Code requiring that the schedule of
market values be jointly prepared by the provincial, city, and municipal assessors of the municipalities within the
Metropolitan Manila Area.
This court ruled that the assessmentwas illegal for having been issued without authority of the Municipal Assessor.
Reconciling provisions of the Real Property Tax Code and the Local Government Code, this court held that the
schedule of market valuesmust be jointly prepared by the provincial, city, and municipal assessors of the
municipalities within the Metropolitan Manila Area.
As to the issue of exhaustion of administrative remedies, this court held that Ty did not err in directly resorting to
judicial action. According to this court, payment under protest is required only "where there is a question as to the
reasonableness of the amount assessed."164 As to appeals before the Local and Central Board of Assessment
Appeals, they are "fruitful only where questions of fact are involved." 165
Ty raised the issue of the legality of the notice of assessment, an issue that did not go into the reasonableness of
the amount assessed. Neither did the issue involve a question of fact. Ty raised a question of law and, therefore,
need not resort to the administrative remedies provided under the Local Government Code.
In the present case, the PEZA did not avail itself of any of the remedies against a notice of assessment. A petition
for declaratory relief is not the proper remedy once a notice of assessment was already issued.
Instead of a petition for declaratory relief, the PEZA should have directly resorted to a judicial action. The PEZA
should have filed a complaint for injunction, the "appropriate ordinary civil action" 166 to enjoin the City from
enforcing its demand and collecting the assessed taxes from the PEZA. After all, a declaratory judgment as to the
PEZAs tax-exempt status is useless unless the City isenjoined from enforcing its demand.
Injunction "is a judicial writ, process or proceeding whereby a party is ordered to do or refrain from doing a certain
act."167 "It may be the main action or merely a provisional remedy for and as incident in the main action." 168 The
essential requisites of a writ of injunction are: "(1) there must be a right in esseor the existence of a right to be
protected; and (2) the act against which the injunction is directed to constitute a violation of such right." 169

45

We note, however, that the City confused the concepts of jurisdiction and venue in contending that the Regional
Trial Court of Pasay had no jurisdiction because the real properties involved in this case are located in the City of
Lapu-Lapu.
On the one hand, jurisdiction is "the power to hear and determine cases of the general class to which the
proceedings in question belong."170 Jurisdiction is a matter of substantive law.171 Thus, an action may be filed only
with the court or tribunal where the Constitution or a statute says it can be brought. 172 Objections to jurisdiction
cannot be waived and may be brought at any stage of the proceedings, even on appeal. 173 When a case is filed with
a court which has no jurisdiction over the action, the court shall motu propriodismiss the case. 174
On the other hand, venue is "the place of trial or geographical location in which an action or proceeding should be
brought." 175 In civil cases, venue is a matter of procedural law. 176 A partys objections to venue must be brought
at the earliest opportunity either in a motion to dismiss or in the answer; otherwise the objection shall be deemed
waived.177 When the venue of a civil action is improperly laid, the court cannot motu propriodismiss the case. 178
The venue of an action depends on whether the action is a real or personal action. Should the action affect title to
or possession of real property, or interest therein, it is a real action. The action should be filed in the proper court
which has jurisdiction over the area wherein the real property involved, or a portion thereof, is situated. 179 If the
action is a personal action, the action shall be filed with the proper court where the plaintiff or any of the principal
plaintiffs resides, or where the defendant or any of the principal defendants resides, or in the case of a nonresident defendant where he may be found, at the election of the plaintiff.180
The City was objecting to the venue of the action, not to the jurisdiction of the Regional Trial Court of Pasay. In
essence, the City was contending that the PEZAs petition is a real action as it affects title to or possession of real
property, and, therefore, the PEZA should have filed the petition with the Regional Trial Court of Lapu-Lapu City
where the real properties are located. However, whatever objections the City has against the venue of the PEZAs
action for declaratory relief are already deemed waived. Objections to venue must be raised at the earliest possible
opportunity.181 The City did not file a motion to dismiss the petition on the ground that the venue was improperly
laid. Neither did the City raise this objection in its answer.
In any event, the law sought to be judicially interpreted in this case had already been breached. The Regional Trial
Court of Pasay, therefore, had no jurisdiction over the PEZAs petition for declaratory relief against the City.
III.
The Court of Appeals had no jurisdiction
over the PEZAs petition for certiorari
against the Province of Bataan
Appeal is the remedy "to obtain a reversal or modification of a judgment on the merits." 182 A judgment on the
merits is one which "determines the rights and liabilities of the parties based on the disclosed facts, irrespective of
the formal, technical or dilatory objections."183 It is not even necessary that the case proceeded to trial. 184 So long
as the "judgment is general" 185 and "the parties had a full legal opportunity to be heard on their respective claims
and contentions,"186 the judgment is on the merits.
On the other hand, certiorari is a special civil action filed to annul or modify a proceeding of a tribunal, board, or
officer exercising judicial or quasi-judicial functions.187 Certiorari, which in Latin means "to be more fully
informed,"188 was originally a remedy in the common law. This court discussed the history of the remedy of
certiorari in Spouses Delos Santos v. Metropolitan Bank and Trust Company: 189
In the common law, from which the remedy of certiorari evolved, the writ of certiorari was issued out of Chancery,
or the Kings Bench, commanding agents or officers of the inferior courts to return the record of a cause pending
before them, so as to give the party more sure and speedy justice, for the writ would enable the superior court to
determine froman inspection of the record whether the inferior courts judgment was rendered without authority.
The errors were of such a nature that, if allowed to stand, they would result in a substantial injury to the petitioner
to whom no other remedy was available. If the inferior court acted without authority, the record was then revised
and corrected in matters of law. The writ of certiorari was limited to cases in which the inferior court was said to be
exceeding its jurisdiction or was not proceeding according to essential requirements of law and would lie only to
review judicial or quasi-judicial acts.190
In our jurisdiction, the term "certiorari" is used in two ways. An appeal before this court raising pure questions of
law is commenced by filing a petition for reviewon certiorari under Rule 45 of the Rules of Court. An appeal by
certiorari, which continues the proceedings commenced before the lower courts, 191 is filed to reverse or modify
judgments or final orders.192 Under the Rules, an appeal by certiorarimust be filed within 15 days from notice of the
judgment or final order, or of the denial of the appellants motion for new trial or reconsideration. 193
A petition for certiorari under Rule 65, on the other hand, is an independent and original action filed to set aside
proceedings conducted without or in excess of jurisdiction or with grave abuse of discretion amounting to lack or
excess of jurisdiction.194 Under the Rules, a petition for certiorari may only be filed if there is no appeal or any
plain, speedy, or adequate remedy in the ordinary course of law.195 The petition must be filed within 60 days from
notice of the judgment, order, or resolution. 196
Because of the longer period to file a petition for certiorari, some litigants attempt to file petitions for certiorari as
substitutes for lost appeals by certiorari. However, Rule 65 is clear that a petition for certiorari will not prosper if
appeal is available. Appealis the proper remedy even if the error, or one of the errors, raised is grave abuse of
discretion on the part of the court rendering judgment.197 If appeal is available, a petition for certiorari cannot be
filed.

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In this case, the trial courts decision dated January 31, 2007 is a judgment on the merits. Based on the facts
disclosed by the parties, the trial court declared the PEZA liable to the Province of Bataan for real property taxes.
The PEZAs proper remedy against the trial courts decision, therefore, is appeal.
Since the PEZA filed a petition for certiorari against the trial courts decision, it availed itself of the wrong remedy.
As the Province of Bataan contended, the trial courts decision dated January 31, 2007 "is only an error of
judgment appealable to the higher level court and may not be corrected by filing a petition for certiorari." 198 That
the trial court judge allegedly committed grave abuse of discretion does not make the petition for certiorari the
correct remedy. The PEZA should haveraised this ground in an appeal filed within 15 days from notice of the
assailed resolution.
This court, "in the liberal spirit pervading the Rules of Court and in the interest of substantial justice," 199 has treated
petitions for certiorari as an appeal: "(1) if the petition for certiorari was filed within the reglementary period within
which to file a petition for review on certiorari; (2) when errors of judgment are averred; and (3) when there is
sufficient reason to justify the relaxation of the rules." 200 Considering that "the nature of an action is determined by
the allegationsof the complaint or the petition and the character of the relief sought," 201 a petition which "actually
avers errors of judgment rather than errors than that of jurisdiction" 202 may be considered a petition for review.
However, suspending the application of the Rules has its disadvantages. Relaxing procedural rules may reduce the
"effective enforcement of substantive rights,"203 leading to "arbitrariness, caprice, despotism, or whimsicality in the
settlement of disputes."204 Therefore, for this court to suspend the application of the Rules, the accomplishment of
substantial justice must outweigh the importance of predictability of court procedures.
The PEZAs petition for certiorari may be treated as an appeal. First, the petition for certiorari was filed withinthe
15-day reglementary period for filing an appeal. The PEZA filed its petition for certiorari before the Court of Appeals
on October 15, 2007,205 which was 12 days from October 3, 2007206 when the PEZA had notice of the trial courts
order denying the motion for reconsideration.
Second, the petition for certiorari raised errors of judgment. The PEZA argued that the trial court erred in ruling
that it is not exempt from payment of real property taxes given Section 21 of Presidential Decree No. 66 and
Sections 11 and 51 of the Special Economic Zone Act of 1995.207
Third, there is sufficient reason to relax the rules given the importance of the substantive issue presented in this
case.
However, the PEZAs petition for certiorari was filed before the wrong court. The PEZA should have filed its petition
before the Court of Tax Appeals.
The Court of Tax Appeals has the exclusive appellate jurisdiction over local tax cases decided by Regional Trial
Courts. Section 7, paragraph (a)(3) of Republic Act No. 1125, as amended by Republic Act No. 9282, provides:
Sec. 7. Jurisdiction. The [Court of Tax Appeals] shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
....
3. Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or
resolved by them in the exercise of their original or appellate jurisdiction[.]
The local tax cases referred to in Section 7, paragraph (a)(3) of Republic Act No. 1125, as amended, include cases
involving real property taxes. Real property taxation is governed by Book II of the Local Government Code on
"Local Taxation and Fiscal Matters." Real property taxes are collected by the Local Treasurer,208 not by the Bureau of
Internal Revenue in charge of collecting national internal revenue taxes, fees, and charges. 209
Section 7, paragraph (a)(5) of Republic Act No. 1125, as amended by Republic Act No. 9282, separately provides
for the exclusive appellate jurisdiction of the Court of Tax Appeals over decisions of the Central Board of
Assessment Appeals involving the assessment or collection of real property taxes:
Sec. 7. Jurisdiction. The [Court of Tax Appeals] shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
....
5. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over cases
involving the assessment and taxation of real property originally decided by the provincial or city board of
assessment appeals[.]
This separate provision, nevertheless, does not bar the Court of Tax Appeals from taking cognizance of trial court
decisions involving the collection of real property tax cases. Sections 256 210 and 266211 of the Local Government
Code expressly allow localgovernment units to file "in any court of competent jurisdiction" civil actions to collect
basic real property taxes. Should the trial court rule against them, local government units cannot be barred from
appealing before the Court of Tax Appeals the "highly specialized body specifically created for the purpose of
reviewing tax cases."212

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We have also ruled that the Court of Tax Appeals, not the Court of Appeals, has the exclusive original jurisdiction
over petitions for certiorari assailing interlocutory orders issued by Regional Trial Courts in a local tax case. We
explained in The City of Manila v. Hon. Grecia-Cuerdo 213 that while the Court of Tax Appeals has no express grant of
power to issue writs of certiorari under Republic Act No. 1125,214 as amended, the tax courts judicial power as
defined in the Constitution215 includes the power to determine "whether or not there has been grave abuse of
discretion amounting to lack or excess of jurisdiction on the part of the [Regional Trial Court] in issuing an
interlocutory order of jurisdiction in cases falling within the exclusive appellate jurisdiction of the tax court." 216We
further elaborated:
Indeed, in order for any appellate court to effectively exercise its appellate jurisdiction, it must have the authority
to issue, among others, a writ of certiorari. In transferring exclusive jurisdiction over appealed tax cases to the
CTA, it can reasonably be assumed that the law intended to transfer also such power as is deemed necessary, if not
indispensable, in aid of such appellate jurisdiction. There is no perceivable reason why the transfer should only be
considered as partial, not total.
....
If this Court were to sustain petitioners' contention that jurisdiction over their certiorari petition lies with the CA,
this Court would be confirming the exercise by two judicial bodies, the CA and the CTA, of jurisdiction over basically
the same subject matter precisely the split-jurisdiction situation which is anathema to the orderly administration
of justice.The Court cannot accept that such was the legislative motive, especially considering that the law
expressly confers on the CTA, the tribunal with the specialized competence over tax and tariff matters, the role of
judicial review over local tax cases without mention of any other court that may exercise such power. Thus, the
Court agrees with the ruling of the CA that since appellate jurisdiction over private respondents' complaint for tax
refund is vested in the CTA, it follows that a petition for certiorari seeking nullification of an interlocutory order
issued in the said case should, likewise, be filed with the same court. To rule otherwise would lead to an absurd
situation where one court decides an appeal in the main case while another court rules on an incident in the very
same case.
Stated differently, it would be somewhat incongruent with the pronounced judicial abhorrence to split jurisdiction to
conclude that the intention of the law is to divide the authority over a local tax case filed with the RTC by giving to
the CA or this Court jurisdiction to issue a writ of certiorari against interlocutory orders of the RTC but giving to the
CTA the jurisdiction over the appeal from the decision of the trial court in the same case. It is more in consonance
with logic and legal soundness to conclude that the grant of appellate jurisdiction to the CTA over tax cases filed in
and decided by the RTC carries withit the power to issue a writ of certiorari when necessary in aid of such appellate
jurisdiction. The supervisory power or jurisdiction of the CTA to issue a writ of certiorari in aid of its appellate
jurisdiction should co-exist with, and be a complement to, its appellate jurisdiction to review, by appeal, the final
orders and decisionsof the RTC, in order to have complete supervision over the acts of the latter.217(Citations
omitted)
In this case, the petition for injunction filed before the Regional Trial Court of Pasay was a local tax case originally
decided by the trial court in its original jurisdiction. Since the PEZA assailed a judgment, not an interlocutory order,
of the Regional Trial Court, the PEZAs proper remedy was an appeal to the Court of Tax Appeals.
Considering that the appellate jurisdiction of the Court of Tax Appeals is to the exclusion of all other courts, the
Court of Appeals had no jurisdiction to take cognizance of the PEZAs petition. The Court of Appeals acted without
jurisdiction in rendering the decision in CA-G.R. SP No. 100984. Its decision in CA-G.R. SP No. 100984 is void. 218
The filing of appeal in the wrong court does not toll the period to appeal. Consequently, the decision of the Regional
Trial Court, Branch 115, Pasay City, became final and executory after the lapse of the 15th day from the PEZAs
receipt of the trial courts decision.219 The denial of the petition for injunction became final and executory.
IV.
The remedy of a taxpayer depends on the
stage in which the local government unit
is enforcing its authority to impose real
property taxes
The proper remedy of a taxpayer depends on the stage in which the local government unit is enforcing its authority
to collect real property taxes. For the guidance of the members of the bench and the bar, we reiterate the
taxpayers remedies against the erroneous or illegal assessment of real property taxes.
Exhaustion of administrative remedies under the Local Government Code is necessary in cases of erroneous
assessments where the correctness of the amount assessed is assailed. The taxpayer must first pay the tax then
file a protest with the Local Treasurer within 30 days from date of payment of tax. 220 If protest is denied or upon
the lapse of the 60-day period to decide the protest, the taxpayer may appeal to the Local Board of Assessment
Appeals within 60 days from the denial of the protest or the lapse of the 60-day period to decide the protest. 221The
Local Board of Assessment Appeals has 120 days to decide the appeal. 222
If the taxpayer is unsatisfied withthe Local Boards decision, the taxpayer may appeal before the Central Board of
Assessment Appeals within 30 days from receipt of the Local Boards decision. 223
The decision of the Central Board of Assessment Appeals is appealable before the Court of Tax Appeals En
Banc.224 The appeal before the Court of Tax Appeals shall be filed following the procedure under Rule 43 of the
Rules of Court.225

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The Court of Tax Appeals decision may then be appealed before this court through a petition for review on
certiorari under Rule 45 of the Rules of Court raising pure questions of law. 226
In case of an illegal assessment where the assessment was issued without authority, exhaustion of administrative
remedies is not necessary and the taxpayer may directly resort to judicial action. 227 The taxpayer shall file a
complaint for injunction before the Regional Trial Court 228 to enjoin the local government unit from collecting real
property taxes.
The party unsatisfied with the decision of the Regional Trial Court shall file an appeal, not a petition for certiorari,
before the Court of Tax Appeals, the complaint being a local tax case decided by the Regional Trial Court. 229 The
appeal shall be filed within fifteen (15) days from notice of the trial courts decision.
The Court of Tax Appeals decision may then be appealed before this court through a petition for review on
certiorari under Rule 45 of the Rules of Court raising pure questions of law. 230
In case the local government unit has issued a notice of delinquency, the taxpayer may file a complaint for
injunction to enjoin the impending sale of the real property at public auction. In case the local government unit has
already sold the property at public auction, the taxpayer must first deposit with the court the amount for which the
real property was sold, together with interest of 2% per month from the date ofsale to the time of the institution of
action. The taxpayer may then file a complaint to assail the validity of the public auction. 231 The decisions of the
Regional Trial Court in these cases shall be appealable before the Court of Tax Appeals, 232 and the latters decisions
appealable before this court through a petition for review on certiorari under Rule 45 of the Rules of Court. 233
V.
The PEZA is exempt from payment of
real property taxes
The jurisdictional errors in this case render these consolidated petitions moot. We do not review void decisions
rendered without jurisdiction.
However, the PEZA alleged that several local government units, including the City of Baguio and the Province of
Cavite, have issued their respective real property tax assessments against the PEZA. Other local government units
will likely follow suit, and either the PEZA or the local government units taxing the PEZA may file their respective
actions against each other.
In the interest of judicial economy234 and avoidance of conflicting decisions involving the same issues, 235 we resolve
the substantive issue of whether the PEZA is exempt from payment of real property taxes.
Real property taxes are annual taxes levied on real property such as lands, buildings, machinery, and other
improvements not otherwise specifically exempted under the Local Government Code. 236 Real property taxes are ad
valorem, with the amount charged based on a fixed proportion of the value of the property.237 Under the law,
provinces, cities, and municipalities within the Metropolitan Manila Area have the power to levy real property taxes
within their respective territories. 238
The general rule is that real properties are subject to real property taxes. This is true especially since the Local
Government Code has withdrawn exemptions from real property taxes of all persons, whether natural or juridical:
SEC. 234. Exemptions from Real Property Tax. The following are exempted from payment of real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when
the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit or
religious cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for
religious, charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively used by local water districts
and government-owned or controlled corporations engaged in the supply and distribution of water
and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided under R.A. No. 6938; and
(e) Machinery and equipment usedfor pollution control and environmental protection.
Except as provided herein, any exemption from payment of real property taxes previously granted to, or presently
enjoyed by, all persons, whether natural or juridical, including government-owned or -controlled corporations are
hereby withdrawn upon the effectivity of this Code. (Emphasis supplied)
The person liable for real property taxes is the "taxable person who had actual or beneficial use and possession [of
the real property for the taxable period,] whether or not [the person owned the property for the period he or she is
being taxed]."239
The exceptions to the rule are provided in the Local Government Code. Under Section 133(o), local government
units have no power to levy taxes of any kind on the national government, its agencies and instrumentalities and
local government units:

49

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided
herein, the exercise of taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy
of the following:
....
(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities and local
government units.
Specifically on real property taxes, Section 234 enumerates the persons and real property exempt from real
property taxes:
SEC. 234. Exemptions from Real Property Tax. The following are exempted from payment of real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when
the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofitor
religious cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for
religious, charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively used by local water districts
and government-owned or controlled corporations engaged in the supply and distribution of water
and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided under R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and environmental protection.
Except as provided herein, any exemption from payment of real property tax previously granted to, or presently
enjoyed by, all persons, whether natural or juridical, including all government-owned or -controlled corporations
are hereby withdrawn upon the effectivity of this Code. (Emphasis supplied)
For persons granted tax exemptions or incentives before the effectivity of the Local Government Code, Section 193
withdrew these tax exemption privileges. These persons consist of both natural and juridical persons, including
government-owned or controlled corporations:
SEC. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this code, tax exemptions or
incentives granted to or presently enjoyed by all persons, whether natural or juridical, including government-owned
or controlled corporations, except local water districts, cooperatives duly registered under R.A. 6938, non stock and
non profit hospitals and educational institutions, are hereby withdrawn upon effectivity of this Code.
As discussed, Section 234 withdrew all tax privileges with respect to real property taxes. Nevertheless, local
government units may grant tax exemptions under such terms and conditions asthey may deem necessary:
SEC. 192. Authority to Grant Tax Exemption Privileges. Local government units may, through ordinances duly
approved, grant tax exemptions, incentives or reliefs under such terms and conditions as they may deem
necessary.
In Mactan Cebu International Airport Authority v. Hon. Marcos,240 this court classified the exemptions from real
property taxes into ownership, character, and usage exemptions. Ownership exemptions are exemptions based on
the ownership of the real property. The exemptions of real property owned by the Republic of the Philippines,
provinces, cities, municipalities, barangays, and registered cooperatives fall under this classification. 241 Character
exemptions are exemptions based on the character of the real property. Thus, no real property taxes may be levied
on charitable institutions, houses and temples of prayer like churches, parsonages, or convents appurtenant
thereto, mosques, and non profitor religious cemeteries. 242
Usage exemptions are exemptions based on the use of the real property. Thus, no real property taxes may be
levied on real property such as: (1) lands and buildings actually, directly, and exclusively used for religious,
charitable or educational purpose; (2) machineries and equipment actually, directly and exclusively used by local
water districts or by government-owned or controlled corporations engaged in the supply and distribution of water
and/or generation and transmission of electric power; and (3) machinery and equipment used for pollution control
and environmental protection.243
Persons may likewise be exempt from payment of real properties if their charters, which were enacted or reenacted
after the effectivity of the Local Government Code, exempt them payment of real property taxes. 244
V.
(A) The PEZA is an instrumentality of the national government
An instrumentality is "any agency of the National Government, not integrated within the department framework,
vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering
special funds, and enjoying operational autonomy, usually through a charter." 245

50

Examples of instrumentalities of the national government are the Manila International Airport Authority,246 the
Philippine Fisheries Development Authority,247 the Government Service Insurance System,248 and the Philippine
Reclamation Authority.249 These entities are not integrated within the department framework but are nevertheless
vested with special functions to carry out a declared policy of the national government.
Similarly, the PEZA is an instrumentality of the national government. It is not integrated within the department
framework but is an agency attached to the Department of Trade and Industry.250 Book IV, Chapter 7, Section 38(3)
(a) of the Administrative Code of 1987 defines "attachment": SEC. 38. Definition of Administrative Relationship.
Unless otherwise expressly stated in the Code or in other laws defining the special relationships of particular
agencies, administrative relationships shall be categorized and defined as follows:
....
(3) Attachment. (a) This refers to the lateral relationship between the department or its equivalent and the
attached agency or corporation for purposes of policy and program coordination. The coordination may be
accomplished by having the department represented in the governing board of the attached agency or corporation,
either as chairman or as a member, with or without voting rights, if this is permitted by the charter; having the
attached corporation or agency comply with a system of periodic reporting which shall reflect the progress of the
programs and projects; and having the department or its equivalent provide general policies through its
representative in the board, which shall serve as the framework for the internal policies of the attached corporation
or agency[.]
Attachment, which enjoys "a larger measure of independence" 251 compared with other administrative relationships
such as supervision and control, is further explained in Beja, Sr. v. Court of Appeals: 252
An attached agency has a larger measure of independence from the Department to which it is attached than one
which is under departmental supervision and control or administrative supervision. This is borne out by the "lateral
relationship" between the Department and the attached agency. The attachment is merely for "policy and program
coordination." With respect to administrative matters, the independence of an attached agency from Departmental
control and supervision is further reinforced by the fact that even an agency under a Departments administrative
supervision is free from Departmental interference with respect to appointments and other personnel actions "in
accordance with the decentralization of personnel functions" under the Administrative Code of 1987. Moreover, the
Administrative Code explicitly provides that Chapter 8 of Book IV on supervision and control shall not apply to
chartered institutions attached to a Department.253
With the PEZA as an attached agency to the Department of Trade and Industry, the 13-person PEZA Board is
chaired by the Department Secretary.254 Among the powers and functions of the PEZA is its ability to coordinate
with the Department of Trade and Industry for policy and program formulation and implementation. 255 In
strategizing and prioritizing the development of special economic zones, the PEZA coordinates with the Department
of Trade and Industry.256
The PEZA also administers its own funds and operates autonomously, with the PEZA Board formulating and
approving the PEZAs annual budget.257 Appointments and other personnel actions in the PEZA are also free from
departmental interference, with the PEZA Board having the exclusive and final authority to promote, transfer,
assign and reassign officers of the PEZA.258
As an instrumentality of the national government, the PEZA is vested with special functions or jurisdiction by law.
Congress created the PEZA to operate, administer, manage and develop special economic zones in the
Philippines.259 Special economic zones are areas with highly developed or which have the potential to be developed
into agro-industrial, industrial tourist/recreational, commercial, banking, investment and financial centers. 260 By
operating, administering, managing, and developing special economic zones which attract investments and
promote use of domestic labor, the PEZA carries out the following policy of the Government: SECTION 2.
Declaration of Policy. It is the declared policy of the government to translate into practical realities the following
State policies and mandates in the 1987 Constitution, namely:
(a) "The State recognizes the indispensable role of the private sector, encourages private enterprise, and
provides incentives to needed investments." (Sec. 20, Art. II)
(b) "The State shall promote the preferential use of Filipino labor, domestic materials and locally produced
goods, and adopt measures that help make them competitive." (Sec. 12, Art. XII) In pursuance of these
policies, the government shall actively encourage, promote, induce and accelerate a sound and balanced
industrial, economic and social development of the country in order to provide jobs to the people
especially those in the rural areas, increase their productivity and their individual and family income, and
thereby improve the level and quality of their living condition through the establishment, among others, of
special economic zones in suitable and strategic locations in the country and through measures that shall
effectively attract legitimate and productive foreign investments. 261
Being an instrumentality of the national government, the PEZA cannot be taxed by local government units.
Although a body corporate vested with some corporate powers, 262 the PEZA is not a government-owned or
controlled corporation taxable for real property taxes.
Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines the term "governmentowned or controlled corporation":
SEC. 2. General Terms Defined. Unless the specific words of the text, or the context as a whole, or a particular
statute, shall require a different meaning:

51

....
(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock
corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and
owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case
of stock corporations, to the extent of at least fifty-one (51) per cent of its capital stock: Provided, That
government owned or controlled corporations may be further categorized by the Department of the Budget, the
Civil Service Commission, and the Commission on Audit for purposes of the exercise and discharge of their
respective powers, functions and responsibilities with respect to such corporations.
Government entities are created by law, specifically, by the Constitution or by statute. In the case of governmentowned or controlled corporations, they are incorporated by virtue of special charters 263 to participate in the market
for special reasons which may be related to dysfunctions or inefficiencies of the market structure. This is to adjust
reality as against the concept of full competition where all market players are price takers. Thus, under the
Constitution, government-owned or controlled corporations are created in the interest of the common good and
should satisfy the test of economic viability.264 Article XII, Section 16 of the Constitution provides:
Section 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of
private corporations. Government-owned or controlled corporations may be created or established by special
charters in the interest of the common good and subject to the test of economic viability.
Economic viability is "the capacity to function efficiently in business." 265 To be economically viable, the entity
"should not go into activities which the private sector can do better." 266
To be considered a government-owned or controlled corporation, the entity must have been organized as a stock or
non-stock corporation.267
Government instrumentalities, on the other hand, are also created by law but partake of sovereign functions. When
a government entity performs sovereign functions, it need not meet the test of economic viability. In Manila
International Airport Authority v. Court of Appeals, 268 this court explained:
In contrast, government instrumentalities vested with corporate powers and performing governmental orpublic
functions need not meet the test of economic viability. These instrumentalities perform essential public services for
the common good, services that every modern State must provide its citizens. These instrumentalities need not be
economically viable since the government may even subsidize their entire operations. These instrumentalities are
not the "government-owned or controlled corporations" referred to in Section 16, Article XII of the 1987
Constitution.
Thus, the Constitution imposes no limitation when the legislature creates government instrumentalities vested with
corporate powers but performing essential governmental or public functions. Congress has plenary authority to
create government instrumentalities vested with corporate powers provided these instrumentalities perform
essential government functions or public services. However, when the legislature creates through special charters
corporations that perform economic or commercial activities, such entities known as "government-owned or
controlled corporations" must meetthe test of economic viability because they compete in the market place.
....
Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the Constitutional Commission
the purpose of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is really that when the government creates a corporation,
there is a sense in which this corporation becomes exempt from the test of economic performance. We know what
happened in the past. If a government corporation loses, then it makes its claim upon the taxpayers' money
through new equity infusions from the government and what is always invoked is the common good. That is the
reason why this year, out of a budget of P115 billion for the entire government, about P28 billion of this will go into
equity infusions to support a few government financial institutions. And this is all taxpayers' money which could
have been relocated to agrarian reform, to social services like health and education, to augment the salaries of
grossly underpaid public employees. And yet this is all going down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good," this becomes a
restraint on future enthusiasts for state capitalism to excuse themselves from the responsibility of meeting the
market test so that they become viable. And so, Madam President, I reiterate, for the committee's consideration
and I am glad that I am joined in this proposal by Commissioner Foz, the insertion of the standard of "ECONOMIC
VIABILITY OR THE ECONOMIC TEST," together with the common good.
....
Clearly, the test of economic viability does not apply to government entities vested with corporate powers and
performing essential public services. The State is obligated to render essential public services regardless of the
economic viability of providing such service. The noneconomic viability of rendering such essential public service
does not excuse the State from withholding such essential services from the public. 269 (Emphases and citations
omitted)
The law created the PEZAs charter. Under the Special Economic Zone Act of 1995, the PEZA was established
primarily to perform the governmental function of operating,administering, managing, and developing special
economic zones to attract investments and provide opportunities for preferential use of Filipino labor.

52

Under its charter, the PEZA was created a body corporate endowed with some corporate powers. However, it was
not organized as a stock270 or non-stock271 corporation. Nothing in the PEZAs charter provides that the PEZAs
capital is divided into shares.272 The PEZA also has no members who shall share in the PEZAs profits.
The PEZA does not compete with other economic zone authorities in the country. The government may even
subsidize the PEZAs operations. Under Section 47 of the Special Economic Zone Act of 1995, "any sum necessary
to augment [the PEZAs] capital outlay shall be included in the General Appropriations Act to be treated as an
equity of the national government."273
The PEZA, therefore, need not be economically viable. It is not a government-owned or controlled corporation liable
for real property taxes.
V. (B)
The PEZA assumed the non-profit character, including the tax exempt status, of the EPZA
The PEZAs predecessor, the EPZA, was declared non-profit in character with all its revenues devoted for its
development, improvement, and maintenance. Consistent with this non-profit character, the EPZA was explicitly
declared exempt from real property taxes under its charter. Section 21 of Presidential Decree No. 66 provides:
Section 21. Non-profit Character of the Authority; Exemption from Taxes. The Authority shall be non-profit and
shall devote and use all its returns from its capital investment, as well as excess revenues from its operations, for
the development, improvement and maintenance and other related expenditures of the Authority to pay its
indebtedness and obligations and in furtherance and effective implementation of the policy enunciated in Section 1
of this Decree. In consonance therewith, the Authority is hereby declared exempt:
....
(b) From all income taxes, franchise taxes, realty taxes and all other kinds of taxes and licenses to be paid to the
National Government, its provinces, cities, municipalities and other government agencies and instrumentalities[.]
The Special Economic Zone Act of 1995, on the other hand, does not specifically exempt the PEZA from payment of
real property taxes.
Nevertheless, we rule that the PEZA is exempt from real property taxes by virtue of its charter. A provision in the
Special Economic Zone Act of 1995 explicitly exempting the PEZA is unnecessary. The PEZA assumed the real
property exemption of the EPZA under Presidential Decree No. 66.
Section 11 of the Special Economic Zone Act of 1995 mandated the EPZA "to evolve into the PEZA in accordance
with the guidelines and regulations set forth in an executive order issued for this purpose." President Ramos then
issued Executive Order No. 282 in 1995, ordering the PEZA to assume the EPZAs powers, functions, and
responsibilities under Presidential Decree No. 66 not inconsistent with the Special Economic Zone Act of 1995:
SECTION 1. Assumption of EPZAs Powers and Functions by PEZA. All the powers, functions and responsibilities of
EPZA as provided under its Charter, Presidential Decree No. 66, as amended, insofar as they are not inconsistent
with the powers,functions and responsibilities of the PEZA, as mandated under Republic Act No. 7916, shall
hereafter be assumed and exercised by the PEZA. Henceforth, the EPZA shall be referred to as the PEZA.
The following sections of the Special Economic Zone Act of 1995 provide for the PEZAs powers,functions, and
responsibilities:
SEC. 5. Establishment of ECOZONES. To ensure the viability and geographical dispersal of ECOZONES through a
system of prioritization, the following areas are initially identified as ECOZONES, subject to the criteria specified in
Section 6:
....
The metes and bounds of each ECOZONE are to be delineated and more particularly described in a proclamation to
be issued by the President of the Philippines, upon the recommendation of the Philippine Economic Zone Authority
(PEZA), which shall be established under this Act, in coordination with the municipal and / or city council, National
Land Use Coordinating Committee and / or the Regional Land Use Committee.
SEC. 6. Criteria for the Establishment of Other ECOZONES. In addition to the ECOZONES identified in Section 5 of
this Act, other areas may be established as ECOZONES in a proclamation to be issued by the President of the
Philippines subject to the evaluation and recommendation of the PEZA, based on a detailed feasibility and
engineering study which must conform to the following criteria:
(a) The proposed area must be identified as a regional growth center in the Medium-Term Philippine
Development Plan or by the Regional Development Council;
(b) The existence of required infrastructure in the proposed ECOZONE, such as roads, railways,
telephones, ports, airports, etc., and the suitability and capacity of the proposed site to absorb such
improvements;
(c) The availability of water source and electric power supply for use of the ECOZONE;

53

(d) The extent of vacant lands available for industrial and commercial development and future expansion
of the ECOZONE as well as of lands adjacent to the ECOZONE available for development of residential
areas for the ECOZONE workers;
(e) The availability of skilled, semi-skilled and non-skilled trainable labor force in and around the
ECOZONE;
(f) The area must have a significant incremental advantage over the existing economic zones and its
potential profitability can be established;
(g) The area must be strategically located; and
(h) The area must be situated where controls can easily be established to curtail smuggling activities.
Other areas which do not meet the foregoing criteria may be established as ECOZONES: Provided, That the said
area shall be developed only through local government and/or private sector initiative under any of the schemes
allowed in Republic Act No. 6957 (the build-operate-transfer law), and without any financial exposure on the part of
the national government: Provided, further, That the area can be easily secured to curtail smuggling activities:
Provided, finally, That after five (5) years the area must have attained a substantial degree of development, the
indicators of which shall be formulated by the PEZA.
SEC. 7. ECOZONE to be a Decentralized Agro-Industrial, Industrial, Commercial / Trading, Tourist, Investment and
Financial Community. - Within the framework of the Constitution, the interest of national sovereignty and territorial
integrity of the Republic, ECOZONE shall be developed, as much as possible, into a decentralized, self-reliant and
self-sustaining industrial, commercial/trading, agro-industrial, tourist, banking, financial and investment center
with minimum government intervention. Each ECOZONE shall be provided with transportation, telecommunications,
and other facilities needed to generate linkage with industries and employment opportunitiesfor its own inhabitants
and those of nearby towns and cities.
The ECOZONE shall administer itself on economic, financial, industrial, tourism development and such other
matters within the exclusive competence of the national government.
The ECOZONE may establish mutually beneficial economic relations with other entities within the country, or,
subject to the administrative guidance of the Department of Foreign Affairs and/or the Department of Trade and
Industry, with foreign entities or enterprises.
Foreign citizens and companies owned by non-Filipinos in whatever proportion may set up enterprises in the
ECOZONE, either by themselves or in joint venture with Filipinos in any sector of industry, international trade and
commerce within the ECOZONE. Their assets, profits and other legitimate interests shall be protected: Provided,
That the ECOZONE through the PEZA may require a minimum investment for any ECOZONE enterprises in freely
convertible currencies: Provided, further, That the new investment shall fall under the priorities, thrusts and limits
provided for in the Act.
SEC. 8. ECOZONE to be Operated and Managed as Separate Customs Territory. The ECOZONE shall be managed
and operated by the PEZA as separate customs territory.
The PEZA is hereby vested with the authority to issue certificate of origin for products manufactured or processed
in each ECOZONE in accordance with the prevailing rules or origin, and the pertinent regulations of the Department
of Trade and Industry and/or the Department of Finance.
SEC. 9. Defense and Security. The defense of the ECOZONE and the security of its perimeter fence shall be the
responsibility of the national government in coordination with the PEZA. Military forces sent by the national
government for the purpose of defense shall not interfere in the internal affairs of any of the ECOZONE and
expenditure for these military forces shall be borne by the national government. The PEZA may provide and
establish the ECOZONES internal security and firefighting forces.
SEC. 10. Immigration. Any investor within the ECOZONE whose initial investment shall not be less than One
Hundred Fifty Thousand Dollars ($150,000.00), his/her spouse and dependent children under twenty-one (21)
years of age shall be granted permanent resident status within the ECOZONE. They shall have freedom of ingress
and egress to and from the ECOZONE without any need of special authorization from the Bureau of Immigration.
The PEZA shall issue working visas renewable every two (2) years to foreign executives and other aliens,
processing highly-technical skills which no Filipino within the ECOZONE possesses, as certified by the Department
of Labor and Employment. The names of aliens granted permanent resident status and working visas by the PEZA
shall be reported to the Bureau of Immigration within thirty (30) days after issuance thereof.
SEC. 13. General Powers and Functions of the Authority. The PEZA shall have the following powers and functions:
(a) To operate, administer, manage and develop the ECOZONE according to the principles and provisions
set forth in this Act;
(b) To register, regulate and supervise the enterprises in the ECOZONE in an efficient and decentralized
manner;

54

(c) To coordinate with local government units and exercise general supervision over the development,
plans, activities and operations of the ECOZONES, industrial estates, export processing zones, free trade
zones, and the like;
(d) In coordination with local government units concerned and appropriate agencies, to construct,acquire,
own, lease, operate and maintain on its own or through contract, franchise, license, bulk purchase from
the private sector and build-operate-transfer scheme or joint venture, adequate facilities and
infrastructure, such as light and power systems, water supply and distribution systems,
telecommunication and transportation, buildings, structures, warehouses, roads, bridges, ports and other
facilities for the operation and development of the ECOZONE;
(e) To create, operate and/or contractto operate such agencies and functional units or offices of the
authority as it may deem necessary;
(f) To adopt, alter and use a corporate seal; make contracts, lease, own or otherwise dispose of personal
or real property; sue and be sued; and otherwise carry out its duties and functions as provided for in this
Act;
(g) To coordinate the formulation and preparation of the development plans of the different entities
mentioned above;
(h) To coordinate with the National Economic Development Authority (NEDA), the Department of Trade
and Industry (DTI), the Department of Science and Technology (DOST), and the local government units
and appropriate government agencies for policy and program formulation and implementation; and
(i) To monitor and evaluate the development and requirements of entities in subsection (a) and
recommend to the local government units or other appropriate authorities the location, incentives, basic
services, utilities and infrastructure required or to be made available for said entities.
SEC. 17. Investigation and Inquiries. Upon a written formal complaint made under oath, which on its face
provides reasonable basis to believe that some anomaly or irregularity might have been committed, the PEZA or
the administrator of the ECOZONE concerned, shall have the power to inquire into the conduct of firms or
employees of the ECOZONE and to conduct investigations, and for that purpose may subpoena witnesses,
administer oaths, and compel the production of books, papers, and other evidences: Provided, That to arrive at the
truth, the investigator(s) may grant immunity from prosecution to any person whose testimony or whose
possessions of documents or other evidence is necessary or convenient to determine the truth in any investigation
conducted by him or under the authority of the PEZA or the administrator of the ECOZONE concerned.
SEC. 21. Development Strategy of the ECOZONE. - The strategy and priority of development of each ECOZONE
established pursuant to this Act shall be formulated by the PEZA, in coordination with the Department of Trade and
Industry and the National Economic and Development Authority; Provided, That such development strategy is
consistent with the priorities of the national government as outlined in the medium-term Philippine development
plan. It shall be the policy of the government and the PEZA to encourage and provide Incentives and facilitate
private sector participation in the construction and operation of public utilities and infrastructure in the ECOZONE,
using any of the schemes allowed in Republic Act No. 6957 (the build-operate-transfer law).
SEC. 22. Survey of Resources. The PEZA shall, in coordination with appropriate authorities and neighboring cities
and municipalities, immediately conduct a survey of the physical, natural assets and potentialities of the ECOZONE
areas under its jurisdiction.
SEC. 26. Domestic Sales. Goods manufactured by an ECOZONE enterprise shall be made available for immediate
retail sales in the domestic market, subject to payment of corresponding taxes on the raw materials and other
regulations that may be adopted by the Board of the PEZA. However, in order to protect the domestic industry,
there shall be a negative list of Industries that willbe drawn up by the PEZA. Enterprises engaged in the industries
included in the negative list shall not be allowed to sell their products locally. Said negative list shall be regularly
updated by the PEZA.
The PEZA, in coordination with the Department of Trade and Industry and the Bureau of Customs, shall jointly
issue the necessary implementing rules and guidelines for the effective Implementation of this section.
SEC. 29. Eminent Domain. The areas comprising an ECOZONE may be expanded or reduced when necessary. For
this purpose, the government shall have the power to acquire, either by purchase, negotiation or condemnation
proceedings, any private lands within or adjacent to the ECOZONE for:
a. Consolidation of lands for zone development purposes;
b. Acquisition of right of way to the ECOZONE; and
c. The protection of watershed areas and natural assets valuable to the prosperity of the ECOZONE.
If in the establishment of a publicly-owned ECOZONE, any person or group of persons who has been occupying a
parcel of land within the Zone has to be evicted, the PEZA shall provide the person or group of persons concerned
with proper disturbance compensation: Provided, however, That in the case of displaced agrarian reform
beneficiaries, they shall be entitled to the benefits under the Comprehensive Agrarian Reform Law, including but
not limited to Section 36 of Republic Act No. 3844, in addition to a homelot in the relocation site and preferential
employment in the project being undertaken.

55

SEC. 32. Shipping and Shipping Register. Private shipping and related business including private container
terminals may operate freely in the ECOZONE, subject only to such minimum reasonable regulations of local
application which the PEZA may prescribe.
The PEZA shall, in coordination with the Department of Transportation and Communications, maintain a shipping
register for each ECOZONE as a business register of convenience for ocean-going vessels and issue related
certification.
Ships of all sizes, descriptions and nationalities shall enjoy access to the ports of the ECOZONE, subject only to
such reasonable requirement as may be prescribed by the PEZA In coordination with the appropriate agencies of
the national government.
SEC. 33. Protection of Environment. - The PEZA, in coordination with the appropriate agencies, shall take concrete
and appropriate steps and enact the proper measure for the protection of the local environment.
SEC. 34. Termination of Business. - Investors In the ECOZONE who desire to terminate business or operations shall
comply with such requirements and procedures which the PEZA shall set, particularly those relating to the clearing
of debts. The assets of the closed enterprise can be transferred and the funds con be remitted out of the ECOZONE
subject to the rules, guidelines and procedures prescribed jointly by the Bangko Sentral ng Pilipinas, the
Department of Finance and the PEZA.
SEC. 35. Registration of Business Enterprises. - Business enterprises within a designated ECOZONE shall register
with the PEZA to avail of all incentives and benefits provided for in this Act.
SEC. 36. One Stop Shop Center. - The PEZA shall establish a one stop shop center for the purpose of facilitating the
registration of new enterprises in the ECOZONE. Thus, all appropriate government agencies that are Involved In
registering, licensing or issuing permits to investors shall assign their representatives to the ECOZONE to attend to
Investors requirements.
SEC. 39. Master Employment Contracts. - The PEZA, in coordination with the Department of Tabor and
Employment, shall prescribe a master employment contract for all ECOZONE enterprise staff members and
workers, the terms of which provide salaries and benefits not less than those provided under this Act, the Philippine
Labor Code, as amended, and other relevant issuances of the national government.
SEC. 41. Migrant Worker. - The PEZA, in coordination with the Department of Labor and Employment, shall
promulgate appropriate measures and programs leading to the expansion of the services of the ECOZONE to help
the local governments of nearby areas meet the needs of the migrant workers.
SEC. 42. Incentive Scheme. - An additional deduction equivalent to one- half (1/2) of the value of training
expenses incurred in developing skilled or unskilled labor or for managerial or other management development
programs incurred by enterprises in the ECOZONE can be deducted from the national government's share of three
percent (3%) as provided In Section 24.
The PEZA, the Department of Labor and Employment, and the Department of Finance shall jointly make a review of
the incentive scheme provided In this section every two (2) years or when circumstances so warrant.
SEC. 43. Relationship with the Regional Development Council. - The PEZA shall determine the development goals
for the ECOZONE within the framework of national development plans, policies and goals, and the administrator
shall, upon approval by the PEZA Board, submit the ECOZONE plans, programs and projects to the regional
development council for inclusion in and as inputs to the overall regional development plan.
SEC. 44. Relationship with the Local Government Units. - Except as herein provided, the local government units
comprising the ECOZONE shall retain their basic autonomy and identity. The cities shall be governed by their
respective charters and the municipalities shall operate and function In accordance with Republic Act No. 7160,
otherwise known as the Local Government Code of 1991.
SEC. 45. Relationship of PEZA to Privately-Owned Industrial Estates. Privately-owned industrial estates shall
retain their autonomy and independence and shall be monitored by the PEZA for the implementation of incentives.
SEC. 46. Transfer of Resources. - The relevant functions of the Board of Investments over industrial estates and
agri-export processing estates shall be transferred to the PEZA. The resources of government owned Industrial
estates and similar bodies except the Bases Conversion Development Authority and those areas identified under
Republic Act No. 7227, are hereby transferred to the PEZA as the holding agency. They are hereby detached from
their mother agencies and attached to the PEZA for policy, program and operational supervision.
The Boards of the affected government-owned industrial estates shall be phased out and only the management
level and an appropriate number of personnel shall be retained.
Government personnel whose services are not retained by the PEZA or any government office within the ECOZONE
shall be entitled to separation pay and such retirement and other benefits theyare entitled to under the laws then
in force at the time of their separation: Provided, That in no case shall the separation pay be less than one and
one-fourth (1 1/4) month of every year of service.
The non-profit character of the EPZA under Presidential Decree No. 66 is not inconsistent with any of the powers,
functions, and responsibilities of the PEZA. The EPZAs non-profit character, including the EPZAs exemption from
real property taxes, must be deemed assumed by the PEZA.

56

In addition, the Local Government Code exempting instrumentalities of the national government from real property
taxes was already in force274 when the PEZAs charter was enacted in 1995. It would have been redundant to
provide for the PEZAs exemption in its charter considering that the PEZA is already exempt by virtue of Section
133(o) of the Local Government Code.
As for the EPZA, Commonwealth Act No. 470 or the Assessment Law was in force when the EPZAs charter was
enacted. Unlike the Local Government Code, Commonwealth Act No. 470 does not contain a provision specifically
exempting instrumentalities of the national government from payment of real property taxes. 275 It was necessary to
put an exempting provision in the EPZAs charter.
Contrary to the PEZAs claim, however, Section 24 of the Special Economic Zone Act of 1995 is not a basis for the
PEZAs exemption. Section 24 of the Special Economic Zone Act of 1995 provides:
Sec. 24. Exemption from National and Local Taxes. Except for real property taxes on land owned by developers,
no taxes, local and national, shall be imposed on business establishments operating within the ECOZONE. In lieu
thereof, five percent (5%) of the gross income earned by all business enterprises within the ECOZONEshall be paid
and remitted as follows:
(a) Three percent (3%) to the National Government;
(b) Two percent (2%) which shall be directly remitted by the business establishments to the treasurer's
office of the municipality or city where the enterprise is located. (Emphasis supplied)
Tax exemptions provided under Section 24 apply only to business establishments operating within economic zones.
Considering that the PEZA is not a business establishment but an instrumentality performing governmental
functions, Section 24 is inapplicable to the PEZA. Also, contrary to the PEZAs claim, developers ofeconomic zones,
whether public or private developers, are liable for real property taxes on lands they own. Section 24 does not
distinguish between a public and private developer. Thus, courts cannot distinguish. 276 Unless the public developer
is exempt under the Local Government Code or under its charter enacted after the Local Government Codes
effectivity, the public developer must pay real property taxes on their land.
At any rate, the PEZA cannot be taxed for real property taxes even if it acts as a developer or operator of special
economic zones. The PEZA is an instrumentality of the national government exempt from payment of real property
taxes under Section 133(o) of the Local Government Code. As this court said in Manila International Airport
Authority, "there must be express language in the law empowering local governments to tax national government
instrumentalities. Any doubt whether such power exists is resolved against local governments." 277
V. (C)
Real properties under the PEZAs title are owned by the Republic of the Philippines
Under Section 234(a) of the LocalGovernment Code, real properties owned by the Republic of the Philippines are
exempt from real property taxes:
SEC. 234. Exemptions from Real Property Tax. The following are exempted from payment of real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the
beneficial use thereof has been granted, for consideration or otherwise, to a taxable person[.]
Properties owned by the state are either property of public dominion or patrimonial property. Article 420 of the Civil
Code of the Philippines enumerates property of public dominion:
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 belonging for public use, and are intended for some public
service or for the development of the national wealth.
Properties of public dominion are outside the commerce of man. These properties are exempt from "levy,
encumbrance or disposition through public or private sale." 278 As this court explained in Manila International Airport
Authority:
Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition through
public or private sale. Any encumbrance, levy on execution or auction sale of any property of public dominion is
void for being contrary to public policy. Essential public services will stop if properties of public dominion are
subject to encumbrances, foreclosures and auction sale[.] 279
On the other hand, all other properties of the state that are not intended for public use or are not intended for
some public service or for the development of the national wealth are patrimonial properties. Article 421 of the Civil
Code of the Philippines provides:
Art. 421. All other property of the State, which is not of the character stated in the preceding article, is patrimonial
property.

57

Patrimonial properties are also properties of the state, but the state may dispose of its patrimonial property similar
to private persons disposing of their property. Patrimonial properties are within the commerce of man and are
susceptible to prescription, unless otherwise provided. 280
In this case, the properties sought to be taxed are located in publicly owned economic zones. These economic
zones are property of public dominion. The City seeks to tax properties located within the Mactan Economic
Zone,281 the site of which was reserved by President Marcos under Proclamation No. 1811, Series of 1979. Reserved
lands are lands of the public domain set aside for settlement or public use, and for specific public purposes by
virtue of a presidential proclamation.282 Reserved lands are inalienable and outside the commerce of man,283 and
remain property of the Republic until withdrawn from publicuse either by law or presidential proclamation. 284 Since
no law or presidential proclamation has been issued withdrawing the site of the Mactan Economic Zone from public
use, the property remains reserved land.
As for the Bataan Economic Zone, the law consistently characterized the property as a port. Under Republic Act No.
5490, Congress declared Mariveles, Bataan "a principal port of entry" 285 to serve as site of a foreign trade zone
where foreign and domestic merchandise may be brought in without being subject to customs and internal revenue
laws and regulations of the Philippines.286
Section 4 of Republic Act No. 5490 provided that the foreign trade zone in Mariveles, Bataan "shall at all times
remain to be owned by the Government":
SEC. 4. Powers and Duties. The Foreign Trade Zone Authority shall have the following powers and duties:
a. To fix and delimit the site of the Zone which at all times remain to be owned by the Government, and which shall
have a contiguous and adequate area with well defined and policed boundaries, with adequate enclosures to
segregate the Zone from the customs territory for protection of revenues, together with suitable provisions for
ingress and egress of persons, conveyance, vessels and merchandise sufficient for the purpose of this Act[.]
(Emphasis supplied)
The port in Mariveles, Bataan then became the Bataan Economic Zone under the Special Economic Zone Act of
1995.287 Republic Act No. 9728 then converted the Bataan Economic Zone into the Freeport Area of Bataan. 288
A port of entry, where imported goods are unloaded then introduced in the market for public consumption, is
considered property for public use. Thus, Article 420 of the Civil Code classifies a port as property of public
dominion. The Freeport Area of Bataan, where the government allows tax and duty-free importation of goods, 289is
considered property of public dominion. The Freeport Area of Bataan is owned by the state and cannot be taxed
under Section 234(a) of the Local Government Code.
Properties of public dominion, even if titled in the name of an instrumentality as in this case, remain owned by the
Republic of the Philippines. If property registered in the name of an instrumentality is conveyed to another
person,the property is considered conveyed on behalf of the Republic of the Philippines. Book I, Chapter 12,
Section 48 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:
....
(2) For property belonging to the Republic of the Philippines, but titled in the name of any political subdivision orof
any corporate agency or instrumentality, by the executive head of the agency or instrumentality. (Emphasis
supplied)
In Manila International Airport Authority, this court explained:
[The exemption under Section 234(a) of the Local Government Code] should be read in relation with Section
133(o) of the same Code, which prohibits local governments from imposing "[t]axes, fess or charges of any kind on
the National Government, its agencies and instrumentalitiesx x x." The real properties owned by the Republic are
titled either in the name of the Republic itself or in the name of agencies or instrumentalities of the National
Government.The Administrative Code allows real property owned by the Republic to be titled in the name of
agencies or instrumentalities of the national government. Such real properties remained owned by the Republic of
the Philippines and continue to be exempt from real estate tax.
The Republic may grant the beneficialuse of its real property to an agency or instrumentality of the national
government. This happens when title of the real property is transferred to an agency or instrumentality even as the
Republic remains the owner of the real property. Such arrangement does not result in the loss of the tax
exemption/ Section 234(a) of the Local Government Code states that real property owned by the Republic loses its
tax exemption only if the "beneficial use thereof has been granted, for consideration or otherwise, to a taxable
person." . . .290 (Emphasis in the original; italics supplied)
Even the PEZAs lands and buildings whose beneficial use have been granted to other persons may not be taxed
with real property taxes. The PEZA may only lease its lands and buildings to PEZA-registered economic zone
enterprises and entities.291 These PEZA-registered enterprises and entities, which operate within economic zones,
are not subject to real property taxes. Under Section 24 of the Special Economic Zone Act of 1995, no taxes,
whether local or national, shall be imposed on all business establishments operating within the economic zones:
SEC. 24. Exemption from National and Local Taxes. Except for real property on land owned by developers, no
taxes, local and national, shall be imposed on business establishments operating within the ECOZONE. In lieu
thereof, five percent (5%) of the gross income earned by all business enterprises within the ECOZONE shall be paid
and remitted as follows:

58

a. Three percent (3%) to the National Government;

b. Two percent (2%) which shall be directly remitted by the business establishments to the treasurers office of the
municipality or city where the enterprise is located. 292 (Emphasis supplied)
In lieu of revenues from real property taxes, the City of Lapu-Lapu collects two-fifths of 5% final tax on gross
income paid by all business establishments operating withinthe Mactan Economic Zone:
SEC. 24. Exemption from National and Local Taxes. Except for real property on land owned by developers, no
taxes, local and national, shall be imposed on business establishments operating within the ECOZONE. In lieu
thereof, five percent (5%) of the gross income earned by all business enterprises within the ECOZONE shall be paid
and remitted as follows:
a. Three percent (3%) to the National Government;
b. Two percent (2%) which shall be directly remitted by the business establishments to the treasurers
office of the municipality or city where the enterprise is located. 293 (Emphasis supplied)
For its part, the Province of Bataan collects a fifth of the 5% final tax on gross income paid by all business
establishments operating within the Freeport Area of Bataan:
Section 6. Imposition of a Tax Rate of Five Percent (5%) on Gross Income Earned. - No taxes, local and national,
shall be imposed on business establishments operating withinthe FAB. In lieu thereof, said business establishments
shall pay a five percent (5%) final tax on their gross income earned in the following percentages:
(a) One per centum (1%) to the National Government;
(b) One per centum (1%) to the Province of Bataan;
(c) One per centum (1%) to the treasurer's office of the Municipality of Mariveles; and
(d) Two per centum (2%) to the Authority of the Freeport of Area of Bataan.294 (Emphasis supplied)
Petitioners, therefore, are not deprived of revenues from the operations of economic zones within their respective
territorial jurisdictions.
The national government ensured that loeal government units comprising economic zones shall retain their basic
autonomy and identity.295
All told, the PEZA is an instrumentality of the national government.1wphi1 Furthermore, the lands owned by the
PEZA are real properties owned by the Republic of the Philippines. The City of Lapu-Lapu and the Province of
Bataan cannot collect real property taxes from the PEZA.
WHEREFORE, the consolidated petitions are DENIED.
SO ORDERED.
CITY OF PASIG, REPRESENTED G.R. No. 185023
BY THE CITY TREASURER and
THE CITY ASSESSOR,
Petitioner,
Present:

CARPIO, J., Chairperson,

BRION,
- versus - PERALTA,*
PEREZ, and
MENDOZA,** JJ.
REPUBLIC OF THE PHILIPPINES,
REPRESENTED BY THE

59

PRESIDENTIAL COMMISSION ON
GOOD GOVERNMENT, Promulgated:
Respondent. August 24, 2011
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION

CARPIO, J.:

The Case

This is a petition1 for review on certiorari under Rule 45 of the Rules of Court. The petition challenges the 17
October 2008 Decision2 of the Court of Appeals in CA-G.R. SP No. 97498, affirming the 6 November 2006
Decision3 of the Regional Trial Court (RTC), National Capital Judicial Region, Pasig City, Branch 155, in SCA No.
2901.
The Facts

Mid-Pasig Land Development Corporation (MPLDC) owned two parcels of land, with a total area of 18.4891
hectares, situated in Pasig City. The properties are covered by Transfer Certificate of Title (TCT) Nos. 337158 and
469702 and Tax Declaration Nos. E-030-01185 and E-030-01186 under the name of MPLDC. Portions of the
properties are leased to different business establishments.

In 1986, the registered owner of MPLDC, Jose Y. Campos (Campos), voluntarily surrendered MPLDC to the Republic
of the Philippines.

On 30 September 2002, the Pasig City Assessors Office sent MPLDC two notices of tax delinquency for its failure to
pay real property tax on the properties for the period 1979 to 2001 totaling P256,858,555.86. In a letter dated 29
October 2002, Independent Realty Corporation (IRC) President Ernesto R. Jalandoni (Jalandoni) and Treasurer
Rosario Razon informed the Pasig City Treasurer that the tax for the period 1979 to 1986 had been paid, and that
the properties were exempt from tax beginning 1987.

In letters dated 10 July 2003 and 8 January 2004, the Pasig City Treasurer informed MPLDC and IRC that the
properties were not exempt from tax. In a letter dated 16 February 2004, MPLDC General Manager
Antonio Merelos (Merelos) and Jalandoni again informed the Pasig City Treasurer that the properties were exempt
from tax. In a letter dated 11 March 2004, the Pasig City Treasurer again informed Merelos that the properties
were not exempt from tax.

On 20 October 2005, the Pasig City Assessors Office sent MPLDC a notice of final demand for payment of tax for
the period 1987 to 2005 totaling P389,027,814.48. On the same day, MPLDC paid P2,000,000 partial payment
under protest.

On 9 November 2005, MPLDC received two warrants of levy on the properties. On 1 December 2005, respondent
Republic of the Philippines, through the Presidential Commission on Good Government (PCGG), filed with the RTC a
petition for prohibition with prayer for issuance of a temporary restraining order or writ of preliminary injunction to
enjoin petitioner Pasig City from auctioning the properties and from collecting real property tax.

60

On 2 December 2005, the Pasig City Treasurer offered the properties for sale at public auction. Since there was no
other bidder, Pasig City bought the properties and was issued the corresponding certificates of sale.

On 19 December 2005, PCGG filed with the RTC an amended petition for certiorari, prohibition and mandamus
against Pasig City. PCGG prayed that: (1) the assessments for the payment of real property tax and penalty be
declared void; (2) the warrants of levy on the properties be declared void; (3) the public auction be declared void;
(4) the issuance of certificates of sale be declared void; (5) Pasig City be prohibited from assessing MPLDC real
property tax and penalty; (6) Pasig City be prohibited from collecting real property tax and penalty from MPLDC;
(7) Pasig City be ordered to assess the actual occupants of the properties real property tax and penalty; and (8)
Pasig City be ordered to collect real property tax and penalty from the actual occupants of the properties.

The RTCs Ruling

In its 6 November 2006 Decision, the RTC granted the petition for certiorari, prohibition and mandamus. The RTC
held:

The primordial issue to be resolved in the present case is whether or not respondent City of Pasig, through
the City Treasurer and the City Assessor, acted with grave abuse of discretion amounting to lack or excess
of jurisdiction when it assessed, levied and sold in public auction the payanig properties for non-payment
of real property taxes.

However, before dwelling on the merits of the main issue, certain matters need to be addressed by the
Court, to wit:

1.
2.

Does the Court have jurisdiction over the instant petition?

Who owns the so-called payanig properties that were subjected to payment of real property taxes by
respondent?

The Court maintains that it is not precluded from assuming jurisdiction over the instant amended petition
which involves the legality of the assailed actions by respondent in assessing and collecting real property
tax on the properties owned by the Republic of the Philippines. It is a jurisprudential doctrine that the
issue is purely legal when the authority of the respondent to assess and collect real property taxes on the
subject properties is being questioned (Ty vs. Trampe, 250 SCRA 500).

xxxx

In the instant proceeding, there is no dispute that the properties are surrendered ill-gotten wealth of
former President Marcos. As such, the same assumes [sic] a public character and thus belongs [sic] to the
Republic of the Philippines. x x x

xxxx

Hence, upon the voluntary surrender by Jose Y. Campos, the controlling owner of Mid-Pasig and
Independent Realty Corporation, of the payanig properties to PCGG, a clear admission that these
properties were part of the ill-gotten wealth of former President Marcos was already evident. As such,
there was already constructive reconveyance to the State, which immediately placed
these reconveyed properties under the control and stewardship of the PCGG as representative of the
Republic of the Philippines. Under such special circumstance, these voluntary surrendered properties had
already belonged to the State.

61

xxxx

Premised on the foregoing, the payanig properties, being part of the recovered ill-gotten wealth of
President Marcos, and therefore are owned by the State itself, are exempt from payment of real property
taxes. It is only when the beneficial use of said properties has been granted to a taxable person that the
same may be subject to imposition of real property tax.

Furthermore, in real estate taxation, the unpaid tax attaches to the property and is chargeable against the
taxable person who had actual or beneficial use and possession of it regardless of whether or not he is the
owner (Testate Estate of Concordia T. Lim vs. City of Manila, 182 SCRA 482).

In the instant case, the taxable persons being referred to are the lessees occupying and/or doing business
therein and have beneficial use over portions within the payanig properties.

xxxx

Consequently, there can be no iota of doubt that respondent City of Pasig abused its discretion by
committing the acts sought to be annulled herein despite knowledge of the fact that ownership over the
subject properties belong to petitioner. But what is more appalling in the instant action is that such abuse
was capriciously committed by respondent City of Pasig against the sovereign State itself from where
that atxing local government unit derives its very existence. The spring cannot rise higher than its source.

xxxx

In sum, the acts of respondent in assessing real property taxes on properties owned and controlled by the
Republic of the Philippines, in collecting taxes from Mid-Pasig in lieu of the actual occupants or beneficial
users of certain portions thereof, and in auctioning said properties in favor of respondent, followed by the
corresponding certificate of sale, are all unequivocally tainted with grave abuse of discretion amounting to
lack or excess of jurisdiction.

WHEREFORE, in the light of the foregoing, the instant Amended Petition is hereby GRANTED.

Accordingly, the following acts of respondent are hereby ANNULLED and SET ASIDE.

1.

2.
3.

the assessment dated September 30, 2002 for the payment of real property taxes and penalties made
by the City of Pasig on two (2) parcels of land covered by TCT No. 337158 and TCT No. 469702 registered
under the name of Mid-Pasig;
the warrants of levy dated November 8, 2005 issued thereon by the City of Pasig;
the subsequent public auction sale of subject properties held on December 2, 2005 followed by the
issuance of the corresponding Certificate of Sale;

FURTHER, the City of Pasig is hereby PROHIBITED from further:

62

1.

Assessing real property taxes and penalties charges [sic] on the said properties;

2.

Collecting said taxes and penalty charges from the State;

3.

Disposing or encumbering the subject properties or any portion thereof;

FURTHER, the City of Pasig is hereby COMMANDED:

1.

To return or effect the refund of the amount of Two Million Pesos (Php 2,000,000.00) paid under protest
by Mid-Pasig Land Development Corporation on October 20, 2005, or credit the same amount to any
outstanding tax liability that said corporation may have with the City of Pasig; and

2.

To assess and collect from the actual occupants or beneficial users of the subject properties, and not
from the State, whatever real property taxes and penalties that may be due on the respective areas
occupied by them.

SO ORDERED.4

Pasig City appealed to the Court of Appeals.

The Court of Appeals Ruling

In its 31 March 2008 Decision,5 the Court of Appeals set aside the RTCs 6 November 2006 Decision. The Court of
Appeals held:

We find nothing in PCGGs petition that supports its claim regarding Pasig Citys alleged grave abuse of
discretion. It is undisputed that the subject parcels of land are registered in the name of Mid-Pasig, a
private entity. Although the government, through the PCGG have [sic] sequestered Mid-Pasig and all its
assets including the subject parcels of land, the sequestration per se, did not operate to convert Mid-Pasig
and its properties to public property. The power of the PCGG to sequester property claimed to be ill-gotten
means to place or cause to be placed under its possession or control said property, or any building or
office wherein any such property and any records pertaining thereto may be found, including business
enterprises and entities for the purpose of preventing the destruction, concealment or dissipation of, and
otherwise conserving and preserving the same until it can be determined, through appropriate judicial
proceedings, whether the property was in truth ill-gotten, i.e., acquired through or as a result of improper
or illegal use of or the conversion of funds belonging to the Government or any of its branches,
instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of official
position, authority, relationship, connection or influence, resulting in unjust enrichment of the ostensible
owner and great damage and prejudice to the State. x x x As such, prior to a valid court declaration
the PCGG cannot perform acts of strict ownership of [sic] sequestered property. It is a mere conservator.
In view thereof and the fact that Mid-Pasig and its properties have not been validly declared by
theSandiganbayan as ill-gotten wealth, the same are not yet public properties. The PCGG even admitted
that the transfer certificates of title covering the subject parcels of land in the name of Mid-Pasig have not
been cancelled due to an order of the Sandiganbayan. The trial court also found that the subject parcels of
land are the subject of litigation between Ortigas and Company Limited Partnership and the PCGG in Civil
Case No. 0093 pending before the Sandiganbayan. These facts clearly show that the Sandiganbayan has
not validly declared yet that the subject parcels of land are ill-gotten wealth. If so, they cannot be claimed
yet as properties of the State: they remain properties of a private entity. Thus, Pasig City through its City
Assessor and City Treasurer did not act with grave abuse of discretion when it issued real property tax
assessment on the subject parcels of land.

Even admitting that the subject parcels of land are already owned by the State, we still see no grave
abuse of discretion on the part of Pasig City when it issued the challenged tax assessment, for it is well
settled that the test of exemptions from taxation is the use of the property for purposes mentioned in the
Constitution. The owner of the property does not matter. Even if he is not a tax-exempt entity, as long as
the property is being used for religious, charitable or educational purposes, the property is exempt from
tax. Conversely, even if the government owns the property, if the beneficial use thereof has been granted,
for consideration or otherwise, to a taxable person, the property is subject to tax. Here, the PCGG

63

admitted that portions of the subject properties were leased to private entities engaged in commercial
dealings. As well, the trial court found that lessees occupy different areas of the subject parcels of land
beginning 1992 until 2005. Therefore, considering that portions of the subject parcels of land are used for
commercial purposes, the duty imposed by law to owners and administrators of real property to declare
the same for tax purposes and the fact that the tax declarations over the subject parcels of land are in the
name of Mid-Pasig, again, Pasig City did not act with grave abuse of discretion when it issued the
challenged tax assessment.

The foregoing snowball to one conclusion the allegations in PCGGs petition imputing grave abuse of
discretion on the part of Pasig City, acting through the City Assessor and City Treasurer, in the assessment
and collection of the taxes were made in order to justify the filing of the petition for certiorari, prohibition
and mandamus with the trial court.

The extraordinary remedies of certiorari, prohibition and mandamus may be resorted to only when there is
no other plain, available, speedy and adequate remedy in the course of law. Where administrative
remedies are available, petitions for the issuance of these peremptory writs do not lie in order to give the
administrative body the opportunity to decide the matter by itself correctly and to prevent unnecessary
and premature resort to courts.

Republic Act No. 7160 or the Local Government Code of 1991, clearly sets forth the administrative
remedies available to a taxpayer or real property owner who is not satisfied with the assessment or
reasonableness of the real property tax sought to be collected. The Supreme Court outlined said remedies,
to wit:

Should the taxpayer/real property owner question the excessiveness or reasonableness of the
assessment, Section 252 directs that the taxpayer should first pay the tax due before his protest can be
entertained. There shall be annotated on the tax receipts the words paid under protest. It is only after the
taxpayer has paid the tax due that he may file a protest in writing within thirty days from payment of the
tax to the Provincial, City or Municipal Treasurer, who shall decide the protest within sixty days from
receipt. In no case is the local treasurer obliged to entertain the protest unless the tax due has been paid.

If the local treasurer denies the protest or fails to act upon it within the 60-day period provided for in
Section 252, the taxpayer/real property owner may then appeal or directly file a verified petition with the
LBAA within sixty days from denial of the protest or receipt of the notice of assessment, as provided in
Section 226 of R.A. No. 7160[.]

And, if the taxpayer is not satisfied with the decision of the LBAA, he may elevate the same to the CBAA,
which exercises exclusive jurisdiction to hear and decide all appeals from the decisions, orders and
resolutions of the Local Boards involving contested assessments of real properties, claims for tax refund
and/or tax credits or overpayments of taxes. An appeal may be taken to the CBAA by filing a notice of
appeal within thirty days from receipt thereof.

From the Central Board Assessment Appeals, the dispute may then be taken to the Court of Tax Appeals
by filing a verified petition for review under Rule 42 of the Revised Rules of Court; to the Court of tax
Appeals en banc; and finally to the Supreme Court via a petition for review on certiorari pursuant to Rule
45 of the Revised Rules of Court.

We are not convinced with PCGGs stance that their recourse of filing the petition for certiorari, prohibition
and mandamus before the trial court is proper as they are questioning not merely the correctness of the
tax assessment but the actions of Pasig City, through its City Assessor and City Treasurer, which were
done in grave abuse of discretion amounting to lack or excess of jurisdiction.

The well-established rule is that allegations in the complaint and the character of the relief sought
determine the nature of an action. A perusal of the petition before the trial court plainly shows that what

64

is actually being assailed is the correctness of the assessments made by the City Assessor of Pasig City on
the subject parcels of land. PCGG claims, among others, that: 1) the subject parcels of land are exempt
from real property taxation as they are public property; 2) even if the subject parcels of land are subject
to tax, as the beneficial use thereof was granted to private persons and entities, only the portion thereof
used for commerce is subject to tax and the users thereof are the ones liable to pay the tax; and 3) the
right of Pasig City to collect the real property taxes pertaining to 1987 to 1998 has already prescribed.
These claims essentially involve questions of fact, which are improper in a petition for certiorari,
prohibition and mandamus; hence, the petition should have been brought, at the very first instance, to
the Local Board Assessment Appeals, which has authority to rule on the objections of any interested party
who is not satisfied with the action of the assessor. Under the doctrine of primacy of administrative
remedies, an error in the assessment must be administratively pursued to the exclusion of ordinary courts
whose decisions would be void for lack of jurisdiction.

Granting that the assessors authority and the legality of the assessment are indeed an issue, the proper
remedy is a suit for the refund of the real property tax after paying the same under protest. It must be
pointed out that in order for the trial court to resolve the instant petition, the issues of the correctness of
the tax assessment and collection must also necessarily be dealt with; hence, a petition for certiorari,
prohibition and mandamus is not the proper remedy. x x x [T]he resolution of the issues raised in the
instant case involve examination and determination of relevant and material facts, i.e. facts relating to the
ownership of the subject parcels of land, the portion of the subject parcel of land used for commercial
purposes and the identities of the lessees and the users thereof. Since resolution of factual issues is not
allowed in a petition for certiorari, prohibition and mandamus, the trial court is precluded from
entertaining the petition.

Finally, Section 252 of the R.A. No. 7160 requires payment under protest in assailing real property tax
assessment. Even an appeal shall not suspend the collection of the atx assessed without prejudice to a
later adjustment pending the outcome of the appeal. This principle is consistent with the timehonored principle that taxes are the lifeblood of the nation. But the PCGG failed to pay the tax assessment
prior to questioning it before the trial court; hence, the trial court should have dismissed PCGGs petition in
line with the Supreme Court pronouncement that a trial court has no jurisdiction to entertain a similar
petition absent payment under protest.

In conclusion and taking all the foregoing into account, we hold that the trial court had no jurisdiction to
take cognizance and decide PCGG petition for certiorari, prohibition and mandamus; the trial court should
have dismissed the petition.6

PCGG filed a motion for reconsideration. In its 17 October 2008 Decision, the Court of Appeals reversed itself. The
Court of Appeals held:

At the outset, although as a rule, administrative remedies must first be exhausted before ersort to judicial
action can prosper, there is a well-settled exception in cases where the controversy does not involve
questions of fact but only of law. We find that the Republic has shown a cause for the application of the
foregoing exception. Essentially, the Republic has raised a pure question of law whether or not the City of
Pasig has the power to impose real property tax on the subject properties, which are owned by the State.
It bears stressing that the Republic did not raise any question concerning the amount of the real property
tax or the determination thereof. Thus, having no plain, speedy, and adequate remedy in law, the Republic
correctly resorted to judicial action via the petition for certiorari, prohibition, and mandamus, to seek
redress.

We are convinced that the subject properties were not sequestered by the government so as to amount to
a deprivation of property without due process of law; instead, they were voluntarily surrendered to the
State by Campos, a self-admitted crony of the then President Marcos. The relinquishment of the subject
properties to the State as ill-gotten wealth of Marcos, as recognized by the Supreme Court, makes a
judicial declaration that the same were ill-gotten unnecessary. By virtue of said relinquishment, the State
correctly exercised dominion over the subject properties. Indubitably, the subject properties, being illgotten wealth, belong to the State. x x x By its nature, ill-gotten wealth is owned by the State. As a
matter of fact, the Republic continues to exercise dominion over the subject properties. 7

Hence, the present petition.

Issues

65

Pasig City raises as issues that the lower courts erred in granting PCGGs petition for certiorari, prohibition and
mandamus and in ordering Pasig City to assess and collect real property tax from the lessees of the properties.

The Courts Ruling

The petition is partly meritorious.

As correctly found by the RTC and the Court of Appeals, the Republic of the Philippines owns the properties.
Campos voluntarily surrendered MPLDC, which owned the properties, to the Republic of the Philippines. In Republic
of the Philippines v. Sandiganbayan,8 the Court stated:

x x x Jose Y. Campos, a confessed crony of former President Ferdinand E. Marcos, voluntarily surrendered
or turned over to the PCGG the properties, assets and corporations he held in trust for the deposed
President. Among the corporations he surrendered were the Independent Realty Corporation and the MidPasig Land Development Corporation. 9

In Republic of the Philippines v. Sandiganbayan,10 the Court stated:

The antecedent facts are stated by the Solicitor General as follows:

xxxx

3. Sometime in the later part of August 1987, defendant Jose D. Campos, Jr., having been served with
summons on August 5, 1987, filed with the respondent Court an undated Manifestation and Motion to
Dismiss Complaint with Respect to Jose D. Campos praying that he be removed as party defendant from
the complaint on the grounds that he had voluntarily surrendered or turned over any share in his name on
[sic] any of the corporations referred to, aside from disclaiming any interest, ownership or right thereon to
the Government of the Republic of the Philippines and that he was entitled to the immunity granted by the
Presidential Commission on Good Government pursuant to Executive Order No. 14, under the
Commissions Resolution dated May 28, 1986 to Mr. Jose Y. Campos and his family he being a member of
the immediate family of Jose Y. Campos.

xxxx

In the instant case, the PCGG issued a resolution dated May 28, 1986, granting immunity from both civil
and criminal prosecutions to Jose Y. Campos and his family. The pertinent provisions of the resolution read
as follows:
3.0. In consideration of the full cooperation of Mr. Jose Y. Campos to this Commission, his voluntary
surrender of the properties and assets disclosed and declared by him to belong to deposed President
Ferdinand E. Marcos to the Government of the Republic of the Philippines, his full, complete and truthful
disclosures, and his commitment to pay a sum of money as determined by the Philippine Government, this
Commission has decided and agreed:

xxxx

66

Undoubtedly, this resolution embodies a compromise agreement between the PCGG on one hand and Jose
Y. Campos on the other. Hence, in exchange for the voluntary surrender of the ill-gotten properties
acquired by the then President Ferdinand E. Marcos and his family which were in Jose Campos control, the
latter and his family were given full immunity in both civil and criminal prosecutions. x x x

xxxx

By virtue of the PCGGs May 28, 1986 resolution, Jose Campos, Jr. was given full immunity from both civil
and criminal prosecutions in exchange for the full cooperation of Mr. Jose Y. Campos to this Commission,
his voluntary surrender of the properties and assets disclosed and declared by him to belong to deposed
President Ferdinand E. Marcos to the Government of the Republic of the Philippines, his full, complete and
truthful disclosures, and his commitment to pay a sum of money as determined by the Philippine
Government. In addition, Campos, Jr. had already waived and surrendered to the Republic his registered
equity interest in the Marcos/Romualdez corporations involved in the civil case.11

Even as the Republic of the Philippines is now the owner of the properties in view of the voluntary surrender of
MPLDC by its former registered owner, Campos, to the State, such transfer does not prevent a third party with a
better right from claiming such properties in the proper forum. In the meantime, the Republic of the Philippines is
the presumptive owner of the properties for taxation purposes.

Section 234(a) of Republic Act No. 7160 states that properties owned by the Republic of the Philippines are exempt
from real property tax except when the beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person. Thus, the portions of the properties not leased to taxable entities are exempt
from real estate tax while the portions of the properties leased to taxable entities are subject to real estate tax.
The law imposes the liability to pay real estate tax on the Republic of the Philippines for the portions of the
properties leased to taxable entities. It is, of course, assumed that the Republic of the Philippines passes on the
real estate tax as part of the rent to the lessees.

In Philippine Fisheries Development Authority v. Central Board of Assessment Appeals,12 the Court held:

In the 2007 case of Philippine Fisheries Development Authority v. Court of Appeals, the Court resolved the
issue of whether the PFDA is a government-owned or controlled corporation or an instrumentality of the
national government. In that case, the City of Iloilo assessed real property taxes on the Iloilo
Fishing Port Complex (IFPC), which was managed and operated by PFDA. The Court held that
PFDA is an instrumentality of the government and is thus exempt from the payment of real
property tax, thus:

The Court rules that the Authority is not a GOCC but an instrumentality of the national
government which is generally exempt from payment of real property tax. However,
said exemption does not apply to the portions of the IFPC which the Authority leased to
private entities. With respect to these properties, the Authority is liable to pay property
tax. Nonetheless, the IFPC, being a property of public dominion cannot be sold at public auction
to satisfy the tax delinquency.
xxxx

This ruling was affirmed by the Court in a subsequent PFDA case involving the Navotas Fishing Port Complex, which
is also managed and operated by the PFDA. In consonance with the previous ruling, the Court held in the
subsequent PFDA case that the PFDA is a government instrumentality not subject to real property tax
except those portions of the Navotas Fishing Port Complex that were leased to taxable or private
persons and entities for their beneficial use.
Similarly, we hold that as a government instrumentality, the PFDA is exempt from real property tax
imposed on the Lucena Fishing Port Complex, except those portions which are leased to private
persons or entities.13 (Emphasis supplied)

67

In Government Service Insurance System v. City Treasurer of the City of Manila,14 the Court held:

x x x The tax exemption the property of the Republic or its instrumentalities carries ceases only
if, as stated in Sec. 234(a) of the LGC of 1991, beneficial use thereof has been granted, for a
consideration or otherwise, to a taxable person. GSIS, as a government instrumentality, is not a
taxable juridical person under Sec. 133(o) of the LGC. GSIS, however,lost in a sense that status with
respect to the Katigbak property when it contracted its beneficial use to MHC, doubtless a
taxable person. Thus, the real estate tax assessment ofPhp 54,826,599.37 covering 1992 to
2002 over the subject Katigbak property is valid insofar as said tax delinquency is concerned as
assessed over said property.15 (Emphasis supplied)

In Manila International Airport Authority v. Court of Appeals,16 the Court held:

x x x Section 234(a) of the Local Government Code states that real property owned by the
Republic loses its tax exemption only if the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person. MIAA, as a government instrumentality, is not a
taxable person under Section 133(o) of the local Government Code. Thus, even if we assume that the
Republic has granted to MIAA the beneficial use of the Airport Lands and Buildings, such fact does not
make these real properties subject to real estate tax.

However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not
exempt from real estate tax. For example, the land area occupied by hangars that MIAA leases
to private corporations is subject to real estate tax. In such a case, MIAA has granted the
beneficial use of such land area for a consideration to a taxable person and therefore such land
area is subject to real estate tax.17 (Emphasis supplied)

In Lung Center of the Philippines v. Quezon City,18 the Court held:

x x x While portions of the hospital are used for the treatment of patients and the dispensation of medical
services to them, whether paying or non-paying, other portions thereof are being leased to private
individuals for their clinics and a canteen. Further, a portion of the land is being leased to a private
individual for her business enterprise under the business name Elliptical Orchids and Garden Center.
Indeed, the petitioners evidence shows that it collected P1,136,483.45 as rentals in 1991
and P1,679,999.28 for 1992 from the said lessees.

Accordingly, we hold that the portions of the land leased to private entities as well as those parts
of the hospital leased to private individuals are not exempt from such taxes. On the other hand,
the portions of the land occupied by the hospital and portions of the hospital used for its patients, whether
paying or non-paying, are exempt from real property taxes. 19(Emphasis supplied)

Article 420 of the Civil Code classifies as properties of public dominion those that are intended for public use, such
as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads and those
that are intended for some public service or for the development of the national wealth. Properties of public
dominion are not only exempt from real estate tax, they are exempt from sale at public auction. In Heirs of
Mario Malabanan v. Republic,20 the Court held that, It is clear that property of public dominion, which generally
includes property belonging to the State, cannot be x x x subject of the commerce of man.21

In Philippine Fisheries Development Authority v. Court of Appeals,22 the Court held:

x x x [T]he real property tax assessments issued by the City of Iloilo should be upheld only with respect to
the portions leased to private persons. In case the Authority fails to pay the real property taxes due

68

thereon, said portions cannot be sold at public auction to satisfy the tax delinquency. In Chavez
v. Public Estates Authority it was held that reclaimed lands are lands of the public dominion and
cannot, without Congressional fiat, be subject of a sale, public or private x x x.

In the same vein, the port built by the State in the Iloilo fishing complex is a property of the
public dominion and cannot therefore be sold at public auction. Article 420 of the Civil Code,
provides:

Article 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.

The Iloilo fishing port which was constructed by the State for public use and/or public service
falls within the term port in the aforecited provision. Being a property of public dominion the
same cannot be subject to execution or foreclosure sale. In like manner, the reclaimed land on
which the IFPC is built cannot be the object of a private or public sale without Congressional
authorization.23 (Emphasis supplied)

In Manila International Airport Authority,24 the Court held:

x x x [T]he Airport Lands and Buildings of MIAA are properties devoted to public use and thus are
properties of public dominion. Properties of public dominion are owned by the State or the Republic.
Article 420 of the Civil Code provides:

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.

The term ports x x x constructed by the Sate includes airports and seaports. The Airport Lands and
Buildings of MIAA are intended for public use, and at the very least intended for public service. Whether
intended for public use or public service, the Airport Lands and Buildings are properties of public dominion.
As properties of public dominion, the the Airport lands and Buildings are owned by the Republic and thus
exempt from real estate tax under Section 234(a) of the Local Government Code.

xxxx

Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use,
are properties of public dominion and thus owned by the State or the Republic of the Philippines. Article
420 specifically mentions ports x x x constructed by the State, which includes public airports and seaports,
as properties of public dominion and owned by the Republic. As properties of public dominion owned by
the Republic, there is no doubt whatsoever that the Airport Lands and Buildings are expressly exempt

69

from real estate tax under Section 234(a) of the local Government Code. This Court has also
repeatedly ruled that properties of public dominion are not subject to execution or foreclosure
sale.25(Emphasis supplied)

In the present case, the parcels of land are not properties of public dominion because they are not intended for
public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks,
shores, roadsteads. Neither are they intended for some public service or for the development of the national
wealth. MPLDC leases portions of the properties to different business establishments. Thus, the portions of the
properties leased to taxable entities are not only subject to real estate tax, they can also be sold at public auction
to satisfy the tax delinquency.

In sum, only those portions of the properties leased to taxable entities are subject to real estate tax for the period
of such leases. Pasig City must, therefore, issue to respondent new real property tax assessments covering the
portions of the properties leased to taxable entities. If the Republic of the Philippines fails to pay the real property
tax on the portions of the properties leased to taxable entities, then such portions may be sold at public auction to
satisfy the tax delinquency.

WHEREFORE, the petition is PARTIALLY GRANTED. The Court SETS ASIDE the 17 October 2008 Decision of the
Court of Appeals in CA-G.R. SP No. 97498 and declares VOID the 30 September 2002 real property tax
assessment issued by Pasig City on the subject properties of Mid-Pasig Land Development Corporation, the 8
November 2005 warrants of levy on the properties, and the 2 December 2005 auction sale. Pasig City
is DIRECTED to issue to respondent new real property tax assessments covering only the portions of the
properties actually leased to taxable entities, and only for the period of such leases. Interests and penalties on
such new real property tax assessment shall accrue only after receipt of such new assessment by respondent.
SO ORDERED.

G.R. No. 192999

July 18, 2012

DIAMOND FARMS, INC., Petitioner,

vs.
DIAMOND FARM WORKERS MULTI-PURPOSE COOPERATIVE, ELlSEO EMANEL, VOLTAIRE LOPEZ, RUEL
ROMERO, PATRICIO CAPRICIO, ERNESTO FATALLO, ZOSIMO GOMEZ AND 100 JOHN DOES, Respondents.
DECISION
VILLARAMA, JR., J.:
Petitioner Diamond Farms, Inc. appeals the Decision 1 dated December 17, 2009 and Resolution
2010 of the Court of Appeals (CA) in CA-G.R. SP No. 101384.

dated July 15,

The facts of the case are as follows:

Petitioner is a corporation engaged m commercial farming of bananas. 3 It owned 1,023.8574 hectares of land in
Carmen, Davao. A big portion of this land measuring 958.8574 hectares (958-hectare land) was initially deferred
for acquisition and distribution under the Comprehensive Agrarian Reform Program (CARP). 4 On November 3, 1992,
Secretary Ernesto D. Garilao of the Department of Agrarian Reform (DAR) likewise approved the Production and
Profit Sharing (PPS) Scheme proposed by the Philippine Banana Growers and Exporters Association as the mode of
compliance with the required production sharing under Section 32 of Republic Act No. 6657, otherwise known as
the Comprehensive Agrarian Reform Law (CARL).5
Later, on February 14, 1995, the Deferment Order was lifted and the aforesaid 958-hectare land was placed under
CARP coverage. Thereafter, 698.8897 hectares of the 958-hectare land were awarded to members of the Diamond
Agrarian Reform Beneficiaries Multi-Purpose Cooperative (DARBMUPCO). Petitioner, however, maintained
management and control of 277.44 hectares of land, including a portion measuring 109.625 hectares (109-hectare
land).
On November 23, 1999, petitioners certificates of title over the 109-hectare land were cancelled. In lieu thereof,
Transfer Certificates of Title (TCT) Nos. T-154155 to T-154160 were issued in the name of the Republic of the
Philippines. On August 5, 2000, the DAR identified 278 CARP beneficiaries of the 109-hectare land, majority of
whom are members of respondent Diamond Farm Workers Multi-Purpose Cooperative (DFWMPC). On October 26,
2000, the DAR issued six Certificates of Land Ownership Award (CLOAs) collectively in favor of the 278 CARP
beneficiaries.6
Subsequently, on July 2, 2002, petitioner filed a complaint 7 for unlawful occupation, damages and attorneys fees
against respondents. Petitioner alleged that as of November 1995, it was the holder of TCT Nos. 112068 and

70

112073 covering two parcels of land within the 109-hectare land. It alleged that it had been in possession for a
long time of the two lands, which had a total area of 74.3393 hectares (74-hectare land), and grew thereon
export-quality banana, producing on average 11,000 boxes per week worth P1.46 million. It alleged that the DARs
August 5, 2000
Order distributing the 109-hectare land to 278 CARP beneficiaries was not yet final on account of appeals, and
therefore petitioner remains the lawful possessor of the subject land (109-hectare land) and owner of the
improvements thereon. But while the CARP beneficiaries have not been finally designated and installed,
respondents its farm workers refused to do their work from June 10, 2002, forcibly entered and occupied the
74-hectare land, and prevented petitioner from harvesting and introducing agricultural inputs. Thus, petitioner
prayed that respondents be ordered to vacate the subject land; that it be allowed to harvest on the 74-hectare
land; and that respondents be ordered to pay it lost income of P1.46 million per week from June 10, 2002 until
farm operation normalizes, exemplary damages of P200,000, attorneys fees of P200,000, appearance fees,
incidental expenses of P100,000 and costs.
In their answer with compulsory counterclaim, 8 respondents admitted that petitioner was the holder of TCT Nos.
112068 and 112073, covering the 74-hectare land and that the said land produces 11,000 boxes of export-quality
bananas per week. Respondents added that besides the 74-hectare land, petitioner owned four other parcels of
land covered by TCT Nos. 112058, 112059, 112062 and 112063 having a total area of 35.2857 hectares (35hectare land). These six parcels, which altogether have a total area of 109.625 hectares (109-hectare land), were
acquired by the government upon the issuance of TCTs in the name of the Republic of the Philippines. But even
after CLOAs were issued to the 278 CARP beneficiaries, petitioner continued to manage the 109-hectare land,
paying wages to respondents as farm workers. Since 1995 they had been demanding from petitioner payment of
their production share to no avail.
Respondents further claimed that petitioner conspired with 67 CARP beneficiaries to occupy and cultivate the 35hectare land. Petitioner tried to allow alleged beneficiaries to occupy portions of the 74-hectare land, but
respondents guarded it to protect their own rights, so the intruders were able to occupy only the pumping
structure. Thereafter, petitioner stopped farm operation on the 74-hectare land and refused their request to resume
farm operation. By way of relief, respondents prayed that their rights as CARP beneficiaries of the 109-hectare land
be recognized and that their counterclaims for production share, profit share, accrued income and interest be
granted.
Petitioner filed a reply9 and alleged that respondents initiated the commission of premature and unlawful entry into
the 35-hectare land and did nothing to curb the unlawful entry of other parties. Petitioner also admitted that
respondents recently allowed it to harvest and perform essential farm operations.
In their rejoinder,10 respondents denied that they illegally entered the 35-hectare land. They averred that petitioner
promoted the entry of third parties and cited petitioners agreements with third parties for the harvest of fruits
thereon.
During the proceedings before the Office of the Regional Adjudicator, petitioner submitted its computation of
respondents production and profit share from the 109-hectare land for the years 1995 to 1999 and accordingly
deposited the amount of P2.51 million. Respondents were required to submit a project of distribution, and the
parties were ordered to submit position papers. Upon compliance by respondents with the order to submit a project
of distribution, the Office of the Regional Adjudicator ordered the release of the amount deposited by petitioner to
respondents.11 Respondents thereafter submitted their position paper,12 wherein they reiterated that they had to
guard the land to protect their rights. They confirmed petitioners acceptance of their request to resume normal
farm operation, and manifested that a precarious peace and harmony thereafter reigned on the 109-hectare land.
They also repeated their prayers in their answer. Petitioner, on the other hand, failed to file its position paper
despite several requests for extension of time to file the same. 13
In his Decision,14 the Regional Agrarian Reform Adjudicator ruled that petitioner lost its ownership of the subject
land when the government acquired it and CLOAs were issued in favor of the 278 CARP beneficiaries. The appeals
from the Distribution Order will not alter the fact that petitioner is no longer the owner of the subject land. Also,
respondents have been identified as CARP beneficiaries; hence, they are not unlawfully occupying the land. The
Adjudicator added that petitioner is unlawfully occupying the land since it has no contract with the CARP
beneficiaries. Thus, the Adjudicator denied petitioners prayers in its complaint and granted respondents
counterclaims.
Aggrieved, petitioner appealed to the DARAB, but the DARAB denied petitioners appeal in a Decision 15 dated
December 11, 2006. The DARAB ruled that petitioner is unlawfully occupying the subject land; hence, its complaint
against respondents for unlawful occupation lacks merit. It also ruled that petitioner is no longer entitled to possess
the subject land; that petitioner lost its ownership thereof; that ownership was transferred to the 278 CARP
beneficiaries; that the appeals from the Distribution Order concern distribution and will not restore petitioners
ownership; that the 278 CARP beneficiaries can now exercise their rights of ownership and possession; and that
petitioner should have delivered possession of the 109-hectare land to the CARP beneficiaries on August 5, 2000
instead of remaining in possession and in control of farm operations.
In awarding production and profit share, the DARAB held that Section 32 of the CARL requires petitioner to
distribute said share to respondents. The DARAB computed the production and profit share based on the PPS
Scheme proposed by the Philippine Banana Growers and
Exporters Association and approved by DAR Secretary Ernesto D. Garilao. The dispositive portion of the DARABs
December 11, 2006 Decision reads:
WHEREFORE, premises considered, the Appeal is hereby DENIED for lack of merit.
The assailed Decision is hereby MODIFIED to read as follows:

71

1. DENYING the reliefs prayed for in the complaint;

2. ORDERING the [petitioner] to turn over to the respondents the possession of the subject landholding
and respect the respondents peaceful possession thereof;
3. ORDERING the [petitioner] to pay the respondents the following amount:
a. P27,553,703.25 less P2,511,786.00 as Production and Profit Share (PPS) from 15 February
1995 to 31 December 2005;
b. P17,796,473.43 as lease rental for the use of the land of petitioner from 26 October 2000 up
to 31 December 2005;
c. P6,205,011.89 as accrued interest on the unpaid PPS from 01 March 1996 to 01 March 2006;
and d. P2,241,930.90 as accrued interest on the unpaid lease rental from 01 January 2001 to 01
January 2006.
4. ENCOURAGING the parties to enter into an agribusiness venture over the subject landholding, if
feasible.
SO ORDERED.16
Its motion for reconsideration having been denied, petitioner appealed to the CA raising the following arguments:
(1) respondents are not the lawful possessors of the subject land as well as the valuable improvements thereon,
prior to receipt by petitioner of the corresponding payment for the land from the government, or upon deposit in
favor of petitioner of the compensation for the same in cash or in Land Bank of the Philippines (LBP) bonds; (2) not
being lawful possessors of the subject land, respondents are not entitled to production share in the amount of
P25.04 million and interest thereon in the amount of P6.21 million; and (3) not being lawful possessors of the
subject land, respondents are not entitled to lease rentals as well as accrued interest thereon. 17
As afore-stated, the CA in the assailed Decision affirmed the DARAB decision. The CA, however, deleted the award
of lease rentals and interest thereon, to wit:
WHEREFORE, the assailed December 11, 2006 Decision and August 29, 2007 Resolution are MODIFIED to delete
the DARABs award of lease rentals and interests thereon in favor of respondents. The rest is AFFIRMED in toto.
SO ORDERED.18
The CA agreed with the DARAB in rejecting petitioners bare and belated allegation that it has not received just
compensation. The alleged nonpayment of just compensation is also a collateral attack against the TCTs issued in
the name of the Republic of the Philippines. The CA found that petitioner has never sought the nullification of the
Republics TCTs. Further, the CA found no credible evidence relating to proceedings for payment of just
compensation. The CA held that the issuance of the Republics TCTs and CLOAs in favor of the 278 CARP
beneficiaries implies the deposit in cash or LBP bonds of the amount initially determined as compensation for
petitioners land or the actual payment of just compensation due to petitioner. Additionally, the appeals over the
Distribution Order cannot justify petitioners continued possession since the appeals concern only the manner of
distribution.
The CA held that petitioner became liable for respondents production share when the Deferment Order was lifted.
The CA noted that the DARAB computed the production share based on the approved PPS Scheme. The CA also
noted petitioners deposit of P2.51 million as petitioners recognition of respondents right to production share.
Aggrieved, petitioner filed a motion for partial reconsideration contending that the CA erred when it affirmed the
DARAB in ordering petitioner to (1) turn over possession of the subject land to respondents and respect their
possession thereof and (2) pay respondents production and profit share of P25.04 million and interest of P6.21
million.19 The CA, however, denied petitioners motion for partial reconsideration.
Hence, petitioner filed the present appeal. Respondents, on the other hand, no longer appealed the CA Decision
and Resolution.
In its petition, petitioner argues that
I.
WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS, IN COMPLETE DEROGATION OF THE
PETITIONERS CONSTITUTIONAL RIGHT TO RECEIVE JUST COMPENSATION FOR THE TAKING OF ITS
PROPERTY, COMMITTED A SERIOUS
ERROR OF LAW WHEN IT AFFIRMED THE PORTION OF THE DECISION OF THE DARAB BASED ON ITS
REASONING THAT THE ISSUE OF NON-PAYMENT OF JUST COMPENSATION TO THE PETITIONER IS AN
ISSUE RAISED ONLY AT THE DARAB LEVEL; THIS RULING IS SIMPLY NOT IN ACCORD WITH LAW AND
PERTINENT JURISPRUDENCE
II.

72

WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW IN
CONSIDERING THE PETITIONERS ASSERTION OF ITS CONSTITUTIONAL RIGHT TO JUST COMPENSATION
AS A COLLATERAL ATTACK ON THE REPUBLICS TITLE20
Essentially, the issues for our resolution are: (1) whether respondents are guilty of unlawful occupation
and liable to petitioner for damages and attorneys fees, (2) whether petitioner should turn over
possession of the subject land to respondents and respect their possession thereof, and (3) whether the
award of production share and interest was proper.
Petitioner insists that prior to its receipt of the corresponding payment for the land from the government
or deposit in its favor of the compensation for the land in cash or in LBP bonds, respondents cannot be
deemed lawful possessors of the subject land and the valuable improvements thereon, citing Section 16
(e) of the CARL. According to petitioner, "it has yet to receive any compensation for the lands acquired by
the government."21 Petitioner also contends that the CA erred in ruling that the issue of nonpayment of
just compensation was raised only at the DARAB level, such being an unavoidable issue intertwined with
its cause of action. Petitioner further avers that the CA erred in ruling that petitioners assertion of its
constitutional right to just compensation is a collateral attack on the TCTs of the Republic of the
Philippines. Petitioner maintains that the Republics TCTs which are derived from its TCTs pursuant to the
CARL are neither attacked nor assailed in this case. Petitioner thus prays that it be declared as the lawful
owner and possessor of the subject land until its actual receipt of just compensation.
In their comment, respondents claim that petitioner is just trying to mislead this Court that it has not
been paid compensation for its property. Respondents cite two Certifications 22 of Deposit (CARP Form No.
17) showing that the LBP deposited P9.92 million in cash and agrarian reform bonds as compensation for
91.3925 hectares of land and another 18.2325 hectares of land, or for 109.625 hectares of land (109hectare land), owned by petitioner and covered by TCT Nos. T-112058, 112059, 112062, 112063, 112068,
and 112073. Respondents also cite a DAR Memorandum23 dated November 22, 1999 (CARP Form No. 18)
requesting the Register of Deeds to issue TCTs in the name of the Republic of the Philippines. Respondents
then summarized the consequent cancellations of the TCTs by attaching certified true copies of:
xxxx
4. [TCT Nos.] T-112058, T-112059, T-112062, T-112063, T-112073 and T-112068 of petitioner which
show that LBP Certificates of Deposit and DAR Memorandum-Request were duly annotated at the back
thereof, and that the same were cancelled on 23 November 1999 upon issuance of TCTs in favor [of] the
Republic of the Philippines;
5. [TCT Nos.] T-154159, T-154160, T-154157, T-154156, T-154155 issued in favor of the Republic of the
Philippines showing that the same were cancelled on 30 October 2000 upon issuance of TCT[s] in favor of
herein respondents;
6. [TCT Nos.] C-14005, C-14006, C-15311, C-15526, C-15527, C-14007, C-14004 issued infavor of herein
respondents showing THAT THE FARM/HOMELOT DESCRIBED IN THIS CERTIFICATE OF LANDOWNERSHIP
AWARD IS ENCUMBERED IN FAVOR OF THE LAND BANK OF THE PHILIPPINES TO SECURE FULL PAYMENT
OF ITS VALUE UNDER [THE CARL] BY THE FARMER-BENEFICIARY NAMED HEREIN, and that the same
were already cancelled on April 30, 2009 upon issuance of TCTs in favor of herein respondent cooperative
now Davao Farms Agrarian Reform Beneficiaries Multi-Purpose Cooperative DFARBEMPCO. 24
In its reply, petitioner states that to "set the record straight, the documents presented by respondents refer to the
deposit of the initial valuation of the land" as determined by the LBP. This is not the just compensation for the land
which is required to be determined by a court of justice. 25 According to petitioner, Sections 56 and 57 of the CARL
provides that the Regional Trial Court (RTC), acting as a Special Agrarian Court (SAC), has the original and
exclusive jurisdiction over all petitions for the determination of just compensation to landowners. Petitioner also
states that the issue of just compensation may be easily gleaned at least from the submissions of the parties in
their pleadings and one that had therefore been tried under the parties implicit agreement. We find petitioners
contentions bereft of merit. On the first issue, we agree that respondents are not guilty of unlawful occupation and
that there exists no basis to award damages and attorneys fees to petitioner as respondents are agrarian reform
beneficiaries who have been identified as such, and in whose favor CLOAs have been issued. We thus uphold the
ruling denying petitioners prayers in its complaint for unlawful occupation, damages and attorneys fees. However,
we note significant facts which dispute some findings of the Adjudicator, DARAB and CA, and make the necessary
clarification or correction as appropriate.
It is beyond doubt that petitioner is the farm operator and manager while respondents are the farm workers. Both
parties enjoyed possession of the land. Together, they worked thereon. Before CARP, petitioner was the landowner,
farm operator and manager. Respondents are its farm workers. After the deferment period, CARP finally dawned.
Petitioner lost its status as landowner, but not as farm operator and manager. Respondents remained as petitioners
farm workers and received wages from petitioner.
Now, the unrebutted claim of respondents in their answer and position paper is that they guarded the 74-hectare
land to protect their rights as farm workers and CARP beneficiaries. They were compelled to do so when petitioner
attempted to install other workers thereon, after it conspired with 67 CARP beneficiaries to occupy the 35-hectare
land. They were fairly successful since the intruders were able to occupy the pumping structure. The government,
including this Court, cannot condone petitioners act to thwart the CARPs implementation. Installing workers on a
CARP-covered land when the DAR has already identified the CARP beneficiaries of the land and has already ordered
the distribution of the land to them serves no other purpose than to create an impermissible roadblock to installing
the legitimate beneficiaries on the land.

73

We also find the action taken by respondents to guard the land as reasonable and necessary to protect their
legitimate possession and prevent precisely what petitioner attempted to do. Such course was justified under
Article 429 of the Civil Code which reads:
ART. 429. The owner or lawful possessor of a thing has the right to exclude any person from the enjoyment and
disposal thereof. For this purpose, he may use such force as may be reasonably necessary to repel or prevent an
actual or threatened unlawful physical invasion or usurpation of his property.
Being legitimate possessors of the land and having exercised lawful means to protect their possession, respondents
were not guilty of unlawful occupation.
As to the immediate resumption of farm operations, petitioner admitted that respondents have already allowed it to
harvest and perform essential activities. Respondents have confirmed that petitioner accepted their request to
resume normal farm operations such that a precarious peace and harmony reigned on the 109-hectare land. That
farm operations resumed is evident from petitioners claim of lost income amounting to P1.46 million a week for
four weeks, from June 10, 2002 to July 7, 2002.26 Due to the parties quick and voluntary agreement, farm
operation and the parties relationship normalized within five days from the filing of the complaint on July 2, 2002.
We thus agree that petitioner must respect respondents possession.
However, we disagree with the finding of the Adjudicator and DARAB that petitioner is guilty of unlawful occupation.
Since respondents themselves have asked petitioner to resume its farm operation, petitioners possession cannot
be said to be illegal and unjustified.
This notwithstanding, we sustain the order for petitioner to turn over possession of the 109-hectare land. The
DARAB and the DAR shall ensure that possession of the land is turned over to qualified CARP beneficiaries.
The procedure for acquisition of private lands under Section 16 (e) of the CARL is that upon receipt by the
landowner of the corresponding payment or, in case of rejection or no response from the landowner, upon deposit
with an accessible bank designated by the DAR of the compensation in cash or in LBP bonds, the DAR shall take
immediate possession of the land and request the proper Register of Deeds to issue a TCT in the name of the
Republic of the Philippines. Thereafter, the DAR shall proceed with the redistribution of the land to the qualified
beneficiaries, to wit:
SEC. 16. Procedure for Acquisition of Private Lands. For purposes of acquisition of private lands, the following
procedures shall be followed:
xxxx
(e) Upon receipt by the landowner of the corresponding payment or in case of rejection or no response from the
landowner, upon the deposit with an accessible bank designated by the DAR of the compensation in cash or in LBP
bonds in accordance with this Act, the DAR shall take immediate possession of the land and shall request the
proper Register of Deeds to issue a Transfer Certificate of Title (TCT) in the name of the Republic of the Philippines.
The DAR shall thereafter proceed with the redistribution of the land to the qualified beneficiaries.
xxxx
Petitioner eventually acknowledged that there was indeed a deposit of the initial valuation of the land. There were
two deposits of cash and agrarian reform bonds as compensation for the 109-hectare land owned by petitioner and
covered by TCT Nos. T-112058, 112059, 112062, 112063, 112068 and 112073. Notably, petitioner also manifested
that the Republics TCTs which are derived from its TCTs pursuant to the CARL are neither attacked nor assailed in
this case. Petitioner even argued that the transfer of possession and ownership of the land to the government is
conditioned upon the receipt by the landowner of the corresponding payment or deposit by the DAR of the
compensation with an accessible bank.27 Following petitioners own reasoning, petitioner has already lost its
possession and ownership when the condition was fulfilled. Likewise undisputed is that in 2000, CLOAs had been
issued collectively in favor of the 278 CARP beneficiaries of the 109-hectare land. These CLOAs constitute evidence
of ownership by the beneficiaries under the then provisions of Section 24 28 of the CARL, to wit:
SEC. 24. Award to Beneficiaries. The rights and responsibilities of the beneficiary shall commence from the time
the DAR makes an award of the land to him, which award shall be completed within one hundred eighty (180) days
from the time the DAR takes actual possession of the land. Ownership of the beneficiary shall be evidenced by a
Certificate of Land Ownership Award, x x x. (Underscoring ours.)
In the light of the foregoing, this Court cannot grant petitioners plea that it be declared as the lawful owner of the
109-hectare land. It is also to be noted that in its complaint, petitioner did not even claim ownership of the 109hectare land. Petitioner could only state that as of November 1995, it was the holder of the TCTs covering the 74hectare land and that pending resolution of the appeals from the distribution orders, it remains in the meantime as
the lawful possessor of the 109-hectare land. Nothing therefore supports petitioners claim that it is the lawful
owner of the 109-hectare land.
To reiterate, petitioner had lost its ownership of the 109-hectare land and ownership thereof had been transferred
to the CARP beneficiaries. Respondents themselves have requested petitioner to resume its farm operations and
this fact has given petitioner a temporary right to enjoy possession of the land as farm operator and manager.
We, however, agree that petitioner must now turn over possession of the 109-hectare land.
The matter has already been settled in Hacienda Luisita, Incorporated, etc. v. Presidential Agrarian Reform Council,
et al.,29 when we ruled that the Constitution and the CARL intended the farmers, individually or collectively, to have

74

control over agricultural lands, otherwise all rhetoric about agrarian reform will be for naught. We stressed that
under Section 4, Article XIII of the 1987 Constitution and Section 2 of the CARL, the agrarian reform program is
founded on the right of farmers and regular farm workers who are landless to own directly or collectively the lands
they till. The policy on agrarian reform is that control over the agricultural land must always be in the hands of the
farmers.
Under Section 16 (e) of the CARL, the DAR is mandated to proceed with the redistribution of the land to the
qualified beneficiaries after taking possession of the land and requesting the proper Register of Deeds to issue a
TCT in the name of the Republic of the Philippines. Section 24 of the CARL is yet another mandate to complete the
award of the land to the beneficiary within 180 days from the time the DAR takes actual possession of the
land.30 And under Section 20 of DAR Administrative Order No. 9, Series of 1998, also known as the Rules and
Regulations on the Acquisition, Valuation, Compensation and Distribution of Deferred Commercial Farms, CLOAs
shall be registered immediately upon generation, and the Provincial Agrarian Reform Officer (PARO) shall install or
cause the installation of the beneficiaries in the commercial farm within seven days from registration of the CLOA.
Section 20 of the Rules provides:
SEC. 20. Registration of CLOAs and Installation of Beneficiaries CLOAs shall be registered immediately upon
generation. The PARO shall install or cause the installation of the beneficiaries in the commercial farm within seven
(7) days from registration of the CLOA.
We hold that the 109-hectare land must be distributed to qualified CARP beneficiaries. They must be installed on
the land and have possession and control thereof.
A problem that emerged in this case is the identification of qualified CARP beneficiaries. Respondents own evidence
does not definitively show who are the legitimate CARP beneficiaries in the 109-hectare land. TCT Nos. 112058,
112059, 112062, 112063, 112068, and 112073, issued in the name of petitioner, were cancelled by TCT Nos.
154155 to 154160 issued in the name of the Republic of the Philippines. The Republics TCTs were cancelled by TCT
Nos. C-14002 to C-14007.31 Notably, TCT Nos. C-14004,32 C-14006,33 and C-1400734 show that they were
respectively cancelled by TCT Nos. C-27342, C-27344, and C-27345, all in favor of DFARBEMPCO. It must be
verified however if DFARBEMPCO is the legitimate successor of DFWMPC, herein respondent cooperative. As
regards TCT No. C-14005,35 there was a partial cancellation by TCT No. C-27110 in favor of DARBMUPCO and total
cancellation by TCT No. C-27343 in favor of DFARBEMPCO. Nothing is shown about TCT Nos. C-14002 to C-14003.
Neither can TCT Nos. C-15311,36 C-15526,37 and C-1552738 provide clarity. These TCTs cited by respondents contain
entries of partial or total cancellation by TCT Nos. C-27346, C-27115 and C-27114, in favor of DFARBEMPCO or
DARBMUPCO. The areas covered by TCT Nos. C-15311, C-15526, and C-15527 also appear to be different than
those covered by the cancelled TCTs in the name of petitioner and the Republic of the Philippines. Hence, it is
imperative that the DAR and PARO assist the DARAB so that the 109-hectare land may be properly turned over to
qualified CARP beneficiaries, whether individuals or cooperatives. Needless to stress, the DAR and PARO have been
given the mandate to distribute the land to qualified beneficiaries and to install them thereon.
To fully address petitioners allegations, we move on to its claim that the issue of just compensation is an issue that
may easily be gleaned at least from the submissions of the parties in their pleadings and one that had therefore
been tried under the parties implicit agreement.
Petitioners claim is unfounded. Even the instant appeal39 is silent on the factors to be considered40 in determining
just compensation. These factors are enumerated in Section 17 41 of the CARL which reads:
SECTION 17. Determination of Just Compensation. In determining just compensation, the cost of acquisition of
the land, the current value of like properties, its nature, actual use and income, the sworn valuation by the owner,
the tax declarations, and the assessment made by government assessors shall be considered. The social and
economic benefits contributed by the farmers and the farmworkers and by the Government to the property as well
as the nonpayment of taxes or loans secured from any government financing institution on the said land shall be
considered as additional factors to determine its valuation.
What petitioner stressed before us and before the CA to assail respondents possession is its less-than-candid claim
that it has yet to receive any compensation for the lands acquired by the government. 42 Petitioners cause of action
in its complaint for unlawful occupation with prayer that respondents be ordered to vacate and pay damages and
attorneys fees cannot also be mistaken as one for determination of just compensation. Thus, just compensation
was never an issue in this case.
Sections 56 and 57 of the CARL likewise provides that the RTC, acting as SAC, has original and exclusive
jurisdiction over all petitions for the determination of just compensation to landowners, to wit:
SEC. 56. Special Agrarian Court. - The Supreme Court shall designate at least one (1) branch of the Regional Trial
Court (RTC) within each province to act as a Special Agrarian Court.
xxxx
SEC. 57. Special Jurisdiction. The Special Agrarian Courts shall have original and exclusive jurisdiction over all
petitions for the determination of just compensation to landowners, x x x.
We said that the DARs land valuation is only preliminary and is not, by any means, final and conclusive upon the
landowner. The landowner can file an original action with the RTC acting as SAC to determine just compensation.
The court has the right to review with finality the determination in the exercise of what is admittedly a judicial
function.43

75

This case however was not brought before the SAC on determination of just compensation. No reversible error was
therefore committed by the CA when it did not rule on just compensation.
On the third issue, petitioner contends that respondents are not entitled to production share as well as interest
since they are not lawful possessors of the subject land. Petitioner asserts that the 3% production share under
Section 32 of the CARL may only be given if there are sales from the production of the land. Petitioner however
claims that it has incurred losses and that respondents admitted that farm operations in the subject land have not
normalized. Petitioner thus submits that there is no factual basis in the production share from the sale of
agricultural products in the subject land.
The contention has no merit.
We have already ruled that respondents possession is legitimate. On petitioners claim that it incurred losses,
Section 32 of the CARL clearly states that the 3% production share of the farm workers is based on "gross sales
from the production of such lands," to wit:
SEC. 32. Production-Sharing. Pending final land transfer, individuals or entities owning, or operating under lease
or management contract, agricultural lands are hereby mandated to execute a production-sharing plan with their
farmworkers or farmworkers organization, if any, whereby three percent (3%) of the gross sales from the
production of such lands are distributed within sixty (60) days of the end of the fiscal year as compensation to
regular and other farmworkers in such lands over and above the compensation they currently receive: Provided,
That these individuals or entities realize gross sales in excess of five million pesos per annum unless the DAR, upon
proper application, determines a lower ceiling. (Underscoring ours.)
Petitioner cites its net losses, computed after deductions were made on the amount of its sales.1wphi1 These
losses however, have no bearing in computing the production share which is based on gross sales. And petitioners
own allegation of weekly production worth P1.46 million the same amount used by petitioner as basis of its claim
for damages debunks its claim that no basis exists that there were sales from agricultural products of the subject
land. Likewise supporting the existence of sales is petitioners own computation of respondents production share
and its deposit of the amount of P2.51 million before the Office of the Regional Adjudicator. It must be noted also
that farm operations normalized within five days from the filing of the complaint.
In sum, petitioner failed to show any reversible error committed by the CA in affirming the DARABs computation of
respondents production share based on the approved PPS Scheme. Notably, petitioner has admitted the fact of
approval of the PPS Scheme.44
WHEREFORE, we DENY the petition for lack of merit and AFFIRM the Decision dated December 17, 2009 and
Resolution dated July 15, 2010 of the Court of Appeals in CA-G.R. SP No. 101384.
We also DIRECT the Department of Agrarian Reform and the Provincial Agrarian Reform Officer to assist the
Department of Agrarian Reform Adjudication Board in the distribution of the I 09-hectare land to the qualified
agrarian reform beneficiaries, whether individuals or cooperatives.
Let a copy of this Decision be served upon the Department of Agrarian Reform.
With costs against the petitioner.
SO ORDERED.
FIRST DIVISION
G.R. No. 209370, March 25, 2015
FORT BONIFACIO DEVELOPMENT CORPORATION, Petitioner, v. VALENTIN L. FONG, Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated May 17, 2013 and the Resolution3 dated
September 2, 2013 rendered by the Court of Appeals (CA) in CA-G.R. CV. No. 93407, which affirmed the
Decision4dated January 28, 2009 of the Regional Trial Court of Mandaluyong City, Branch 214 (RTC) in Civil Case
No. MC06-2928, finding petitioner Fort Bonifacio Development Corporation (FBDC) liable to respondent Valentin L.
Fong (Fong), as proprietor of VF Industrial Sales, for the amount of P1,577,115.90 with legal interest computed
from February 13, 2006.
The Facts
On June 5, 2000, FBDC, a domestic corporation engaged in the real estate development business, 5 entered into a
Trade Contract6 with MS Maxco Company, Inc. (MS Maxco), then operating under the name L&M Maxco, Specialist
Engineering Construction, for the execution of the structural and partial architectural works of one of its
condominium projects in Taguig City, the Bonifacio Ridge Condominium (Project). 7 Records show that FBDC had the
right to withhold five percent (5%) of the contract price as retention money.8
Under the Trade Contract, FBDC had the option to hire other contractors to rectify any errors committed by MS
Maxco by reason of its negligence, act, omission, or default, as well as to deduct or set-off any amount from the
contract price in such cases.9Hence, when MS Maxco incurred delays and failed to comply with the terms of the

76

Trade Contract, FBDC took over and hired other contractors to complete the unfinished
construction.10 Unfortunately, corrective work had to likewise be done on the numerous defects and irregularities
caused by MS Maxco, which cost P11,567,779.12.11Pursuant to the Trade Contract, FBDC deducted the said amount
from MS Maxcos retention money.12
The Trade Contract likewise provided that MS Maxco is prohibited from assigning or transferring any of its rights,
obligations, or liabilities under the said Contract without the written consent of FBDC. 13
Sometime in April 2005, FBDC received a letter14 dated April 18, 2005 (April 18, 2005 letter) from the counsel of
Fong informing it that MS Maxco had already assigned its receivables from FBDC to him (Fong) by virtue of a
notarized Deed of Assignment15 dated February 28, 2005.16 Under the Deed of Assignment, MS Maxco assigned the
amount of P1,577,115.90 to Fong as payment of the formers obligation to the latter, which amount was to be
taken from the retention money with FBDC. 17 In its letter-reply18 dated October 11, 2005, FBDC acknowledged the
five percent (5%) retention money of MS Maxco, but asserted that the same was not yet due and demandable and
that it was already the subject of garnishment19 by MS Maxcos other creditors.
Despite Fongs repeated requests,20 FBDC refused to deliver to Fong the amount assigned by MS Maxco. Finally, in a
letter21 dated January 31, 2006, FBDC informed Fong that after the rectification of the defects in the Project, as
well as the garnishment made by MS Maxcos creditors, nothing was left of its retention money with FBDC from
which Fongs claims may be satisfied. This prompted Fong, doing business under the name VF Industrial Sales to
file the instant civil case,22 before the RTC, against MS Maxco or FBDC for the payment of the sum of
P1,577,115.90, with legal interest due, costs of suit, and litigation expenses. 23
In its defense,24 FBDC reiterated its position that,since MS Maxco incurred delays and rendered defective works on
the Project, FBDC was constrained to hire other contractors to repair the defects and complete the work therein,
the cost of which it deducted from MS Maxcos retention money, pursuant to the express stipulations in the Trade
Contract.25Likewise, the said retention money was due only in January 2006, and was already garnished in favor of
MS Maxcos other creditors.26 As a result of the deductions and the garnishment, no amount due to MS Maxco was
left from the retention money; and, FBDC was, therefore, under no obligation to satisfy Fongs claim. 27 FBDC
likewise asserted, inter alia, that it was not bound by the Deed of Assignment between Fong and MS Maxco, not
being a party thereto.28However, Fong, being a mere substitute or assignee of MS Maxco, was bound to observe the
terms and conditions of the Trade Contract.29 FBDC also stressed that it paid the creditors of MS Maxco in
compliance with valid court orders.30
The RTC Ruling
In a Decision31 dated January 28, 2009, the RTC found FBDC liable to pay Fong the amount of P1,577,115.90, with
legal interest computed from the time of the filing of the complaint on February 13, 2006. 32
In so ruling, the RTC held that the instant case was one of assignment of credit under Article 1624 33 of the Civil
Code, hence, did not require FBDCs consent as debtor for its validity and enforceability.34 What the law requires is
not the consent of the debtor, but merely notice to him, as the assignment takes effect only from the time of his
knowledge thereof.35 With respect to third persons without notice of the assignment, the same becomes effective
only if the assignment appears in a public instrument.36
Also, the RTC observed that FBDC did not dispute the genuineness and due execution of the Deed of Assignment
between MS Maxco and Fong. As such, FBDC became bound thereby upon its receipt of Fongs April 18, 2005 letter
informing it of the assignment. Effectively, Fong became subrogated to the right of MS Maxco to collect from FBDC
the credit assigned to him.37 Likewise, FBDC was bound to recognize the assignment, which appears in a public
instrument.38
With respect to the garnishment of the retention money, the RTC held that it could not adversely affect Fongs
rights as assignee of MS Maxco, considering that the amount indicated in the Deed of Assignment was no longer
MS Maxcos property, but Fongs. Effectively, when MS Maxco assigned the sum of P1,577,115.90 to Fong, the said
amount can no longer be considered MS Maxcos property that could be garnished or attached by its creditors. As
records show that the garnishment of the retention money was made on July 30, 2005 and January 26, 2006,
or after FBDC was notified of MS Maxcos assignment in favor of Fong on April 18, 2005, for all intents and
purposes, FBDC must be considered to have paid MS Maxcos other creditors out of its own funds. 39
Finally, with regard to the provision in the Trade Contract requiring the written consent of FBDC before MS Maxco
may validly assign or transfer any of its rights, obligations, or liabilities thereunder, the RTC held that Fong was not
bound thereby. It ruled that Fong did not automatically become party to the provisions of the Trade Contract by
virtue of its being the assignee of MS Maxco, as the said provisions are matters which exclusively pertain to the
parties thereto.40
In any event, however, the RTC recognized FBDCs right of recourse against its co-defendant MS Maxco for the
latters breach of undertaking under the Trade Contract.41
Aggrieved, FBDC appealed42 to the CA, assailing the RTCs conclusion that the Deed of Assignment was binding
upon it and that it was liable to satisfy Fongs claims.
The CA Ruling
In a Decision43 dated May 17, 2013, the CA denied FBDCs appeal and affirmed the RTC ruling, 44 concurring with the
latters finding that when FBDC was notified of the assignment through the April 18, 2005 letter, the assignment
produced legal effects and operated as a transfer of a portion of the receivables of MS Maxco to Fong. 45Considering
that FBDCs consent as debtor is not required under the law, as mere notice to it is sufficient, and taking into
account the fact that the Deed of Assignment was a public instrument, the assignment therefore bound FBDC and
third persons as well. 46
Likewise, upon a review of the evidence offered by FBDC, the CA found that as of December 6, 2005, there was
still sufficient amount left in the retention money with which to pay Fong even after the deduction of the
rectification costs for the Project. As correctly held by the RTC, the payments made by FBDC to MS Maxcos
judgment creditors cannot prejudice Fong since the Deed of Assignment was valid and enforceable against FBDC

77

and the said creditors.47

FBDCs motion for reconsideration48 was denied in a Resolution49 dated September 2, 2013, hence, this petition.
The Issues Before the Court
The issues for the Courts resolution are whether or not the CA erred in ruling that FBDC was bound by the Deed of
Assignment between MS Maxco and Fong, and even assuming that it was, whether or not FBDC was liable to pay
Fong the amount of ?1,577,115.90, representing a portion of MS Maxcos retention money.
The Courts Ruling
The petition is meritorious.
Obligations arising from contracts have the force of law between the contracting parties and should be complied
with in good faith.50 As such, the stipulations in contracts are binding on them unless the contract is contrary to
law, morals, good customs, public order or public policy.51
The same principle on obligatory force applies by extension to the contracting partys assignees, in turn, by virtue
of the principle of relativity of contracts which is fleshed out in Article 1311 of the Civil Code, viz.:
Art. 1311. Contracts take effect only between the parties, their assigns and heirs, 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. The heir is not liable beyond the value of the property he received from the decedent.
x x x x (Emphasis supplied)
The reason that a contracting partys assignees, although seemingly a third party to the transaction, remain bound
by the original partys transaction under the relativity principle further lies in the concept of subrogation, which
inheres in assignment.
Case law states that when a person assigns his credit to another person, the latter is deemed subrogated to the
rights as well as to the obligations of the former.52 By virtue of the Deed of Assignment, the assignee is deemed
subrogated to the rights and obligations of the assignor and is bound by exactly the same conditions as those
which bound the assignor.53 Accordingly, an assignee cannot acquire greater rights than those pertaining to the
assignor.54 The general rule is that an assignee of a non-negotiable chose in action acquires no greater right than
what was possessed by his assignor and simply stands into the shoes of the latter.55
Applying the foregoing, the Court finds that MS Maxco, as the Trade Contractor, cannot assign or transfer any of its
rights, obligations, or liabilities under the Trade Contract without the written consent of FBDC, the Client, in view of
Clause 19.0 on Assignment and Sub-letting of the Trade Contract between FBDC and MS Maxco which explicitly
provides that:
19.0 ASSIGNMENT AND SUB-LETTING
19.1 The Trade Contractor [Ms Maxco] shall not, without written consent of the Client [FBDC],assign or
transfer any of his rights, obligations or liabilities under this Contract. The Trade Contractor shall not,
without the written consent of the Client, sub-let any portion of the Works and such consent, if given, shall not
relieve the Trade Contractor from any liability or obligation under this Contract. 56 (Emphases supplied)
Fong, as mere assignee of MS Maxcos rights under the Trade Contract it had previously entered with
FBDC, i.e., the right to recover any credit owing to any unutilized retention money, is equally bound by the
foregoing provision and hence, cannot validly enforce the same without FBDCs consent.
Without any proof showing that FBDC had consented to the assignment, Fong cannot validly demand from FBDC
the delivery of the sum of P1,577,115.90 that was supposedly assigned to him by MS Maxco as a portion of its
retention money with FBDC. The practical efficacy of the assignment, although valid between Fong and MS Maxco,
remains contingent on FBDCs consent. Without the happening of said condition, only MS Maxco, and not Fong, can
collect on the credit. Note, however, that this finding does not preclude any recourse that Fong may take against
MS Maxco. After all, an assignment of credit for a consideration and covering a demandable sum of money is
considered as a sale of personal property.57 To this, Article 1628 of the Civil Code provides:
Art. 1628. The vendor in good faith shall be responsible for the existence and legality of the credit at the time of
the sale, unless it should have been sold as doubtful; but not for the solvency of the debtor, unless it has been so
expressly stipulated or unless the insolvency was prior to the sale and of common knowledge.
Even in these cases he shall only be liable for the price received and for the expenses specified in No. 1 of Article
1616.58
The vendor in bad faith shall always be answerable for the payment of all expenses, and for damages.
WHEREFORE, the petition is GRANTED. The assailed Decision dated May 17, 2013 and the Resolution dated
September 2, 2013 rendered by the Court of Appeals in CA-G.R. CV. No. 93407 are hereby REVERSED and SET
ASIDE, and a new one is entered DISMISSING the instant complaint against petitioner Fort Bonifacio
Development Corporation.
SO ORDERED.

MANUEL O. FUENTES and G.R. No. 178902

LETICIA L. FUENTES,
Petitioners, Present:
Puno, C.J.,

78

Carpio,
Corona,
Carpio Morales,
Velasco, Jr.,
Nachura,
- versus - Leonardo-De Castro,
Brion,
Peralta,
Bersamin,
Del Castillo,
Abad,
Villarama, Jr.,
Perez, and
Mendoza, JJ.
CONRADO G. ROCA, ANNABELLE R.
JOSON, ROSE MARIE R. CRISTOBAL
and PILAR MALCAMPO, Promulgated:
Respondents.
April 21, 2010
x ---------------------------------------------------------------------------------------- x

DECISION

ABAD, J.:

This case is about a husbands sale of conjugal real property, employing a challenged affidavit of consent
from an estranged wife. The buyers claim valid consent, loss of right to declare nullity of sale, and prescription.

The Facts and the Case

Sabina Tarroza owned a titled 358-square meter lot in Canelar, Zamboanga City. On October 11, 1982 she sold it to
her son, Tarciano T. Roca (Tarciano) under a deed of absolute sale. [1] But Tarciano did not for the meantime have
the registered title transferred to his name.

Six years later in 1988, Tarciano offered to sell the lot to petitioners Manuel and Leticia Fuentes (the Fuentes
spouses). They arranged to meet at the office of Atty. Romulo D. Plagata whom they asked to prepare the

79

documents of sale. They later signed an agreement to sell that Atty. Plagata prepared [2] dated April 29, 1988, which
agreement expressly stated that it was to take effect in six months.

The agreement required the Fuentes spouses to pay Tarciano a down payment of P60,000.00 for the
transfer of the lots title to him. And, within six months, Tarciano was to clear the lot of structures and occupants
and secure the consent of his estranged wife, Rosario Gabriel Roca (Rosario), to the sale. Upon Tarcianos
compliance with these conditions, the Fuentes spouses were to take possession of the lot and pay him an
additional P140,000.00 or P160,000.00, depending on whether or not he succeeded in demolishing the house
standing on it. If Tarciano was unable to comply with these conditions, the Fuentes spouses would become owners
of the lot without any further formality and payment.

The parties left their signed agreement with Atty. Plagata who then worked on the other requirements of the
sale. According to the lawyer, he went to see Rosario in one of his trips to Manila and had her sign an affidavit of
consent.[3] As

soon

as

Tarciano

met

the

other

conditions,

Atty.

Plagata

notarized Rosarios

affidavit

inZamboanga City. On January 11, 1989 Tarciano executed a deed of absolute sale [4] in favor of the Fuentes
spouses. They then paid him the additional P140,000.00 mentioned in their agreement. A new title was issued in
the name of the spouses[5] who immediately constructed a building on the lot. On January 28, 1990 Tarciano
passed away, followed by his wife Rosario who died nine months afterwards.

Eight years later in 1997, the children of Tarciano and Rosario, namely, respondents Conrado G. Roca, Annabelle R.
Joson, and Rose Marie R. Cristobal, together with Tarcianos sister, Pilar R. Malcampo, represented by her son, John
Paul M. Trinidad (collectively, the Rocas), filed an action for annulment of sale and reconveyance of the land against
the Fuentes spouses before the Regional Trial Court (RTC) of Zamboanga City in Civil Case 4707. The Rocas
claimed that the sale to the spouses was void since Tarcianos wife, Rosario, did not give her consent to it. Her
signature on the affidavit of consent had been forged. They thus prayed that the property be reconveyed to them
upon reimbursement of the price that the Fuentes spouses paid Tarciano. [6]

The spouses denied the Rocas allegations. They presented Atty. Plagata who testified that he personally
saw Rosario sign the affidavit at her residence in Paco,Manila, on September 15, 1988. He admitted, however, that
he notarized the document in Zamboanga City four months later on January 11, 1989.[7] All the same, the Fuentes
spouses pointed out that the claim of forgery was personal to Rosario and she alone could invoke it. Besides, the
four-year prescriptive period for nullifying the sale on ground of fraud had already lapsed.

80

Both the Rocas and the Fuentes spouses presented handwriting experts at the trial. Comparing Rosarios standard
signature on the affidavit with those on various documents she signed, the Rocas expert testified that the
signatures were not written by the same person. Making the same comparison, the spouses expert concluded that
they were.[8]

On February 1, 2005 the RTC rendered judgment, dismissing the case. It ruled that the action had already
prescribed since the ground cited by the Rocas for annulling the sale, forgery or fraud, already prescribed under
Article 1391 of the Civil Code four years after its discovery. In this case, the Rocas may be deemed to have notice
of the fraud from the date the deed of sale was registered with the Registry of Deeds and the new title was issued.
Here, the Rocas filed their action in 1997, almost nine years after the title was issued to the Fuentes spouses
on January 18, 1989.[9]

Moreover, the Rocas failed to present clear and convincing evidence of the fraud. Mere variance in the signatures
of Rosario was not conclusive proof of forgery.[10]The RTC ruled that, although the Rocas presented a handwriting
expert, the trial court could not be bound by his opinion since the opposing expert witness contradicted the
same. Atty. Plagatas testimony remained technically unrebutted.[11]

Finally, the RTC noted that Atty. Plagatas defective notarization of the affidavit of consent did not invalidate the
sale. The law does not require spousal consent to be on the deed of sale to be valid. Neither does the irregularity
vitiate Rosarios consent. She personally signed the affidavit in the presence of Atty. Plagata. [12]

On appeal, the Court of Appeals (CA) reversed the RTC decision. The CA found sufficient evidence of forgery and
did not give credence to Atty. Plagatas testimony that he saw Rosario sign the document in Quezon City. Its jurat
said differently. Also, upon comparing the questioned signature with the specimen signatures, the CA noted
significant variance between them. That Tarciano and Rosario had been living separately for 30 years since 1958
also reinforced the conclusion that her signature had been forged.

Since Tarciano and Rosario were married in 1950, the CA concluded that their property relations were governed by
the Civil Code under which an action for annulment of sale on the ground of lack of spousal consent may be
brought by the wife during the marriage within 10 years from the transaction. Consequently, the action that the
Rocas, her heirs, brought in 1997 fell within 10 years of the January 11, 1989 sale.

Considering, however, that the sale between the Fuentes spouses and Tarciano was merely voidable, the CA held
that its annulment entitled the spouses to reimbursement of what they paid him plus legal interest computed from
the filing of the complaint until actual payment. Since the Fuentes spouses were also builders in good faith, they

81

were entitled under Article 448 of the Civil Code to payment of the value of the improvements they introduced on
the lot. The CA did not award damages in favor of the Rocas and deleted the award of attorneys fees to the
Fuentes spouses.[13]

Unsatisfied with the CA decision, the Fuentes spouses came to this court by petition for review. [14]

The Issues Presented

The case presents the following issues:

1. Whether or not Rosarios signature on the document of consent to her husband Tarcianos sale of their
conjugal land to the Fuentes spouses was forged;

2. Whether or not the Rocas action for the declaration of nullity of that sale to the spouses already
prescribed; and

3. Whether or not only Rosario, the wife whose consent was not had, could bring the action to annul that
sale.

The Courts Rulings

First. The key issue in this case is whether or not Rosarios signature on the document of consent had
been forged. For, if the signature were genuine, the fact that she gave her consent to her husbands sale of the
conjugal land would render the other issues merely academic.

The CA found that Rosarios signature had been forged. The CA observed a marked difference between her
signature on the affidavit of consent [15] and her specimen signatures. [16] The CA gave no weight to Atty. Plagatas
testimony that he saw Rosario sign the document in Manila on September 15, 1988 since this clashed with his
declaration in the jurat that Rosario signed the affidavit in Zamboanga City on January 11, 1989.

The Court agrees with the CAs observation that Rosarios signature strokes on the affidavit appears heavy,
deliberate, and forced. Her specimen signatures, on the other hand, are consistently of a lighter stroke and more
fluid. The way the letters R and s were written is also remarkably different. The variance is obvious even to the
untrained eye.

82

Significantly, Rosarios specimen signatures were made at about the time that she signed the supposed
affidavit of consent. They were, therefore, reliable standards for comparison. The Fuentes spouses presented no
evidence that Rosario suffered from any illness or disease that accounted for the variance in her signature when
she signed the affidavit of consent. Notably, Rosario had been living separately from Tarciano for 30 years since
1958. And she resided so far away in Manila. It would have been quite tempting for Tarciano to just forge her
signature and avoid the risk that she would not give her consent to the sale or demand a stiff price for it.

What is more, Atty. Plagata admittedly falsified the jurat of the affidavit of consent. That jurat declared
that Rosario swore to the document and signed it inZamboanga City on January 11, 1989 when, as Atty. Plagata
testified, she supposedly signed it about four months earlier at her residence in Paco, Manila onSeptember 15,
1988. While a defective notarization will merely strip the document of its public character and reduce it to a private
instrument, that falsified jurat, taken together with the marks of forgery in the signature, dooms such document as
proof of Rosarios consent to the sale of the land. That the Fuentes spouses honestly relied on the notarized
affidavit as proof of Rosarios consent does not matter. The sale is still void without an authentic consent.

Second. Contrary to the ruling of the Court of Appeals, the law that applies to this case is the Family
Code, not the Civil Code. Although Tarciano and Rosario got married in 1950, Tarciano sold the conjugal property to
the Fuentes spouses on January 11, 1989, a few months after the Family Code took effect on August 3, 1988.

When Tarciano married Rosario, the Civil Code put in place the system of conjugal partnership of gains on their
property relations. While its Article 165 made Tarciano the sole administrator of the conjugal partnership, Article
166[17] prohibited him from selling commonly owned real property without his wifes consent.Still, if he sold the
same without his wifes consent, the sale is not void but merely voidable. Article 173 gave Rosario the right to have
the sale annulled during the marriage within ten years from the date of the sale. Failing in that, she or her heirs
may demand, after dissolution of the marriage, only the value of the property that Tarciano fraudulently sold. Thus:

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.

But, as already stated, the Family Code took effect on August 3, 1988. Its Chapter 4 on Conjugal
Partnership of Gains expressly superseded Title VI, Book I of the Civil Code on Property Relations Between

83

Husband and Wife.[18] Further, the Family Code provisions were also made to apply to already existing conjugal
partnerships without prejudice to vested rights.[19] Thus:

Art. 105. x x x The provisions of this Chapter shall also apply to conjugal partnerships
of gains already established between spouses before the effectivity of this Code,
without prejudice to vested rights already acquired in accordance with the Civil Code or
other laws, as provided in Article 256. (n)

Consequently, when Tarciano sold the conjugal lot to the Fuentes spouses on January 11, 1989, the law that
governed the disposal of that lot was already the Family Code.

In contrast to Article 173 of the Civil Code, Article 124 of the Family Code does not provide a period within
which the wife who gave no consent may assail her husbands sale of the real property. It simply provides that
without the other spouses written consent or a court order allowing the sale, the same would be void.Article 124
thus provides:
Art. 124. x x x 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. x x x

Under the provisions of the Civil Code governing contracts, a void or inexistent contract has no force and
effect from the very beginning. And this rule applies to contracts that are declared void by positive provision of law,
[20]

as in the case of a sale of conjugal property without the other spouses written consent. A void contract is

equivalent to nothing and is absolutely wanting in civil effects. It cannot be validated either by ratification or
prescription.[21]

But, although a void contract has no legal effects even if no action is taken to set it aside, when any of its
terms have been performed, an action to declare its inexistence is necessary to allow restitution of what has been
given under it.[22] This action, according to Article 1410 of the Civil Code does not prescribe. Thus:

Art. 1410. The action or defense for the declaration of the inexistence of a contract
does not prescribe.

84

Here, the Rocas filed an action against the Fuentes spouses in 1997 for annulment of sale and
reconveyance of the real property that Tarciano sold without their mothers (his wifes) written consent. The passage
of time did not erode the right to bring such an action.

Besides, even assuming that it is the Civil Code that applies to the transaction as the CA held, Article 173
provides that the wife may bring an action for annulment of sale on the ground of lack of spousal consent during
the marriage within 10 years from the transaction. Consequently, the action that the Rocas, her heirs, brought in
1997 fell within 10 years of the January 11, 1989 sale. It did not yet prescribe.

The Fuentes spouses of course argue that the RTC nullified the sale to them based on fraud and that,
therefore, the applicable prescriptive period should be that which applies to fraudulent transactions, namely, four
years from its discovery. Since notice of the sale may be deemed given to the Rocas when it was registered with
the Registry of Deeds in 1989, their right of action already prescribed in 1993.

But, if there had been a victim of fraud in this case, it would be the Fuentes spouses in that they appeared
to have agreed to buy the property upon an honest belief that Rosarios written consent to the sale was
genuine. They had four years then from the time they learned that her signature had been forged within which to
file an action to annul the sale and get back their money plus damages. They never exercised the right.

If, on the other hand, Rosario had agreed to sign the document of consent upon a false representation
that the property would go to their children, not to strangers, and it turned out that this was not the case, then she
would have four years from the time she discovered the fraud within which to file an action to declare the sale
void. But that is not the case here. Rosario was not a victim of fraud or misrepresentation. Her consent was simply
not obtained at all. She lost nothing since the sale without her written consent was void. Ultimately, the Rocas
ground for annulment is not forgery but the lack of written consent of their mother to the sale.The forgery is
merely evidence of lack of consent.

Third. The Fuentes spouses point out that it was to Rosario, whose consent was not obtained, that the law
gave the right to bring an action to declare void her husbands sale of conjugal land. But here, Rosario died in 1990,
the year after the sale. Does this mean that the right to have the sale declared void is forever lost?

85

The answer is no. As stated above, that sale was void from the beginning. Consequently, the land
remained the property of Tarciano and Rosario despite that sale. When the two died, they passed on the ownership
of the property to their heirs, namely, the Rocas. [23] As lawful owners, the Rocas had the right, under Article 429 of
the Civil Code, to exclude any person from its enjoyment and disposal.

In fairness to the Fuentes spouses, however, they should be entitled, among other things, to recover from
Tarcianos heirs, the Rocas, the P200,000.00 that they paid him, with legal interest until fully paid, chargeable
against his estate.

Further, the Fuentes spouses appear to have acted in good faith in entering the land and building
improvements on it. Atty. Plagata, whom the parties mutually entrusted with closing and documenting the
transaction, represented that he got Rosarios signature on the affidavit of consent. The Fuentes spouses had no
reason to believe that the lawyer had violated his commission and his oath. They had no way of knowing
that Rosario did not come to Zamboanga to give her consent. There is no evidence that they had a premonition
that the requirement of consent presented some difficulty. Indeed, they willingly made a 30 percent down payment
on the selling price months earlier on the assurance that it was forthcoming.

Further, the notarized document appears to have comforted the Fuentes spouses that everything was
already in order when Tarciano executed a deed of absolute sale in their favor on January 11, 1989. In fact, they
paid the balance due him. And, acting on the documents submitted to it, the Register of Deeds of Zamboanga City
issued a new title in the names of the Fuentes spouses. It was only after all these had passed that the spouses
entered the property and built on it. He is deemed a possessor in good faith, said Article 526 of the Civil Code, who
is not aware that there exists in his title or mode of acquisition any flaw which invalidates it.

As possessor in good faith, the Fuentes spouses were under no obligation to pay for their stay on the
property prior to its legal interruption by a final judgment against them. [24] What is more, they are entitled under
Article 448 to indemnity for the improvements they introduced into the property with a right of retention until the
reimbursement is made. Thus:

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)

86

The Rocas shall of course have the option, pursuant to Article 546 of the Civil Code, [25] of indemnifying the
Fuentes spouses for the costs of the improvements or paying the increase in value which the property may have
acquired by reason of such improvements.

WHEREFORE, the Court DENIES the petition and AFFIRMS WITH MODIFICATION the decision of the Court of
Appeals in CA-G.R. CV 00531 datedFebruary 27, 2007 as follows:

1. The deed of sale dated January 11, 1989 that Tarciano T. Roca executed in favor of Manuel O. Fuentes,
married to Leticia L. Fuentes, as well as the Transfer Certificate of Title T-90,981 that the Register of Deeds of
Zamboanga City issued in the names of the latter spouses pursuant to that deed of sale are DECLAREDvoid;

2. The Register of Deeds of Zamboanga City is DIRECTED to reinstate Transfer Certificate of Title 3533 in
the name of Tarciano T. Roca, married to Rosario Gabriel;

3. Respondents Gonzalo G. Roca, Annabelle R. Joson, Rose Marie R. Cristobal, and Pilar Malcampo
are ORDERED to pay petitioner spouses Manuel and Leticia Fuentes the P200,000.00 that the latter paid Tarciano
T. Roca, with legal interest from January 11, 1989 until fully paid, chargeable against his estate;

4. Respondents Gonzalo G. Roca, Annabelle R. Joson, Rose Marie R. Cristobal, and Pilar Malcampo are
further ORDERED, at their option, to indemnify petitioner spouses Manuel and Leticia Fuentes with their expenses
for introducing useful improvements on the subject land or pay the increase in value which it may have acquired by
reason of those improvements, with the spouses entitled to the right of retention of the land until the indemnity is
made; and

5. The RTC of Zamboanga City from which this case originated is DIRECTED to receive evidence and
determine the amount of indemnity to which petitioner spouses Manuel and Leticia Fuentes are entitled.

SO ORDERED.
G.R. No. 171101

July 5, 2011

87

HACIENDA LUISITA, INCORPORATED, Petitioner,

LUISITA INDUSTRIAL PARK CORPORATION and RIZAL COMMERCIAL BANKING
CORPORATION,Petitioners-in-Intervention,
vs.
PRESIDENTIAL AGRARIAN REFORM COUNCIL; SECRETARY NASSER PANGANDAMAN OF THE
DEPARTMENT OF AGRARIAN REFORM; ALYANSA NG MGA MANGGAGAWANG BUKID NG HACIENDA
LUISITA, RENE GALANG, NOEL MALLARI, and JULIO SUNIGA1 and his SUPERVISORY GROUP OF THE
HACIENDA LUISITA, INC. and WINDSOR ANDAYA, Respondents.
DECISION
VELASCO, JR., J.:
"Land for the landless," a shibboleth the landed gentry doubtless has received with much misgiving, if not
resistance, even if only the number of agrarian suits filed serves to be the norm. Through the years, this battle cry
and root of discord continues to reflect the seemingly ceaseless discourse on, and great disparity in, the
distribution of land among the people, "dramatizing the increasingly urgent demand of the dispossessed x x x for a
plot of earth as their place in the sun."2 As administrations and political alignments change, policies advanced, and
agrarian reform laws enacted, the latest being what is considered a comprehensive piece, the face of land reform
varies and is masked in myriads of ways. The stated goal, however, remains the same: clear the way for the true
freedom of the farmer.3
Land reform, or the broader term "agrarian reform," has been a government policy even before the Commonwealth
era. In fact, at the onset of the American regime, initial steps toward land reform were already taken to address
social unrest.4 Then, under the 1935 Constitution, specific provisions on social justice and expropriation of landed
estates for distribution to tenants as a solution to land ownership and tenancy issues were incorporated.
In 1955, the Land Reform Act (Republic Act No. [RA] 1400) was passed, setting in motion the expropriation of all
tenanted estates.5
On August 8, 1963, the Agricultural Land Reform Code (RA 3844) was enacted, 6 abolishing share tenancy and
converting all instances of share tenancy into leasehold tenancy.7 RA 3844 created the Land Bank of the Philippines
(LBP) to provide support in all phases of agrarian reform.
As its major thrust, RA 3844 aimed to create a system of owner-cultivatorship in rice and corn, supposedly to be
accomplished by expropriating lands in excess of 75 hectares for their eventual resale to tenants. The law,
however, had this restricting feature: its operations were confined mainly to areas in Central Luzon, and its
implementation at any level of intensity limited to the pilot project in Nueva Ecija. 8
Subsequently, Congress passed the Code of Agrarian Reform (RA 6389) declaring the entire country a land reform
area, and providing for the automatic conversion of tenancy to leasehold tenancy in all areas. From 75 hectares,
the retention limit was cut down to seven hectares.9
Barely a month after declaring martial law in September 1972, then President Ferdinand Marcos issued Presidential
Decree No. 27 (PD 27) for the "emancipation of the tiller from the bondage of the soil." 10 Based on this issuance,
tenant-farmers, depending on the size of the landholding worked on, can either purchase the land they tilled or
shift from share to fixed-rent leasehold tenancy.11 While touted as "revolutionary," the scope of the agrarian reform
program PD 27 enunciated covered only tenanted, privately-owned rice and corn lands. 12
Then came the revolutionary government of then President Corazon C. Aquino and the drafting and eventual
ratification of the 1987 Constitution. Its provisions foreshadowed the establishment of a legal framework for the
formulation of an expansive approach to land reform, affecting all agricultural lands and covering both tenantfarmers and regular farmworkers. 13
So it was that Proclamation No. 131, Series of 1987, was issued instituting a comprehensive agrarian reform
program (CARP) to cover all agricultural lands, regardless of tenurial arrangement and commodity produced, as
provided in the Constitution.
On July 22, 1987, Executive Order No. 229 (EO 229) was issued providing, as its title 14 indicates, the mechanisms
for CARP implementation. It created the Presidential Agrarian Reform Council (PARC) as the highest policy-making
body that formulates all policies, rules, and regulations necessary for the implementation of CARP.
On June 15, 1988, RA 6657 or the Comprehensive Agrarian Reform Law of 1988, also known as CARL or the CARP
Law, took effect, ushering in a new process of land classification, acquisition, and distribution. As to be expected,
RA 6657 met stiff opposition, its validity or some of its provisions challenged at every possible turn.Association of
Small Landowners in the Philippines, Inc. v. Secretary of Agrarian Reform 15 stated the observation that the assault
was inevitable, the CARP being an untried and untested project, "an experiment [even], as all life is an
experiment," the Court said, borrowing from Justice Holmes.
The Case
In this Petition for Certiorari and Prohibition under Rule 65 with prayer for preliminary injunctive relief, petitioner
Hacienda Luisita, Inc. (HLI) assails and seeks to set aside PARC Resolution No. 2005-32-01 16 and Resolution No.
2006-34-0117 issued on December 22, 2005 and May 3, 2006, respectively, as well as the implementing Notice of
Coverage dated January 2, 2006 (Notice of Coverage). 18
The Facts

88

At the core of the case is Hacienda Luisita de Tarlac (Hacienda Luisita), once a 6,443-hectare mixed agriculturalindustrial-residential expanse straddling several municipalities of Tarlac and owned by Compaia General de
Tabacos de Filipinas (Tabacalera). In 1957, the Spanish owners of Tabacalera offered to sell Hacienda Luisita as well
as their controlling interest in the sugar mill within the hacienda, the Central Azucarera de Tarlac (CAT), as an
indivisible transaction. The Tarlac Development Corporation (Tadeco), then owned and/or controlled by the Jose
Cojuangco, Sr. Group, was willing to buy. As agreed upon, Tadeco undertook to pay the purchase price for Hacienda
Luisita in pesos, while that for the controlling interest in CAT, in US dollars. 19
To facilitate the adverted sale-and-purchase package, the Philippine government, through the then Central Bank of
the Philippines, assisted the buyer to obtain a dollar loan from a US bank. 20 Also, the Government Service
Insurance System (GSIS) Board of Trustees extended on November 27, 1957 a PhP 5.911 million loan in favor of
Tadeco to pay the peso price component of the sale. One of the conditions contained in the approving GSIS
Resolution No. 3203, as later amended by Resolution No. 356, Series of 1958, reads as follows:
That the lots comprising the Hacienda Luisita shall be subdivided by the applicant-corporation and sold at cost to
the tenants, should there be any, and whenever conditions should exist warranting such action under the provisions
of the Land Tenure Act;21
As of March 31, 1958, Tadeco had fully paid the purchase price for the acquisition of Hacienda Luisita and
Tabacaleras interest in CAT.22
The details of the events that happened next involving the hacienda and the political color some of the parties
embossed are of minimal significance to this narration and need no belaboring. Suffice it to state that on May 7,
1980, the martial law administration filed a suit before the Manila Regional Trial Court (RTC) against Tadeco, et al.,
for them to surrender Hacienda Luisita to the then Ministry of Agrarian Reform (MAR, now the Department of
Agrarian Reform [DAR]) so that the land can be distributed to farmers at cost. Responding, Tadeco or its owners
alleged that Hacienda Luisita does not have tenants, besides which sugar landsof which the hacienda
consistedare not covered by existing agrarian reform legislations. As perceived then, the government
commenced the case against Tadeco as a political message to the family of the late Benigno Aquino, Jr.23
Eventually, the Manila RTC rendered judgment ordering Tadeco to surrender Hacienda Luisita to the MAR.
Therefrom, Tadeco appealed to the Court of Appeals (CA).
On March 17, 1988, the Office of the Solicitor General (OSG) moved to withdraw the governments case against
Tadeco, et al. By Resolution of May 18, 1988, the CA dismissed the case the Marcos government initially instituted
and won against Tadeco, et al. The dismissal action was, however, made subject to the obtention by Tadeco of the
PARCs approval of a stock distribution plan (SDP) that must initially be implemented after such approval shall have
been secured.24 The appellate court wrote:
The defendants-appellants x x x filed a motion on April 13, 1988 joining the x x x governmental agencies
concerned in moving for the dismissal of the case subject, however, to the following conditions embodied in the
letter dated April 8, 1988 (Annex 2) of the Secretary of the [DAR] quoted, as follows:
1. Should TADECO fail to obtain approval of the stock distribution plan for failure to comply with all the
requirements for corporate landowners set forth in the guidelines issued by the [PARC]: or
2. If such stock distribution plan is approved by PARC, but TADECO fails to initially implement it.
xxxx
WHEREFORE, the present case on appeal is hereby dismissed without prejudice, and should be revived if any of the
conditions as above set forth is not duly complied with by the TADECO. 25
Markedly, Section 10 of EO 22926 allows corporate landowners, as an alternative to the actual land transfer scheme
of CARP, to give qualified beneficiaries the right to purchase shares of stocks of the corporation under a stock
ownership arrangement and/or land-to-share ratio.
Like EO 229, RA 6657, under the latters Sec. 31, also provides two (2) alternative modalities, i.e., land or stock
transfer, pursuant to either of which the corporate landowner can comply with CARP, but subject to well-defined
conditions and timeline requirements. Sec. 31 of RA 6657 provides:
SEC. 31. Corporate Landowners.Corporate landowners may voluntarily transfer ownership over their agricultural
landholdings to the Republic of the Philippines pursuant to Section 20 hereof or to qualified beneficiaries x x x.
Upon certification by the DAR, corporations owning agricultural lands may give their qualified beneficiaries the
right to purchase such proportion of the capital stock of the corporation that the agricultural land,
actually devoted to agricultural activities, bears in relation to the companys total assets, under such
terms and conditions as may be agreed upon by them. In no case shall the compensation received by the workers
at the time the shares of stocks are distributed be reduced. x x x
Corporations or associations which voluntarily divest a proportion of their capital stock, equity or participation in
favor of their workers or other qualified beneficiaries under this section shall be deemed to have complied with the
provisions of this Act: Provided, That the following conditions are complied with:
(a) In order to safeguard the right of beneficiaries who own shares of stocks to dividends and other
financial benefits, the books of the corporation or association shall be subject to periodic audit by certified
public accountants chosen by the beneficiaries;

89

(b) Irrespective of the value of their equity in the corporation or association, the beneficiaries shall be
assured of at least one (1) representative in the board of directors, or in a management or executive
committee, if one exists, of the corporation or association;
(c) Any shares acquired by such workers and beneficiaries shall have the same rights and features as all
other shares; and
(d) Any transfer of shares of stocks by the original beneficiaries shall be void ab initio unless said
transaction is in favor of a qualified and registered beneficiary within the same corporation.
If within two (2) years from the approval of this Act, the [voluntary] land or stock transfer envisioned above is not
made or realized or the plan for such stock distribution approved by the PARC within the same period, the
agricultural land of the corporate owners or corporation shall be subject to the compulsory coverage of this Act.
(Emphasis added.)
Vis--vis the stock distribution aspect of the aforequoted Sec. 31, DAR issued Administrative Order No. 10, Series
of 1988 (DAO 10),27 entitled Guidelines and Procedures for Corporate Landowners Desiring to Avail Themselves of
the Stock Distribution Plan under Section 31 of RA 6657.
From the start, the stock distribution scheme appeared to be Tadecos preferred option, for, on August 23,
1988,28 it organized a spin-off corporation, HLI, as vehicle to facilitate stock acquisition by the farmworkers. For
this purpose, Tadeco assigned and conveyed to HLI the agricultural land portion (4,915.75 hectares) and other
farm-related properties of Hacienda Luisita in exchange for HLI shares of stock. 29
Pedro Cojuangco, Josephine C. Reyes, Teresita C. Lopa, Jose Cojuangco, Jr., and Paz C. Teopaco were the
incorporators of HLI.30
To accommodate the assets transfer from Tadeco to HLI, the latter, with the Securities and Exchange Commissions
(SECs) approval, increased its capital stock on May 10, 1989 from PhP 1,500,000 divided into 1,500,000 shares
with a par value of PhP 1/share to PhP 400,000,000 divided into 400,000,000 shares also with par value of PhP
1/share, 150,000,000 of which were to be issued only to qualified and registered beneficiaries of the CARP, and the
remaining 250,000,000 to any stockholder of the corporation.31
As appearing in its proposed SDP, the properties and assets of Tadeco contributed to the capital stock of HLI, as
appraised and approved by the SEC, have an aggregate value of PhP 590,554,220, or after deducting the total
liabilities of the farm amounting to PhP 235,422,758, a net value of PhP 355,531,462. This translated to
355,531,462 shares with a par value of PhP 1/share.32
On May 9, 1989, some 93% of the then farmworker-beneficiaries (FWBs) complement of Hacienda Luisita signified
in a referendum their acceptance of the proposed HLIs Stock Distribution Option Plan. On May 11, 1989, the Stock
Distribution Option Agreement (SDOA), styled as a Memorandum of Agreement (MOA), 33 was entered into by
Tadeco, HLI, and the 5,848 qualified FWBs34 and attested to by then DAR Secretary Philip Juico. The SDOA
embodied the basis and mechanics of the SDP, which would eventually be submitted to the PARC for approval. In
the SDOA, the parties agreed to the following:
1. The percentage of the value of the agricultural land of Hacienda Luisita (P196,630,000.00) in relation to
the total assets (P590,554,220.00) transferred and conveyed to the SECOND PARTY [HLI] is 33.296%
that, under the law, is the proportion of the outstanding capital stock of the SECOND PARTY, which is
P355,531,462.00 or 355,531,462 shares with a par value of P1.00 per share, that has to be distributed to
the THIRD PARTY [FWBs] under the stock distribution plan, the said 33.296% thereof being
P118,391,976.85 or 118,391,976.85 shares.
2. The qualified beneficiaries of the stock distribution plan shall be the farmworkers who appear in the
annual payroll, inclusive of the permanent and seasonal employees, who are regularly or periodically
employed by the SECOND PARTY.
3. At the end of each fiscal year, for a period of 30 years, the SECOND PARTY shall arrange with the
FIRST PARTY [Tadeco] the acquisition and distribution to the THIRD PARTY on the basis of number of
days worked and at no cost to them of one-thirtieth (1/30) of 118,391,976.85 shares of the capital stock
of the SECOND PARTY that are presently owned and held by the FIRST PARTY, until such time as the entire
block of 118,391,976.85 shares shall have been completely acquired and distributed to the THIRD PARTY.
4.The SECOND PARTY shall guarantee to the qualified beneficiaries of the [SDP] that every year they will
receive on top of their regular compensation, an amount that approximates the equivalent of three (3%)
of the total gross sales from the production of the agricultural land, whether it be in the form of cash
dividends or incentive bonuses or both.
5. Even if only a part or fraction of the shares earmarked for distribution will have been acquired from the
FIRST PARTY and distributed to the THIRD PARTY, FIRST PARTY shall execute at the beginning of each
fiscal year an irrevocable proxy, valid and effective for one (1) year, in favor of the farmworkers appearing
as shareholders of the SECOND PARTY at the start of said year which will empower the THIRD PARTY or
their representative to vote in stockholders and board of directors meetings of the SECOND PARTY
convened during the year the entire 33.296% of the outstanding capital stock of the SECOND PARTY
earmarked for distribution and thus be able to gain such number of seats in the board of directors of the
SECOND PARTY that the whole 33.296% of the shares subject to distribution will be entitled to.
6. In addition, the SECOND PARTY shall within a reasonable time subdivide and allocate for free and
without charge among the qualified family-beneficiaries residing in the place where the agricultural land is

90

situated, residential or homelots of not more than 240 sq.m. each, with each family-beneficiary being
assured of receiving and owning a homelot in the barangay where it actually resides on the date of the
execution of this Agreement.
7. This Agreement is entered into by the parties in the spirit of the (C.A.R.P.) of the government and with
the supervision of the [DAR], with the end in view of improving the lot of the qualified beneficiaries of the
[SDP] and obtaining for them greater benefits. (Emphasis added.)
As may be gleaned from the SDOA, included as part of the distribution plan are: (a) production-sharing equivalent
to three percent (3%) of gross sales from the production of the agricultural land payable to the FWBs in cash
dividends or incentive bonus; and (b) distribution of free homelots of not more than 240 square meters each to
family-beneficiaries. The production-sharing, as the SDP indicated, is payable "irrespective of whether [HLI] makes
money or not," implying that the benefits do not partake the nature of dividends, as the term is ordinarily
understood under corporation law.
While a little bit hard to follow, given that, during the period material, the assigned value of the agricultural land in
the hacienda was PhP 196.63 million, while the total assets of HLI was PhP 590.55 million with net assets of PhP
355.53 million, Tadeco/HLI would admit that the ratio of the land-to-shares of stock corresponds to 33.3% of the
outstanding capital stock of the HLI equivalent to 118,391,976.85 shares of stock with a par value of PhP 1/share.
Subsequently, HLI submitted to DAR its SDP, designated as "Proposal for Stock Distribution under C.A.R.P.," 35which
was substantially based on the SDOA.
Notably, in a follow-up referendum the DAR conducted on October 14, 1989, 5,117 FWBs, out of 5,315 who
participated, opted to receive shares in HLI.36 One hundred thirty-two (132) chose actual land distribution.37
After a review of the SDP, then DAR Secretary Miriam Defensor-Santiago (Sec. Defensor-Santiago) addressed a
letter dated November 6, 198938 to Pedro S. Cojuangco (Cojuangco), then Tadeco president, proposing that the
SDP be revised, along the following lines:
1. That over the implementation period of the [SDP], [Tadeco]/HLI shall ensure that there will be no
dilution in the shares of stocks of individual [FWBs];
2. That a safeguard shall be provided by [Tadeco]/HLI against the dilution of the percentage shareholdings
of the [FWBs], i.e., that the 33% shareholdings of the [FWBs] will be maintained at any given time;
3. That the mechanics for distributing the stocks be explicitly stated in the [MOA] signed between the
[Tadeco], HLI and its [FWBs] prior to the implementation of the stock plan;
4. That the stock distribution plan provide for clear and definite terms for determining the actual number
of seats to be allocated for the [FWBs] in the HLI Board;
5. That HLI provide guidelines and a timetable for the distribution of homelots to qualified [FWBs]; and
6. That the 3% cash dividends mentioned in the [SDP] be expressly provided for [in] the MOA.
In a letter-reply of November 14, 1989 to Sec. Defensor-Santiago, Tadeco/HLI explained that the proposed
revisions of the SDP are already embodied in both the SDP and MOA. 39 Following that exchange, the PARC, under
then Sec. Defensor-Santiago, by Resolution No. 89-12-240 dated November 21, 1989, approved the SDP of
Tadeco/HLI.41
At the time of the SDP approval, HLI had a pool of farmworkers, numbering 6,296, more or less, composed of
permanent, seasonal and casual master list/payroll and non-master list members.
From 1989 to 2005, HLI claimed to have extended the following benefits to the FWBs:
(a) 3 billion pesos (P3,000,000,000) worth of salaries, wages and fringe benefits
(b) 59 million shares of stock distributed for free to the FWBs;
(c) 150 million pesos (P150,000,000) representing 3% of the gross produce;
(d) 37.5 million pesos (P37,500,000) representing 3% from the sale of 500 hectares of converted
agricultural land of Hacienda Luisita;
(e) 240-square meter homelots distributed for free;
(f) 2.4 million pesos (P2,400,000) representing 3% from the sale of 80 hectares at 80 million pesos
(P80,000,000) for the SCTEX;
(g) Social service benefits, such as but not limited to free hospitalization/medical/maternity services, old
age/death benefits and no interest bearing salary/educational loans and rice sugar accounts. 42
Two separate groups subsequently contested this claim of HLI.

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On August 15, 1995, HLI applied for the conversion of 500 hectares of land of the hacienda from agricultural to
industrial use,43 pursuant to Sec. 65 of RA 6657, providing:
SEC. 65. Conversion of Lands.After the lapse of five (5) years from its award, when the land ceases to be
economically feasible and sound for agricultural purposes, or the locality has become urbanized and the land will
have a greater economic value for residential, commercial or industrial purposes, the DAR, upon application of the
beneficiary or the landowner, with due notice to the affected parties, and subject to existing laws, may authorize
the reclassification, or conversion of the land and its disposition: Provided, That the beneficiary shall have fully paid
its obligation.
The application, according to HLI, had the backing of 5,000 or so FWBs, including respondent Rene Galang, and
Jose Julio Suniga, as evidenced by the Manifesto of Support they signed and which was submitted to the
DAR.44After the usual processing, the DAR, thru then Sec. Ernesto Garilao, approved the application on August 14,
1996, per DAR Conversion Order No. 030601074-764-(95), Series of 1996,45 subject to payment of three percent
(3%) of the gross selling price to the FWBs and to HLIs continued compliance with its undertakings under the SDP,
among other conditions.
On December 13, 1996, HLI, in exchange for subscription of 12,000,000 shares of stocks of Centennary Holdings,
Inc. (Centennary), ceded 300 hectares of the converted area to the latter.46 Consequently, HLIs Transfer Certificate
of Title (TCT) No. 28791047 was canceled and TCT No. 29209148 was issued in the name of Centennary. HLI
transferred the remaining 200 hectares covered by TCT No. 287909 to Luisita Realty Corporation (LRC) 49 in two
separate transactions in 1997 and 1998, both uniformly involving 100 hectares for PhP 250 million each. 50
Centennary, a corporation with an authorized capital stock of PhP 12,100,000 divided into 12,100,000 shares and
wholly-owned by HLI, had the following incorporators: Pedro Cojuangco, Josephine C. Reyes, Teresita C. Lopa,
Ernesto G. Teopaco, and Bernardo R. Lahoz.
Subsequently, Centennary sold51 the entire 300 hectares to Luisita Industrial Park Corporation (LIPCO) for PhP 750
million. The latter acquired it for the purpose of developing an industrial complex. 52 As a result, Centennarys TCT
No. 292091 was canceled to be replaced by TCT No. 31098653 in the name of LIPCO.
From the area covered by TCT No. 310986 was carved out two (2) parcels, for which two (2) separate titles were
issued in the name of LIPCO, specifically: (a) TCT No. 365800 54 and (b) TCT No. 365801,55 covering 180 and four
hectares, respectively. TCT No. 310986 was, accordingly, partially canceled.
Later on, in a Deed of Absolute Assignment dated November 25, 2004, LIPCO transferred the parcels covered by its
TCT Nos. 365800 and 365801 to the Rizal Commercial Banking Corporation (RCBC) by way of dacion en pagoin
payment of LIPCOs PhP 431,695,732.10 loan obligations. LIPCOs titles were canceled and new ones, TCT Nos.
391051 and 391052, were issued to RCBC.
Apart from the 500 hectares alluded to, another 80.51 hectares were later detached from the area coverage of
Hacienda Luisita which had been acquired by the government as part of the Subic-Clark-Tarlac Expressway (SCTEX)
complex. In absolute terms, 4,335.75 hectares remained of the original 4,915 hectares Tadeco ceded to HLI. 56
Such, in short, was the state of things when two separate petitions, both undated, reached the DAR in the latter
part of 2003. In the first, denominated as Petition/Protest, 57 respondents Jose Julio Suniga and Windsor Andaya,
identifying themselves as head of the Supervisory Group of HLI (Supervisory Group), and 60 other supervisors
sought to revoke the SDOA, alleging that HLI had failed to give them their dividends and the one percent (1%)
share in gross sales, as well as the thirty-three percent (33%) share in the proceeds of the sale of the converted
500 hectares of land. They further claimed that their lives have not improved contrary to the promise and rationale
for the adoption of the SDOA. They also cited violations by HLI of the SDOAs terms. 58 They prayed for a
renegotiation of the SDOA, or, in the alternative, its revocation.
Revocation and nullification of the SDOA and the distribution of the lands in the hacienda were the call in the
second petition, styled as Petisyon (Petition).59 The Petisyon was ostensibly filed on December 4, 2003 by Alyansa
ng mga Manggagawang Bukid ng Hacienda Luisita (AMBALA), where the handwritten name of respondents Rene
Galang as "Pangulo AMBALA" and Noel Mallari as "Sec-Gen. AMBALA" 60 appeared. As alleged, the petition was filed
on behalf of AMBALAs members purportedly composing about 80% of the 5,339 FWBs of Hacienda Luisita.
HLI would eventually answer61 the petition/protest of the Supervisory Group. On the other hand, HLIs answer 62to
the AMBALA petition was contained in its letter dated January 21, 2005 also filed with DAR.
Meanwhile, the DAR constituted a Special Task Force to attend to issues relating to the SDP of HLI. Among other
duties, the Special Task Force was mandated to review the terms and conditions of the SDOA and PARC Resolution
No. 89-12-2 relative to HLIs SDP; evaluate HLIs compliance reports; evaluate the merits of the petitions for the
revocation of the SDP; conduct ocular inspections or field investigations; and recommend appropriate remedial
measures for approval of the Secretary.63
After investigation and evaluation, the Special Task Force submitted its "Terminal Report: Hacienda Luisita,
Incorporated (HLI) Stock Distribution Plan (SDP) Conflict" 64 dated September 22, 2005 (Terminal Report), finding
that HLI has not complied with its obligations under RA 6657 despite the implementation of the SDP.65 The Terminal
Report and the Special Task Forces recommendations were adopted by then DAR Sec. Nasser Pangandaman (Sec.
Pangandaman).66
Subsequently, Sec. Pangandaman recommended to the PARC Executive Committee (Excom) (a) the
recall/revocation of PARC Resolution No. 89-12-2 dated November 21, 1989 approving HLIs SDP; and (b) the
acquisition of Hacienda Luisita through the compulsory acquisition scheme. Following review, the PARC Validation
Committee favorably endorsed the DAR Secretarys recommendation afore-stated. 67

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On December 22, 2005, the PARC issued the assailed Resolution No. 2005-32-01, disposing as follows:
NOW, THEREFORE, on motion duly seconded, RESOLVED, as it is HEREBY RESOLVED, to approve and confirm the
recommendation of the PARC Executive Committee adopting in toto the report of the PARC ExCom Validation
Committee affirming the recommendation of the DAR to recall/revoke the SDO plan of Tarlac Development
Corporation/Hacienda Luisita Incorporated.
RESOLVED, further, that the lands subject of the recalled/revoked TDC/HLI SDO plan be forthwith placed under the
compulsory coverage or mandated land acquisition scheme of the [CARP].
APPROVED.68
A copy of Resolution No. 2005-32-01 was served on HLI the following day, December 23, without any copy of the
documents adverted to in the resolution attached. A letter-request dated December 28, 2005 69 for certified copies
of said documents was sent to, but was not acted upon by, the PARC secretariat.
Therefrom, HLI, on January 2, 2006, sought reconsideration. 70 On the same day, the DAR Tarlac provincial office
issued the Notice of Coverage 71 which HLI received on January 4, 2006.
Its motion notwithstanding, HLI has filed the instant recourse in light of what it considers as the DARs hasty
placing of Hacienda Luisita under CARP even before PARC could rule or even read the motion for
reconsideration.72 As HLI later rued, it "can not know from the above-quoted resolution the facts and the law upon
which it is based."73
PARC would eventually deny HLIs motion for reconsideration via Resolution No. 2006-34-01 dated May 3, 2006.
By Resolution of June 14, 2006,74 the Court, acting on HLIs motion, issued a temporary restraining
order,75enjoining the implementation of Resolution No. 2005-32-01 and the notice of coverage.
On July 13, 2006, the OSG, for public respondents PARC and the DAR, filed its Comment 76 on the petition.
On December 2, 2006, Noel Mallari, impleaded by HLI as respondent in his capacity as "Sec-Gen. AMBALA," filed
his Manifestation and Motion with Comment Attached dated December 4, 2006 (Manifestation and Motion). 77 In it,
Mallari stated that he has broken away from AMBALA with other AMBALA ex-members and formed Farmworkers
Agrarian Reform Movement, Inc. (FARM).78 Should this shift in alliance deny him standing, Mallari also prayed that
FARM be allowed to intervene.
As events would later develop, Mallari had a parting of ways with other FARM members, particularly would-be
intervenors Renato Lalic, et al. As things stand, Mallari returned to the AMBALA fold, creating the AMBALA-Noel
Mallari faction and leaving Renato Lalic, et al. as the remaining members of FARM who sought to intervene.
On January 10, 2007, the Supervisory Group79 and the AMBALA-Rene Galang faction submitted their
Comment/Opposition dated December 17, 2006.80
On October 30, 2007, RCBC filed a Motion for Leave to Intervene and to File and Admit Attached Petition-InIntervention dated October 18, 2007.81 LIPCO later followed with a similar motion.82 In both motions, RCBC and
LIPCO contended that the assailed resolution effectively nullified the TCTs under their respective names as the
properties covered in the TCTs were veritably included in the January 2, 2006 notice of coverage. In the main, they
claimed that the revocation of the SDP cannot legally affect their rights as innocent purchasers for value. Both
motions for leave to intervene were granted and the corresponding petitions-in-intervention admitted.
On August 18, 2010, the Court heard the main and intervening petitioners on oral arguments. On the other hand,
the Court, on August 24, 2010, heard public respondents as well as the respective counsels of the AMBALA-MallariSupervisory Group, the AMBALA-Galang faction, and the FARM and its 27 members 83 argue their case.
Prior to the oral arguments, however, HLI; AMBALA, represented by Mallari; the Supervisory Group, represented by
Suniga and Andaya; and the United Luisita Workers Union, represented by Eldifonso Pingol, filed with the Court a
joint submission and motion for approval of a Compromise Agreement (English and Tagalog versions)dated August
6, 2010.
On August 31, 2010, the Court, in a bid to resolve the dispute through an amicable settlement, issued a
Resolution84 creating a Mediation Panel composed of then Associate Justice Ma. Alicia Austria-Martinez, as
chairperson, and former CA Justices Hector Hofilea and Teresita Dy-Liacco Flores, as members. Meetings on five
(5) separate dates, i.e., September 8, 9, 14, 20, and 27, 2010, were conducted. Despite persevering and
painstaking efforts on the part of the panel, mediation had to be discontinued when no acceptable agreement could
be reached.
The Issues
HLI raises the following issues for our consideration:
I.
WHETHER OR NOT PUBLIC RESPONDENTS PARC AND SECRETARY PANGANDAMAN HAVE JURISDICTION,
POWER AND/OR AUTHORITY TO NULLIFY, RECALL, REVOKE OR RESCIND THE SDOA.

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II.
[IF SO], x x x CAN THEY STILL EXERCISE SUCH JURISDICTION, POWER AND/OR AUTHORITY AT THIS
TIME, I.E., AFTER SIXTEEN (16) YEARS FROM THE EXECUTION OF THE SDOA AND ITS IMPLEMENTATION
WITHOUT VIOLATING SECTIONS 1 AND 10 OF ARTICLE III (BILL OF RIGHTS) OF THE CONSTITUTION
AGAINST DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS OF LAW AND THE IMPAIRMENT OF
CONTRACTUAL RIGHTS AND OBLIGATIONS? MOREOVER, ARE THERE LEGAL GROUNDS UNDER THE CIVIL
CODE, viz, ARTICLE 1191 x x x, ARTICLES 1380, 1381 AND 1382 x x x ARTICLE 1390 x x x AND ARTICLE
1409 x x x THAT CAN BE INVOKED TO NULLIFY, RECALL, REVOKE, OR RESCIND THE SDOA?
III.
WHETHER THE PETITIONS TO NULLIFY, RECALL, REVOKE OR RESCIND THE SDOA HAVE ANY LEGAL BASIS
OR GROUNDS AND WHETHER THE PETITIONERS THEREIN ARE THE REAL PARTIES-IN-INTEREST TO FILE
SAID PETITIONS.
IV.
WHETHER THE RIGHTS, OBLIGATIONS AND REMEDIES OF THE PARTIES TO THE SDOA ARE NOW
GOVERNED BY THE CORPORATION CODE (BATAS PAMBANSA BLG. 68) AND NOT BY THE x x x
[CARL] x x x.
On the other hand, RCBC submits the following issues:
I.
RESPONDENT PARC COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION WHEN IT DID NOT EXCLUDE THE SUBJECT PROPERTY FROM THE COVERAGE OF THE CARP
DESPITE THE FACT THAT PETITIONER-INTERVENOR RCBC HAS ACQUIRED VESTED RIGHTS AND
INDEFEASIBLE TITLE OVER THE SUBJECT PROPERTY AS AN INNOCENT PURCHASER FOR VALUE.
A. THE ASSAILED RESOLUTION NO. 2005-32-01 AND THE NOTICE OF COVERAGE DATED 02
JANUARY 2006 HAVE THE EFFECT OF NULLIFYING TCT NOS. 391051 AND 391052 IN THE NAME
OF PETITIONER-INTERVENOR RCBC.
B. AS AN INNOCENT PURCHASER FOR VALUE, PETITIONER-INTERVENOR RCBC CANNOT BE
PREJUDICED BY A SUBSEQUENT REVOCATION OR RESCISSION OF THE SDOA.
II.
THE ASSAILED RESOLUTION NO. 2005-32-01 AND THE NOTICE OF COVERAGE DATED 02 JANUARY 2006
WERE ISSUED WITHOUT AFFORDING PETITIONER-INTERVENOR RCBC ITS RIGHT TO DUE PROCESS AS
AN INNOCENT PURCHASER FOR VALUE.
LIPCO, like RCBC, asserts having acquired vested and indefeasible rights over certain portions of the converted
property, and, hence, would ascribe on PARC the commission of grave abuse of discretion when it included those
portions in the notice of coverage. And apart from raising issues identical with those of HLI, such as but not limited
to the absence of valid grounds to warrant the rescission and/or revocation of the SDP, LIPCO would allege that the
assailed resolution and the notice of coverage were issued without affording it the right to due process as an
innocent purchaser for value. The government, LIPCO also argues, is estopped from recovering properties which
have since passed to innocent parties.
Simply formulated, the principal determinative issues tendered in the main petition and to which all other related
questions must yield boil down to the following: (1) matters of standing; (2) the constitutionality of Sec. 31 of RA
6657; (3) the jurisdiction of PARC to recall or revoke HLIs SDP; (4) the validity or propriety of such recall or
revocatory action; and (5) corollary to (4), the validity of the terms and conditions of the SDP, as embodied in the
SDOA.
Our Ruling
I.
We first proceed to the examination of the preliminary issues before delving on the more serious challenges
bearing on the validity of PARCs assailed issuance and the grounds for it.
Supervisory Group, AMBALA and their
respective leaders are real parties-in-interest
HLI would deny real party-in-interest status to the purported leaders of the Supervisory Group and AMBALA, i.e.,
Julio Suniga, Windsor Andaya, and Rene Galang, who filed the revocatory petitions before the DAR. As HLI would
have it, Galang, the self-styled head of AMBALA, gained HLI employment in June 1990 and, thus, could not have
been a party to the SDOA executed a year earlier.85 As regards the Supervisory Group, HLI alleges that supervisors
are not regular farmworkers, but the company nonetheless considered them FWBs under the SDOA as a mere
concession to enable them to enjoy the same benefits given qualified regular farmworkers. However, if the SDOA
would be canceled and land distribution effected, so HLI claims, citing Fortich v. Corona, 86 the supervisors would be

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excluded from receiving lands as farmworkers other than the regular farmworkers who are merely entitled to the
"fruits of the land."87
The SDOA no less identifies "the SDP qualified beneficiaries" as "the farmworkers who appear in the annual payroll,
inclusive of the permanent and seasonal employees, who are regularly or periodically employed by
[HLI]."88 Galang, per HLIs own admission, is employed by HLI, and is, thus, a qualified beneficiary of the SDP; he
comes within the definition of a real party-in-interest under Sec. 2, Rule 3 of the Rules of Court, meaning, one who
stands to be benefited or injured by the judgment in the suit or is the party entitled to the avails of the suit.
The same holds true with respect to the Supervisory Group whose members were admittedly employed by HLI and
whose names and signatures even appeared in the annex of the SDOA. Being qualified beneficiaries of the SDP,
Suniga and the other 61 supervisors are certainly parties who would benefit or be prejudiced by the judgment
recalling the SDP or replacing it with some other modality to comply with RA 6657.
Even assuming that members of the Supervisory Group are not regular farmworkers, but are in the category of
"other farmworkers" mentioned in Sec. 4, Article XIII of the Constitution, 89 thus only entitled to a share of the fruits
of the land, as indeed Fortich teaches, this does not detract from the fact that they are still identified as being
among the "SDP qualified beneficiaries." As such, they are, thus, entitled to bring an action upon the SDP.90 At any
rate, the following admission made by Atty. Gener Asuncion, counsel of HLI, during the oral arguments should put
to rest any lingering doubt as to the status of protesters Galang, Suniga, and Andaya:
Justice Bersamin: x x x I heard you a while ago that you were conceding the qualified farmer beneficiaries of
Hacienda Luisita were real parties in interest?
Atty. Asuncion: Yes, Your Honor please, real party in interest which that question refers to the complaints of protest
initiated before the DAR and the real party in interest there be considered as possessed by the farmer beneficiaries
who initiated the protest.91
Further, under Sec. 50, paragraph 4 of RA 6657, farmer-leaders are expressly allowed to represent themselves,
their fellow farmers or their organizations in any proceedings before the DAR. Specifically:
SEC. 50. Quasi-Judicial Powers of the DAR.x x x
xxxx
Responsible farmer leaders shall be allowed to represent themselves, their fellow farmers or their
organizations in any proceedings before the DAR: Provided, however, that when there are two or more
representatives for any individual or group, the representatives should choose only one among themselves to
represent such party or group before any DAR proceedings. (Emphasis supplied.)
Clearly, the respective leaders of the Supervisory Group and AMBALA are contextually real parties-in-interest
allowed by law to file a petition before the DAR or PARC.
This is not necessarily to say, however, that Galang represents AMBALA, for as records show and as HLI aptly
noted,92 his "petisyon" filed with DAR did not carry the usual authorization of the individuals in whose behalf it was
supposed to have been instituted. To date, such authorization document, which would logically include a list of the
names of the authorizing FWBs, has yet to be submitted to be part of the records.
PARCs Authority to Revoke a Stock Distribution Plan
On the postulate that the subject jurisdiction is conferred by law, HLI maintains that PARC is without authority to
revoke an SDP, for neither RA 6657 nor EO 229 expressly vests PARC with such authority. While, as HLI argued, EO
229 empowers PARC to approve the plan for stock distribution in appropriate cases, the empowerment only
includes the power to disapprove, but not to recall its previous approval of the SDP after it has been implemented
by the parties.93 To HLI, it is the court which has jurisdiction and authority to order the revocation or rescission of
the PARC-approved SDP.
We disagree.
Under Sec. 31 of RA 6657, as implemented by DAO 10, the authority to approve the plan for stock distribution of
the corporate landowner belongs to PARC. However, contrary to petitioner HLIs posture, PARC also has the power
to revoke the SDP which it previously approved. It may be, as urged, that RA 6657 or other executive issuances on
agrarian reform do not explicitly vest the PARC with the power to revoke/recall an approved SDP. Such power or
authority, however, is deemed possessed by PARC under the principle of necessary implication, a basic postulate
that what is implied in a statute is as much a part of it as that which is expressed. 94
We have explained that "every statute is understood, by implication, to contain all such provisions as may be
necessary to effectuate its object and purpose, or to make effective rights, powers, privileges or jurisdiction which
it grants, including all such collateral and subsidiary consequences as may be fairly and logically inferred from its
terms."95 Further, "every statutory grant of power, right or privilege is deemed to include all incidental power, right
or privilege.96
Gordon v. Veridiano II is instructive:
The power to approve a license includes by implication, even if not expressly granted, the power to revoke it. By
extension, the power to revoke is limited by the authority to grant the license, from which it is derived in the first

95

place. Thus, if the FDA grants a license upon its finding that the applicant drug store has complied with the
requirements of the general laws and the implementing administrative rules and regulations, it is only for their
violation that the FDA may revoke the said license. By the same token, having granted the permit upon his
ascertainment that the conditions thereof as applied x x x have been complied with, it is only for the violation of
such conditions that the mayor may revoke the said permit. 97 (Emphasis supplied.)
Following the doctrine of necessary implication, it may be stated that the conferment of express power to approve
a plan for stock distribution of the agricultural land of corporate owners necessarily includes the power to revoke or
recall the approval of the plan.
As public respondents aptly observe, to deny PARC such revocatory power would reduce it into a toothless agency
of CARP, because the very same agency tasked to ensure compliance by the corporate landowner with the
approved SDP would be without authority to impose sanctions for non-compliance with it. 98 With the view We take
of the case, only PARC can effect such revocation. The DAR Secretary, by his own authority as such, cannot
plausibly do so, as the acceptance and/or approval of the SDP sought to be taken back or undone is the act of
PARC whose official composition includes, no less, the President as chair, the DAR Secretary as vice-chair, and at
least eleven (11) other department heads.99
On another but related issue, the HLI foists on the Court the argument that subjecting its landholdings to
compulsory distribution after its approved SDP has been implemented would impair the contractual obligations
created under the SDOA.
The broad sweep of HLIs argument ignores certain established legal precepts and must, therefore, be rejected.
A law authorizing interference, when appropriate, in the contractual relations between or among parties is deemed
read into the contract and its implementation cannot successfully be resisted by force of the non-impairment
guarantee. There is, in that instance, no impingement of the impairment clause, the non-impairment protection
being applicable only to laws that derogate prior acts or contracts by enlarging, abridging or in any manner
changing the intention of the parties. Impairment, in fine, obtains if a subsequent law changes the terms of a
contract between the parties, imposes new conditions, dispenses with those agreed upon or withdraws existing
remedies for the enforcement of the rights of the parties.100 Necessarily, the constitutional proscription would not
apply to laws already in effect at the time of contract execution, as in the case of RA 6657, in relation to DAO 10,
vis--vis HLIs SDOA. As held in Serrano v. Gallant Maritime Services, Inc.:
The prohibition [against impairment of the obligation of contracts] is aligned with the general principle that laws
newly enacted have only a prospective operation, and cannot affect acts or contracts already perfected; however,
as to laws already in existence, their provisions are read into contracts and deemed a part thereof. Thus, the nonimpairment clause under Section 10, Article II [of the Constitution] is limited in application to laws about to be
enacted that would in any way derogate from existing acts or contracts by enlarging, abridging or in any manner
changing the intention of the parties thereto.101 (Emphasis supplied.)
Needless to stress, the assailed Resolution No. 2005-32-01 is not the kind of issuance within the ambit of Sec. 10,
Art. III of the Constitution providing that "[n]o law impairing the obligation of contracts shall be passed."
Parenthetically, HLI tags the SDOA as an ordinary civil law contract and, as such, a breach of its terms and
conditions is not a PARC administrative matter, but one that gives rise to a cause of action cognizable by regular
courts.102 This contention has little to commend itself. The SDOA is a special contract imbued with public interest,
entered into and crafted pursuant to the provisions of RA 6657. It embodies the SDP, which requires for its validity,
or at least its enforceability, PARCs approval. And the fact that the certificate of compliance 103to be issued by
agrarian authorities upon completion of the distribution of stocksis revocable by the same issuing authority
supports the idea that everything about the implementation of the SDP is, at the first instance, subject to
administrative adjudication.
HLI also parlays the notion that the parties to the SDOA should now look to the Corporation Code, instead of to RA
6657, in determining their rights, obligations and remedies. The Code, it adds, should be the applicable law on the
disposition of the agricultural land of HLI.
Contrary to the view of HLI, the rights, obligations and remedies of the parties to the SDOA embodying the SDP
are primarily governed by RA 6657. It should abundantly be made clear that HLI was precisely created in order to
comply with RA 6657, which the OSG aptly described as the "mother law" of the SDOA and the SDP.104 It is, thus,
paradoxical for HLI to shield itself from the coverage of CARP by invoking exclusive applicability of the Corporation
Code under the guise of being a corporate entity.
Without in any way minimizing the relevance of the Corporation Code since the FWBs of HLI are also stockholders,
its applicability is limited as the rights of the parties arising from the SDP should not be made to supplant or
circumvent the agrarian reform program.
Without doubt, the Corporation Code is the general law providing for the formation, organization and regulation of
private corporations. On the other hand, RA 6657 is the special law on agrarian reform. As between a general and
special law, the latter shall prevailgeneralia specialibus non derogant. 105 Besides, the present impasse between
HLI and the private respondents is not an intra-corporate dispute which necessitates the application of the
Corporation Code. What private respondents questioned before the DAR is the proper implementation of the SDP
and HLIs compliance with RA 6657. Evidently, RA 6657 should be the applicable law to the instant case.
HLI further contends that the inclusion of the agricultural land of Hacienda Luisita under the coverage of CARP and
the eventual distribution of the land to the FWBs would amount to a disposition of all or practically all of the
corporate assets of HLI. HLI would add that this contingency, if ever it comes to pass, requires the applicability of
the Corporation Code provisions on corporate dissolution.

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We are not persuaded.

Indeed, the provisions of the Corporation Code on corporate dissolution would apply insofar as the winding up of
HLIs affairs or liquidation of the assets is concerned. However, the mere inclusion of the agricultural land of
Hacienda Luisita under the coverage of CARP and the lands eventual distribution to the FWBs will not, without
more, automatically trigger the dissolution of HLI. As stated in the SDOA itself, the percentage of the value of the
agricultural land of Hacienda Luisita in relation to the total assets transferred and conveyed by Tadeco to HLI
comprises only 33.296%, following this equation: value of the agricultural lands divided by total corporate assets.
By no stretch of imagination would said percentage amount to a disposition of all or practically all of HLIs
corporate assets should compulsory land acquisition and distribution ensue.
This brings us to the validity of the revocation of the approval of the SDP sixteen (16) years after its execution
pursuant to Sec. 31 of RA 6657 for the reasons set forth in the Terminal Report of the Special Task Force, as
endorsed by PARC Excom. But first, the matter of the constitutionality of said section.
Constitutional Issue
FARM asks for the invalidation of Sec. 31 of RA 6657, insofar as it affords the corporation, as a mode of CARP
compliance, to resort to stock distribution, an arrangement which, to FARM, impairs the fundamental right of
farmers and farmworkers under Sec. 4, Art. XIII of the Constitution.106
To a more specific, but direct point, FARM argues that Sec. 31 of RA 6657 permits stock transfer in lieu of outright
agricultural land transfer; in fine, there is stock certificate ownership of the farmers or farmworkers instead of them
owning the land, as envisaged in the Constitution. For FARM, this modality of distribution is an anomaly to be
annulled for being inconsistent with the basic concept of agrarian reform ingrained in Sec. 4, Art. XIII of the
Constitution.107
Reacting, HLI insists that agrarian reform is not only about transfer of land ownership to farmers and other
qualified beneficiaries. It draws attention in this regard to Sec. 3(a) of RA 6657 on the concept and scope of the
term "agrarian reform." The constitutionality of a law, HLI added, cannot, as here, be attacked collaterally.
The instant challenge on the constitutionality of Sec. 31 of RA 6657 and necessarily its counterpart provision in EO
229 must fail as explained below.
When the Court is called upon to exercise its power of judicial review over, and pass upon the constitutionality of,
acts of the executive or legislative departments, it does so only when the following essential requirements are first
met, to wit:
(1) there is an actual case or controversy;
(2) that the constitutional question is raised at the earliest possible opportunity by a proper party or one
with locus standi; and
(3) the issue of constitutionality must be the very lis mota of the case. 108
Not all the foregoing requirements are satisfied in the case at bar.
While there is indeed an actual case or controversy, intervenor FARM, composed of a small minority of 27 farmers,
has yet to explain its failure to challenge the constitutionality of Sec. 3l of RA 6657, since as early as November 21,
l989 when PARC approved the SDP of Hacienda Luisita or at least within a reasonable time thereafter and why its
members received benefits from the SDP without so much of a protest. It was only on December 4, 2003 or 14
years after approval of the SDP via PARC Resolution No. 89-12-2 dated November 21, 1989 that said plan and
approving resolution were sought to be revoked, but not, to stress, by FARM or any of its members, but by
petitioner AMBALA. Furthermore, the AMBALA petition did NOT question the constitutionality of Sec. 31 of RA 6657,
but concentrated on the purported flaws and gaps in the subsequent implementation of the SDP. Even the public
respondents, as represented by the Solicitor General, did not question the constitutionality of the provision. On the
other hand, FARM, whose 27 members formerly belonged to AMBALA, raised the constitutionality of Sec. 31 only on
May 3, 2007 when it filed its Supplemental Comment with the Court. Thus, it took FARM some eighteen (18) years
from November 21, 1989 before it challenged the constitutionality of Sec. 31 of RA 6657 which is quite too late in
the day. The FARM members slept on their rights and even accepted benefits from the SDP with nary a complaint
on the alleged unconstitutionality of Sec. 31 upon which the benefits were derived. The Court cannot now be
goaded into resolving a constitutional issue that FARM failed to assail after the lapse of a long period of time and
the occurrence of numerous events and activities which resulted from the application of an alleged unconstitutional
legal provision.
It has been emphasized in a number of cases that the question of constitutionality will not be passed upon by the
Court unless it is properly raised and presented in an appropriate case at the first opportunity.109 FARM is,
therefore, remiss in belatedly questioning the constitutionality of Sec. 31 of RA 6657. The second requirement that
the constitutional question should be raised at the earliest possible opportunity is clearly wanting.
The last but the most important requisite that the constitutional issue must be the very lis mota of the case does
not likewise obtain. The lis mota aspect is not present, the constitutional issue tendered not being critical to the
resolution of the case. The unyielding rule has been to avoid, whenever plausible, an issue assailing the
constitutionality of a statute or governmental act.110 If some other grounds exist by which judgment can be made
without touching the constitutionality of a law, such recourse is favored. 111 Garcia v. Executive Secretary explains
why:

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Lis Mota the fourth requirement to satisfy before this Court will undertake judicial review means that the
Court will not pass upon a question of unconstitutionality, although properly presented, if the case can be disposed
of on some other ground, such as the application of the statute or the general law. The petitioner must be able to
show that the case cannot be legally resolved unless the constitutional question raised is determined. This
requirement is based on the rule that every law has in its favor the presumption of constitutionality; to justify its
nullification, there must be a clear and unequivocal breach of the Constitution, and not one that is doubtful,
speculative, or argumentative. 112 (Italics in the original.)
The lis mota in this case, proceeding from the basic positions originally taken by AMBALA (to which the FARM
members previously belonged) and the Supervisory Group, is the alleged non-compliance by HLI with the
conditions of the SDP to support a plea for its revocation. And before the Court, the lis mota is whether or not
PARC acted in grave abuse of discretion when it ordered the recall of the SDP for such non-compliance and the fact
that the SDP, as couched and implemented, offends certain constitutional and statutory provisions. To be sure, any
of these key issues may be resolved without plunging into the constitutionality of Sec. 31 of RA 6657. Moreover,
looking deeply into the underlying petitions of AMBALA, et al., it is not the said section per se that is invalid, but
rather it is the alleged application of the said provision in the SDP that is flawed.
It may be well to note at this juncture that Sec. 5 of RA 9700,113 amending Sec. 7 of RA 6657, has all but
superseded Sec. 31 of RA 6657 vis--vis the stock distribution component of said Sec. 31. In its pertinent part,
Sec. 5 of RA 9700 provides: "[T]hat after June 30, 2009, the modes of acquisition shall be limited to
voluntary offer to sell and compulsory acquisition." Thus, for all intents and purposes, the stock distribution scheme
under Sec. 31 of RA 6657 is no longer an available option under existing law. The question of whether or not it is
unconstitutional should be a moot issue.
It is true that the Court, in some cases, has proceeded to resolve constitutional issues otherwise already moot and
academic114 provided the following requisites are present:
x x x first, there is a grave violation of the Constitution; second, the exceptional character of the situation and the
paramount public interest is involved; third, when the constitutional issue raised requires formulation of controlling
principles to guide the bench, the bar, and the public; fourth, the case is capable of repetition yet evading review.
These requisites do not obtain in the case at bar.
For one, there appears to be no breach of the fundamental law. Sec. 4, Article XIII of the Constitution reads:
The State shall, by law, undertake an agrarian reform program founded on the right of the farmers and regular
farmworkers, who are landless, to OWN directly or COLLECTIVELY THE LANDS THEY TILL or, in the case of other
farmworkers, to receive a just share of the fruits thereof. To this end, the State shall encourage and undertake the
just distribution of all agricultural lands, subject to such priorities and reasonable retention limits as the Congress
may prescribe, taking into account ecological, developmental, or equity considerations, and subject to the payment
of just compensation. In determining retention limits, the State shall respect the right of small landowners. The
State shall further provide incentives for voluntary land-sharing. (Emphasis supplied.)
The wording of the provision is unequivocalthe farmers and regular farmworkers have a right TO OWN DIRECTLY
OR COLLECTIVELY THE LANDS THEY TILL. The basic law allows two (2) modes of land distributiondirect and
indirect ownership. Direct transfer to individual farmers is the most commonly used method by DAR and widely
accepted. Indirect transfer through collective ownership of the agricultural land is the alternative to direct
ownership of agricultural land by individual farmers. The aforequoted Sec. 4 EXPRESSLY authorizes collective
ownership by farmers. No language can be found in the 1987 Constitution that disqualifies or prohibits corporations
or cooperatives of farmers from being the legal entity through which collective ownership can be exercised. The
word "collective" is defined as "indicating a number of persons or things considered as constituting one group or
aggregate,"115 while "collectively" is defined as "in a collective sense or manner; in a mass or body." 116 By using the
word "collectively," the Constitution allows for indirect ownership of land and not just outright agricultural land
transfer. This is in recognition of the fact that land reform may become successful even if it is done through the
medium of juridical entities composed of farmers.
Collective ownership is permitted in two (2) provisions of RA 6657. Its Sec. 29 allows workers cooperatives or
associations to collectively own the land, while the second paragraph of Sec. 31 allows corporations or associations
to own agricultural land with the farmers becoming stockholders or members. Said provisions read:
SEC. 29. Farms owned or operated by corporations or other business associations.In the case of farms owned or
operated by corporations or other business associations, the following rules shall be observed by the PARC.
In general, lands shall be distributed directly to the individual worker-beneficiaries.
In case it is not economically feasible and sound to divide the land, then it shall be owned collectively by the
worker beneficiaries who shall form a workers cooperative or association which will deal with the corporation or
business association. x x x (Emphasis supplied.)
SEC. 31. Corporate Landowners. x x x
xxxx
Upon certification by the DAR, corporations owning agricultural lands may give their qualified beneficiaries the right
to purchase such proportion of the capital stock of the corporation that the agricultural land, actually devoted to
agricultural activities, bears in relation to the companys total assets, under such terms and conditions as may be
agreed upon by them. In no case shall the compensation received by the workers at the time the shares of stocks

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are distributed be reduced. The same principle shall be applied to associations, with respect to their equity or
participation. x x x (Emphasis supplied.)
Clearly, workers cooperatives or associations under Sec. 29 of RA 6657 and corporations or associations under the
succeeding Sec. 31, as differentiated from individual farmers, are authorized vehicles for the collective ownership
of agricultural land. Cooperatives can be registered with the Cooperative Development Authority and acquire legal
personality of their own, while corporations are juridical persons under the Corporation Code. Thus, Sec. 31 is
constitutional as it simply implements Sec. 4 of Art. XIII of the Constitution that land can be owned COLLECTIVELY
by farmers. Even the framers of the l987 Constitution are in unison with respect to the two (2) modes of ownership
of agricultural lands tilled by farmersDIRECT and COLLECTIVE, thus:
MR. NOLLEDO. And when we talk of the phrase "to own directly," we mean the principle of direct ownership by the
tiller?
MR. MONSOD. Yes.
MR. NOLLEDO. And when we talk of "collectively," we mean communal ownership, stewardship or State ownership?
MS. NIEVA. In this section, we conceive of cooperatives; that is farmers cooperatives owning the land, not the
State.
MR. NOLLEDO. And when we talk of "collectively," referring to farmers cooperatives, do the farmers own specific
areas of land where they only unite in their efforts?
MS. NIEVA. That is one way.
MR. NOLLEDO. Because I understand that there are two basic systems involved: the "moshave" type of agriculture
and the "kibbutz." So are both contemplated in the report?
MR. TADEO. Ang dalawa kasing pamamaraan ng pagpapatupad ng tunay na reporma sa lupa ay ang pagmamay-ari
ng lupa na hahatiin sa individual na pagmamay-ari directly at ang tinatawag na sama-samang gagawin ng mga
magbubukid. Tulad sa Negros, ang gusto ng mga magbubukid ay gawin nila itong "cooperative or collective farm."
Ang ibig sabihin ay sama-sama nilang sasakahin.
xxxx
MR. TINGSON. x x x When we speak here of "to own directly or collectively the lands they till," is this land for the
tillers rather than land for the landless? Before, we used to hear "land for the landless," but now the slogan is "land
for the tillers." Is that right?
MR. TADEO. Ang prinsipyong umiiral dito ay iyong land for the tillers. Ang ibig sabihin ng "directly" ay tulad sa
implementasyon sa rice and corn lands kung saan inaari na ng mga magsasaka ang lupang binubungkal nila. Ang
ibig sabihin naman ng "collectively" ay sama-samang paggawa sa isang lupain o isang bukid, katulad ng sitwasyon
sa Negros.117 (Emphasis supplied.)
As Commissioner Tadeo explained, the farmers will work on the agricultural land "sama-sama" or collectively. Thus,
the main requisite for collective ownership of land is collective or group work by farmers of the agricultural land.
Irrespective of whether the landowner is a cooperative, association or corporation composed of farmers, as long as
concerted group work by the farmers on the land is present, then it falls within the ambit of collective ownership
scheme.
Likewise, Sec. 4, Art. XIII of the Constitution makes mention of a commitment on the part of the State to
pursue,by law, an agrarian reform program founded on the policy of land for the landless, but subject to such
priorities as Congress may prescribe, taking into account such abstract variable as "equity considerations." The
textual reference to a law and Congress necessarily implies that the above constitutional provision is not selfexecutoryand that legislation is needed to implement the urgently needed program of agrarian reform. And RA
6657 has been enacted precisely pursuant to and as a mechanism to carry out the constitutional directives. This
piece of legislation, in fact, restates118 the agrarian reform policy established in the aforementioned provision of the
Constitution of promoting the welfare of landless farmers and farmworkers. RA 6657 thus defines "agrarian reform"
as "the redistribution of lands to farmers and regular farmworkers who are landless to lift the economic status
of the beneficiaries and all other arrangements alternative to the physical redistribution of lands, such as
production or profit sharing, labor administration and the distribution of shares of stock which will allow
beneficiaries to receive a just share of the fruits of the lands they work."
With the view We take of this case, the stock distribution option devised under Sec. 31 of RA 6657 hews with the
agrarian reform policy, as instrument of social justice under Sec. 4 of Article XIII of the Constitution. Albeit land
ownership for the landless appears to be the dominant theme of that policy, We emphasize that Sec. 4, Article XIII
of the Constitution, as couched, does not constrict Congress to passing an agrarian reform law planted on direct
land transfer to and ownership by farmers and no other, or else the enactment suffers from the vice of
unconstitutionality. If the intention were otherwise, the framers of the Constitution would have worded said section
in a manner mandatory in character.
For this Court, Sec. 31 of RA 6657, with its direct and indirect transfer features, is not inconsistent with the States
commitment to farmers and farmworkers to advance their interests under the policy of social justice. The
legislature, thru Sec. 31 of RA 6657, has chosen a modality for collective ownership by which the imperatives of
social justice may, in its estimation, be approximated, if not achieved. The Court should be bound by such policy
choice.

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FARM contends that the farmers in the stock distribution scheme under Sec. 31 do not own the agricultural land
but are merely given stock certificates. Thus, the farmers lose control over the land to the board of directors and
executive officials of the corporation who actually manage the land. They conclude that such arrangement runs
counter to the mandate of the Constitution that any agrarian reform must preserve the control over the land in the
hands of the tiller.
This contention has no merit.
While it is true that the farmer is issued stock certificates and does not directly own the land, still, the Corporation
Code is clear that the FWB becomes a stockholder who acquires an equitable interest in the assets of the
corporation, which include the agricultural lands. It was explained that the "equitable interest of the shareholder in
the property of the corporation is represented by the term stock, and the extent of his interest is described by the
term shares. The expression shares of stock when qualified by words indicating number and ownership expresses
the extent of the owners interest in the corporate property." 119 A share of stock typifies an aliquot part of the
corporations property, or the right to share in its proceeds to that extent when distributed according to law and
equity and that its holder is not the owner of any part of the capital of the corporation. 120 However, the FWBs will
ultimately own the agricultural lands owned by the corporation when the corporation is eventually dissolved and
liquidated.
Anent the alleged loss of control of the farmers over the agricultural land operated and managed by the
corporation, a reading of the second paragraph of Sec. 31 shows otherwise. Said provision provides that qualified
beneficiaries have "the right to purchase such proportion of the capital stock of the corporation that the agricultural
land, actually devoted to agricultural activities, bears in relation to the companys total assets." The wording of the
formula in the computation of the number of shares that can be bought by the farmers does not mean loss of
control on the part of the farmers. It must be remembered that the determination of the percentage of the capital
stock that can be bought by the farmers depends on the value of the agricultural land and the value of the total
assets of the corporation.
There is, thus, nothing unconstitutional in the formula prescribed by RA 6657. The policy on agrarian reform is that
control over the agricultural land must always be in the hands of the farmers. Then it falls on the shoulders of DAR
and PARC to see to it the farmers should always own majority of the common shares entitled to elect the members
of the board of directors to ensure that the farmers will have a clear majority in the board. Before the SDP is
approved, strict scrutiny of the proposed SDP must always be undertaken by the DAR and PARC, such that the
value of the agricultural land contributed to the corporation must always be more than 50% of the total assets of
the corporation to ensure that the majority of the members of the board of directors are composed of the farmers.
The PARC composed of the President of the Philippines and cabinet secretaries must see to it that control over the
board of directors rests with the farmers by rejecting the inclusion of non-agricultural assets which will yield the
majority in the board of directors to non-farmers. Any deviation, however, by PARC or DAR from the correct
application of the formula prescribed by the second paragraph of Sec. 31 of RA 6675 does not make said provision
constitutionally infirm. Rather, it is the application of said provision that can be challenged. Ergo, Sec. 31 of RA
6657 does not trench on the constitutional policy of ensuring control by the farmers.
A view has been advanced that there can be no agrarian reform unless there is land distribution and that actual
land distribution is the essential characteristic of a constitutional agrarian reform program. On the contrary, there
have been so many instances where, despite actual land distribution, the implementation of agrarian reform was
still unsuccessful. As a matter of fact, this Court may take judicial notice of cases where FWBs sold the awarded
land even to non-qualified persons and in violation of the prohibition period provided under the law. This only
proves to show that the mere fact that there is land distribution does not guarantee a successful implementation of
agrarian reform.
As it were, the principle of "land to the tiller" and the old pastoral model of land ownership where non-human
juridical persons, such as corporations, were prohibited from owning agricultural lands are no longer realistic under
existing conditions. Practically, an individual farmer will often face greater disadvantages and difficulties than those
who exercise ownership in a collective manner through a cooperative or corporation. The former is too often left to
his own devices when faced with failing crops and bad weather, or compelled to obtain usurious loans in order to
purchase costly fertilizers or farming equipment. The experiences learned from failed land reform activities in
various parts of the country are lack of financing, lack of farm equipment, lack of fertilizers, lack of guaranteed
buyers of produce, lack of farm-to-market roads, among others. Thus, at the end of the day, there is still no
successful implementation of agrarian reform to speak of in such a case.
Although success is not guaranteed, a cooperative or a corporation stands in a better position to secure funding
and competently maintain the agri-business than the individual farmer. While direct singular ownership over
farmland does offer advantages, such as the ability to make quick decisions unhampered by interference from
others, yet at best, these advantages only but offset the disadvantages that are often associated with such
ownership arrangement. Thus, government must be flexible and creative in its mode of implementation to better
its chances of success. One such option is collective ownership through juridical persons composed of farmers.
Aside from the fact that there appears to be no violation of the Constitution, the requirement that the instant case
be capable of repetition yet evading review is also wanting. It would be speculative for this Court to assume that
the legislature will enact another law providing for a similar stock option.
As a matter of sound practice, the Court will not interfere inordinately with the exercise by Congress of its official
functions, the heavy presumption being that a law is the product of earnest studies by Congress to ensure that no
constitutional prescription or concept is infringed. 121 Corollarily, courts will not pass upon questions of wisdom,
expediency and justice of legislation or its provisions. Towards this end, all reasonable doubts should be resolved in
favor of the constitutionality of a law and the validity of the acts and processes taken pursuant thereof.122
Consequently, before a statute or its provisions duly challenged are voided, an unequivocal breach of, or a clear
conflict with the Constitution, not merely a doubtful or argumentative one, must be demonstrated in such a
manner as to leave no doubt in the mind of the Court. In other words, the grounds for nullity must be beyond

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reasonable doubt.123 FARM has not presented compelling arguments to overcome the presumption of
constitutionality of Sec. 31 of RA 6657.
The wisdom of Congress in allowing an SDP through a corporation as an alternative mode of implementing agrarian
reform is not for judicial determination. Established jurisprudence tells us that it is not within the province of the
Court to inquire into the wisdom of the law, for, indeed, We are bound by words of the statute. 124
II.
The stage is now set for the determination of the propriety under the premises of the revocation or recall of HLIs
SDP. Or to be more precise, the inquiry should be: whether or not PARC gravely abused its discretion in revoking or
recalling the subject SDP and placing the hacienda under CARPs compulsory acquisition and distribution scheme.
The findings, analysis and recommendation of the DARs Special Task Force contained and summarized in its
Terminal Report provided the bases for the assailed PARC revocatory/recalling Resolution. The findings may be
grouped into two: (1) the SDP is contrary to either the policy on agrarian reform, Sec. 31 of RA 6657, or DAO 10;
and (2) the alleged violation by HLI of the conditions/terms of the SDP. In more particular terms, the following are
essentially the reasons underpinning PARCs revocatory or recall action:
(1) Despite the lapse of 16 years from the approval of HLIs SDP, the lives of the FWBs have hardly
improved and the promised increased income has not materialized;
(2) HLI has failed to keep Hacienda Luisita intact and unfragmented;
(3) The issuance of HLI shares of stock on the basis of number of hours workedor the so-called "man
days"is grossly onerous to the FWBs, as HLI, in the guise of rotation, can unilaterally deny work to
anyone. In elaboration of this ground, PARCs Resolution No. 2006-34-01, denying HLIs motion for
reconsideration of Resolution No. 2005-32-01, stated that the man days criterion worked to dilute the
entitlement of the original share beneficiaries; 125
(4) The distribution/transfer of shares was not in accordance with the timelines fixed by law;
(5) HLI has failed to comply with its obligations to grant 3% of the gross sales every year as productionsharing benefit on top of the workers salary; and
(6) Several homelot awardees have yet to receive their individual titles.
Petitioner HLI claims having complied with, at least substantially, all its obligations under the SDP, as approved by
PARC itself, and tags the reasons given for the revocation of the SDP as unfounded.
Public respondents, on the other hand, aver that the assailed resolution rests on solid grounds set forth in the
Terminal Report, a position shared by AMBALA, which, in some pleadings, is represented by the same counsel as
that appearing for the Supervisory Group.
FARM, for its part, posits the view that legal bases obtain for the revocation of the SDP, because it does not
conform to Sec. 31 of RA 6657 and DAO 10. And training its sight on the resulting dilution of the equity of the
FWBs appearing in HLIs masterlist, FARM would state that the SDP, as couched and implemented, spawned
disparity when there should be none; parity when there should have been differentiation. 126
The petition is not impressed with merit.
In the Terminal Report adopted by PARC, it is stated that the SDP violates the agrarian reform policy under Sec. 2
of RA 6657, as the said plan failed to enhance the dignity and improve the quality of lives of the FWBs through
greater productivity of agricultural lands. We disagree.
Sec. 2 of RA 6657 states:
SECTION 2. Declaration of Principles and Policies.It is the policy of the State to pursue a Comprehensive Agrarian
Reform Program (CARP). The welfare of the landless farmers and farm workers will receive the highest
consideration to promote social justice and to move the nation towards sound rural development and
industrialization, and the establishment of owner cultivatorship of economic-sized farms as the basis of Philippine
agriculture.
To this end, a more equitable distribution and ownership of land, with due regard to the rights of landowners to just
compensation and to the ecological needs of the nation, shall be undertaken to provide farmers and farm workers
with the opportunity to enhance their dignity and improve the quality of their lives through greater productivity of
agricultural lands.
The agrarian reform program is founded on the right of farmers and regular farm workers, who are landless, to
own directly or collectively the lands they till or, in the case of other farm workers, to receive a share of the fruits
thereof. To this end, the State shall encourage the just distribution of all agricultural lands, subject to the priorities
and retention limits set forth in this Act, having taken into account ecological, developmental, and equity
considerations, and subject to the payment of just compensation. The State shall respect the right of small
landowners and shall provide incentives for voluntary land-sharing. (Emphasis supplied.)

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Paragraph 2 of the above-quoted provision specifically mentions that "a more equitable distribution and ownership
of land x x x shall be undertaken to provide farmers and farm workers with the opportunity to enhance their dignity
and improve the quality of their lives through greater productivity of agricultural lands." Of note is the term
"opportunity" which is defined as a favorable chance or opening offered by circumstances. 127 Considering this, by
no stretch of imagination can said provision be construed as a guarantee in improving the lives of the FWBs. At
best, it merely provides for a possibility or favorable chance of uplifting the economic status of the FWBs, which
may or may not be attained.
Pertinently, improving the economic status of the FWBs is neither among the legal obligations of HLI under the SDP
nor an imperative imposition by RA 6657 and DAO 10, a violation of which would justify discarding the stock
distribution option. Nothing in that option agreement, law or department order indicates otherwise.
Significantly, HLI draws particular attention to its having paid its FWBs, during the regime of the SDP (1989-2005),
some PhP 3 billion by way of salaries/wages and higher benefits exclusive of free hospital and medical benefits to
their immediate family. And attached as Annex "G" to HLIs Memorandum is the certified true report of the finance
manager of Jose Cojuangco & Sons Organizations-Tarlac Operations, captioned as "HACIENDA LUISITA, INC.
Salaries, Benefits and Credit Privileges (in Thousand Pesos) Since the Stock Option was Approved by PARC/CARP,"
detailing what HLI gave their workers from 1989 to 2005. The sum total, as added up by the Court, yields the
following numbers: Total Direct Cash Out (Salaries/Wages & Cash Benefits) = PhP 2,927,848; Total Non-Direct
Cash Out (Hospital/Medical Benefits) = PhP 303,040. The cash out figures, as stated in the report, include the cost
of homelots; the PhP 150 million or so representing 3% of the gross produce of the hacienda; and the PhP 37.5
million representing 3% from the proceeds of the sale of the 500-hectare converted lands. While not included in
the report, HLI manifests having given the FWBs 3% of the PhP 80 million paid for the 80 hectares of land
traversed by the SCTEX.128 On top of these, it is worth remembering that the shares of stocks were given by HLI to
the FWBs for free. Verily, the FWBs have benefited from the SDP.
To address urgings that the FWBs be allowed to disengage from the SDP as HLI has not anyway earned profits
through the years, it cannot be over-emphasized that, as a matter of common business sense, no corporation could
guarantee a profitable run all the time. As has been suggested, one of the key features of an SDP of a corporate
landowner is the likelihood of the corporate vehicle not earning, or, worse still, losing money.129
The Court is fully aware that one of the criteria under DAO 10 for the PARC to consider the advisability of approving
a stock distribution plan is the likelihood that the plan "would result in increased income and greater benefits to
[qualified beneficiaries] than if the lands were divided and distributed to them individually." 130 But as aptly noted
during the oral arguments, DAO 10 ought to have not, as it cannot, actually exact assurance of success on
something that is subject to the will of man, the forces of nature or the inherent risky nature of business. 131 Just
like in actual land distribution, an SDP cannot guarantee, as indeed the SDOA does not guarantee, a comfortable
life for the FWBs. The Court can take judicial notice of the fact that there were many instances wherein after a
farmworker beneficiary has been awarded with an agricultural land, he just subsequently sells it and is eventually
left with nothing in the end.
In all then, the onerous condition of the FWBs economic status, their life of hardship, if that really be the case, can
hardly be attributed to HLI and its SDP and provide a valid ground for the plans revocation.
Neither does HLIs SDP, whence the DAR-attested SDOA/MOA is based, infringe Sec. 31 of RA 6657, albeit public
respondents erroneously submit otherwise.
The provisions of the first paragraph of the adverted Sec. 31 are without relevance to the issue on the propriety of
the assailed order revoking HLIs SDP, for the paragraph deals with the transfer of agricultural lands to the
government, as a mode of CARP compliance, thus:
SEC. 31. Corporate Landowners.Corporate landowners may voluntarily transfer ownership over their agricultural
landholdings to the Republic of the Philippines pursuant to Section 20 hereof or to qualified beneficiaries under such
terms and conditions, consistent with this Act, as they may agree, subject to confirmation by the DAR.
The second and third paragraphs, with their sub-paragraphs, of Sec. 31 provide as follows:
Upon certification by the DAR, corporations owning agricultural lands may give their qualified beneficiaries the
right to purchase such proportion of the capital stock of the corporation that the agricultural land,
actually devoted to agricultural activities, bears in relation to the companys total assets, under such
terms and conditions as may be agreed upon by them. In no case shall the compensation received by the workers
at the time the shares of stocks are distributed be reduced. x x x
Corporations or associations which voluntarily divest a proportion of their capital stock, equity or participation in
favor of their workers or other qualified beneficiaries under this section shall be deemed to have complied with the
provisions of this Act: Provided, That the following conditions are complied with:
(a) In order to safeguard the right of beneficiaries who own shares of stocks to dividends and other
financial benefits, the books of the corporation or association shall be subject to periodic audit by certified
public accountants chosen by the beneficiaries;
(b) Irrespective of the value of their equity in the corporation or association, the beneficiaries shall be
assured of at least one (1) representative in the board of directors, or in a management or executive
committee, if one exists, of the corporation or association;
(c) Any shares acquired by such workers and beneficiaries shall have the same rights and features as all
other shares; and

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(d) Any transfer of shares of stocks by the original beneficiaries shall be void ab initio unless said
transaction is in favor of a qualified and registered beneficiary within the same corporation.
The mandatory minimum ratio of land-to-shares of stock supposed to be distributed or allocated to qualified
beneficiaries, adverting to what Sec. 31 of RA 6657 refers to as that "proportion of the capital stock of the
corporation that the agricultural land, actually devoted to agricultural activities, bears in relation to the companys
total assets" had been observed.
Paragraph one (1) of the SDOA, which was based on the SDP, conforms to Sec. 31 of RA 6657. The stipulation
reads:
1. The percentage of the value of the agricultural land of Hacienda Luisita (P196,630,000.00) in relation to the total
assets (P590,554,220.00) transferred and conveyed to the SECOND PARTY is 33.296% that, under the law, is the
proportion of the outstanding capital stock of the SECOND PARTY, which is P355,531,462.00 or 355,531,462 shares
with a par value of P1.00 per share, that has to be distributed to the THIRD PARTY under the stock distribution
plan, the said 33.296% thereof being P118,391,976.85 or 118,391,976.85 shares.
The appraised value of the agricultural land is PhP 196,630,000 and of HLIs other assets is PhP 393,924,220. The
total value of HLIs assets is, therefore, PhP 590,554,220. 132 The percentage of the value of the agricultural lands
(PhP 196,630,000) in relation to the total assets (PhP 590,554,220) is 33.296%, which represents the
stockholdings of the 6,296 original qualified farmworker-beneficiaries (FWBs) in HLI. The total number of shares to
be distributed to said qualified FWBs is 118,391,976.85 HLI shares. This was arrived at by getting 33.296% of the
355,531,462 shares which is the outstanding capital stock of HLI with a value of PhP 355,531,462. Thus, if we
divide the 118,391,976.85 HLI shares by 6,296 FWBs, then each FWB is entitled to 18,804.32 HLI shares. These
shares under the SDP are to be given to FWBs for free.
The Court finds that the determination of the shares to be distributed to the 6,296 FWBs strictly adheres to the
formula prescribed by Sec. 31(b) of RA 6657.
Anent the requirement under Sec. 31(b) of the third paragraph, that the FWBs shall be assured of at least one (1)
representative in the board of directors or in a management or executive committee irrespective of the value of the
equity of the FWBs in HLI, the Court finds that the SDOA contained provisions making certain the FWBs
representation in HLIs governing board, thus:
5. Even if only a part or fraction of the shares earmarked for distribution will have been acquired from the FIRST
PARTY and distributed to the THIRD PARTY, FIRST PARTY shall execute at the beginning of each fiscal year an
irrevocable proxy, valid and effective for one (1) year, in favor of the farmworkers appearing as shareholders of the
SECOND PARTY at the start of said year which will empower the THIRD PARTY or their representative to vote in
stockholders and board of directors meetings of the SECOND PARTY convened during the year the entire 33.296%
of the outstanding capital stock of the SECOND PARTY earmarked for distribution and thus be able to gain such
number of seats in the board of directors of the SECOND PARTY that the whole 33.296% of the shares subject to
distribution will be entitled to.
Also, no allegations have been made against HLI restricting the inspection of its books by accountants chosen by
the FWBs; hence, the assumption may be made that there has been no violation of the statutory prescription under
sub-paragraph (a) on the auditing of HLIs accounts.
Public respondents, however, submit that the distribution of the mandatory minimum ratio of land-to-shares of
stock, referring to the 118,391,976.85 shares with par value of PhP 1 each, should have been made in full within
two (2) years from the approval of RA 6657, in line with the last paragraph of Sec. 31 of said law. 133
Public respondents submission is palpably erroneous. We have closely examined the last paragraph alluded to, with
particular focus on the two-year period mentioned, and nothing in it remotely supports the public respondents
posture. In its pertinent part, said Sec. 31 provides:
SEC. 31. Corporate Landowners x x x
If within two (2) years from the approval of this Act, the [voluntary] land or stock transfer envisioned above is not
made or realized or the plan for such stock distribution approved by the PARC within the same period, the
agricultural land of the corporate owners or corporation shall be subject to the compulsory coverage of this Act.
(Word in bracket and emphasis added.)
Properly viewed, the words "two (2) years" clearly refer to the period within which the corporate landowner, to
avoid land transfer as a mode of CARP coverage under RA 6657, is to avail of the stock distribution option or to
have the SDP approved. The HLI secured approval of its SDP in November 1989, well within the two-year period
reckoned from June 1988 when RA 6657 took effect.
Having hurdled the alleged breach of the agrarian reform policy under Sec. 2 of RA 6657 as well as the statutory
issues, We shall now delve into what PARC and respondents deem to be other instances of violation of DAO 10 and
the SDP.
On the Conversion of Lands
Contrary to the almost parallel stance of the respondents, keeping Hacienda Luisita unfragmented is also not
among the imperative impositions by the SDP, RA 6657, and DAO 10.

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The Terminal Report states that the proposed distribution plan submitted in 1989 to the PARC effectively assured
the intended stock beneficiaries that the physical integrity of the farm shall remain inviolate. Accordingly, the
Terminal Report and the PARC-assailed resolution would take HLI to task for securing approval of the conversion to
non-agricultural uses of 500 hectares of the hacienda. In not too many words, the Report and the resolution view
the conversion as an infringement of Sec. 5(a) of DAO 10 which reads: "a. that the continued operation of the
corporation with its agricultural land intact and unfragmented is viable with potential for growth and increased
profitability."
The PARC is wrong.
In the first place, Sec. 5(a)just like the succeeding Sec. 5(b) of DAO 10 on increased income and greater
benefits to qualified beneficiariesis but one of the stated criteria to guide PARC in deciding on whether or not to
accept an SDP. Said Sec. 5(a) does not exact from the corporate landowner-applicant the undertaking to keep the
farm intact and unfragmented ad infinitum. And there is logic to HLIs stated observation that the key phrase in the
provision of Sec. 5(a) is "viability of corporate operations": "[w]hat is thus required is not the agricultural land
remaining intact x x x but the viability of the corporate operations with its agricultural land being intact and
unfragmented. Corporate operation may be viable even if the corporate agricultural land does not remain intact or
[un]fragmented."134
It is, of course, anti-climactic to mention that DAR viewed the conversion as not violative of any issuance, let alone
undermining the viability of Hacienda Luisitas operation, as the DAR Secretary approved the land conversion
applied for and its disposition via his Conversion Order dated August 14, 1996 pursuant to Sec. 65 of RA 6657
which reads:
Sec. 65. Conversion of Lands.After the lapse of five years from its award when the land ceases to be
economically feasible and sound for agricultural purposes, or the locality has become urbanized and the land will
have a greater economic value for residential, commercial or industrial purposes, the DAR upon application of the
beneficiary or landowner with due notice to the affected parties, and subject to existing laws, may authorize the x x
x conversion of the land and its dispositions. x x x
On the 3% Production Share
On the matter of the alleged failure of HLI to comply with sharing the 3% of the gross production sales of the
hacienda and pay dividends from profit, the entries in its financial books tend to indicate compliance by HLI of the
profit-sharing equivalent to 3% of the gross sales from the production of the agricultural land on top of (a) the
salaries and wages due FWBs as employees of the company and (b) the 3% of the gross selling price of the
converted land and that portion used for the SCTEX. A plausible evidence of compliance or non-compliance, as the
case may be, could be the books of account of HLI. Evidently, the cry of some groups of not having received their
share from the gross production sales has not adequately been validated on the ground by the Special Task Force.
Indeed, factual findings of administrative agencies are conclusive when supported by substantial evidence and are
accorded due respect and weight, especially when they are affirmed by the CA. 135 However, such rule is not
absolute. One such exception is when the findings of an administrative agency are conclusions without citation of
specific evidence on which they are based,136 such as in this particular instance. As culled from its Terminal Report,
it would appear that the Special Task Force rejected HLIs claim of compliance on the basis of this ratiocination:

The Task Force position: Though, allegedly, the Supervisory Group receives the 3% gross production share
and that others alleged that they received 30 million pesos still others maintain that they have not
received anything yet. Item No. 4 of the MOA is clear and must be followed. There is a distinction between
the total gross sales from the production of the land and the proceeds from the sale of the land. The
former refers to the fruits/yield of the agricultural land while the latter is the land itself. The phrase "the
beneficiaries are entitled every year to an amount approximately equivalent to 3% would only be feasible
if the subject is the produce since there is at least one harvest per year, while such is not the case in the
sale of the agricultural land. This negates then the claim of HLI that, all that the FWBs can be entitled to,
if any, is only 3% of the purchase price of the converted land.
Besides, the Conversion Order dated 14 August 1996 provides that "the benefits, wages and the like,
presently received by the FWBs shall not in any way be reduced or adversely affected. Three percent of
the gross selling price of the sale of the converted land shall be awarded to the beneficiaries of the SDO."
The 3% gross production share then is different from the 3% proceeds of the sale of the converted land
and, with more reason, the 33% share being claimed by the FWBs as part owners of the Hacienda, should
have been given the FWBs, as stockholders, and to which they could have been entitled if only the land
were acquired and redistributed to them under the CARP.
xxxx

The FWBs do not receive any other benefits under the MOA except the aforementioned [(viz: shares of
stocks (partial), 3% gross production sale (not all) and homelots (not all)].

Judging from the above statements, the Special Task Force is at best silent on whether HLI has failed to comply
with the 3% production-sharing obligation or the 3% of the gross selling price of the converted land and the SCTEX
lot. In fact, it admits that the FWBs, though not all, have received their share of the gross production sales and in
the sale of the lot to SCTEX. At most, then, HLI had complied substantially with this SDP undertaking and the
conversion order. To be sure, this slight breach would not justify the setting to naught by PARC of the approval
action of the earlier PARC. Even in contract law, rescission, predicated on violation of reciprocity, will not be
permitted for a slight or casual breach of contract; rescission may be had only for such breaches that are
substantial and fundamental as to defeat the object of the parties in making the agreement. 137
Despite the foregoing findings, the revocation of the approval of the SDP is not without basis as shown below.

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On Titles to Homelots
Under RA 6657, the distribution of homelots is required only for corporations or business associations owning or
operating farms which opted for land distribution. Sec. 30 of RA 6657 states:
SEC. 30. Homelots and Farmlots for Members of Cooperatives.The individual members of the cooperatives or
corporations mentioned in the preceding section shall be provided with homelots and small farmlots for their family
use, to be taken from the land owned by the cooperative or corporation.
The "preceding section" referred to in the above-quoted provision is as follows:
SEC. 29. Farms Owned or Operated by Corporations or Other Business Associations.In the case of farms owned
or operated by corporations or other business associations, the following rules shall be observed by the PARC.
In general, lands shall be distributed directly to the individual worker-beneficiaries.
In case it is not economically feasible and sound to divide the land, then it shall be owned collectively by the
worker-beneficiaries who shall form a workers cooperative or association which will deal with the corporation or
business association. Until a new agreement is entered into by and between the workers cooperative or association
and the corporation or business association, any agreement existing at the time this Act takes effect between the
former and the previous landowner shall be respected by both the workers cooperative or association and the
corporation or business association.
Noticeably, the foregoing provisions do not make reference to corporations which opted for stock distribution under
Sec. 31 of RA 6657. Concomitantly, said corporations are not obliged to provide for it except by stipulation, as in
this case.
Under the SDP, HLI undertook to "subdivide and allocate for free and without charge among the qualified familybeneficiaries x x x residential or homelots of not more than 240 sq. m. each, with each family beneficiary being
assured of receiving and owning a homelot in the barrio or barangay where it actually resides," "within a
reasonable time."
More than sixteen (16) years have elapsed from the time the SDP was approved by PARC, and yet, it is still the
contention of the FWBs that not all was given the 240-square meter homelots and, of those who were already
given, some still do not have the corresponding titles.
During the oral arguments, HLI was afforded the chance to refute the foregoing allegation by submitting proof that
the FWBs were already given the said homelots:
Justice Velasco: x x x There is also an allegation that the farmer beneficiaries, the qualified family beneficiaries
were not given the 240 square meters each. So, can you also [prove] that the qualified family beneficiaries were
already provided the 240 square meter homelots.
Atty. Asuncion: We will, your Honor please.138
Other than the financial report, however, no other substantial proof showing that all the qualified beneficiaries have
received homelots was submitted by HLI. Hence, this Court is constrained to rule that HLI has not yet fully
complied with its undertaking to distribute homelots to the FWBs under the SDP.
On "Man Days" and the Mechanics of Stock Distribution
In our review and analysis of par. 3 of the SDOA on the mechanics and timelines of stock distribution, We find that
it violates two (2) provisions of DAO 10. Par. 3 of the SDOA states:
3. At the end of each fiscal year, for a period of 30 years, the SECOND PARTY [HLI] shall arrange with the FIRST
PARTY [TDC] the acquisition and distribution to the THIRD PARTY [FWBs] on the basis of number of days worked
and at no cost to them of one-thirtieth (1/30) of 118,391,976.85 shares of the capital stock of the SECOND PARTY
that are presently owned and held by the FIRST PARTY, until such time as the entire block of 118,391,976.85
shares shall have been completely acquired and distributed to the THIRD PARTY.
Based on the above-quoted provision, the distribution of the shares of stock to the FWBs, albeit not entailing a
cash out from them, is contingent on the number of "man days," that is, the number of days that the FWBs have
worked during the year. This formula deviates from Sec. 1 of DAO 10, which decrees the distribution of equal
number of shares to the FWBs as the minimum ratio of shares of stock for purposes of compliance with Sec. 31 of
RA 6657. As stated in Sec. 4 of DAO 10:
Section 4. Stock Distribution Plan.The [SDP] submitted by the corporate landowner-applicant shall provide for the
distribution of an equal number of shares of the same class and value, with the same rights and features as all
other shares, to each of the qualified beneficiaries. This distribution plan in all cases, shall be at least the minimum
ratio for purposes of compliance with Section 31 of R.A. No. 6657.
On top of the minimum ratio provided under Section 3 of this Implementing Guideline, the corporate landownerapplicant may adopt additional stock distribution schemes taking into account factors such as rank, seniority,
salary, position and other circumstances which may be deemed desirable as a matter of sound company policy.
(Emphasis supplied.)

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The above proviso gives two (2) sets or categories of shares of stock which a qualified beneficiary can acquire from
the corporation under the SDP. The first pertains, as earlier explained, to the mandatory minimum ratio of shares
of stock to be distributed to the FWBs in compliance with Sec. 31 of RA 6657. This minimum ratio contemplates of
that "proportion of the capital stock of the corporation that the agricultural land, actually devoted to agricultural
activities, bears in relation to the companys total assets." 139 It is this set of shares of stock which, in line with Sec.
4 of DAO 10, is supposed to be allocated "for the distribution of an equal number of shares of stock of the same
class and value, with the same rights and features as all other shares, to each of the qualified beneficiaries."
On the other hand, the second set or category of shares partakes of a gratuitous extra grant, meaning that this set
or category constitutes an augmentation share/s that the corporate landowner may give under an additional stock
distribution scheme, taking into account such variables as rank, seniority, salary, position and like factors which the
management, in the exercise of its sound discretion, may deem desirable. 140
Before anything else, it should be stressed that, at the time PARC approved HLIs SDP, HLI
recognized 6,296individuals as qualified FWBs. And under the 30-year stock distribution program envisaged under
the plan, FWBs who came in after 1989, new FWBs in fine, may be accommodated, as they appear to have in fact
been accommodated as evidenced by their receipt of HLI shares.
Now then, by providing that the number of shares of the original 1989 FWBs shall depend on the number of "man
days," HLI violated the afore-quoted rule on stock distribution and effectively deprived the FWBs of equal shares of
stock in the corporation, for, in net effect, these 6,296 qualified FWBs, who theoretically had given up their rights
to the land that could have been distributed to them, suffered a dilution of their due share entitlement. As has
been observed during the oral arguments, HLI has chosen to use the shares earmarked for farmworkers as reward
system chips to water down the shares of the original 6,296 FWBs. 141 Particularly:
Justice Abad: If the SDOA did not take place, the other thing that would have happened is that there would be
CARP?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: Thats the only point I want to know x x x. Now, but they chose to enter SDOA instead of placing the
land under CARP. And for that reason those who would have gotten their shares of the land actually gave up their
rights to this land in place of the shares of the stock, is that correct?
Atty. Dela Merced: It would be that way, Your Honor.
Justice Abad: Right now, also the government, in a way, gave up its right to own the land because that way the
government takes own [sic] the land and distribute it to the farmers and pay for the land, is that correct?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: And then you gave thirty-three percent (33%) of the shares of HLI to the farmers at that time that
numbered x x x those who signed five thousand four hundred ninety eight (5,498) beneficiaries, is that correct?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: But later on, after assigning them their shares, some workers came in from 1989, 1990, 1991, 1992
and the rest of the years that you gave additional shares who were not in the original list of owners?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: Did those new workers give up any right that would have belong to them in 1989 when the land was
supposed to have been placed under CARP?
Atty. Dela Merced: If you are talking or referring (interrupted)
Justice Abad: None! You tell me. None. They gave up no rights to land?
Atty. Dela Merced: They did not do the same thing as we did in 1989, Your Honor.
Justice Abad: No, if they were not workers in 1989 what land did they give up? None, if they become workers later
on.
Atty. Dela Merced: None, Your Honor, I was referring, Your Honor, to the original (interrupted)
Justice Abad: So why is it that the rights of those who gave up their lands would be diluted, because the company
has chosen to use the shares as reward system for new workers who come in? It is not that the new workers, in
effect, become just workers of the corporation whose stockholders were already fixed. The TADECO who has shares
there about sixty six percent (66%) and the five thousand four hundred ninety eight (5,498) farmers at the time of
the SDOA? Explain to me. Why, why will you x x x what right or where did you get that right to use this shares, to
water down the shares of those who should have been benefited, and to use it as a reward system decided by the
company?142
From the above discourse, it is clear as day that the original 6,296 FWBs, who were qualified beneficiaries at the
time of the approval of the SDP, suffered from watering down of shares. As determined earlier, each original FWB is

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entitled to 18,804.32 HLI shares. The original FWBs got less than the guaranteed 18,804.32 HLI shares per
beneficiary, because the acquisition and distribution of the HLI shares were based on "man days" or "number of
days worked" by the FWB in a years time. As explained by HLI, a beneficiary needs to work for at least 37 days in
a fiscal year before he or she becomes entitled to HLI shares. If it falls below 37 days, the FWB, unfortunately,
does not get any share at year end. The number of HLI shares distributed varies depending on the number of days
the FWBs were allowed to work in one year. Worse, HLI hired farmworkers in addition to the original 6,296 FWBs,
such that, as indicated in the Compliance dated August 2, 2010 submitted by HLI to the Court, the total number of
farmworkers of HLI as of said date stood at 10,502. All these farmworkers, which include the original 6,296 FWBs,
were given shares out of the 118,931,976.85 HLI shares representing the 33.296% of the total outstanding capital
stock of HLI. Clearly, the minimum individual allocation of each original FWB of 18,804.32 shares was diluted as a
result of the use of "man days" and the hiring of additional farmworkers.
Going into another but related matter, par. 3 of the SDOA expressly providing for a 30-year timeframe for HLI-toFWBs stock transfer is an arrangement contrary to what Sec. 11 of DAO 10 prescribes. Said Sec. 11 provides for
the implementation of the approved stock distribution plan within three (3) months from receipt by the corporate
landowner of the approval of the plan by PARC. In fact, based on the said provision, the transfer of the shares of
stock in the names of the qualified FWBs should be recorded in the stock and transfer books and must be
submitted to the SEC within sixty (60) days from implementation. As stated:
Section 11. Implementation/Monitoring of Plan.The approved stock distribution plan shall be implemented within
three (3) months from receipt by the corporate landowner-applicant of the approval thereof by the PARC, and the
transfer of the shares of stocks in the names of the qualified beneficiaries shall be recorded in stock and transfer
books and submitted to the Securities and Exchange Commission (SEC) within sixty (60) days from the said
implementation of the stock distribution plan. (Emphasis supplied.)
It is evident from the foregoing provision that the implementation, that is, the distribution of the shares of stock to
the FWBs, must be made within three (3) months from receipt by HLI of the approval of the stock distribution plan
by PARC. While neither of the clashing parties has made a compelling case of the thrust of this provision, the Court
is of the view and so holds that the intent is to compel the corporate landowner to complete, not merely initiate,
the transfer process of shares within that three-month timeframe. Reinforcing this conclusion is the 60-day stock
transfer recording (with the SEC) requirement reckoned from the implementation of the SDP.
To the Court, there is a purpose, which is at once discernible as it is practical, for the three-month threshold.
Remove this timeline and the corporate landowner can veritably evade compliance with agrarian reform by simply
deferring to absurd limits the implementation of the stock distribution scheme.
The argument is urged that the thirty (30)-year distribution program is justified by the fact that, under Sec. 26 of
RA 6657, payment by beneficiaries of land distribution under CARP shall be made in thirty (30) annual
amortizations. To HLI, said section provides a justifying dimension to its 30-year stock distribution program.
HLIs reliance on Sec. 26 of RA 6657, quoted in part below, is obviously misplaced as the said provision clearly
deals with land distribution.
SEC. 26. Payment by Beneficiaries.Lands awarded pursuant to this Act shall be paid for by the beneficiaries to the
LBP in thirty (30) annual amortizations x x x.
Then, too, the ones obliged to pay the LBP under the said provision are the beneficiaries. On the other hand, in the
instant case, aside from the fact that what is involved is stock distribution, it is the corporate landowner who has
the obligation to distribute the shares of stock among the FWBs.
Evidently, the land transfer beneficiaries are given thirty (30) years within which to pay the cost of the land thus
awarded them to make it less cumbersome for them to pay the government. To be sure, the reason underpinning
the 30-year accommodation does not apply to corporate landowners in distributing shares of stock to the qualified
beneficiaries, as the shares may be issued in a much shorter period of time.
Taking into account the above discussion, the revocation of the SDP by PARC should be upheld for violating DAO
10. It bears stressing that under Sec. 49 of RA 6657, the PARC and the DAR have the power to issue rules and
regulations, substantive or procedural. Being a product of such rule-making power, DAO 10 has the force and effect
of law and must be duly complied with.143 The PARC is, therefore, correct in revoking the SDP. Consequently, the
PARC Resolution No. 89-12-2 dated November 21, l989 approving the HLIs SDP is nullified and voided.
III.
We now resolve the petitions-in-intervention which, at bottom, uniformly pray for the exclusion from the coverage
of the assailed PARC resolution those portions of the converted land within Hacienda Luisita which RCBC and LIPCO
acquired by purchase.
Both contend that they are innocent purchasers for value of portions of the converted farm land. Thus, their plea
for the exclusion of that portion from PARC Resolution 2005-32-01, as implemented by a DAR-issued Notice of
Coverage dated January 2, 2006, which called for mandatory CARP acquisition coverage of lands subject of the
SDP.
To restate the antecedents, after the conversion of the 500 hectares of land in Hacienda Luisita, HLI transferred the
300 hectares to Centennary, while ceding the remaining 200-hectare portion to LRC. Subsequently, LIPCO
purchased the entire three hundred (300) hectares of land from Centennary for the purpose of developing the land
into an industrial complex.144 Accordingly, the TCT in Centennarys name was canceled and a new one issued in
LIPCOs name. Thereafter, said land was subdivided into two (2) more parcels of land. Later on, LIPCO transferred

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about 184 hectares to RCBC by way of dacion en pago, by virtue of which TCTs in the name of RCBC were
subsequently issued.
Under Sec. 44 of PD 1529 or the Property Registration Decree, "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 the
certificate and enumerated therein."145
It is settled doctrine that one who deals with property registered under the Torrens system need not go beyond the
four corners of, but can rely on what appears on, the title. He is charged with notice only of such burdens and
claims as are annotated on the title. This principle admits of certain exceptions, such as when the party has actual
knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry, or when
the purchaser has knowledge of a defect or the lack of title in his vendor or of sufficient facts to induce a
reasonably prudent man to inquire into the status of the title of the property in litigation. 146 A higher level of care
and diligence is of course expected from banks, their business being impressed with public interest. 147
Millena v. Court of Appeals describes a purchaser in good faith in this wise:
x x x 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 at the time of such purchase, or before he has notice of the claim or interest
of some other persons in the property. Good faith, or the lack of it, is in the final 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.
Truly, good faith 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 by actual or fancied tokens or signs. Otherwise stated, good faith x x x refers to the state
of mind which is manifested by the acts of the individual concerned. 148 (Emphasis supplied.)
In fine, there are two (2) requirements before one may be considered a purchaser in good faith, namely: (1) that
the purchaser buys the property of another without notice that some other person has a right to or interest in such
property; and (2) that the purchaser pays a full and fair price for the property at the time of such purchase or
before he or she has notice of the claim of another.
It can rightfully be said that both LIPCO and RCBC arebased on the above requirements and with respect to the
adverted transactions of the converted land in questionpurchasers in good faith for value entitled to the benefits
arising from such status.
First, at the time LIPCO purchased the entire three hundred (300) hectares of industrial land, there was no notice
of any supposed defect in the title of its transferor, Centennary, or that any other person has a right to or interest
in such property. In fact, at the time LIPCO acquired said parcels of land, only the following annotations appeared
on the TCT in the name of Centennary: the Secretarys Certificate in favor of Teresita Lopa, the Secretarys
Certificate in favor of Shintaro Murai, and the conversion of the property from agricultural to industrial and
residential use.149
The same is true with respect to RCBC. At the time it acquired portions of Hacienda Luisita, only the following
general annotations appeared on the TCTs of LIPCO: the Deed of Restrictions, limiting its use solely as an industrial
estate; the Secretarys Certificate in favor of Koji Komai and Kyosuke Hori; and the Real Estate Mortgage in favor of
RCBC to guarantee the payment of PhP 300 million.
It cannot be claimed that RCBC and LIPCO acted in bad faith in acquiring the lots that were previously covered by
the SDP. Good faith "consists in the possessors belief that the person from whom he received it was the owner of
the same and could convey his title. Good faith requires a well-founded belief that the person from whom title was
received was himself the owner of the land, with the right to convey it. There is good faith where there is an honest
intention to abstain from taking any unconscientious advantage from another." 150 It is the opposite of fraud.
To be sure, intervenor RCBC and LIPCO knew that the lots they bought were subjected to CARP coverage by means
of a stock distribution plan, as the DAR conversion order was annotated at the back of the titles of the lots they
acquired. However, they are of the honest belief that the subject lots were validly converted to commercial or
industrial purposes and for which said lots were taken out of the CARP coverage subject of PARC Resolution No. 8912-2 and, hence, can be legally and validly acquired by them. After all, Sec. 65 of RA 6657 explicitly allows
conversion and disposition of agricultural lands previously covered by CARP land acquisition "after the lapse of five
(5) years from its award when the land ceases to be economically feasible and sound for agricultural purposes or
the locality has become urbanized and the land will have a greater economic value for residential, commercial or
industrial purposes." Moreover, DAR notified all the affected parties, more particularly the FWBs, and gave them
the opportunity to comment or oppose the proposed conversion. DAR, after going through the necessary
processes, granted the conversion of 500 hectares of Hacienda Luisita pursuant to its primary jurisdiction under
Sec. 50 of RA 6657 to determine and adjudicate agrarian reform matters and its original exclusive jurisdiction over
all matters involving the implementation of agrarian reform. The DAR conversion order became final and executory
after none of the FWBs interposed an appeal to the CA. In this factual setting, RCBC and LIPCO purchased the lots
in question on their honest and well-founded belief that the previous registered owners could legally sell and
convey the lots though these were previously subject of CARP coverage. Ergo, RCBC and LIPCO acted in good faith
in acquiring the subject lots.
And second, both LIPCO and RCBC purchased portions of Hacienda Luisita for value. Undeniably, LIPCO acquired
300 hectares of land from Centennary for the amount of PhP 750 million pursuant to a Deed of Sale dated July 30,
1998.151 On the other hand, in a Deed of Absolute Assignment dated November 25, 2004, LIPCO conveyed portions
of Hacienda Luisita in favor of RCBC by way of dacion en pago to pay for a loan of PhP 431,695,732.10.
As bona fide purchasers for value, both LIPCO and RCBC have acquired rights which cannot just be disregarded by
DAR, PARC or even by this Court. As held in Spouses Chua v. Soriano:

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With the property in question having already passed to the hands of purchasers in good faith, it is now of no
moment that some irregularity attended the issuance of the SPA, consistent with our pronouncement in Heirs of
Spouses Benito Gavino and Juana Euste v. Court of Appeals, to wit:
x x x the general rule that the direct result of a previous void contract cannot be valid, is inapplicable in this case
as it will directly contravene the Torrens system of registration. Where innocent third persons, relying on the
correctness of the certificate of title thus issued, acquire rights over the property, the court cannot
disregard such rights and order the cancellation of the certificate. The effect of such outright cancellation
will be to impair public confidence in the certificate of title. The sanctity of the Torrens system must be preserved;
otherwise, everyone dealing with the property registered under the system will have to inquire in every instance as
to whether the title had been regularly or irregularly issued, contrary to the evident purpose of the law.
Being purchasers in good faith, the Chuas already acquired valid title to the property. A purchaser in
good faith holds an indefeasible title to the property and he is entitled to the protection of the law. 152 x
x x (Emphasis supplied.)
To be sure, the practicalities of the situation have to a point influenced Our disposition on the fate of RCBC and
LIPCO. After all, the Court, to borrow from Association of Small Landowners in the Philippines, Inc.,153 is not a
"cloistered institution removed" from the realities on the ground. To note, the approval and issuances of both the
national and local governments showing that certain portions of Hacienda Luisita have effectively ceased, legally
and physically, to be agricultural and, therefore, no longer CARPable are a matter of fact which cannot just be
ignored by the Court and the DAR. Among the approving/endorsing issuances: 154
(a) Resolution No. 392 dated 11 December 1996 of the Sangguniang Bayan of Tarlac favorably endorsing
the 300-hectare industrial estate project of LIPCO;
(b) BOI Certificate of Registration No. 96-020 dated 20 December 1996 issued in accordance with the
Omnibus Investments Code of 1987;
(c) PEZA Certificate of Board Resolution No. 97-202 dated 27 June 1997, approving LIPCOs application for
a mixed ecozone and proclaiming the three hundred (300) hectares of the industrial land as a Special
Economic Zone;
(d) Resolution No. 234 dated 08 August 1997 of the Sangguniang Bayan of Tarlac, approving the Final
Development Permit for the Luisita Industrial Park II Project;
(e) Development Permit dated 13 August 1997 for the proposed Luisita Industrial Park II Project issued by
the Office of the Sangguniang Bayan of Tarlac; 155
(f) DENR Environmental Compliance Certificate dated 01 October 1997 issued for the proposed project of
building an industrial complex on three hundred (300) hectares of industrial land; 156
(g) Certificate of Registration No. 00794 dated 26 December 1997 issued by the HLURB on the project of
Luisita Industrial Park II with an area of three million (3,000,000) square meters; 157
(h) License to Sell No. 0076 dated 26 December 1997 issued by the HLURB authorizing the sale of lots in
the Luisita Industrial Park II;
(i) Proclamation No. 1207 dated 22 April 1998 entitled "Declaring Certain Parcels of Private Land in
Barangay San Miguel, Municipality of Tarlac, Province of Tarlac, as a Special Economic Zone pursuant to
Republic Act No. 7916," designating the Luisita Industrial Park II consisting of three hundred hectares
(300 has.) of industrial land as a Special Economic Zone; and
(j) Certificate of Registration No. EZ-98-05 dated 07 May 1998 issued by the PEZA, stating that pursuant
to Presidential Proclamation No. 1207 dated 22 April 1998 and Republic Act No. 7916, LIPCO has been
registered as an Ecozone Developer/Operator of Luisita Industrial Park II located in San Miguel, Tarlac,
Tarlac.
While a mere reclassification of a covered agricultural land or its inclusion in an economic zone does not
automatically allow the corporate or individual landowner to change its use, 158 the reclassification process is a
prima facie indicium that the land has ceased to be economically feasible and sound for agricultural uses. And if
only to stress, DAR Conversion Order No. 030601074-764-(95) issued in 1996 by then DAR Secretary Garilao had
effectively converted 500 hectares of hacienda land from agricultural to industrial/commercial use and authorized
their disposition.
In relying upon the above-mentioned approvals, proclamation and conversion order, both RCBC and LIPCO cannot
be considered at fault for believing that certain portions of Hacienda Luisita are industrial/commercial lands and
are, thus, outside the ambit of CARP. The PARC, and consequently DAR, gravely abused its discretion when it
placed LIPCOs and RCBCs property which once formed part of Hacienda Luisita under the CARP compulsory
acquisition scheme via the assailed Notice of Coverage.
As regards the 80.51-hectare land transferred to the government for use as part of the SCTEX, this should also be
excluded from the compulsory agrarian reform coverage considering that the transfer was consistent with the
governments exercise of the power of eminent domain 159 and none of the parties actually questioned the transfer.
While We affirm the revocation of the SDP on Hacienda Luisita subject of PARC Resolution Nos. 2005-32-01 and
2006-34-01, the Court cannot close its eyes to certain "operative facts" that had occurred in the interim.

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Pertinently, the "operative fact" doctrine realizes that, in declaring a law or executive action null and void, or, by
extension, no longer without force and effect, undue harshness and resulting unfairness must be avoided. This is as
it should realistically be, since rights might have accrued in favor of natural or juridical persons and obligations
justly incurred in the meantime.160 The actual existence of a statute or executive act is, prior to such a
determination, an operative fact and may have consequences which cannot justly be ignored; the past cannot
always be erased by a new judicial declaration. 161
The oft-cited De Agbayani v. Philippine National Bank162 discussed the effect to be given to a legislative or executive
act subsequently declared invalid:
x x x It does not admit of doubt that prior to the declaration of nullity such challenged legislative or executive act
must have been in force and had to be complied with. This is so as until after the judiciary, in an appropriate case,
declares its invalidity, it is entitled to obedience and respect. Parties may have acted under it and may have
changed their positions. What could be more fitting than that in a subsequent litigation regard be had to what has
been done while such legislative or executive act was in operation and presumed to be valid in all respects. It is
now accepted as a doctrine that prior to its being nullified, its existence as a fact must be reckoned with. This is
merely to reflect awareness that precisely because the judiciary is the government organ which has the final say on
whether or not a legislative or executive measure is valid, a period of time may have elapsed before it can exercise
the power of judicial review that may lead to a declaration of nullity. It would be to deprive the law of its quality of
fairness and justice then, if there be no recognition of what had transpired prior to such adjudication.
In the language of an American Supreme Court decision: "The actual existence of a statute, prior to such a
determination of [unconstitutionality], is an operative fact and may have consequences which cannot justly be
ignored. The past cannot always be erased by a new judicial declaration. The effect of the subsequent ruling as to
invalidity may have to be considered in various aspects,with respect to particular relations, individual and
corporate, and particular conduct, private and official." x x x
Given the above perspective and considering that more than two decades had passed since the PARCs approval of
the HLIs SDP, in conjunction with numerous activities performed in good faith by HLI, and the reliance by the
FWBs on the legality and validity of the PARC-approved SDP, perforce, certain rights of the parties, more
particularly the FWBs, have to be respected pursuant to the application in a general way of the operative fact
doctrine.
A view, however, has been advanced that the operative fact doctrine is of minimal or altogether without relevance
to the instant case as it applies only in considering the effects of a declaration of unconstitutionality of a statute,
and not of a declaration of nullity of a contract. This is incorrect, for this view failed to consider is that it is NOT the
SDOA dated May 11, 1989 which was revoked in the instant case. Rather, it is PARCs approval of the HLIs Proposal
for Stock Distribution under CARP which embodied the SDP that was nullified.
A recall of the antecedent events would show that on May 11, 1989, Tadeco, HLI, and the qualified FWBs executed
the SDOA. This agreement provided the basis and mechanics of the SDP that was subsequently proposed and
submitted to DAR for approval. It was only after its review that the PARC, through then Sec. Defensor-Santiago,
issued the assailed Resolution No. 89-12-2 approving the SDP. Considerably, it is not the SDOA which gave legal
force and effect to the stock distribution scheme but instead, it is the approval of the SDP under the PARC
Resolution No. 89-12-2 that gave it its validity.
The above conclusion is bolstered by the fact that in Sec. Pangandamans recommendation to the PARC Excom,
what he proposed is the recall/revocation of PARC Resolution No. 89-12-2 approving HLIs SDP, and not the
revocation of the SDOA. Sec. Pangandamans recommendation was favorably endorsed by the PARC Validation
Committee to the PARC Excom, and these recommendations were referred to in the assailed Resolution No. 200532-01. Clearly, it is not the SDOA which was made the basis for the implementation of the stock distribution
scheme.
That the operative fact doctrine squarely applies to executive actsin this case, the approval by PARC of the HLI
proposal for stock distributionis well-settled in our jurisprudence. In Chavez v. National Housing Authority,163We
held:
Petitioner postulates that the "operative fact" doctrine is inapplicable to the present case because it is an equitable
doctrine which could not be used to countenance an inequitable result that is contrary to its proper office.
On the other hand, the petitioner Solicitor General argues that the existence of the various agreements
implementing the SMDRP is an operative fact that can no longer be disturbed or simply ignored, citing Rieta v.
People of the Philippines.
The argument of the Solicitor General is meritorious.
The "operative fact" doctrine is embodied in De Agbayani v. Court of Appeals, wherein it is stated that a legislative
or executive act, prior to its being declared as unconstitutional by the courts, is valid and must be complied with,
thus:
xxx

xxx

xxx

This doctrine was reiterated in the more recent case of City of Makati v. Civil Service Commission, wherein we ruled
that:
Moreover, we certainly cannot nullify the City Government's order of suspension, as we have no reason to do so,
much less retroactively apply such nullification to deprive private respondent of a compelling and valid reason for
not filing the leave application. For as we have held, a void act though in law a mere scrap of paper nonetheless

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confers legitimacy upon past acts or omissions done in reliance thereof. Consequently, the existence of a statute or
executive order prior to its being adjudged void is an operative fact to which legal consequences are attached. It
would indeed be ghastly unfair to prevent private respondent from relying upon the order of suspension in lieu of a
formal leave application. (Citations omitted; Emphasis supplied.)
The applicability of the operative fact doctrine to executive acts was further explicated by this Court in Rieta v.
People,164 thus:
Petitioner contends that his arrest by virtue of Arrest Search and Seizure Order (ASSO) No. 4754 was invalid, as
the law upon which it was predicated General Order No. 60, issued by then President Ferdinand E. Marcos was
subsequently declared by the Court, in Taada v. Tuvera, 33 to have no force and effect. Thus, he asserts, any
evidence obtained pursuant thereto is inadmissible in evidence.
We do not agree. In Taada, the Court addressed the possible effects of its declaration of the invalidity of various
presidential issuances. Discussing therein how such a declaration might affect acts done on a presumption of their
validity, the Court said:
". . .. In similar situations in the past this Court had taken the pragmatic and realistic course set forth in Chicot
County Drainage District vs. Baxter Bank to wit:
The courts below have proceeded on the theory that the Act of Congress, having been found to be
unconstitutional, was not a law; that it was inoperative, conferring no rights and imposing no duties, and hence
affording no basis for the challenged decree. . . . It is quite clear, however, that such broad statements as to the
effect of a determination of unconstitutionality must be taken with qualifications. The actual existence of a statute,
prior to [the determination of its invalidity], is an operative fact and may have consequences which cannot justly be
ignored. The past cannot always be erased by a new judicial declaration. The effect of the subsequent ruling as to
invalidity may have to be considered in various aspects with respect to particular conduct, private and official.
Questions of rights claimed to have become vested, of status, of prior determinations deemed to have finality and
acted upon accordingly, of public policy in the light of the nature both of the statute and of its previous application,
demand examination. These questions are among the most difficult of those which have engaged the attention of
courts, state and federal, and it is manifest from numerous decisions that an all-inclusive statement of a principle
of absolute retroactive invalidity cannot be justified.
xxx

xxx

xxx

"Similarly, the implementation/enforcement of presidential decrees prior to their publication in the Official Gazette
is an operative fact which may have consequences which cannot be justly ignored. The past cannot always be
erased by a new judicial declaration . . . that an all-inclusive statement of a principle of absolute retroactive
invalidity cannot be justified."
The Chicot doctrine cited in Taada advocates that, prior to the nullification of a statute, there is an imperative
necessity of taking into account its actual existence as an operative fact negating the acceptance of "a principle of
absolute retroactive invalidity." Whatever was done while the legislative or the executive act was in operation
should be duly recognized and presumed to be valid in all respects. The ASSO that was issued in 1979 under
General Order No. 60 long before our Decision in Taada and the arrest of petitioner is an operative fact that
can no longer be disturbed or simply ignored. (Citations omitted; Emphasis supplied.)
To reiterate, although the assailed Resolution No. 2005-32-01 states that it revokes or recalls the SDP, what it
actually revoked or recalled was the PARCs approval of the SDP embodied in Resolution No. 89-12-2.
Consequently, what was actually declared null and void was an executive act, PARC Resolution No. 89-12-2, 165and
not a contract (SDOA). It is, therefore, wrong to say that it was the SDOA which was annulled in the instant case.
Evidently, the operative fact doctrine is applicable.
IV.
While the assailed PARC resolutions effectively nullifying the Hacienda Luisita SDP are upheld, the revocation must,
by application of the operative fact principle, give way to the right of the original 6,296 qualified FWBs to choose
whether they want to remain as HLI stockholders or not. The Court cannot turn a blind eye to the fact that in 1989,
93% of the FWBs agreed to the SDOA (or the MOA), which became the basis of the SDP approved by PARC per its
Resolution No. 89-12-2 dated November 21, 1989. From 1989 to 2005, the FWBs were said to have received from
HLI salaries and cash benefits, hospital and medical benefits, 240-square meter homelots, 3% of the gross produce
from agricultural lands, and 3% of the proceeds of the sale of the 500-hectare converted land and the 80.51hectare lot sold to SCTEX. HLI shares totaling 118,391,976.85 were distributed as of April 22, 2005. 166 On August
6, 20l0, HLI and private respondents submitted a Compromise Agreement, in which HLI gave the FWBs the option
of acquiring a piece of agricultural land or remain as HLI stockholders, and as a matter of fact, most FWBs
indicated their choice of remaining as stockholders. These facts and circumstances tend to indicate that some, if
not all, of the FWBs may actually desire to continue as HLI shareholders. A matter best left to their own discretion.
With respect to the other FWBs who were not listed as qualified beneficiaries as of November 21, 1989 when the
SDP was approved, they are not accorded the right to acquire land but shall, however, continue as HLI
stockholders. All the benefits and homelots167 received by the 10,502 FWBs (6,296 original FWBs and 4,206 nonqualified FWBs) listed as HLI stockholders as of August 2, 2010 shall be respected with no obligation to refund or
return them since the benefits (except the homelots) were received by the FWBs as farmhands in the agricultural
enterprise of HLI and other fringe benefits were granted to them pursuant to the existing collective bargaining
agreement with Tadeco. If the number of HLI shares in the names of the original FWBs who opt to remain as HLI
stockholders falls below the guaranteed allocation of 18,804.32 HLI shares per FWB, the HLI shall assign additional
shares to said FWBs to complete said minimum number of shares at no cost to said FWBs.

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With regard to the homelots already awarded or earmarked, the FWBs are not obliged to return the same to HLI or
pay for its value since this is a benefit granted under the SDP. The homelots do not form part of the 4,915.75
hectares covered by the SDP but were taken from the 120.9234 hectare residential lot owned by Tadeco. Those
who did not receive the homelots as of the revocation of the SDP on December 22, 2005 when PARC Resolution No.
2005-32-01 was issued, will no longer be entitled to homelots. Thus, in the determination of the ultimate
agricultural land that will be subjected to land distribution, the aggregate area of the homelots will no longer be
deducted.
There is a claim that, since the sale and transfer of the 500 hectares of land subject of the August 14, 1996
Conversion Order and the 80.51-hectare SCTEX lot came after compulsory coverage has taken place, the FWBs
should have their corresponding share of the lands value. There is merit in the claim. Since the SDP approved by
PARC Resolution No. 89-12-2 has been nullified, then all the lands subject of the SDP will automatically be subject
of compulsory coverage under Sec. 31 of RA 6657. Since the Court excluded the 500-hectare lot subject of the
August 14, 1996 Conversion Order and the 80.51-hectare SCTEX lot acquired by the government from the area
covered by SDP, then HLI and its subsidiary, Centennary, shall be liable to the FWBs for the price received for said
lots. HLI shall be liable for the value received for the sale of the 200-hectare land to LRC in the amount of PhP
500,000,000 and the equivalent value of the 12,000,000 shares of its subsidiary, Centennary, for the 300-hectare
lot sold to LIPCO for the consideration of PhP 750,000,000. Likewise, HLI shall be liable for PhP 80,511,500 as
consideration for the sale of the 80.51-hectare SCTEX lot.
We, however, note that HLI has allegedly paid 3% of the proceeds of the sale of the 500-hectare land and 80.51hectare SCTEX lot to the FWBs. We also take into account the payment of taxes and expenses relating to the
transfer of the land and HLIs statement that most, if not all, of the proceeds were used for legitimate corporate
purposes. In order to determine once and for all whether or not all the proceeds were properly utilized by HLI and
its subsidiary, Centennary, DAR will engage the services of a reputable accounting firm to be approved by the
parties to audit the books of HLI to determine if the proceeds of the sale of the 500-hectare land and the 80.51hectare SCTEX lot were actually used for legitimate corporate purposes, titling expenses and in compliance with the
August 14, 1996 Conversion Order. The cost of the audit will be shouldered by HLI. If after such audit, it is
determined that there remains a balance from the proceeds of the sale, then the balance shall be distributed to the
qualified FWBs.
A view has been advanced that HLI must pay the FWBs yearly rent for use of the land from 1989. We disagree. It
should not be forgotten that the FWBs are also stockholders of HLI, and the benefits acquired by the corporation
from its possession and use of the land ultimately redounded to the FWBs benefit based on its business operations
in the form of salaries, and other fringe benefits under the CBA. To still require HLI to pay rent to the FWBs will
result in double compensation.
For sure, HLI will still exist as a corporation even after the revocation of the SDP although it will no longer be
operating under the SDP, but pursuant to the Corporation Code as a private stock corporation. The non-agricultural
assets amounting to PhP 393,924,220 shall remain with HLI, while the agricultural lands valued at PhP
196,630,000 with an original area of 4,915.75 hectares shall be turned over to DAR for distribution to the FWBs. To
be deducted from said area are the 500-hectare lot subject of the August 14, 1996 Conversion Order, the 80.51hectare SCTEX lot, and the total area of 6,886.5 square meters of individual lots that should have been distributed
to FWBs by DAR had they not opted to stay in HLI.
HLI shall be paid just compensation for the remaining agricultural land that will be transferred to DAR for land
distribution to the FWBs. We find that the date of the "taking" is November 21, 1989, when PARC approved HLIs
SDP per PARC Resolution No. 89-12-2. DAR shall coordinate with LBP for the determination of just compensation.
We cannot use May 11, 1989 when the SDOA was executed, since it was the SDP, not the SDOA, that was
approved by PARC.
The instant petition is treated pro hac vice in view of the peculiar facts and circumstances of the case.
WHEREFORE, the instant petition is DENIED. PARC Resolution No. 2005-32-01 dated December 22, 2005 and
Resolution No. 2006-34-01 dated May 3, 2006, placing the lands subject of HLIs SDP under compulsory coverage
on mandated land acquisition scheme of the CARP, are hereby AFFIRMED with the MODIFICATION that the original
6,296 qualified FWBs shall have the option to remain as stockholders of HLI. DAR shall immediately schedule
meetings with the said 6,296 FWBs and explain to them the effects, consequences and legal or practical
implications of their choice, after which the FWBs will be asked to manifest, in secret voting, their choices in the
ballot, signing their signatures or placing their thumbmarks, as the case may be, over their printed names.
Of the 6,296 FWBs, he or she who wishes to continue as an HLI stockholder is entitled to 18,804.32 HLI shares,
and, in case the HLI shares already given to him or her is less than 18,804.32 shares, the HLI is ordered to issue
or distribute additional shares to complete said prescribed number of shares at no cost to the FWB within thirty
(30) days from finality of this Decision. Other FWBs who do not belong to the original 6,296 qualified beneficiaries
are not entitled to land distribution and shall remain as HLI shareholders. All salaries, benefits, 3% production
share and 3% share in the proceeds of the sale of the 500-hectare converted land and the 80.51-hectare SCTEX lot
and homelots already received by the 10,502 FWBs, composed of 6,296 original FWBs and 4,206 non-qualified
FWBs, shall be respected with no obligation to refund or return them.
Within thirty (30) days after determining who from among the original FWBs will stay as stockholders, DAR shall
segregate from the HLI agricultural land with an area of 4,915.75 hectares subject of PARCs SDP-approving
Resolution No. 89-12-2 the following: (a) the 500-hectare lot subject of the August 14, l996 Conversion Order; (b)
the 80.51-hectare lot sold to, or acquired by, the government as part of the SCTEX complex; and (c) the aggregate
area of 6,886.5 square meters of individual lots that each FWB is entitled to under the CARP had he or she not
opted to stay in HLI as a stockholder. After the segregation process, as indicated, is done, the remaining area shall
be turned over to DAR for immediate land distribution to the original qualified FWBs who opted not to remain as
HLI stockholders.

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The aforementioned area composed of 6,886.5-square meter lots allotted to the FWBs who stayed with the
corporation shall form part of the HLI assets.
HLI is directed to pay the 6,296 FWBs the consideration of PhP 500,000,000 received by it from Luisita Realty, Inc.
for the sale to the latter of 200 hectares out of the 500 hectares covered by the August 14, 1996 Conversion Order,
the consideration of PhP 750,000,000 received by its owned subsidiary, Centennary Holdings, Inc. for the sale of
the remaining 300 hectares of the aforementioned 500-hectare lot to Luisita Industrial Park Corporation, and the
price of PhP 80,511,500 paid by the government through the Bases Conversion Development Authority for the sale
of the 80.51-hectare lot used for the construction of the SCTEX road network. From the total amount of PhP
1,330,511,500 (PhP 500,000,000 + PhP 750,000,000 + PhP 80,511,500 = PhP 1,330,511,500) shall be deducted
the 3% of the total gross sales from the production of the agricultural land and the 3% of the proceeds of said
transfers that were paid to the FWBs, the taxes and expenses relating to the transfer of titles to the transferees,
and the expenditures incurred by HLI and Centennary Holdings, Inc. for legitimate corporate purposes. For this
purpose, DAR is ordered to engage the services of a reputable accounting firm approved by the parties to audit the
books of HLI and Centennary Holdings, Inc. to determine if the PhP 1,330,511,500 proceeds of the sale of the
three (3) aforementioned lots were used or spent for legitimate corporate purposes. Any unspent or unused
balance as determined by the audit shall be distributed to the 6,296 original FWBs.
HLI is entitled to just compensation for the agricultural land that will be transferred to DAR to be reckoned from
November 21, 1989 per PARC Resolution No. 89-12-2. DAR and LBP are ordered to determine the compensation
due to HLI.
DAR shall submit a compliance report after six (6) months from finality of this judgment. It shall also submit, after
submission of the compliance report, quarterly reports on the execution of this judgment to be submitted within
the first 15 days at the end of each quarter, until fully implemented.
The temporary restraining order is lifted.
SO ORDERED.
THE HEIRS OF NICOLAS S. CABIGAS, NAMELY: LOLITA
ZABATE CABIGAS, ANECITA C. CANQUE, DIOSCORO
CABIGAS, FIDEL CABIGAS, and RUFINO CABIGAS,
Petitioners,

G.R. No. 175291

- versus MELBA L. LIMBACO, LINDA L. LOGARTA, RAMON C.

LOGARTA, HENRY D. SEE, FREDDIE S. GO, BENEDICT
Y. QUE, AWG DEVELOPMENT CORPORATION, PETROSA
DEVELOPMENT CORPORATION, and UNIVERSITY OF
CEBU BANILAD, INC.,
Respondents.

Present:
CARPIO, J.,
Chairperson,
LEONARDO-DE CASTRO,*
BRION,
PERALTA,** and
PEREZ, JJ.
Promulgated:
July 27, 2011

x------------------------------------------------------------------------------------x
DECISION
BRION, J.:

We resolve the petition for review on certiorari[1] filed by Lolita Cabigas, Anecita Canque, Dioscoro
Cabigas, Fidel Cabigas, and Rufino Cabigas (petitioners), heirs of Nicolas S. Cabigas, to reverse and set aside the
resolutions of the Court of Appeals (CA) in CA-G.R. CV No. 01144 dated May 31, 2006 [2] and October 4, 2006,
[3]

dismissing their ordinary appeal for being the wrong recourse.

THE FACTS
On February 4, 2003, the petitioners filed a complaint for the annulment of titles of various parcels of land
registered in the names of Melba Limbaco, Linda Logarta, Ramon Logarta, Eugenio Amores, New Ventures Realty

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Corporation, Henry See, Freddie Go, Benedict Que, AWG Development Corporation (AWG), Petrosa Development
Corporation (Petrosa), and University of Cebu Banilad, Inc. (UCB) with the Regional Trial Court (RTC) of Cebu City,
docketed as Civil Case No. 28585.

The complaint alleged that petitioner Lolita Cabigas and her late husband, Nicolas Cabigas, purchased two
lots (Lot No. 742[4] and Lot No. 953[5]) from Salvador Cobarde on January 15, 1980. Cobarde in turn had purchased
these lots from Ines Ouano[6] on February 5, 1948.

Notwithstanding the sale between Ouano and Cobarde, and because the two lots remained registered in
her name,[7] Ouano was able to sell these same lots to the National Airports Corporation on November
25, 1952 for its airport expansion project. The National Airports Corporation promptly had the titles of these
properties registered in its name.

When the airport expansion project fell through, respondents Melba Limbaco, Ramon Logarta, and Linda
Logarta, the legal heirs of Ouano, succeeded in reclaiming title to the two lots through an action for reconveyance
filed with the lower court;[8] the titles over these lots were thereafter registered in their names. [9]They then
subdivided the two lots [10] and sold them to New Ventures Realty Corporation, Eugenio Amores, Henry See, Freddie
Go, Benedict Que, Petrosa, and AWG. AWG, in turn, sold one of the parcels of land to UCB. All the buyers
registered the titles over their respective lots in their names.

After the respondents had filed their individual Answers, respondents Henry See, Freddie Go and Benedict
Que filed a motion to set the case for hearing on special affirmative defenses on July 8, 2004. On the other hand,
respondents AWG, Petrosa, and UCB filed a motion for summary judgment on April 13, 2005, admitting as true the
facts stated in the petitioners complaint, but claiming that the petitioners had no legal right to the properties in
question.

THE RTC RESOLUTION

On August 23, 2005, the RTC issued a resolution, [11] granting the motion for summary judgment filed by
AWG, Petrosa and UCB, and dismissing the petitioners complaint. According to the RTC, while the petitioners
alleged bad faith and malice on the part of Ouano when she sold the same properties to the National Airports
Corporation, they never alleged bad faith on the part of the buyer, the National Airports Corporation. Since good
faith is always presumed, the RTC concluded that the National Airports Corporation was a buyer in good
faith and its registration of the properties in its name effectively transferred ownership over the two
lots, free from all the unrecorded prior transactions involving these properties, including the prior sale
of the lots to Cobarde.

114

As the RTC explained, the unregistered sale of the lots by Ouano to Cobarde was merely an in
personam transaction, which bound only the parties. On the other hand, the registered sale between Ouano and
the National Airports Corporation, a buyer in good faith, was an in rem transaction that bound the whole
world. Since Cobardes rights to the properties had already been cut off with their registration in the
name of the National Airports Corporation, he could not sell any legal interest in these properties to the
Cabigas spouses. Hence, under the Torrens system, the petitioners are strangers to the lots and they had no
legally recognized interest binding it in rem that the courts could protect and enforce against the world. [12]
The petitioners filed a notice of appeal to question the RTC resolution. In response, respondents AWG,
Petrosa, and UCB filed a motion to dismiss the appeal, claiming that the petitioners raised only questions of law in
their appeal; thus, they should have filed an appeal by certiorari with the Supreme Court, and not an ordinary
appeal with the appellate court.

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THE COURT OF APPEALS RESOLUTIONS

In its May 31, 2006 resolution, the CA ruled that the petitioners should have filed a petition for review
on certiorari under Rule 45 of the Rules of Court with the Supreme Court instead of an ordinary appeal since they
only raised a question of law, i.e., the propriety of the summary judgment. Accordingly, insofar as the respondents
who filed the motion for summary judgment are concerned, namely, AWG, Petrosa, and UCB, the CA dismissed the
petitioners appeal.

However, the CA remanded the case to the RTC for further proceedings on the Motion to Set Case for
Hearing on Special and Affirmative Defenses filed by respondents Henry See, Freddie Go, and Benedict Que.

In its October 4, 2006 resolution, the CA resolved the petitioners motion for reconsideration, as well as the Partial
Motion for Reconsideration filed by respondents Henry See, Freddie Go, and Benedict Que. The CA observed that it
did not have jurisdiction to entertain the appeal since it raised a pure question of law. Since it dismissed the appeal
based on a technicality, it did not have the jurisdiction to order that the case be remanded to the RTC.

Furthermore, the trial court had already dismissed the case in its entirety when it held that the petitioners
had no enforceable right as against the respondents, since they had no registered legal interest in the properties.
There was thus no need to remand the case to the RTC.

Hence, the petitioners seek recourse with this Court via the present petition, raising the following grounds:

(1) The Court of Appeals committed grave and serious error in dismissing the appeal and in holding that a
summary judgment is appealable only through a petition for review on certiorari under Rule 45 to the
Supreme Court.
(2) The paramount and overriding considerations of substantial justice and equity justify the reversal and
setting aside of the questioned resolutions.

THE RULING

We AFFIRM the assailed CA resolutions.

Petitioners availed of the wrong mode of appeal

Section 2, Rule 41 of the Rules of Court provides the three modes of appeal, which are as follows:

Section 2. Modes of appeal.

(a)
Ordinary appeal. The appeal to the Court of Appeals in cases decided by the Regional Trial
Court in the exercise of its original jurisdiction shall be taken by filing a notice of appeal with the
court which rendered the judgment or final order appealed from and serving a copy thereof upon
the adverse party. No record on appeal shall be required except in special proceedings and other
cases of multiple or separate appeals where the law or these Rules so require. In such cases, the
record on appeal shall be filed and served in like manner.

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(b)
Petition for review. The appeal to the Court of Appeals in cases decided by the Regional
Trial Court in the exercise of its appellate jurisdiction shall be by petition for review in accordance
with Rule 42.
(c)
Appeal by certiorari. In all cases where only questions of law are raised or involved, the
appeal shall be to the Supreme Court by petition for review on certiorari in accordance with Rule
45.

The first mode of appeal, the ordinary appeal under Rule 41 of the Rules of Court, is brought to the CA
from the RTC, in the exercise of its original jurisdiction, and resolves questions of fact or mixed questions of fact
and law. The second mode of appeal, the petition for review under Rule 42 of the Rules of Court, is brought to the
CA from the RTC, acting in the exercise of its appellate jurisdiction, and resolves questions of fact or mixed
questions of fact and law. The third mode of appeal, the appeal by certiorari under Rule 45 of the Rules of Court, is
brought to the Supreme Court and resolves only questions of law.

Where a litigant files an appeal that raises only questions of law with the CA, Section 2, Rule 50 of the
Rules of Court expressly mandates that the CA should dismiss the appeal outright as the appeal is not reviewable
by that court.

There is a question of law when the issue does not call for an examination of the probative value of the
evidence presented, the truth or falsehood of facts being admitted, and the doubt concerns the correct application
of law and jurisprudence on the matter.[13] On the other hand, there is a question of fact when the doubt or
controversy arises as to the truth or falsity of the alleged facts.

While the petitioners never filed their appellants brief, we discern from the petitioners submissions to the
CA,[14] as well as from their petition with this Court, their perceived issues with respect to the RTCs summary
judgment, and they are as follows:

a)

Whether or not the National Airports Corporation acted with good faith when it purchased the properties
from Ouano;

b)

Whether the heirs of Ouano acted with good faith in recovering the properties from the National Airports
Corporation; and

c)

Whether the subsequent buyers of the properties acted with good faith in purchasing the properties from
the heirs of Ouano.

Given that the question of whether a person acted with good faith or bad faith in purchasing and
registering real property is a question of fact,[15] it appears, at first glance, that the petitioners raised factual issues
in their appeal and, thus, correctly filed an ordinary appeal with the CA. After reviewing the RTC resolution being
assailed, however, we find that the petitioners actually raised only questions of law in their appeal.

We quote the pertinent portions of the RTC decision:

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The main issue to be resolved is who between [the] plaintiffs and the defendants have a
better right to the subject lots.
In selling the land in favor of the National Airports Corporation[,] plaintiffs alleged bad
faith and malice on the part of the seller Ine[s] Ouano but have not pleaded bad faith on the part
of the buyer. Since good faith is always presumed under Article 427 of the Civil Code, the
National Airports Corporation was therefore a buyer in good faith. Being [a] purchaser in good
faith and for value, it is axiomatic that the right of [the] National Airports Corporation must be
upheld and its titles protected over the claim of the plaintiffs. In the case of Flordeliza Cabuhat
vs. The Honorable Court of Appeals, G.R. No. 122425, September 28, 2001, the Supreme Court
upheld the validity of the title of an innocent purchaser in good faith and for value and at the
same time invoked the principle of stability of our Torrens system and indefeasibility of title
guaranteeing the integrity of land titles once the claim of ownership is established and
recognized.
However, it is well-settled that even if the procurement of a certificate
of title was tainted with fraud and misrepresentation, such defective title may
be the source of a completely legal and valid title in the hands of an innocent
purchaser for value. Thus: where innocent third persons, relying on the
correctness of the certificate of title thus issued, acquire rights over the
property the court cannot disregard such rights and order the total cancellation
of the certificate. The effect of such an outright cancellation would be to impair
public confidence in the certificate of title, for everyone dealing with property
registered under [the] Torrenssystem would have to inquire in every instance
whether the title has been regularly or irregularly issued. This is contrary to the
evident purpose of the law. Every person dealing with the registered land may
safely rely on the correctness of the certificate of title issued therefore and the
law will in no way oblige him to go behind the certificate to determine the
condition of the property.
The subject lots being registered land under the Torrens [s]ystem the recordation of the
sale by the National Airports Corporation, a buyer in good faith gave National Airports
Corporation a title free of all unrecorded prior transactions, deeds, liens and encumbrances, and
conversely forever erased or cut off the unrecorded interest of Salvador Cobarde. Section 50 of
Article 496 of the Land Registration Act (now sec. 51 of PD 1529) reads: No deed, mortgage,
lease or other voluntary instrument, except a will, purporting to convey or affect registered land
shall take effect as a conveyance or bind the land xxx. The act of registration shall be the
operative act to convey and affect [the] land. In the case of National Grains Authority v. IAC, 157
SCRA 380, the Supreme Court ruled, thus, the possession by plaintiffs and their predecessors-ininterest is irrelevant to this case because possession of registered land can never ripen into
ownership. No title to registered land in derogation of the title of the registered owner shall be
acquired by prescription or adverse possession. (Sec. 46 of Act 496, now Sec. 47 of PD 1529).
In the eyes of the Torrens system, the unregistered sale of the property by Ine[s] Ouano
to Salvador Cobarde did not bind the land or the whole world in rem; it bound, in personam, only
the parties. On the other hand, the registered sale by Ine[s] Ouano to National Airports
Corporation, a buyer in good faith, bound the land in rem, meaning that the whole world was put
on constructive notice that thenceforth the land belonged to National Airports Corporation free of
all prior transactions, deeds and encumbrances, such as the claim of Salvador Cobarde, which
were at the very moment National Airports Corporation registered its title free of prior claims
forever erased or cut off by operation of law.
xxxx
Salvador Cobarde, whose rights to the property had been erased or cut off by operation of law,
had nothing or had no legally recognized interest in the property that he could sell when he sold
the property to Nicolas and Lolita Cabigas. Nicolas and Lolita Cabigas having bought nothing
could transmit nothing to their successors-in-interest, the plaintiffs herein. Under
the Torrens system, herein plaintiffs are strangers to the property; they possess no legally
recognized interest binding the property in rem that courts could protect and enforce against the
world.[16]

As astutely observed by the CA, the RTC resolution merely collated from the pleadings the facts that were
undisputed, admitted, and stipulated upon by the parties, and thereafter ruled on the legal issues raised by
applying the pertinent laws and jurisprudence on the matter. In other words, the RTC did not resolve any factual
issues, only legal ones.

When there is no dispute as to the facts, the question of whether or not the conclusion drawn from these
facts is correct is a question of law. [17] When the petitioners assailed the summary judgment, they were in fact
questioning the conclusions drawn by the RTC from the undisputed facts, and raising a question of law.

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In light of the foregoing, jurisdiction over the petitioners appeal properly lay with this Court via an appeal
by certiorari, and the CA was correct in dismissing the appeal for lack of jurisdiction.

Rendition of summary judgment was proper

Even if we overlook the procedural lapse and resolve the case on the merits, we still affirm the assailed CA
resolutions.

Under the Rules of Court, a summary judgment may be rendered where, on motion of a party and after hearing,
the pleadings, supporting affidavits, depositions and admissions on file show that, except as to the amount of
damages, there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a
matter of law.[18] The Court explained the concept of summary judgment in Asian Construction and Development
Corporation v. Philippine Commercial International Bank:[19]

Summary or accelerated judgment is a procedural technique aimed at weeding out sham claims
or defenses at an early stage of litigation thereby avoiding the expense and loss of time involved
in a trial.
Under the Rules, summary judgment is appropriate when there are no genuine issues of
fact which call for the presentation of evidence in a full-blown trial. Even if on their face the
pleadings appear to raise issues, when the affidavits, depositions and admissions show
that such issues are not genuine, then summary judgment as prescribed by the Rules
must ensue as a matter of law. The determinative factor, therefore, in a motion for summary
judgment, is the presence or absence of a genuine issue as to any material fact. [Emphasis
supplied.]

The petitioners assert that the RTC erred in rendering a summary judgment since there were factual
issues that required the presentation of evidence at a trial.

We disagree with the petitioners.

At the outset, we note from the respondents pleadings that several respondents [20] denied that the sale
between Ouano and Cobarde ever occurred. It would, therefore, appear that a factual issue existed that required
resolution through a formal trial, and the RTC erred in rendering summary judgment.

A closer examination of the parties submissions, however, makes it apparent that this is not a genuine
issue of fact because, as will be discussed below, the petitioners do not have any legally enforceable right to the
properties in question, as their predecessors-in-interest are not buyers in good faith.

i.

Cabigas spouses are not buyers in good faith

A purchaser in good faith is one who buys the property of another without notice that some other person has a
right to or interest in such property, and pays a full and fair price for the same at the time of such purchase or
before he has notice of the claim of another person. [21] It is a well-settled rule that a purchaser cannot close
his eyes to facts which should put a reasonable man upon his guard, and then claim that he acted in

119

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 vendors
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. [22]

We are dealing with registered land, a fact known to the Cabigas spouses since they received the duplicate
owners certificate of title from Cobarde when they purchased the land. At the time of the sale to the Cabigas
spouses, however, the land was registered not in Cobardes name, but in Ouanos name . By itself, this fact
should have put the Cabigas spouses on guard and prompted them to check with the Registry of Deeds as to the
most recent certificates of title to discover if there were any liens, encumbrances, or other attachments covering
the lots in question. As the Court pronounced in Abad v. Sps. Guimba:[23]

[The law protects to a greater degree a purchaser who buys from the registered owner
himself. Corollarily, it] requires a higher degree of prudence from one who buys from a person
who is not the registered owner, although the land object of the transaction is registered. While
one who buys from the registered owner does not need to look behind the certificate of title, one
who buys from one who is not the registered owner is expected to examine not only
the certificate of title but all factual circumstances necessary for [one] to determine if
there are any flaws in the title of the transferor, or in [the] capacity to transfer the land.
(emphasis supplied)

Instead, the Cabigas spouses relied completely on Cobardes representation that he owned the properties
in question, and did not even bother to perform the most perfunctory of investigations by checking the properties
titles with the Registry of Deeds. Had the Cabigas spouses only done so, they would easily have learned
that Cobarde had no legal right to the properties they were acquiring since the lots had already been
registered in the name of the National Airports Corporation in 1952. Their failure to exercise the plain
common sense expected of real estate buyers bound them to the consequences of their own inaction.
ii.

No allegation that the National Airports Corporation registered the lots in bad faith

All the parties to this case trace their ownership to either of the two persons that Ouano sold the
properties to either to Cobarde, who allegedly purchased the land in 1948, or to the National Airports Corporation,
which bought the land in 1952. Undoubtedly, the National Airports Corporation was the only party that registered
the sale with the Registry of Deeds. For this registration to be binding, we now have to determine whether the
National Airports Corporation acted with good faith when it registered the properties, in accordance with Article
1544 of the Civil Code, which provides:

Article 1544. If the same thing should have been sold to different vendees, the ownership shall
be transferred to the person who may have first taken possession thereof in good faith, if it
should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in
good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was
first in the possession; and, in the absence thereof, to the person who presents the oldest title,
provided there is good faith.

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Based on this provision, the overriding consideration to determine ownership of an immovable property is
the good or bad faith not of the seller, but of the buyer; specifically, we are tasked to determine who first
registered the sale with the Registry of Property (Registry of Deeds) in good faith.

As accurately observed by the RTC, the petitioners, in their submissions to the lower court, never imputed
bad faith on the part of the National Airports Corporation in registering the lots in its name. This oversight proves
fatal to their cause, as we explained in Spouses Chu, Sr. v. Benelda Estate Development Corporation:

In a case for annulment of title, therefore, the complaint must allege that the purchaser
was aware of the defect in the title so that the cause of action against him will be sufficient.
Failure to do so, as in the case at bar, is fatal for the reason that the court cannot render a valid
judgment against the purchaser who is presumed to be in good faith in acquiring the said
property. Failure to prove, much less impute, bad faith on said purchaser who has
acquired a title in his favor would make it impossible for the court to render a valid
judgment thereon due to the indefeasibility and conclusiveness of his title.[24]

Since the petitioners never alleged that the National Airports Corporation acted with bad faith when it
registered the lots in its name, the presumption of good faith prevails. Consequently, the National Airports
Corporation, being a registrant in good faith, is recognized as the rightful owner of the lots in question, and the
registration of the properties in its name cut off any and all prior liens, interests and encumbrances, including the
alleged prior sale to Cobarde, that were not recorded on the titles. Cobarde, thus, had no legal rights over the
property that he could have transferred to the Cabigas spouses.

Since the Cabigas spouses have no legally recognizable interest in the lots in question, it follows that the
petitioners, who are subrogated to the rights of the former by virtue of succession, also have no legally
recognizable rights to the properties that could be enforced by law. The petitioners clearly have no cause of action
against the respondents, and the RTC correctly dismissed their complaint for annulment of title.

WHEREFORE, premises considered, we DENY the petition for lack of merit, and AFFIRM the Resolutions,
dated May 31, 2006 and October 4, 2006, of the Court of Appeals in CA-G.R. CV No. 01144. No costs.

SO ORDERED.
G.R. No. 155405, March 18, 2015
THE HEIRS OF EUGENIO LOPEZ, SR. NAMELY, OSCAR M. LOPEZ, MANUEL M. LOPEZ AND PRESENTACION
L. PSINAKIS, Petitioners, v. THE HONORABLE FRANCISCO QUERUBIN, IN HIS CAPACITY AS PRESIDING
JUDGE OF THE REGIONAL TRIAL COURT OF ANTIPOLO, BRANCH 74, THE HEIRS OF ALFONSO SANDOVAL
AND HIS WIFE ROSA RUIZ, REPRESENTED BY THEIR ATTORNEY-IN-FACT, MRS. IMELDA
RIVERA, Respondents.
[G.R. No. 164092]
HEIRS OF EUGENIO LOPEZ, Petitioners, v. ALFONSO SANDOVAL AND ROMAN OZAETA, JR., Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
The two consolidated cases before this Court involve a protracted dispute over the registration of two parcels of
land that was initiated decades ago by the forbears of the parties herein.

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G.R. No. 155405 is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, which was filed by the
heirs of Eugenio Lopez2 (Lopez heirs) to challenge the Decision 3 dated January 22, 2002 and the Resolution4 dated
September 24, 2002 of the Court of Appeals in CA-G.R. SP No. 58162. The Decision of the appellate court
dismissed the Petition for Certiorari5 filed by the Lopez heirs, which prayed for the setting aside of the Order 6 dated
March 24, 2000 of the Regional Trial Court (RTC) of Antipolo City, Branch 74, in LRC No. 98-2225; while the
Resolution of the appellate court denied the Motion for Reconsideration of the Lopez heirs on the Court of Appeals
Decision.
G.R. No. 164092 is likewise a Petition for Review on Certiorari7 filed by the Lopez heirs,8 which seeks the reversal
of the Decision9 dated September 9, 2003 and the Resolution10 dated June 18, 2004 of the Court of Appeals in CAG.R. CV No. 67515. The Decision of the appellate court denied the appeal of the Lopez heirs from the three
Orders of the RTC of Pasig City, Branch 152, sitting as a land registration court, in LRC No. N-2858, LRC Rec. No.
N-18887. Two of the RTC Orders were dated June 24, 1999,11 while the other one was dated March 3, 2000.12 The
Resolution of the appellate court, on the other hand, denied the Motion for Reconsideration 13 and the Supplement
to Motion for Reconsideration 14filed by the Lopez heirs on the Court of Appeals Decision.
From the records of the above cases, the following facts emerge:
Application for Registration of Title
(LRC No. N-2858, LRC Rec. No. N-18887)
On April 6, 1960, Alfonso Sandoval and Roman Ozaeta, Jr. (applicants Sandoval and Ozaeta) filed an Application for
Registration of Title15 for two parcels of land designated as Lots 1 and 2 of plan Psu-177091, which were situated in
Barrio Mambugan, Municipality of Antipolo, Province of Rizal (subject properties). The application was docketed
asLRC No. N-2858, LRC Rec. No. N-18887 in the Court of First Instance (CFI) of Rizal, Branch II. The Director
of Lands filed an Opposition 16 to the application, but this was eventually withdrawn. 17
On May 31, 1966, the CFI of Rizal rendered a Decision,18 the dispositive portion of which provides:
WHEREFORE, the Court hereby declares the applicant ALFONSO SANDOVAL and his wife, ROSA RUIZ; applicant
ROMAN OZAETA, JR. and his wife, MA. SALOME LAO, all of legal age, Filipinos, and residents of Rizal Province, the
true and absolute owners in equal pro-indiviso shares of Lots 1 and 2 of plan Psu-177091 (Exhibit D), and orders
the registration thereof in their names.
xxxx
Once this decision becomes final, let an order for the issuance of decree issue. 19
On September 23, 1970, prior to the issuance of the decrees of registration, the spouses Sandoval and spouses
Ozaeta sold the subject properties to Eugenio Lopez. In the Deed of Absolute Sale20 executed by the spouses,
they warranted that they would file the corresponding motion or manifestation in LRC No. N-2858, LRC Rec. No. N18887 in order that the original certificates of title over the subject properties will be issued in the name of Eugenio
Lopez, his heirs, administrators, or assigns. Eugenio Lopez then entered into possession of the subject properties.
Subsequently, the decrees of registration remained unissued.
Years later, on May 12, 1993, a certain Atty. Juanito R. Dimaano filed in LRC No. N-2858, LRC Rec. No. N-18887 an
Entry of Appearance with Motion for Issuance of Certificate of Finality 21 for and on behalf of the applicants Sandoval
and Ozaeta. The land registration case was then pending at the RTC of Pasig City, Branch 152. Atty. Dimaano
averred that the trial court's Decision dated May 31, 1966 had since become final, as no appeal was filed thereon,
and he prayed for the issuance of a Certificate of Finality of the aforesaid Decision. On July 14, 1993, Atty.
Dimaano filed a Motion for Issuance of a Decree22 in the said case.
In an Order23dated August 24, 1993, the RTC of Pasig City granted the motion for the issuance of the decrees of
registration. On even date, the RTC of Pasig City ordered 24 the Land Registration Authority (LRA) to comply with the
provisions of Section 39 of Presidential Decree No. 1529,25 as the Decision dated May 31, 1966 had already
attained finality. Apparently, the LRA was unable to immediately act in accordance with the Order of the trial court,
citing discrepancies in the technical description and area of the subject properties. 26 Subsequently, after the
discrepancies were clarified, the RTC of Pasig City issued an Order27dated October 20, 1994, instructing the LRA
to proceed with the issuance of the decrees of registration over the subject properties.
In January 1997, the Lopez heirs were notified of the filing of a case docketed as LRC No. 96-1907 before the RTC
of Antipolo City, Branch 74. The case was a petition for cancellation of Transfer Certificates of Title (TCT) Nos.
288133 and 288134 of the Registry of Deeds of Marikina City, which was filed by Evelyn T. Sandoval in her capacity
as administratrix of the estate of applicant Alfonso Sandoval. Registered in the name of Lopez, Inc., TCT Nos.
288133 and 288134 covered the same properties subject of the instant petitions. According to the Lopez heirs,
Eugenio Lopez already purchased the subject properties from Hacienda Benito, Inc. even before the execution of
the Deed of Absolute Sale between Eugenio Lopez and the spouses Sandoval and the spouses Ozaeta. 28
On July 16, 1997, the Lopez heirs 29 filed a Motion dated April 28, 199730 where they manifested to the trial court
that Eugenio Lopez passed away on July 6, 1975. Pursuant to Section 22 of Presidential Decree No. 1529, 31 they
moved for the RTC to consider the Deed of Absolute Sale executed in favor of Eugenio Lopez in relation to the
application for registration of title. They also prayed that the decrees of registration over the subject properties be
issued in their names as the successors-in-interest of Eugenio Lopez. Attached to the motion were the Deed of
Absolute Sale and the receipts32 evidencing the full payment of the purchase price for the subject properties.
In a Motion dated July 21, 1998,33 the Lopez heirs entreated the trial court to issue an order holding in abeyance
the issuance of the decrees of registration until the final disposition of their Motion dated April 28, 1997.
Thereafter, on December 4, 1998, the Lopez heirs filed a Motion dated November 25, 1998.34 They manifested
therein that while their Motion dated April 28, 1997 was still being heard by the trial court, Decree Nos. N-217643
and N-217644 covering the subject properties were issued in the name of the spouses Sandoval and spouses
Ozaeta. As stated in Original Certificates of Title (OCT) Nos. O-1603 35 and O-160436 of the Registry of Deeds for the
Province of Rizal, the relevant entries in the decrees read:

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This Decree is issued pursuant to the Decision dated 31st day of May, 1966 of the Hon. Pedro C. Navarro, Judge
of [Court of First Instance of Rizal, Branch II, Pasig, Rizal], and the Honorable Briccio C. Ygafta, this 3rd day of
July, 1998.
Issued at the National Land Titles and Deeds Registration Administration, Quezon City, this 20th day ofOctober, in
the year of Our Lord nineteen hundred and ninety-seven at 8:02 a.m.
(Signed) ALFREDO R. ENRIQUEZ
ADMINISTRATOR
NATIONAL LAND TITLES AND DEEDS
REGISTRATION ADMINISTRATION
Entered in the "Registration Book"
for the Marikina, pursuant to the provisions
of section 39 of P.D. No. 1529, on the 18th
day of August nineteen hundred and ninetyeight, at 1:16 p.m.
(Signed)
EDGAR D.SANTOS
Register of Deeds37 (Emphases ours.)
In their motion, the Lopez heirs prayed for the declaration of nullity of Decree Nos. N-217643 and N-217644 and
OCT Nos. O-1603 and O-1604. They alleged that the issuance of the decrees and the certificates of title preempted
the trial court in resolving their Motion dated April 28, 1997 where they were asking for the recognition of the Deed
of Absolute Sale in favor of Eugenio Lopez as authorized under Section 22 of Presidential Decree No. 1529. Also,
the decrees were supposedly issued on October 20, 1997 but their issuance was made pursuant to the Order
dated July 3, 1998 of Judge Briccio C. Ygaa. In other words, the Lopez heirs questioned the anomalous issuance
of the decrees supposedly prior to the court order authorizing the same. Moreover, the Lopez heirs pointed out that
the decrees were issued under the signature of LRA Administrator Alfredo R. Enriquez before he assumed office.
The Lopez heirs attached to the above motion a photocopy of the registry return receipt, 38 which proved that the
LRA received a copy of the Lopez heirs' Motion dated April 28, 1997. Subsequently, the Lopez heirs submitted to
the trial court the following letter39 of LRA Administrator Enriquez that was addressed to the counsel of the Lopez
heirs:
1 December 1998
xxxx
Sir:
This concerns your letter requesting the recall of Decree Nos. N-217643 and N-217644 issued in Land Registration
Case No. N-2858, LRC Record No. N-18887, both in the names of Alfonso Sandoval and his wife, Rosa Ruiz, and
Roman Ozaeta, Jr. and his wife, Ma. Salome Lao.
Records of this Authority show that aforesaid decrees of registration were prepared on October 20, 1977 [sic]
pursuant to the decision of the court dated May 31, 1966 and the order for issuance of decree dated August 24,
1993. Said decrees were forwarded to the Office of the Administrator on August 8, 1998 and was [sic] released
therefrom on August 13, 1998. Consequently, said decrees were signed sometime between August 8 and
13, 1998 and definitely not on October 20, 1997 as what is reflected thereon because the undersigned
Administrator assumed office only on July 8, 1998.Apparently, at the time the decrees were signed it was not
noticed, through oversight, that they were dated October 20, 1977 [sic]. It is therefore hereby clarified that
Decree Nos. N-217643 and N-217644 were actually issued sometime between August 8 and 13, 1998
and not on October 20, 1997.
Regarding the claim that these decrees were prematurely issued as the motion for the issuance of the decrees in
favor of the [Lopez heirs], the properties involved having been sold to him by the applicants, is still pending with
the court, it is informed that no copy of said motion nor of the order directing this Office to comment
thereon appears on file in the records of the case. Hence, these matters could not have been taken into
consideration in the issuance of the decrees. Had the Administration been apprised of these incidents, perhaps the
issuance of the decrees could have been held in abeyance until the court has resolved the same.
As to the recall of the decrees of registration, we regret to inform you that since the certificates of title transcribed
pursuant to said decrees have already been issued and released by the Registrar of Deeds concerned, it is now
beyond our authority to recall them unless duly authorized by the court.
We hope that we have satisfactorily disposed of the concerns raised in your letter.
Very truly yours,
(Signed)
ALFREDO R. ENRIQUEZ
Administrator (Emphases ours.)
The Lopez heirs further submitted in court a copy of the appointment letter 40 of LRA Administrator Enriquez dated
July 3, 1998 and two certifications 41 from the Quezon City Central Post Office both dated December 22, 1998,
which stated that copies of the Lopez heirs' Motions dated April 28, 1997 and July 21, 1998 were duly received by
the LRA before said office issued the decrees.
In an Order42 dated February 19, 1999, the RTC of Pasig City denied the Lopez heirs' Motion dated July 21, 1998 for
being moot.
On June 24, 1999, the RTC of Pasig City denied the Lopez heirs' Motion dated April 28, 1997. 43 Given the issuance
of the decrees of registration, the trial court ruled that said motion had also been rendered moot. Thus, the Deed
of Absolute Sale could no longer be considered.
On the same date, the RTC of Pasig City issued another Order,44 this time denying the Motion of the Lopez heirs

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dated November 25, 1998. The trial court relied on the clarification of the LRA Administrator that the decrees were
issued sometime between August 8 and 13, 1998, not on October 20, 1997. The RTC also held that the Lopez heirs
were barred by laches in presenting the Deed of Absolute Sale dated September 23, 1970. The trial court ruled
that the Lopez heirs should have exerted effort in ensuring that the vendors complied with their obligation to file
the necessary motion or manifestation for the original certificates of title to issue in the name of Eugenio Lopez or
his successors-in-interest.
The Lopez heirs filed a Motion for Reconsideration45 of the two Orders of the RTC dated June 24, 1999.
Meanwhile, on August 27, 1999, applicant Roman Ozaeta, Jr. filed a Manifestation 46 before the RTC of Pasig City,
stating that he recently learned that their former counsel never filed the motion or manifestation required in the
Deed of Absolute Sale in order that the titles to the subject properties would be issued in the name of Eugenio
Lopez. Ozaeta joined the Lopez heirs in their Motions dated April 28, 1997 and November 25, 1998, as well as their
Motion for Reconsideration of the two RTC Orders dated June 24, 1999. Ozaeta affirmed the due execution of the
Deed of Absolute Sale in favor of Eugenio Lopez and confirmed that the purchase price thereon was already paid to
the applicants. Lastly, Ozaeta asserted that he did not engage Atty. Dimaano's legal services.
In an Order47 dated March 3, 2000, the RTC of Pasig City denied the Lopez heirs' Motion for Reconsideration.
The Lopez heirs lodged an appeal before the Court of Appeals, which was docketed as CA-G.R. CV No. 67515.
They sought the reversal of the two Orders of the RTC of Pasig City dated June 24, 1999 and prayed that the trial
court be directed to resume hearing their Motion dated April 28, 1997.
In the assailed Decision dated September 9, 2003, the Court of Appeals denied the appeal of the Lopez heirs in
this wise:
WHEREFORE, in light of the foregoing, the appeal is hereby DISMISSED, without prejudice to the [Lopez heirs]
filing the appropriate case in order to enforce their rights over the titled property in question under the Deed of
Sale in their favor.48
The Court of Appeals ruled that the doctrine of laches was inapplicable against the Lopez heirs. The appellate court
found that after the Deed of Absolute Sale was executed, Eugenio Lopez entered into continuous possession of the
subject properties. The Court of Appeals added that the Lopez heirs should not be faulted for the failure of the
vendors' counsel to discharge the obligation they warranted in the Deed of Absolute Sale. The appellate court
ruled, however, that the RTC of Pasig City properly denied the remedy sought by the Lopez heirs. Although Section
22 of Presidential Decree No. 1529 mandates that a person purchasing property from an applicant may move for
the decree to be issued in his name directly, he may not ask for any other positive relief such as the voiding of a
decree already registered in another person's name. The Motion dated November 25, 1998 was also a collateral
attack on the titles to the subject properties, which was prohibited by Section 48 49 of Presidential Decree No. 1529.
Still, the Court of Appeals clarified that its ruling was without prejudice to the right of the Lopez heirs to file the
proper action and litigate their case in a trial initiated for that purpose.
The Lopez heirs filed a Motion for Reconsideration50 and a Supplement to Motion for Reconsideration 51 of the above
decision, but the same were denied in the Court of Appeals Resolution dated June 18, 2004.
The Lopez heirs challenged the above rulings of the Court of Appeals on August 17, 2004 via the instant Petition for
Review on Certiorari, which was docketed as G.R. No. 164092.
Petition for Ex Parte Issuance of Writ of Possession (LRC No. 98-2225)
Meanwhile, on September 28, 1998, while the Motion dated April 28, 1997 of the Lopez heirs was still pending
before the RTC of Pasig City in LRC No. N-2858, LRC Rec. No. N-18887, a petition52 for the ex parte issuance of a
writ of possession over the subject properties was filed in the name of the heirs of Alfonso Sandoval (Sandoval
heirs). The petition was docketed as LRC No. 98-2225 in the RTC of Antipolo City, Branch 74. Representing the
Sandoval heirs in the suit was Imelda Rivera, who claimed to be their attorney-in-fact in accordance with a Special
Power of Attorney (SPA) dated May 14, 1996 executed in her favor. The SPA reads:
SPECIAL POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, EVELYN T. SANDOVAL, ADMINISTRATRIX OF ALFONSO SANDOVAL, of legal age, Filipino citizen, single and
presently residing at Brgy. Langgam, San Pedro, Laguna, have named, constituted and appointed by these
presents, do name, constitute and appoint IMELDA V. RIVERA, of legal age, Filipino citizen, married and presently
residing at No. 490 Dr. Sixto Antonio Ave., Maybunga, Pasig City, to be my true and lawful Attorney-In-Fact, for me
and in my name, place and stead and for my own use and benefits, to do and perform any and all of the following
acts and things:
1.

TO authorize my Attorney-In-Fact to sell a parcel of land situated in Mambugan, Antipolo, Rizal covered by
TAX DECLARATION NO. 05-0795, containing an area of FIVE THOUSAND EIGHT HUNDRED SIXTY[-]THREE
(5,863) SQ. METERS, more or less; and TAX DECLARATION NO. 05-0859, containing an area of TWO
THOUSAND (2,000) SQ. METERS, more or less;

2.

TO receive payment in cash or in check and to negotiate, endorse and encash the same.
; and to witness in Court.

3.

TO perform other related matters which are necessary for the fulfillment of the said authority so granted.

GIVING AND GRANTING UNTO my said Attorney-in-Fact full power and authority to do and perform every act and
thing whatsoever, requisite and necessary to [be] done in and about [the] premises, as fully to all intents and
purpose as I might or could do if personally present hereby ratifying and confirming all that my said attorney shall
lawfully do or cause to be done by virtue of the presents.53
Implying that the spouses Sandoval were the only registered owners of the subject properties covered by OCT Nos.
O-1603 and O-1604, Rivera prayed for the trial court to issue the necessary writ of possession in order for the
Sandoval heirs to take physical possession of the subject properties. Atty. Dimaano likewise appeared in this case

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as counsel for Rivera.

In an Order54dated October 21, 1998, the RTC of Antipolo City granted the above petition. On November 13,
1998, the trial court issued the writ of possession,55 directing the sheriff to place the Sandoval heirs in possession
of the subject properties.
The Lopez heirs filed an Urgent Motion for Reconsideration and Motion to Lift Writ of Possession, 56 pointing out that
the subject properties were sold to the late Eugenio Lopez on September 23, 1970 prior to the issuance of the
decrees of registration. The Lopez heirs added that they subsequently filed a Motion dated April 28, 1997 in LRC
No. N-2858, LRC Rec. No. N-18887, which prayed that the Deed of Absolute Sale be considered in the application
for the registration of titles of the subject properties. As the motion was still unresolved, OCT Nos. O-1603 and O1604 were allegedly issued under dubious circumstances. Since the questioned titles were the bases for the
issuance of the writ of possession, the Lopez heirs argued that the writ must be recalled. The Lopez heirs also
impugned the SPA granted to Rivera, saying that it was unclear whether the properties stated therein were the
same as the subject properties and that Rivera's authority did not include the authority to file a case in court.
Finally, the Lopez heirs argued that the filing of LRC No. 98-2225 violated the rule against forum shopping as LRC
No. 2858, LRC Rec. No. N-18887 was still pending before the RTC of Pasig City.
The Lopez heirs subsequently filed an Urgent Supplemental Motion for Reconsideration (Re: Notice to Leave and
Vacate Premises upon Writ of Possession), 57 reiterating the pendency of LRC No. 2858, LRC Rec. No. N-18887 and
the "need to maintain the status quo if only to preserve the rights of the parties."
In an Order58dated February 2, 1999, the RTC of Antipolo City recalled the writ of possession and deferred the
resolution thereof until the RTC of Pasig City settled in LRC No. 2858, LRC Rec. No. N-18887 the issue of the
validity of Decree Nos. N-217643 and N-217644 and OCT Nos. O-1603 and O-1604, including the ownership
thereof.
More than a year later, on March 10, 2000, Rivera filed a Motion to Lift Order of Recall dated February 2,
1999.59She stated that on June 24, 1999, the RTC of Pasig City denied the motion filed by the Lopez heirs that
sought the declaration of nullity of Decree Nos. N-217643 and N-217644 and OCT Nos. O-1603 and O-1604. The
RTC of Pasig City also denied the motion for reconsideration of the Lopez heirs in an Order dated March 3, 2000. In
view thereof, Rivera averred that the issue of ownership of the subject properties had already been settled and she
prayed for the reinstatement of the writ of possession previously recalled.
In an Order60dated March 24, 2000, the RTC of Antipolo City granted the above motion of Rivera. The trial court
directed the Sheriff to issue and implement the writ of possession upon finality of its order.
On April 4, 2000, Evelyn Sandoval filed a Manifestation,61 stating that she was the appointed administrator of the
estate of the late Alfonso Sandoval. She informed the trial court, however, that she did not engage the services of
Atty. Dimaano as her counsel, nor had she authorized any person to file the petition for the issuance of a writ of
possession on her behalf.
On April 7, 2000, the Lopez heirs filed with the Court of Appeals a Petition for Certiorari with Urgent Prayer for
Issuance of Temporary Restraining Order and/or Preliminary Injunction, 62 which was docketed as CA-G.R. SP No.
58162. The petition sought the reversal of the Order dated March 24, 2000 by the RTC of Antipolo City.
In a Resolution63 dated April 12, 2000, the Court of Appeals temporarily restrained the RTC of Antipolo City and the
Sandoval heirs from implementing the RTC Order dated March 24, 2000. On June 15, 2000, the Court of Appeals
ordered64 the issuance of a Writ of Preliminary Injunction, enjoining the enforcement of the said RTC Order pending
the termination of the proceedings before the appellate court. The Writ of Preliminary Injunction 65 was issued on
June 28, 2000.
On January 22, 2002, the Court of Appeals promulgated the assailed Decision, dismissing the Lopez heirs' petition
and dissolving the writ of preliminary injunction. The appellate court ruled that the issuance of the writ of
possession was not barred by the pendency of the appeal from the Orders dated June 24, 1999 and March 3, 2000
of the RTC of Pasig City in the land registration case. On the other hand, the RTC of Antipolo City had the duty to
issue the writ of possession since the Decision dated May 31, 1966 in LRC No. N-2858, LRC Rec. No. N-18887
already became final and was in fact executed with the issuance of OCT Nos. O-1603 and O-1604.
Moreover, the sufficiency of the SPA in favor of Rivera was held to be within the province of the RTC of Antipolo City
to exclusively determine. The Court of Appeals noted that the existence and authenticity of the SPA was not
renounced by Evelyn Sandoval as she merely asserted in her Manifestation that she did not authorize the filing of
the petition for the issuance of a writ of possession. Also, the appellate court said that the authority of Rivera to
sell the subject properties carried with it the concomitant duty to file the said petition.
The Court of Appeals declared that the filing of the petition for the issuance of the writ of possession in the RTC of
Antipolo City, instead of the land registration court, did not constitute forum shopping as the two actions therein
may proceed independently of each other. Furthermore, the rule that the motion for the issuance of a writ of
possession must be filed in the land registration case was merely established in order to prevent a successful
litigant from being compelled to commence other actions in other courts to secure the fruits of his victory. The
Court of Appeals reckoned that the Sandoval heirs merely waived the privilege granted to them by the rules. The
appellate court stated, lastly, that the enforcement of the Deed of Absolute Sale came more than a decade too late.
The Lopez heirs filed a Motion for Reconsideration66 of the above Decision, but the same was denied in the assailed
Resolution of the Court of Appeals dated September 24, 2002.
Undaunted, the Lopez heirs filed before this Court on November 15, 2002 the instant Petition for Review
on Certiorariwith Prayer for issuance of Temporary Restraining Order (TRO) and/or Preliminary Injunction, which
was docketed asG.R. No. 155405.
Proceedings before the Court
In a Resolution67 dated December 9, 2002, the Court granted the prayer of the Lopez heirs in G.R. No. 155405 for
the issuance of a TRO upon their filing of a bond in the amount of P1 million. On January 15, 2003, the TRO 68 was

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issued, enjoining (1) the implementation of the RTC Order dated March 24, 2000 in LRC No. 98-2225, which
directed the issuance of the writ of possession; and (2) the conduct of proceedings in LRC No. 98-2225 until further
orders from the Court.
On February 11, 2003, Atty. Dimaano filed a Motion to Withdraw Appearance 69 as counsel for Imelda Rivera in G.R.
No. 155405 in view of Rivera's Motion to Withdraw70 dated October 1, 2002 filed before the RTC of Antipolo City.
Rivera requested therein the withdrawal of the appearance of Atty. Dimaano as her counsel of record.
On March 14, 2003, Rivera filed a Motion for Substitution,71 praying that she be allowed to substitute the Sandoval
heirs as the private respondent in G.R. No. 155405. Rivera reasoned that the subject properties were already
registered in her name under TCT Nos. 360470 and 360471 of the Register of Deeds of Marikina City, which titles
were issued on December 4, 1998. The Lopez heirs opposed 72 the above motion of Rivera, manifesting that TCT
Nos. 360470 and 360471 of the Register of Deeds of Marikina City were being challenged by the spouses Ozaeta in
Civil Case No. 99-5565 in the RTC of Antipolo City. In said case, the spouses Ozaeta claimed that the titles were
registered in Rivera's name through a forged Waiver of Rights in favor of the Sandoval heirs and a forged
Extrajudicial Settlement with Deed of Sale in favor of Rivera.
In a Resolution73 dated April 21, 2003 in G.R. No. 155405, the Court denied Rivera's Motion for Substitution but
ordered her inclusion as a respondent in the case.
On March 2, 2006, the Lopez heirs filed a Motion for Consolidation 74 of G.R. No. 155405 and G.R. No. 164092,
which the Court granted in a Resolution75 dated June 21, 2006.
Issues
In G.R. No. 164092, the Lopez heirs set forth the following issues for our consideration:
I.

WHETHER OR NOT PETITIONERS (MOVANTS-APPELLANTS) ARE PROPERLY PARTIES-LITIGANTS IN THE

LAND REGISTRATION PROCEEDINGS.

II.

WHETHER OR NOT THE MOTION DATED NOVEMBER 25, 1998 IS PROPER FOR PURPOSES OF IMPUGNING
THE QUESTIONED DECREES AND THE CORRESPONDING ORIGINAL CERTIFICATES OF TITLE. 76

On the other hand, in G.R. No. 155405, the Lopez heirs submit the following arguments:
1.

WHETHER THE PENDENCY OF THE RESOLUTION OF THE APPEAL FROM THE ORDERS OF THE
REGISTRATION COURT (Regional Trial Court, Branch 1 [5]2 in Pasig City), DATED June 24, 1999 AND
March 3, 2000, BOTH DENYING THE PETITIONERS' MOTION TO DECLARE DECREES NOS. N-217643 AND
N- 217644 AND THE CORRESPONDING OCT NOS. O-1603 AND O-1604 NULL AND VOID BARS THE
ISSUANCE OF THE WRIT OF POSSESSION.

2.

WHETHER THE PETITION (for the issuance of the Writ of Possession) IS DISMISSIBLE UNDER RULE 16,
PARAGRAPH (D) OF THE 1997 RULES ON CIVIL PROCEDURE ON THE GROUND THAT RESPONDENT
IMELDA RIVERA HAD NO LEGAL CAPACITY TO SUE.

3.

WHETHER PRIVATE RESPONDENT IS GUILTY OF FORUM SHOPPING WHEN SHE FILED THE PETITION FOR
WRIT OF POSSESSION BEFORE THE RTC BRANCH 74, IN ANTIPOLO CITY, ALTHOUGH THE LAND
REGISTRATION CASE INVOLVING THE QUESTIONED PROPERTIES IS STILL PENDING BEFORE RTC
BRANCH 152, IN PASIG CITY.

4.

WHETHER THE HEIRS OF SPOUSES ALFONSO SANDOVAL AND ROSA RUIZ, REPRESENTED BY PRIVATE
RESPONDENT, ARE BOUND NOT ONLY BY THE DEED OF ABSOLUTE SALE EXECUTED BY SAID DECEDENTS
BUT ALSO BY THE UNDERTAKING CONTAINED THEREIN.

5.

WHETHER THE PUBLIC RESPONDENT HAS ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OR EXCESS OF JURISDICTION, AND THERE IS NO APPEAL, OR ANY PLAIN, SPEEDY AND ADEQUATE
REMEDY IN THE ORDINARY COURSE OF LAW.

6.

WHETHER THE INSTANT PETITION INVOLVES LEGAL ISSUES AS WELL.

7.

WHETHER ESTOPPEL OR LACHES HAS SET IN[.]77

G.R. No. 164092

Anent the first issue in G.R. No. 164092, the Lopez heirs insist that they were parties-litigants in LRC No. N-2858,
LRC Rec. No. N-18887 since they merely stepped into the shoes of applicants Sandoval and Ozaeta as successorsin-interest of Eugenio Lopez. They claim that they have complied with the requirements of Section 22 of
Presidential Decree No. 1529 in that: (1) they presented in the land registration court the Deed of Absolute Sale in
favor of Eugenio Lopez together with their Motion dated April 28, 1997, which prayed that the deed be considered
in the application for registration; and (2) the applicants Sandoval and Ozaeta, including the LRA, were furnished
with copies of said motion. When the RTC of Pasig City gave due course to their motion, the Lopez heirs argued
that they had thereby acquired legal standing in the registration proceedings. As parties-litigants, the Lopez heirs
could then file the Motion dated November 25, 1998 to annul Decree Nos. N-217643 and N-217644 and OCT Nos.
O-1603 and O-1604.
As regards the second issue, the Lopez heirs contend that the Motion dated November 25, 1998 was a direct attack
on Decree Nos. N-217643 and N-217644. Should the remedy availed of by the Lopez heirs be declared improper,
they argue that the same be considered as an innocuous error of procedure that should not foreclose their right to
demand immediate relief. They maintain that the filing of a separate action to pursue their claim would only lead to
multiplicity of suits.

126

The Court grants the Lopez heirs' petition in G.R. No. 164092 albeit for different reasons.
To recapitulate, after the CFI of Rizal, Branch II adjudicated the subject properties in favor of the applicants in a
Decision dated May 31, 1966 in LRC No. N-2858, LRC Rec. No. N-18887 and before the decrees of registration were
actually issued, said applicants sold the subject properties to Eugenio Lopez on September 23, 1970. In the Deed
of Absolute Sale, the vendors-applicants obligated themselves to file in the land registration case the necessary
motion or manifestation in order that the certificates of title will be issued in the name of Eugenio Lopez or his
successors-in-interest. Unfortunately, this obligation was not complied with for so many years. Upon learning of
this fact, the Lopez heirs filed their Motion dated April 28, 1997 in the land registration case. Said motion
contained the Deed of Absolute Sale and prayed that the decrees of registration over the subject properties be
issued in the names of the Lopez heirs. At that time, LRC No. N-2858, LRC Rec. No. N-18887 was still pending
before the RTC of Pasig City, Branch 152 as the decrees of registration were yet to be issued despite the Order
dated October 20, 1994 of the trial court that directed the LRA to proceed with the issuance of the decrees.
While the Motion dated April 28, 1997 was pending before the trial court, Decree Nos. N-217643 and N-217644
and OCT Nos. O-1603 and O-1604 were issued in the name of the applicants Sandoval and Ozaeta and their
respective spouses. The Lopez heirs then filed a Motion dated November 25, 1998, which prayed for the
annulment of Decree Nos. N-217643 and N-217644 and OCT Nos. O-1603 and O-1604. The issuance of said
decrees of registration and certificates of title allegedly preempted the RTC of Pasig City in resolving the Motion
dated April 28, 1997 and that the same were issued by the LRA under dubious circumstances.
On the preliminary issue of standing, the Court upholds the judgment of the Court of Appeals that the Lopez heirs
did not acquire legal standing as parties-litigants in the land registration proceedings. However, petitioners
undeniably have a stake in the outcome of the pending litigation over the subject properties.
Verily, the Lopez heirs' Motion dated April 28, 1997 is sanctioned by Section 22 of Presidential Decree No. 1529,
which states that:
SEC. 22. Dealings with land pending original registration.After the tiling of the application and before the issuance
of the decree of registration, the land therein described may still be the subject of dealings in whole or in part, in
which case the interested party shall present to the court the pertinent instruments together with the subdivision
plan approved by the Director of Lands in case of transfer of portions thereof, and the court, after notice to the
parties, shall order such land registered subject to the conveyance or encumbrance created by said instruments, or
order that the decree of registration be issued in the name of the person to whom the property has been conveyed
by said instruments.
In Mendoza v. Court of Appeals,78 the Court had occasion to explain Section 29 of Act No. 496 (the Land
Registration Act),79 which is substantially incorporated in Section 22 of Presidential Decree No. 1529, such that:
It is clear from the above-quoted provision that the law expressly allows the land, subject matter of an application
for registration, to be "dealt with", i.e., to be disposed of or encumbered during the interval of time between the
filing of the application and the issuance of the decree of title, and to have the instruments embodying such
disposition or encumbrance presented to the registration court by the "interested party" for the court to either
"order such land registered subject to the encumbrance created by said instruments, or order the decree of
registration issued in the name of the buyer or of the person to whom the property has been conveyed by said
instruments. The law does not require that the application for registration be amended by substituting the "buyer"
or the "person to whom the property has been conveyed" for the applicant. Neither does it require that the "buyer"
or the "person to whom the property has been conveyed" be a party to the case. He may thus be a total stranger
to the land registration proceedings. The only requirements of the law are: (1) that the instrument be presented to
the court by the interested party together with a motion that the same be considered in relation with the
application; and (2) that prior notice be given to the parties to the case, x x x. (Citation omitted.)
Clearly, Section 22 of Presidential Decree No. 1529 expressly allows the disposition of lands subject matter of a
registration proceeding and the subsequent registration thereof in the name of the person to whom the land was
conveyed. As required by the law, the pertinent instruments of conveyance must be presented to the court and
that prior notice is given to the parties in the land registration case. After said requisites are complied with, the
court shall either order the land registered subject to the conveyance or encumbrance, or order that the decree of
registration be issued in the name of the person to whom the property was conveyed. The buyer of the property
may be a total stranger to the land registration case and it is not even required for him to substitute the original
applicant in order that the decree of registration may be issued in his name. Such is the import of our ruling
in Mendoza. Contrary to the Lopez heirs' position, nowhere can it be inferred in Section 22 of Presidential Decree
No. 1529 or in our discussion in Mendoza that the buyer of the property automatically becomes a party to the land
registration case after complying with the requirements of the aforesaid provision of law. Nonetheless, the same
provision of law authorizes the land registration court to accord certain reliefs in favor of the person to whom the
property has been conveyed.
With respect to the second issue invoked by the Lopez heirs, the Court finds that the Court of Appeals was not
entirely incorrect in ruling that the Lopez heirs availed themselves of the wrong remedy in impugning Decree Nos.
N-217643 and N-217644 and OCT Nos. O-1603 and O-1604.
The Court of Appeals adjudged that the Lopez heirs' Motion dated November 25, 1998 was a collateral attack
on the certificates of title covering the subject properties, which is proscribed by Section 48 of Presidential Decree
No. 1529.80In Sarmiento v. Court of Appeals,81 we differentiated a direct attack from a collateral attack on the title
as follows:
An action is deemed an attack on a title when the object of the action or proceeding is to nullify the title, and thus
challenge the judgment pursuant to which the title was decreed. The attack is direct when the object of the
action is to annul or set aside such judgment, or enjoin its enforcement. On the other hand, the attack
is indirect or collateral when, in an action to obtain a different relief, an attack on the judgment is
nevertheless made as an incident thereof. (Emphasis ours, citations omitted.)
The Court of Appeals, however, overlooked the fact that the Lopez heirs never attacked the Decision dated May 31,
1966 of the then CFI of Rizal in LRC No. N-2858, LRC Rec. No. N-18887, i.e., the judgment pursuant to which the
decrees of registration were issued. Far from it, the Lopez heirs actually recognized the validity of said judgment.
In filing their first motion to have the Deed of Absolute Sale recognized prior to the issuance of the decrees, the
Lopez heirs do not question the final judgment of the land registration court that the subject properties were
owned by the spouses Sandoval and the spouses Ozaeta for they derived their own right to the properties from
said applicants. When the decrees of registration were still issued in the names of said original applicants, due to
peculiar circumstances that occurred outside the proceedings in the land registration court, petitioners were
unjustly deprived of the opportunity to enforce the remedy accorded to them under Section 22 of Presidential

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Decree No. 1529.

Be that as it may, the Court neither agrees with the theory of the trial court that supervening events have mooted
the Lopez heirs' Motion dated April 28, 1997, nor with the Court of Appeals' position that it was necessary for the
Lopez heirs to institute a separate action to enforce the Deed of Absolute Sale. Under the highly exceptional
circumstances of this case, we hold that the land registration court did not necessarily lose jurisdiction over the
case notwithstanding the improvident issuance of the decrees of registration by the LRA. To rectify their situation,
the Lopez heirs could have resorted to Section 108 of Presidential Decree No. 1529 in order to correct the palpable
mistakes in the certificates of title in this case. Said provision reads:
SEC. 108. Amendment and alteration of certificates. - No erasure, alteration, or amendment shall be made upon
the registration book after the entry of a certificate of title or of a memorandum thereon and the attestation of the
same by the Register of Deeds, except by order of the proper Court of First Instance. A registered owner or other
person having an interest in registered property, or, in proper cases, the Register of Deeds with the approval
of the Commissioner of Land Registration, may apply by petition to the court upon the ground that the
registered interests of any description, whether vested, contingent, expectant or inchoate appearing on the
certificate, have terminated and ceased; or that new interests not appearing upon the certificate have
arisen or been created; or that an omission or error was made in entering a certificate or any
memorandum thereon, or, on any duplicate certificate; or that the name of any person on the certificate has
been changed; or that the registered owner has married, or, if registered as married, that the marriage has been
terminated and no right or interest of heirs or creditors will thereby be affected; or that a corporation which owned
registered land and has been dissolved has not conveyed the same within three years after its dissolution; or upon
any other reasonable ground; and the court may hear and determine the petition after notice to all
parties in interest, and may order the entry or cancellation of a new certificate, the entry or
cancellation of a memorandum upon a certificate, or grant any other relief upon such terms and
conditions, requiring security or bond if necessary, as it may consider proper; Provided, however, that this
section shall not be construed to give the court authority to reopen the judgment or decree of registration, and that
nothing shall be done or ordered by the court which shall impair the title or other interest of a purchaser holding a
certificate for value in good faith, or his heirs and assigns, without his or their written consent. Where the owner's
duplicate certificate is not presented, a similar petition may be filed as provided in the preceding section.
All petitions or motions filed under this section as well as under any other provision of this Decree after
original registration shall be filed and entitled in the original case in which the decree or registration
was entered. (Emphasis ours.)
Plainly, Section 108 of Presidential Decree No. 1529 authorizes a person having interest in a registered property to
ask for the amendment and alteration of a certificate of title or the entry of a new certificate if "new interests not
appearing upon the certificate have arisen or been created," "an omission or error was made in entering a
certificate or any memorandum thereon," or "upon any other reasonable ground."
As previously stated, the Lopez heirs recognized that the spouses Sandoval and the spouses Ozaeta were adjudged
the owners of the subject properties in a Decision dated May 31, 1966 rendered by the then CFI of Rizal in LRC No.
N-2858, LRC Rec. No. N-18887. What the Lopez heirs contend is that this ownership was thereafter transferred to
Eugenio Lopez on September 23, 1970, long before the actual issuance of the decrees of registration. Nonetheless,
the certificates of title covering the subject properties were still issued in the names of the spouses Sandoval and
the spouses Ozaeta, not to Eugenio Lopez or his successors-in-interest. Thus, Section 108 of Presidential Decree
No. 1529 is available to the Lopez heirs as a remedy in order to correct the erroneous issuance of the certificates of
title in the name of the vendor-applicants and they should file such a petition or motion in the original land
registration case.
We distinguish this case from jurisprudence which require the filing of a separate civil action to cause the
cancellation or correction of certificates of title where the relief prayed for is not germane to the land registration
proceedings and require litigation in an ordinary civil case. 82 Here, the present controversy is clearly a continuation
of the original land registration proceedings as it involved a mere incident therein. To recall, the Lopez
heirs' Motion dated April 28, 1997(which sought the consideration of the sale of the subject properties to their
predecessor-in-interest in the issuance of the decrees of registration) was allowed under Section 22 of Presidential
Decree No. 1529 and was timely filed beforethe decrees of registration were issued. Indeed, the land registration
court was still hearing said motion when the LRA improvidently and irregularly issued the decrees of registration
and corresponding certificates of title containing patent errors on their face.
The Court is aware of jurisprudential rulings requiring unanimity among the parties or the lack of serious objection
on the part of any party in interest under Section 108 of Presidential Decree No. 1529 in light of the limited
jurisdiction of land registration courts.83 However, we also ruled in Vda. de Arceo v. Court ofAppeals84 that:
We have held that under Section 2 of the Property Registration Decree, the jurisdiction of the Regional Trial Court,
sitting as a land registration court, is no longer as circumscribed as it was under Act No. 496, the former land
registration law. We said that the Decree "has eliminated the distinction between the general jurisdiction vested in
the regional trial court and the limited jurisdiction conferred upon it by the former law when acting merely as a
cadastral court." The amendment was "[a]imed at avoiding multiplicity of suits, the change has simplified
registration proceedings by conferring upon the required trial courts the authority to act not only on applications for
'original registration' but also 'over all petitions filed after original registration of title, with power to hear and
determine all questions arising from such applications or petitions.'" At any rate, we have also stated that the
limited-jurisdiction-rule governing land registration courts is subject to recognized exceptions, to wit,
(1) where the parties mutually agreed or have acquiesced in submitting controversial issues for
determination; (2) where they have been given full opportunity to present their evidence; and (3)
where the court has considered the evidence already of record and is convinced that the same is
sufficient for rendering a decision upon such controversial issues. By the same token, it has been held that
the rule is not, in reality, one of jurisdiction, but rather, of mere procedure, which may be waived. It is not amiss
to state likewise that where the issue, say, of ownership, is ineluctably tied up with the question of
right of registration, the cadastral court commits no error in assuming jurisdiction over it, as, for
instance, in this case, where both parties rely on their respective exhibits to defeat one another's
claims over the parcels sought to be registered, in which case, registration would not be possible or would be
unduly prolonged unless the court first decided it. (Emphases supplied, citations omitted.)
In the land registration case involved herein, the parties already acquiesced in submitting the said controversial
issues to the land registration court and were in the process of presenting their respective evidence but the ruling
of the trial court on the merits was preempted by the untimely issuance of the decrees of registration. To be sure,
whether there is any serious opposition to the Lopez heirs' prayer to have the property registered in their name is

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precisely still to be determined by the land registration court.

Notably, applicant Roman Ozaeta, Jr. himself affirmed before the trial court the due execution of the deed of
absolute sate and confirmed that Eugenio Lopez already paid the agreed purchase price. The Sandoval heirs merely
stated in their Comment to the Lopez heirs' Motion dated April 28, 1997 that the Deed of Absolute Sale had a
"dubious and questionable nature as to its authenticity" since it was presented only after 27 years from its
execution and some of the persons who executed the same were already dead. 85 The Sandoval heirs have yet to
present evidence to support their claim. Should the Deed of Absolute Sale be found authentic and duly executed,
the Sandoval heirs cannot escape its effects. Under the general rule stated in Article 1311 of the Civil Code, 86 the
heirs are bound by the contracts entered into by their predecessors-in-interest. This is evident from Santos v.
Lumbac87 where the Court held that:
It is clear from [Article 1311 of the Civil Code] that whatever rights and obligations the decedent have over the
property were transmitted to the heirs by way of succession, a mode of acquiring the property, rights and
obligations of the decedent to the extent of the value of the inheritance of the heirs. Thus, the heirs cannot escape
the legal consequence of a transaction entered into by their predecessor-in-interest because they have inherited
the property subject to the liability affecting their common ancestor. Being heirs, there is privity of interest between
them and their deceased mother. They only succeed to what rights their mother had and what is valid and binding
against her is also valid and binding as against them. The death of a party does not excuse nonperformance
of a contract which involves a property right and the rights and obligations thereunder pass to the
personal representatives of the deceased. Similarly, nonperformance is not excused by the death of the
party when the other party has a property interest in the subject matter of the contract. (Emphasis ours,
citations omitted.)
As for respondent Imelda Rivera, whose former counsel Atty. Dimaano participated in both the land registration
case (LRC No. N-2858, LRC Rec. No. N-18887) and the writ of possession case (LRC No. 98-2225), she should be
impleaded in the proceedings below to accord her the opportunity to prove that she is a purchaser for value in good
faith entitled to protection under Section 108 of Presidential Decree No. 1529.
At the very least, proceedings under Section 108 are proper to rectify glaring errors on OCT Nos. 0-1603 and O1604, which bore incorrect or inaccurate dates of issuance by the LRA and of entry in the Registration Book. The
land registration court should not have simply accepted the letter-explanation of then LRA Administrator Enriquez
that the correct dates of issuance of the decrees were "sometime between August 8 and 13, 1998." Section 31 of
Presidential Decree No. 1529 directs, among others, that "[e]very decree of registration issued by the
Commissioner shall bear the date, hour and minute of its entry" while Section 40 in turn provides that the original
certificate of title "shall be entered in [the Register of Deeds'] record book and shall be numbered, dated, signed
and sealed by the Register of Deeds with the seal of his office" for "[s]aid certificate of title shall take effect upon
the date of entry thereof." Put alternatively, these dates are material information required by law and cannot
remain uncertain or ambiguous. Even for this reason alone, OCT Nos. O-1603 and O-1604 should be recalled and
submitted to the land registration court for cancellation or correction.
Truly, instead of declaring the pending incidents moot, the land registration court could have continued hearing
them and resolved them on the merits. It becomes obvious at this point that a remand to the trial court of the
matters heretofore discussed is unavoidable. It must be noted, nevertheless, that in the analogous case of Dawson
v. Register of Deeds of Quezon City,88 which involved a certificate of title issued in the name of the wrong party, we
held that:
Accordingly, petitioners may avail of the remedy provided under Section 108 of PD 1529. This, however, does
not necessarily mean that they are automatically entitled to the relief prayed for ~ the cancellation of
the title issued in the name of Louis P. Dawson and the issuance of new titles. It is incumbent upon
them to satisfy the requirements and conditions prescribed under the statutory provision. (Emphasis
ours.)
In the interest of fairness, the Lopez heirs should be allowed to amend their motion to conform to the requirements
and conditions under Section 108 of Presidential Decree No. 1529. Thus, this case is remanded to the land
registration court for further proceedings, subject to the Lopez heirs' compliance with the requisites of Section 108
of Presidential Decree No. 1529.
G.R. No. 155405
In G.R. No. 155405, the Lopez heirs plead for this Court to reverse the assailed rulings of the Court of Appeals in
CA-G.R. SP No. 58162 and to annul the Order dated March 24, 2000 of the RTC of Antipolo City, Branch 74, which
granted the Sandoval heirs' motion for the issuance of a writ of possession.
The Lopez heirs argue, among others, that the issuance of the writ of possession was barred by the pendency of
the appeal from the orders dated June 24, 1999 and March 3, 2000 of the RTC of Pasig City, Branch 152, in LRC
No. N-2858, LRC Rec. No. N-18887, which orders denied the Lopez heirs' motion to declare null and void the
decrees of registration and the certificates of title covering the subject properties. The Lopez heirs further allege
that the petition for the ex parte issuance of the writ of possession should have been dismissed by the RTC of
Antipolo City as Imelda Rivera had no legal capacity to sue. The SPA in favor of Rivera simply authorized her to sell
the parcels of land described in the SPA and to receive payment therefor. The Lopez heirs also point out that there
is no showing whether the subject properties were the same parcels of land specifically mentioned in the SPA given
the dissimilarity in their descriptions. Even as the Sandoval heirs impliedly admitted the insufficiency of the SPA,
they, however, argued that the same was no longer relevant as the subject properties were now registered in the
name of Rivera who was an innocent purchaser for value. The Lopez heirs aver that Imelda Rivera cannot be
considered an innocent purchaser for value as she was fully aware of the pending litigation involving the subject
properties. Moreover, Evelyn Sandoval manifested that she neither authorized anyone to file the motion for the
issuance of a writ of possession, nor did she engage the services of Atty. Dimaano.
In view of our ruling in G.R. No. 164092, the Court likewise grants the instant petition.
We declared in Factor v. Martel, Jr.89 that a writ of possession is employed to enforce a judgment to recover the
possession of land. It commands the sheriff to enter the land and give possession thereof to the person entitled
under the judgment. In land registration proceedings, a writ of possession is an order issued by the trial court,
directing the sheriff to place the applicants or oppositors, or whoever is the successful litigant, in possession of the
property.
Demorar v. Ibanez90 instructs that a writ of possession may be issued not only against the person who has been

129

defeated in a registration case, but also against anyone adversely occupying the land or any portion thereof during
the land registration proceedings. The issuance of the decree of registration is part of the registration proceedings.
In fact, it is supposed to end the said proceedings. Consequently, any person unlawfully and adversely occupying
said lot at any time up to the issuance of the final decree may be subject to judicial ejectment by means of a writ
of possession and it is the duty of the registration court to issue said writ when prayed for by the successful
claimant.
In Mendoza v. Salinas,91 however, the Court ruled that the ministerial duty of the land registration court to issue a
writ of possession ceases with respect to actual possessors of the property under a claim of ownership. This is in
accordance with the provisions of Article 433 of the Civil Code, which states:
ART. 433. Actual possession under claim of ownership raises a disputable presumption of ownership. The true
owner must resort to judicial process for the recovery of the property.
Thus, one who claims to be the owner of a property that is possessed by another must bring the appropriate
judicial action for its physical recovery. The term "judicial process" could mean no less than an ejectment suit or
reinvindicatory action in which the ownership claims of the contending parties may be properly heard and
adjudicated.92
In this case, the Lopez heirs are precisely claiming ownership of the subject properties as successors-in-interest of
Eugenio Lopez. They have since manifested before the trial court that Eugenio Lopez previously bought the subject
properties from Hacienda Benito, Inc. and Eugenio Lopez had been in possession thereof even before the execution
of the Deed of Absolute Sale between him and the applicants Sandoval and Ozaeta. Apparently, the subject
properties are also covered by TCT Nos. 288133 and 288134 of the Registry of Deeds of Marikina City, which are
registered in the name of Lopez, Inc.
Even without considering the Deed of Absolute Sale in favor of Eugenio Lopez, the Sandoval heirs are not entitled
to a writ of possession to the subject properties disputed in this case on the strength of OCT Nos. O-1603 and O1604 since said titles are also registered in the names of the spouses Ozaeta. It must be emphasized as well that
the Ozaeta spouses affirmed that the subject properties had been sold to Eugenio Lopez.
Incidentally, the Court agrees with the Lopez heirs' contention that the SPA in favor of Rivera was insufficient to
cloth her with authority to file the petition for the ex parte issuance of a writ of possession in the instant case.
Under Article 1881 of the Civil Code, an agent is mandated to act within the scope of his authority.93 The scope of
an agent's authority, in turn, is what appears in the written terms of the power of attorney granted upon him. 94
In the case at bar, the specific wordings of the SPA in favor of Rivera authorized her to: (1) "sell a parcel of land
situated in Mambugan, Antipolo, Rizal covered by TAX DECLARATION NO. 05-0795, containing an area of FIVE
THOUSAND EIGHT HUNDRED SIXTY[-]THREE (5,863) SQ. METERS, more or less; and TAX DECLARATION NO. 050859, containing an area of TWO THOUSAND (2,000) SQ. METERS, more or less;" (2) "receive payment in cash or
in check and to negotiate, endorse and encash the same;" (3) "witness in Court;" and (4) "perform other related
matters which are necessary for the fulfillment of the said authority so granted."
We disagree with the finding of the Court of Appeals that the authority of Rivera to sell the properties described in
the SPA carried with it the concomitant duty to file the petition for the ex parte issuance of a writ of possession. We
note as well that there is uncertainty whether the SPA covered the same properties involved in these consolidated
cases. As consistently argued by the Lopez heirs, the area descriptions of the properties involved in the SPA indeed
do not match the following descriptions of the subject properties:
OCT No. O-1603
"A parcel of land (Lot 1 Plan Psu-177091, LR Case No. N-2858, LRC Record No. N-18887), situated in the Barrio of
Mambugan, Municipality of Antipolo, Province of Rizal, Island of Luzon x x x containing an area of TWO THOUSAND
FOUR HUNDRED SEVENTY[-]NINE (2,479) SQUARE METERS, more or less, x x x."
OCT No. O-1604
"A parcel of land (Lot 2 Plan Psu-177091, LR Case No. N-2858, LRC Record No. N-18887), situated in the Barrio of
Mambugan, Municipality of Antipolo, Province of Rizal, Island of Luzon x x x containing an area of SIX THOUSAND
THREE HUNDRED FORTY[-]ONE (6,341) SQUARE METERS, more or less, x x x." 95
Notably, Rivera failed to explain the disparity in the above descriptions and the descriptions of the properties
subject of the SPA, while the RTC of Antipolo City and the Court of Appeals largely ignored the same. This was
error on the part of the lower courts. Angeles v. Philippine National Railways 96 dictates that "[a] power of attorney
must be strictly construed and pursued. The instrument will be held to grant only those powers which are specified
therein, and the agent may neither go beyond nor deviate from the power of attorney." Thus, the varying
descriptions of the properties mentioned in the SPA and that of the subject properties seriously put into question
the authority of Rivera to file the petition for the ex parte issuance of a writ of possession over the subject
properties. More importantly, the fact that Evelyn Sandoval - the principal who executed the SPA in favor of Rivera
- categorically manifested that she did not authorize any person to file the said petition should have raised doubts
as to the authority of Rivera to file the same. All the same, the Court has already previously settled the impropriety
of the issuance of the writ of possession in this case.
WHEREFORE, the Court rules as follows:
In G.R. No. 164092, the Petition for Review on Certiorari is GRANTED. The Decision dated September 9, 2003
and the Resolution dated June 18, 2004 of the Court of Appeals in CA-G.R. CV No. 67515 are hereby SET ASIDE.
The Regional Trial Court of Pasig City, Branch 152 is ORDERED to proceed with hearing petitioners' Motion dated
April 28, 1997 and Motion dated November 25, 1998, subject to petitioners' compliance with Section 108 of
Presidential Decree No. 1529. Original Certificates of Title (OCT) Nos. O-l 603 and O-1604 of the Registry of Deeds
for the Province of Rizal and all of the transfer certificates of title derived therefrom are RECALLED and shall be
surrendered to the Regional Trial Court of Pasig City, Branch 152 for appropriate action.
In G.R. No. 155405, the Petition for Review on Certiorari is GRANTED. The Decision dated January 22, 2002 and
the Resolution dated September 24, 2002 of the Court of Appeals in CA-G.R. SP No. 58162 are REVERSED. The
Order dated March 24, 2000 of the Regional Trial Court (RTC) of Antipolo City, Branch 74, in LRC No. 98-2225,
which directed the issuance of a writ of possession is NULLIFIED and SET ASIDE. LRC No. 98-2225 is
hereby DISMISSED. Costs against the respondents.

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SO ORDERED.

G.R. No. 176020, September 29, 2014

HEIRS OF TELESFORO JULAO, NAMELY, ANITA VDA. DE ENRIQUEZ, SONIA J. TOLENTINO AND
RODERICK JULAO, Petitioners, v. SPOUSES ALEJANDRO AND MORENITA DE JESUS, Respondents.
DECISION
DEL CASTILLO, J.:
Jurisdiction over the subject matter is conferred by law and is determined by the material allegations of the
complaint.1 Thus, it cannot be acquired through, or waived by, any act or omission of the parties; 2 nor can it be
cured by their silence, acquiescence, or even express consent. 3cralawred
This Petition for Review on Certiorari4 under Rule 45 of the Rules of Court assails the Decision 5 dated December 4,
2006 of the Court of Appeals (CA) in CA-G.R. CV No. 72845.
Factual Antecedents
Sometime in the 1960s, Telesforo Julao (Telesforo) 6 filed before the Department of Environment and Natural
Resources (DENR), Baguio City, two Townsite Sales Applications (TSA), TSA No. V-2132 and TSA No. V-6667. 7
Upon his death on June 1, 1971, his applications were transferred to his heirs. 8cralawred
On April 30, 1979,9 Solito Julao (Solito) executed a Deed of Transfer of Rights, 10 transferring his hereditary share
in the property covered by TSA No. V-6667 to respondent spouses Alejandro and Morenita De Jesus. In 1983,
respondent spouses constructed a house on the property they acquired from Solito. 11 In 1986, Solito went
missing.12cralawred
On March 15, 1996, the DENR issued an Order: Rejection and Transfer of Sales Rights, 13 to
wit:ChanRoblesVirtualawlibrary
WHEREFORE, premises considered and it appearing that herein applicant is a holder of two (2) applications in
violation with established policy in the disposition [of] public lands in the City of Baguio, TSA V-6667 is hereby
ordered dropped from the records. Accordingly, it is henceforth ordered that TSA 2132 in the name of TELESFORO
JULAO be, as [it is] hereby transferred to the heirs of TELESFORO JULAO, represented by ANITA VDA. DE
ENRIQUEZ, and as thus transferred, the same shall continue to be given due course. For convenience of easy
reference, it is directed that the [pertinent] records be consolidated in the name of the latter.
SO ORDERED.14
Consequently, on December 21, 1998, Original Certificate of Title (OCT) No. P-2446, 15 covering a 641-square meter
property, was issued in favor of the heirs of Telesforo. 16cralawred
On March 2, 1999, petitioners Anita Julao vda. De Enriquez, Sonia J. Tolentino and Roderick Julao, 17 representing
themselves to be the heirs of Telesforo, filed before the Regional Trial Court (RTC), Baguio City, a Complaint for
Recovery of Possession of Real Property,18 docketed as Civil Case No. 4308-R,19 against respondent spouses.
Petitioners alleged that they are the true and lawful owners of a 641-square meter parcel of land located at
Naguilian Road, Baguio City, covered by OCT No. P-2446; 20 that the subject property originated from TSA No. V2132;21 that respondent spouses house encroached on 70 square meters of the subject property; 22 that on August
4, 1998, petitioners sent a demand letter to respondent spouses asking them to return the subject property; 23 that
respondent spouses refused to accede to the demand, insisting that they acquired the subject property from
petitioners brother, Solito, by virtue of a Deed of Transfer of Rights;24 that in the Deed of Transfer of Rights, Solito
expressly transferred in favor of respondent spouses his hereditary share in the parcel of land covered by TSA No.
V-6667;25 that TSA No. V-6667 was rejected by the DENR;26 and that respondent spouses have no valid claim over
the subject property because it is covered by a separate application, TSA No. V-2132. 27cralawred
Respondent spouses filed a Motion to Dismiss28 on the ground of prescription, which the RTC denied for lack of
merit.29 Thus, they filed an Answer30 contending that they are the true and lawful owners and possessors of the
subject property;31that they acquired the said property from petitioners brother, Solito; 32 and that contrary to the
claim of petitioners, TSA No. V-6667 and TSA No. V-2132 pertain to the same property.33cralawred
During the trial, petitioners disputed the validity of the Deed of Transfer of Rights executed by Solito. They
presented evidence to show that Telesforo submitted two applications, TSA No. V-2132 and TSA No. V-6667. 34 The
first one, TSA No. V-2132, resulted in the issuance of OCT No. P-2446 in favor of the heirs of Telesforo, while the
second one, TSA No. V-6667, was dropped from the records.35 They also presented evidence to prove that Solito
had no hereditary share in the estate of Telesforo because Solito was not Telesforos biological son, but his stepson,
and that Solitos real name was Francisco Bognot.36cralawred
After petitioners rested their case, respondent spouses filed a Motion for Leave of Court to File a Demurrer to
Evidence.37 The RTC, however, denied the Motion.38cralawred
The heirs of Solito then moved to intervene and filed an Answer-In-Intervention, 39 arguing that their father, Solito,
is a legitimate son of Telesforo and that Solito sold his hereditary share in the estate of his father to respondent
spouses by virtue of a Deed of Transfer of Rights.40cralawred
To refute the evidence presented by petitioners, respondent spouses presented two letters from the DENR: (1) a
letter dated April 27, 1999 issued by Amando I. Francisco, the Officer-In-Charge of CENRO-Baguio City, stating that
it can be concluded that TSA No. V-2132 and TSA No. V-6667 referred to one and the same application covering
one and the same lot;41 and (2) a letter42 dated September 30, 1998 from the DENR stating that the land applied

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for with assigned number TSA No. V-2132 was renumbered as TSA No. V-6667 as per 2nd Indorsement dated
November 20, 1957 x x x.43 They also presented two affidavits,44 both dated August 31, 1994, executed by
petitioners Sonia Tolentino and Roderick Julao, 45 acknowledging that Solito was their co-heir and that he was the
eldest son of Telesforo.46cralawred
Ruling of the Regional Trial Court
On August 10, 2001, the RTC rendered a Decision 47 in favor of petitioners. The RTC found that although petitioners
failed to prove their allegation that Solito was not an heir of Telesforo, 48 they were nevertheless able to convincingly
show that Telesforo filed with the DENR two applications, covering two separate parcels of land, and that it was his
first application, TSA No. V-2132, which resulted in the issuance of OCT No. P-2446. 49 And since what Solito
transferred to respondent spouses was his hereditary share in the parcel of land covered by TSA No. V-6667,
respondent spouses acquired no right over the subject property, which was derived from a separate application,
TSA No. V-2132.50 Thus, the RTC disposed of the case in this wise:ChanRoblesVirtualawlibrary
WHEREFORE, premises considered, judgment is hereby rendered in favor of the [petitioners] and against the
[respondents] who are hereby ordered to restore the possession of the land in question consisting of an area of 70
square meters, more or less, which is a portion of the land covered by [OCT] No. P-2446. The [respondents] are
ordered to remove the house and/or other improvements that they constructed over the said parcel of land and to
vacate the same upon the finality of this decision.
SO ORDERED.51
Ruling of the Court of Appeals
Aggrieved, respondent spouses elevated the case to the CA.
On December 4, 2006, the CA reversed the ruling of the RTC. The CA found the Complaint dismissible on two
grounds: (1) failure on the part of petitioners to identify the property sought to be recovered; and (2) lack of
jurisdiction. The CA noted that petitioners failed to pinpoint the property sought to be recovered. 52 In fact, they
did not present any survey plan to show that respondent spouses actually encroached on petitioners property.53
Moreover, the CA was not fully convinced that the two applications pertain to two separate parcels of land since
respondent spouses were able to present evidence to refute such allegation. 54 The CA likewise pointed out that the
Complaint failed to establish that the RTC had jurisdiction over the case as petitioners failed to allege the assessed
value of the subject property.55 Thus:ChanRoblesVirtualawlibrary
WHEREFORE, premises considered, the appeal is GRANTED. The decision appealed from is REVERSED and SET
ASIDE. The complaint is DISMISSED.
SO ORDERED.56cralawred
Issues
Hence, petitioners filed the instant Petition for Review on Certiorari, raising the following
errors:ChanRoblesVirtualawlibrary
I
THE [CA] COMMITTED REVERSIBLE ERROR IN RULING THAT PETITIONERS FAILED TO PROVE THE IDENTITY OF
THE PROPERTY IN QUESTION.
II
THE [CA] COMMITTED REVERSIBLE ERROR IN RULING THAT THE TRIAL COURT DID NOT ACQUIRE JURISDICTION
OVER THE COMPLAINT.57
At this juncture, it must be mentioned that in the Resolution 58 dated March 19, 2007, we required respondent
spouses to file their Comment to the Petition which they failed to comply with. Thus, in the Resolution59 dated
March 11, 2013, we dispensed with the filing of respondent spouses Comment. At the same time, we required
petitioners to manifest whether they are willing to submit the case for resolution based on the pleadings filed. To
date, petitioners have not done so.
Our Ruling
The Petition lacks merit.
The assessed value must be alleged
in the complaint to determine which
court has jurisdiction over the action.
Jurisdiction as we have said is conferred by law and is determined by the allegations in the complaint, which
contains the concise statement of the ultimate facts of a plaintiff's cause of action. 60cralawred
Section 19(2) and Section 33(3) of Batas Pambansa Blg. 129, as amended by Republic Act No. 7691,
provide:ChanRoblesVirtualawlibrary
SEC. 19. Jurisdiction in Civil Cases. Regional Trial Courts shall exercise exclusive original
jurisdiction:ChanRoblesVirtualawlibrary
xxxx
(2) In all civil actions which involve the title to, or possession of, real property, or any interest therein, where the

132

assessed value of the property involved exceeds twenty thousand pesos (P20,000.00) or for civil actions in Metro
Manila, where such value exceeds Fifty thousand pesos (P50,000.00) except actions for forcible entry into and
unlawful detainer of lands or buildings, original jurisdiction over which is conferred upon the Metropolitan Trial
Courts, Municipal Trial Courts, and Municipal Circuit Trial Courts;
xxxx
SEC. 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in Civil
Cases. Metropolitan Trial Courts, Municipal Trial Courts, and Municipal Circuit Trial Courts shall
exercise:ChanRoblesVirtualawlibrary
xxxx
(3) Exclusive original jurisdiction in all civil actions which involve title to, or possession of, real property, or any
interest therein where the assessed value of the property or interest therein does not exceed Twenty Thousand
Pesos (P20,000.00) or, in civil actions in Metro Manila, where such assessed value does not exceed Fifty Thousand
Pesos (P50,000.00) exclusive of interest, damages of whatever kind, attorney's fees, litigation expenses and costs:
Provided, That in cases of land not declared for taxation purposes, the value of such property shall be determined
by the assessed value of the adjacent lots.
Based on the foregoing, it is clear that in an action for recovery of possession, the assessed value of the property
sought to be recovered determines the courts jurisdiction. 61cralawred
In this case, for the RTC to exercise jurisdiction, the assessed value of the subject property must exceed
P20,000.00. Since petitioners failed to allege in their Complaint the assessed value of the subject property, the CA
correctly dismissed the Complaint as petitioners failed to establish that the RTC had jurisdiction over it. In fact,
since the assessed value of the property was not alleged, it cannot be determined which trial court had original and
exclusive jurisdiction over the case.
Furthermore, contrary to the claim of petitioners, the issue of lack of jurisdiction was raised by respondents in their
Appellants Brief.62 And the fact that it was raised for the first time on appeal is of no moment. Under Section
1,63 Rule 9 of the Revised Rules of Court, defenses not pleaded either in a motion to dismiss or in the answer are
deemed waived, except for lack of jurisdiction, litis pendentia, res judicata, and prescription, which must be
apparent from the pleadings or the evidence on record. In other words, the defense of lack of jurisdiction over the
subject matter may be raised at any stage of the proceedings, even for the first time on appeal. 64 In fact, the
court may motu proprio dismiss a complaint at any time when it appears from the pleadings or the evidence on
record that lack of jurisdiction exists.65cralawred
In an action to recover, the
property must be identified.
Moreover, Article 434 of the Civil Code states that [i]n an action to recover, the property must be identified, and
the plaintiff must rely on the strength of his title and not on the weakness of the defendants claim. The plaintiff,
therefore, is duty-bound to clearly identify the land sought to be recovered, in accordance with the title on which
he anchors his right of ownership.66 It bears stressing that the failure of the plaintiff to establish the identity of the
property claimed is fatal to his case.67cralawred
In this case, petitioners failed to identify the property they seek to recover as they failed to describe the location,
the area, as well as the boundaries thereof. In fact, as aptly pointed out by the CA, no survey plan was presented
by petitioners to prove that respondent spouses actually encroached upon the 70-square meter portion of
petitioners property.68 Failing to prove their allegation, petitioners are not entitled to the relief prayed for in their
Complaint.
All told, we find no error on the part of the CA in dismissing the Complaint for lack of jurisdiction and for failing to
identify the property sought to be recovered.
WHEREFORE, the Petition is hereby DENIED. The Decision dated December 4, 2006 of the Court of Appeals in
CA-G.R. CV No. 72845 is hereby AFFIRMED.
SO ORDERED.cralawlaw library

G.R. No. 179987

September 3, 2013

HEIRS OF MARIO MALABANAN, (Represented by Sally A. Malabanan), Petitioners,

vs.
REPUBLIC OF THE PHILIPPINES, Respondent.
RESOLUTION
BERSAMIN, J.:
For our consideration and resolution are the motions for reconsideration of the parties who both assail the decision
promulgated on April 29, 2009, whereby we upheld the ruling of the Court of Appeals (CA) denying the application
of the petitioners for the registration of a parcel of land situated in Barangay Tibig, Silang, Cavite on the ground
that they had not established by sufficient evidence their right to the registration in accordance with either Section
14(1) or Section 14(2) of Presidential Decree No. 1529 (Property Registration Decree).
Antecedents

133

The property subject of the application for registration is a parcel of land situated in Barangay Tibig, Silang Cavite,
more particularly identified as Lot 9864-A, Cad-452-D, with an area of 71,324-square meters. On February 20,
1998, applicant Mario Malabanan, who had purchased the property from Eduardo Velazco, filed an application for
land registration covering the property in the Regional Trial Court (RTC) in Tagaytay City, Cavite, claiming that the
property formed part of the alienable and disposable land of the public domain, and that he and his predecessorsin-interest had been in open, continuous, uninterrupted, public and adverse possession and occupation of the land
for more than 30 years, thereby entitling him to the judicial confirmation of his title. 1
To prove that the property was an alienable and disposable land of the public domain, Malabanan presented during
trial a certification dated June 11, 2001 issued by the Community Environment and Natural Resources Office
(CENRO) of the Department of Environment and Natural Resources (DENR), which reads:
This is to certify that the parcel of land designated as Lot No. 9864 Cad 452-D, Silang Cadastre as surveyed for Mr.
Virgilio Velasco located at Barangay Tibig, Silang, Cavite containing an area of 249,734 sq. meters as shown and
described on the Plan Ap-04-00952 is 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. 2
After trial, on December 3, 2002, the RTC rendered judgment granting Malabanans application for land
registration, disposing thusly:
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-040173123-D, 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.3
The Office of the Solicitor General (OSG) appealed the judgment to the CA, 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 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 February 23, 2007, the CA promulgated its decision reversing the RTC and dismissing the application for
registration of Malabanan. Citing the ruling in Republic v. Herbieto (Herbieto), 4 the CA declared that under Section
14(1) of the Property Registration Decree, any period of possession prior to the classification of the land as
alienable and disposable was inconsequential and should be excluded from the computation of the period of
possession. Noting that the CENRO-DENR certification stated that the property had been declared alienable and
disposable only on March 15, 1982, Velazcos possession prior to March 15, 1982 could not be tacked for purposes
of computing Malabanans period of possession.
Due to Malabanans intervening demise during the appeal in the CA, his heirs elevated the CAs decision of February
23, 2007 to this Court through a petition for review on certiorari.
The petitioners assert that the ruling in Republic v. Court of Appeals and Corazon Naguit 5 (Naguit) remains the
controlling doctrine especially if the property involved is agricultural land. In this regard, Naguit ruled that any
possession of agricultural land prior to its declaration as alienable and disposable could be counted in the reckoning
of the period of possession to perfect title under the Public Land Act (Commonwealth Act No. 141) and the Property
Registration Decree. They point out that the ruling in Herbieto, to the effect that the declaration of the land subject
of the application for registration as alienable and disposable should also date back to June 12, 1945 or earlier, was
a mere obiter dictum considering that the land registration proceedings therein were in fact found and declared
void ab initio for lack of publication of the notice of initial hearing.
The petitioners also rely on the ruling in Republic v. T.A.N. Properties, Inc. 6 to support their argument that the
property had been ipso jure converted into private property by reason of the open, continuous, exclusive and
notorious possession by their predecessors-in-interest of an alienable land of the public domain for more than 30
years. According to them, what was essential was that the property had been "converted" into private property
through prescription at the time of the application without regard to whether the property sought to be registered
was previously classified as agricultural land of the public domain.
As earlier stated, we denied the petition for review on certiorari because Malabanan failed to establish by sufficient
evidence possession and occupation of the property on his part and on the part of his predecessors-in interest
since June 12, 1945, or earlier.
Petitioners Motion for Reconsideration
In their motion for reconsideration, the petitioners submit that the mere classification of the land as alienable or
disposable should be deemed sufficient to convert it into patrimonial property of the State. Relying on the rulings in
Spouses De Ocampo v. Arlos,7 Menguito v. Republic8 and Republic v. T.A.N. Properties, Inc.,9 they argue that the
reclassification of the land as alienable or disposable opened it to acquisitive prescription under the Civil Code; that
Malabanan had purchased the property from Eduardo Velazco believing in good faith that Velazco and his
predecessors-in-interest had been the real owners of the land with the right to validly transmit title and ownership
thereof; that consequently, the ten-year period prescribed by Article 1134 of the Civil Code, in relation to Section
14(2) of the Property Registration Decree, applied in their favor; and that when Malabanan filed the application for

134

registration on February 20, 1998, he had already been in possession of the land for almost 16 years reckoned
from 1982, the time when the land was declared alienable and disposable by the State.
The Republics Motion for Partial Reconsideration
The Republic seeks the partial reconsideration in order to obtain a clarification with reference to the application of
the rulings in Naguit and Herbieto.
Chiefly citing the dissents, the Republic contends that the decision has enlarged, by implication, the interpretation
of Section 14(1) of the Property Registration Decree through judicial legislation. It reiterates its view that an
applicant is entitled to registration only when the land subject of the application had been declared alienable and
disposable since June 12, 1945 or earlier.
Ruling
We deny the motions for reconsideration.
In reviewing the assailed decision, we consider to be imperative to discuss the different classifications of land in
relation to the existing applicable land registration laws of the Philippines.
Classifications of land according to ownership
Land, which is an immovable property,10 may be classified as either of public dominion or of private
ownership.11Land is considered of public dominion if it either: (a) is intended for public use; or (b) belongs to the
State, without being for public use, and is intended for some public service or for the development of the national
wealth.12 Land belonging to the State that is not of such character, or although of such character but no longer
intended for public use or for public service forms part of the patrimonial property of the State. 13 Land that is other
than part of the patrimonial property of the State, provinces, cities and municipalities is of private ownership if it
belongs to a private individual.
Pursuant to the Regalian Doctrine (Jura Regalia), a legal concept first introduced into the country from the West by
Spain through the Laws of the Indies and the Royal Cedulas, 14 all lands of the public domain belong to the
State.15 This means that the State is the source of any asserted right to ownership of land, and is charged with the
conservation of such patrimony.16
All lands not appearing to be clearly under private ownership are presumed to belong to the State. Also, public
lands remain part of the inalienable land of the public domain unless the State is shown to have reclassified or
alienated them to private persons.17
Classifications of public lands
according to alienability
Whether or not land of the public domain is alienable and disposable primarily rests on the classification of public
lands made under the Constitution. Under the 1935 Constitution, 18 lands of the public domain were classified into
three, namely, agricultural, timber and mineral. 19 Section 10, Article XIV of the 1973 Constitution classified lands of
the public domain into seven, specifically, agricultural, industrial or commercial, residential, resettlement, mineral,
timber or forest, and grazing land, with the reservation that the law might provide other classifications. The 1987
Constitution adopted the classification under the 1935 Constitution into agricultural, forest or timber, and mineral,
but added national parks.20 Agricultural lands may be further classified by law according to the uses to which they
may be devoted.21 The identification of lands according to their legal classification is done exclusively by and
through a positive act of the Executive Department.22
Based on the foregoing, the Constitution places a limit on the type of public land that may be alienated. Under
Section 2, Article XII of the 1987 Constitution, only agricultural lands of the public domain may be alienated; all
other natural resources may not be.
Alienable and disposable lands of the State fall into two categories, to wit: (a) patrimonial lands of the State, or
those classified as lands of private ownership under Article 425 of the Civil Code, 23 without limitation; and (b) lands
of the public domain, or the public lands as provided by the Constitution, but with the limitation that the lands
must only be agricultural. Consequently, lands classified as forest or timber, mineral, or national parks are not
susceptible of alienation or disposition unless they are reclassified as agricultural. 24 A positive act of the
Government is necessary to enable such reclassification, 25 and the exclusive prerogative to classify public lands
under existing laws is vested in the Executive Department, not in the courts. 26 If, however, public land will be
classified as neither agricultural, forest or timber, mineral or national park, or when public land is no longer
intended for public service or for the development of the national wealth, thereby effectively removing the land
from the ambit of public dominion, a declaration of such conversion must be made in the form of a law duly
enacted by Congress or by a Presidential proclamation in cases where the President is duly authorized by law to
that effect.27 Thus, until the Executive Department exercises its prerogative to classify or reclassify lands, or until
Congress or the President declares that the State no longer intends the land to be used for public service or for the
development of national wealth, the Regalian Doctrine is applicable.
Disposition of alienable public lands
Section 11 of the Public Land Act (CA No. 141) provides the manner by which alienable and disposable lands of the
public domain, i.e., agricultural lands, can be disposed of, to wit:
Section 11. Public lands suitable for agricultural purposes can be disposed of only as follows, and not otherwise:

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(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).
The core of the controversy herein lies in the proper interpretation of Section 11(4), in relation to Section 48(b) of
the Public Land Act, which expressly requires possession by a Filipino citizen of the land since June 12, 1945, or
earlier, viz:
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 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
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. (Bold emphasis supplied)
Note that Section 48(b) of the Public Land Act used the words "lands of the public domain" or "alienable and
disposable lands of the public domain" to clearly signify that lands otherwise classified, i.e., mineral, forest or
timber, or national parks, and lands of patrimonial or private ownership, are outside the coverage of the Public
Land Act. What the law does not include, it excludes. The use of the descriptive phrase "alienable and disposable"
further limits the coverage of Section 48(b) to only the agricultural lands of the public domain as set forth in Article
XII, Section 2 of the 1987 Constitution. Bearing in mind such limitations under the Public Land Act, the applicant
must satisfy the following requirements in order for his application to come under Section 14(1) of the Property
Registration Decree,28 to wit:
1. The applicant, by himself or through his predecessor-in-interest, has been in possession and occupation
of the property subject of the application;
2. The possession and occupation must be open, continuous, exclusive, and notorious;
3. The possession and occupation must be under a bona fide claim of acquisition of ownership;
4. The possession and occupation must have taken place since June 12, 1945, or earlier; and
5. The property subject of the application must be an agricultural land of the public domain.
Taking into consideration that the Executive Department is vested with the authority to classify lands of the public
domain, Section 48(b) of the Public Land Act, in relation to Section 14(1) of the Property Registration Decree,
presupposes that the land subject of the application for registration must have been already classified as
agricultural land of the public domain in order for the provision to apply. Thus, absent proof that the land is already
classified as agricultural land of the public domain, the Regalian Doctrine applies, and overcomes the presumption
that the land is alienable and disposable as laid down in Section 48(b) of the Public Land Act. However, emphasis is
placed on the requirement that the classification required by Section 48(b) of the Public Land Act is classification or
reclassification of a public land as agricultural.
The dissent stresses that the classification or reclassification of the land as alienable and disposable agricultural
land should likewise have been made on June 12, 1945 or earlier, because any possession of the land prior to such
classification or reclassification produced no legal effects. It observes that the fixed date of June 12, 1945 could not
be minimized or glossed over by mere judicial interpretation or by judicial social policy concerns, and insisted that
the full legislative intent be respected.
We find, however, that the choice of June 12, 1945 as the reckoning point of the requisite possession and
occupation was the sole prerogative of Congress, the determination of which should best be left to the wisdom of
the lawmakers. Except that said date qualified the period of possession and occupation, no other legislative intent
appears to be associated with the fixing of the date of June 12, 1945. Accordingly, the Court should interpret only
the plain and literal meaning of the law as written by the legislators.
Moreover, an examination of Section 48(b) of the Public Land Act indicates that Congress prescribed no
requirement that the land subject of the registration should have been classified as agricultural since June 12,
1945, or earlier. As such, the applicants imperfect or incomplete title is derived only from possession and
occupation since June 12, 1945, or earlier. This means that the character of the property subject of the application

136

as alienable and disposable agricultural land of the public domain determines its eligibility for land registration, not
the ownership or title over it.
Alienable public land held by a possessor, either personally or through his predecessors-in-interest, openly,
continuously and exclusively during the prescribed statutory period is converted to private property by the mere
lapse or completion of the period.29 In fact, by virtue of this doctrine, corporations may now acquire lands of the
public domain for as long as the lands were already converted to private ownership, by operation of law, as a result
of satisfying the requisite period of possession prescribed by the Public Land Act. 30 It is for this reason that the
property subject of the application of Malabanan need not be classified as alienable and disposable agricultural land
of the public domain for the entire duration of the requisite period of possession.
To be clear, then, the requirement that the land should have been classified as alienable and disposable agricultural
land at the time of the application for registration is necessary only to dispute the presumption that the land is
inalienable.
The declaration that land is alienable and disposable also serves to determine the point at which prescription may
run against the State. The imperfect or incomplete title being confirmed under Section 48(b) of the Public Land Act
is title that is acquired by reason of the applicants possession and occupation of the alienable and disposable
agricultural land of the public domain. Where all the necessary requirements for a grant by the Government are
complied with through actual physical, open, continuous, exclusive and public possession of an alienable and
disposable land of the public domain, the possessor is deemed to have acquired by operation of law not only a right
to a grant, but a grant by the Government, because it is not necessary that a certificate of title be issued in order
that such a grant be sanctioned by the courts.31
If one follows the dissent, the clear objective of the Public Land Act to adjudicate and quiet titles to unregistered
lands in favor of qualified Filipino citizens by reason of their occupation and cultivation thereof for the number of
years prescribed by law32 will be defeated. Indeed, we should always bear in mind that such objective still prevails,
as a fairly recent legislative development bears out, when Congress enacted legislation (Republic Act No.
10023)33 in order to liberalize stringent requirements and procedures in the adjudication of alienable public land to
qualified applicants, particularly residential lands, subject to area limitations. 34
On the other hand, if a public land is classified as no longer intended for public use or for the development of
national wealth by declaration of Congress or the President, thereby converting such land into patrimonial or
private land of the State, the applicable provision concerning disposition and registration is no longer Section 48(b)
of the Public Land Act but the Civil Code, in conjunction with Section 14(2) of the Property Registration Decree. 35 As
such, prescription can now run against the State.
To sum up, we now observe the following rules relative to the disposition of public land or lands of the public
domain, namely:
(1) As a general rule and pursuant to the Regalian Doctrine, all lands of the public domain belong to the
State and are inalienable. Lands that are not clearly under private ownership are also presumed to belong
to the State and, therefore, may not be alienated or disposed;
(2) The following are excepted from the general rule, to wit:
(a) Agricultural lands of the public domain are rendered alienable and disposable through any of
the exclusive modes enumerated under Section 11 of the Public Land Act. If the mode is judicial
confirmation of imperfect title under Section 48(b) of the Public Land Act, the agricultural land
subject of the application needs only to be classified as alienable and disposable as of the time of
the application, provided the applicants possession and occupation of the land dated back to
June 12, 1945, or earlier. Thereby, a conclusive presumption that the applicant has performed all
the conditions essential to a government grant arises,36 and the applicant becomes the owner of
the land by virtue of an imperfect or incomplete title. By legal fiction, the land has already ceased
to be part of the public domain and has become private property.37
(b) Lands of the public domain subsequently classified or declared as no longer intended for
public use or for the development of national wealth are removed from the sphere of public
dominion and are considered converted into patrimonial lands or lands of private ownership that
may be alienated or disposed through any of the modes of acquiring ownership under the Civil
Code. If the mode of acquisition is prescription, whether ordinary or extraordinary, proof that the
land has been already converted to private ownership prior to the requisite acquisitive
prescriptive period is a condition sine qua non in observance of the law (Article 1113, Civil Code)
that property of the State not patrimonial in character shall not be the object of prescription.
To reiterate, then, the petitioners failed to present sufficient evidence to establish that they and their predecessorsin-interest had been in possession of the land since June 12, 1945. Without satisfying the requisite character and
period of possession - possession and occupation that is open, continuous, exclusive, and notorious since June 12,
1945, or earlier - the land cannot be considered ipso jure converted to private property even upon the subsequent
declaration of it as alienable and disposable. Prescription never began to run against the State, such that the land
has remained ineligible for registration under Section 14(1) of the Property Registration Decree. Likewise, the land
continues to be ineligible for land registration under Section 14(2) of the Property Registration Decree unless
Congress enacts a law or the President issues a proclamation declaring the land as no longer intended for public
service or for the development of the national wealth.1wphi1
WHEREFORE, the Court DENIES the petitioners' Motion for Reconsideration and the respondent's Partial Motion for
Reconsideration for their lack of merit.
SO ORDERED.

137

G.R. No. 170217

HPS SOFTWARE AND COMMUNICATION CORPORATION and HYMAN YAP, Petitioners,
vs.
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY (PLDT), JOSE JORGE E. CORPUZ, in his capacity as
the Chief of the PNP-Special Task Force Group-Visayas, PHILIP YAP, FATIMA CIMAFRANCA, and
EASTERN TELECOMMUNICATIONS PHILIPPINES, INC., Respondents.
X----------------X
G.R. No. 170694

December 10, 2012

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, Petitioner,

vs.
HPS SOFTWARE AND COMMUNICATION CORPORATION, including its Incorporators, Directors, Officers:
PHILIP YAP, STANLEY T. YAP, ELAINE JOY T. YAP, JULIE Y. SY, HYMAN A. YAP and OTHER PERSONS
UNDER THEIR EMPLOY, JOHN DOE AND JANE DOE, IN THE PREMISES LOCATED AT HPS BUILDING,
PLARIDEL ST., BRGY. ALANG-ALANG, MANDAUE CITY, CEBU, Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
Before the Court are two consolidated petitions for review on certiorari under Rule 45 of the Rules of Court each
seeking to annul and set aside a ruling of the Court of Appeals concerning the May 23, 2001 Joint Order 1 issued by
the Regional Trial Court of Mandaue City, Branch 55. In G.R. No. 170217, petitioners HPS Software and
Communication Corporation and Hyman Yap (HPS Corporation, et al.) seek to nullify the March 26, 2004
Decision2 as well as the September 27, 2005 Resolution3 of the former Fourth (4th) Division of the Court of Appeals
in CA-G.R. SP No. 65682, entitled "Philippine Long Distance Telephone Company v. Hon. Judge Ulric Caete, in his
capacity as the Presiding Judge of the Regional Trial Court, Branch 55, Mandaue City, HPS Software and
Communications Corporation; its Officers and/or Directors: Philip Yap, Hyman Yap, Fatima Cimafranca; Eastern
Telecommunications Phils., Inc., and Jose Jorge E. Corpuz, in his capacity as the Chief of the PNP - Special Task
Force Group- Visayas." The March 26, 2004 Decision modified the May 23, 2001 Joint Order of the trial court by
setting aside the portion directing the immediate return of the seized items to HPS Corporation and, as a
consequence, directing the Philippine National Police (PNP) - Special Task Force Group Visayas to retrieve
possession and take custody of all the seized items pending the final disposition of the appeal filed by Philippine
Long Distance Telephone Company (PLDT) on the said May 23, 2001 Joint Order. The September 27, 2005
Resolution denied for lack of merit HPS Corporation, et al.s subsequent Motion for Reconsideration. On the other
hand, in G.R. No. 170694, petitioner PLDT seeks to set aside the April 8, 2005 Decision 4 as well as the December 7,
2005 Resolution5 of the former Eighteenth Division of the Court of Appeals in CA-G.R. CV No. 75838, entitled
"People of the Philippines, Philippine Long Distance Telephone Company v. HPS Software and Communication
Corporation, its Incorporators, Directors, Officers: Philip Yap, Stanley T. Yap, Elaine Joy T. Yap, Julie Y. Sy, Hyman
A. Yap and Other Persons Under Their Employ, John Doe and Jane Doe, in the premises located at HPS Building,
Plaridel St., Brgy. Alang-Alang, Mandaue City, Cebu." The April 8, 2005 Decision affirmed the May 23, 2001 Joint
Order of the trial court while the December 7, 2005 Resolution denied for lack of merit PLDTs subsequent Motion
for Reconsideration.
The undisputed thread of facts binding these consolidated cases, as summarized in the assailed May 23, 2001 Joint
Order, follows:
[O]n October 20, 2000, the complainant PAOCTF filed with this Honorable Court two applications for the issuance of
search warrant for Violation of Article 308 of the Revised Penal Code for Theft of Telephone Services and for
Violation of P.D. 401 for unauthorized installation of telephone communication equipments following the complaint
of the Philippine Long Distance Telephone Company or PLDT that they were able to monitor the use of the
respondents in their premises of Mabuhay card and equipments capable of receiving and transmitting calls from the
USA to the Philippines without these calls passing through the facilities of PLDT.
Complainants witnesses Richard Dira and Reuben Hinagdanan testified under oath that Respondents are engaged
in the business of International [S]imple Resale or unauthorized sale of international long distance calls. They
explained that International Simple Resale (ISR) is an alternative call pattern employed by communication provider
outside of the country. This is a method of routing and completing international long distance call using pre-paid
card which respondents are selling in the States. These calls are made through access number and by passes the
PLDT International Gate Way Facilities and by passes the monitoring system, thus making the international long
distance calls appear as local calls, to the damage and prejudice of PLDT which is deprived of revenues as a result
thereof.
Complainants witnesses Richard Dira and Reuben Hinagdanan testified that they found out that respondents are
engaged in the business of International Simple Resale on September 13, 2000 when they conducted a test call
using Mabuhay Card. They followed the dialing instructions found at the back of the card and dialed "00" and the
access code number 18008595845 of the said Mabuhay Card. They were then prompted by a voice to enter the PIN
code to validate and after entering the PIN code number 332 1479224, they were again prompted to dial the
country code of the Philippines 011-6332 and then dialed telephone number 2563066. Although the test calls were
incoming international calls from the United States, they discovered in the course of their test calls that PLDT
telephone lines/numbers were identified as the calling party, specifically 032-3449294 and 032-3449280. They
testified that the test calls passing through the Mabuhay Card were being reflected as local calls only and not
overseas calls. Upon verification, they discovered that the lines were subscribed by Philip Yap whose address is HPS
Software Communication Corporation at Plaridel St., Alang-alang, Mandaue City. They also testified that the lines
subscribed by Philip Yap were transferred to HPS Software and Communications Corporation of the same address.
They further testified that the respondents committed these crimes by installing telecommunication equipments

138

like multiplexers, lines, cables, computers and other switching equipments in the HPS Building and connected these
equipments with PLDT telephone lines which coursed the calls through international privatized lines where the call
is unmonitored and coursed through the switch equipments in Cebu particularly in Philip Yaps line and distributed
to the subscribers in Cebu.
Satisfied with the affidavits and sworn testimony of the complainants witnesses that they were able to trace the
long distance calls that they made on September 13, 2000 from the record of these calls in the PLDT telephone
numbers 032 3449280 and 032 3449294 of Philip Yap and/or later on transferred to HPS Software and
Communication Corporation using the said Mabuhay Card in conducting said test calls, and that they saw the
telephone equipments like lines, cables, antennas, computers, modems, multiplexers and other switching
equipments, Cisco 2600/3600, Nokia BB256K (with Bayantel marking) inside the compound of the respondents
being used for this purpose, this court issued the questioned search warrants to seize the instruments of the
crime.6
On October 20, 2000, the trial court issued two search warrants denominated as S.W. No. 2000-10-467 7 for
Violation of Article 308 of the Revised Penal Code (Theft of Telephone Services) and S.W. No. 2000-10-468 8 for
violation of Presidential Decree No. 401 (Unauthorized Installation of Telephone Connections) which both contained
identical orders directing that several items are to be seized from the premises of HPS Corporation and from the
persons of Hyman Yap, et al.
The search warrants were immediately implemented on the same day by a PAOCTF-Visayas team led by Police
Inspector (P/Insp.) Danilo Villanueva. The police team searched the premises of HPS Corporation located at HPS
Building, Plaridel St., Brgy. Alang-Alang, Mandaue City, Cebu and seized the articles specified in the search
warrants.9
Subsequently, a preliminary investigation was conducted by Assistant City Prosecutor Yope M. Cotecson (Pros.
Cotecson) of the Office of the City Prosecutor of Mandaue City who thereafter issued a Resolution dated April 2,
200110 which found probable cause that all the crimes charged were committed and that Philip Yap, Hyman Yap,
Stanley Yap, Elaine Joy Yap, Julie Y. Sy, as well as Gene Frederick Boniel, Michael Vincent Pozon, John Doe and Jane
Doe were probably guilty thereof. The dispositive portion of the said April 2, 2001 Resolution reads as follows:
Wherefore, all the foregoing considered, the undersigned finds the existence of probable cause for the crimes of
Theft and Violation of PD 401 against all the respondents herein, excluding Fatima Cimafranca, hence, filing in
court of corresponding Informations is hereby duly recommended. 11
On November 23, 2000, Philip Yap and Hyman Yap filed a Motion to Quash and/or Suppress Illegally Seized
Evidence.12 Then on December 11, 2000, HPS Corporation filed a Motion to Quash Search Warrant and Return of
the Things Seized.13 Both pleadings sought to quash the search warrants at issue on the grounds that the same did
not refer to a specific offense; that there was no probable cause; and that the search warrants were general
warrants and were wrongly implemented. In response, PLDT formally opposed the aforementioned pleadings
through the filing of a Consolidated Opposition. 14
The trial court then conducted hearings on whether or not to quash the subject search warrants and, in the course
thereof, the parties produced their respective evidence. HPS Corporation, et al. presented, as testimonial evidence,
the testimonies of Mr. Jesus M. Laureano, the Chief Enforcement and Operation Officer of the National
Telecommunications Commission (NTC)-Region VII and Ms. Marie Audrey Balbuena Aller, HPS Corporations
administrative officer, while PLDT presented Engr. Policarpio Tolentino, who held the position of Engineer II,
Common Carrier Authorization Division of the NTC.15
In the course of Engr. Tolentinos testimony, he identified certain pieces of evidence which PLDT caused to be
marked as its own exhibits but was objected to by HPS Corporation, et al. on the grounds of immateriality. The trial
court sustained the objection and accordingly disallowed the production of said exhibits. Thus, PLDT filed a
Manifestation with Tender of Excluded Evidence16 on April 18, 2001 which tendered the excluded evidence of
(a)Mabuhay card with Personal Identification Number (PIN) code number 349 4374802 (Exhibit "E"), and (b)
Investigation Report dated October 2, 2000 prepared by Engr. Tolentino in connection with the validation he made
on the complaints of PLDT against ISR activities in Cebu City and Davao City (Exhibit "G").
Subsequently, on April 19, 2001, PLDT formally offered in evidence, as part of Engr. Tolentinos testimony and in
support of PLDTs opposition to HPS Corporation, et al.s motion to quash, the following: (a) Subpoena Duces
Tecum and Ad Testificandum issued by the trial court to Engr. Tolentino, commanding him to appear and testify
before it on March 26, 27 and 28, 2001 (Exhibit "A"); (b) Identification Card No. 180 of Engr. Tolentino (Exhibit
"B"); (c) PLDTs letter dated September 22, 2000, addressed to then NTC Commissioner Joseph A. Santiago
(Exhibit "C"); (d) Travel Order No. 52-9-2000 issued to Engr. Tolentino and signed by then NTC Commissioner
Joseph Santiago (Exhibit "D"); and (e) Travel Order No. 07 03-2001 dated March 23, 2001 issued to Engr. Tolentino
by then NTC Commissioner Eliseo M. Rio, Jr., authorizing Engr. Tolentino to appear and testify before the trial court
(Exhibit "F").17
PLDT then filed a Motion for Time to File Memorandum18 asking the trial court that it be allowed to submit a
Memorandum in support of its opposition to the motion to quash search warrants filed by HPS Corporation, et
al.within a period of twenty (20) days from receipt of the trial courts ruling. Consequently, in an Order 19 dated May
3, 2001, the trial court admitted Exhibits "A," "B," "C," "D," and "F" as part of the testimony of Engr. Tolentino. The
trial court also directed PLDT to file its Memorandum within twenty (20) days from receipt of said Order. As PLDTs
counsel received said Order on May 16, 2001, it reckoned that it had until June 5, 2001 to file the aforementioned
Memorandum.
However, the trial court issued the assailed Joint Order on May 23, 2001, before the period for the filing of PLDTs
Memorandum had lapsed. The dispositive portion of said Order states:

139

WHEREFORE, premises considered, the motion to quash the search warrants and return the things seized is hereby
granted. Search Warrant Nos. 2000-10-467 and 2000-10-468 are ordered quashed. The things seized under the
said search warrants are hereby ordered to be immediately returned to respondent HPS Software and
Communication Corporation.20
When PLDT discovered this development, it filed a Notice of Appeal 21 on June 7, 2001 which the trial court gave due
course via an Order22 dated June 13, 2001. This case would be later docketed as CA-G.R. CV No. 75838.
PLDT likewise asserted that, without its knowledge, the trial court caused the release to HPS Corporation, et al. of
all the seized items that were in custody and possession of the PNP Task Force Group-Visayas. According to PLDT, it
would not have been able to learn about the precipitate discharge of said items were it not for a
Memorandum23 dated June 13, 2001 issued by Police Superintendent Jose Jorge E. Corpuz which PLDT claimed to
have received only on June 27, 2001. Said document indicated that the items seized under the search warrants at
issue were released from the custody of the police and returned to HPS Corporation, et al. through its counsel,
Atty. Roque Paloma, Jr.
Thus, on July 18, 2001, PLDT filed a Petition for Certiorari under Rule 6524 with the Court of Appeals assailing the
trial courts release of the seized equipment despite the fact that the Joint Order dated May 23, 2001 had not yet
attained finality. This petition became the subject matter of CA-G.R. SP No. 65682.
The former Fourth Division of the Court of Appeals issued a Decision dated March 26, 2004 in CA-G.R. SP No.
65682 which granted PLDTs petition for certiorari and set aside the trial courts May 23, 2001 Joint Order insofar
as it released the seized equipment at issue. The dispositive portion of the March 26, 2004 Decision reads:
WHEREFORE, premises considered, the instant petition is hereby GRANTED. Accordingly, the respondent judges
May 23, 2001 Joint Order is MODIFIED by SETTING ASIDE that portion directing the immediate return of the
seized items to respondent HPS. Consequently, the respondent PNP Special Task Force is directed to retrieve
possession and take custody of all the seized items, as enumerated in the inventory a quo, pending the final
disposition of the appeal filed by the petitioner on respondent judges May 23, 2001 Joint Order.25
HPS Corporation, et al. moved for reconsideration of said Court of Appeals ruling but this motion was denied for
lack of merit via a Resolution dated September 27, 2005. Subsequently, HPS Corporation, et al. filed a Petition for
Review on Certiorari under Rule 4526 with this Court on November 16, 2005. The petition was docketed as G.R. No.
170217.
On the other hand, PLDTs appeal docketed as CA-G.R. CV No. 75838 was resolved by the former Eighteenth
Division of the Court of Appeals in a Decision dated April 8, 2005. The dispositive portion of the April 8, 2005
Decision states:
WHEREFORE, the Joint Order of the Regional Trial Court, Branch 55, Mandaue City, dated May 23, 2001, is
hereby AFFIRMED.27
PLDT moved for reconsideration but this was rebuffed by the Court of Appeals through a Resolution dated
December 7, 2005. Unperturbed, PLDT filed a Petition for Review on Certiorari under Rule 4528 with this Court on
January 26, 2006. The petition was, in turn, docketed as G.R. No. 170694.
In a Resolution29 dated August 28, 2006, the Court resolved to consolidate G.R. No. 170217 and G.R. No. 170694
in the interest of speedy and orderly administration of justice.
HPS Corporation, et al.s Joint Memorandum (for respondents HPS Software and Communication Corporation,
Hyman Yap, Stanley Yap, Elaine Joy Yap and Julie Sy)30 dated June 23, 2008 to the consolidated cases of G.R. No.
170217 and G.R. No. 170694 raised the following issues for consideration:
IV.1. Whether or not the above-entitled two (2) petitions are already moot and academic with
this Honorable Supreme Courts promulgation of the doctrinal decision for the case of Luis
Marcos P. Laurel vs. Hon. Zeus C. Abrogar, People of the Philippines and Philippine Long
Distance Telephone Company, G.R. No. 155076, February 27, 2006, declaring that: "x x x the
telecommunication services provided by PLDT and its business of providing said services are
not personal properties under Article 308 of the Revised Penal Code.
x x x 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. x x x."?
In the most unlikely event that the above-entitled two (2) petitions have not yet been rendered moot by
the doctrinal decision in the said Laurel case, HPS respectfully submit that the following are the other
issues:
IV.2. Whether or not the Court of Appeals committed grave abuse of discretion when it
declared that the subject warrants are general warrants?
IV.3. Whether or not the factual findings of the trial court in its May 23, 2001 Order that there
was no probable cause in issuing the subject warrants is already conclusive, when the said
factual findings are duly supported with evidence; were confirmed by the Court of Appeals;
and, PLDT did not refute the damning evidence against it when it still had all the opportunity to
do so?

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IV.4. Whether or not the trial court committed grave abuse of discretion amounting to lack or
in excess of jurisdiction when it stated in its May 23, 2001 Joint Order that:
"WHEREFORE, premises considered, the motion to quash the search warrants and return the
things seized is hereby granted. Search Warrant Nos. 2000-10-467 and 2000-10-468 are
ordered quashed. The things seized under the said search warrants are hereby ordered to be
immediately returned to respondent HPS Software and Communications Corporation."
IV.5. Whether or not PLDTs memorandum was necessary before a decision can be rendered by
the trial court?
IV.6. Whether or not there was a need for PLDT to first file a Motion for Reconsideration before
filing its petition for certiorari in the subject case?
IV.7. Whether or not a Petition for Certiorari was the appropriate remedy for PLDT when it had
recourse to other plain remedy other than the Petition for Certiorari?
IV.8. Whether or not PLDT has the legal interest and personality to file the present petition
when the complainant PAOCTF has already voluntarily complied with or satisfied the Joint
Order.
IV.9. Whether or not the Court of Appeals can, in a petition for certiorari, nullify a litigants or
the Search Warrants Applicants exercise of its prerogative of accepting and complying with the
said May 23, 2001 Joint Order of the trial court?
IV.10. Whether or not there was forum shopping when PLDT filed an appeal and a petition for
certiorari on the same May 23, 2001 Joint Order issued by the trial court?
IV.11. Whether or not the Court of Appeals gravely abused its discretion when it upheld the
trial courts decision to disallow the testimony of Engr. Policarpio Tolentino during the hearings
of the motion to quash the subject search warrants when the said Engr. Tolentino was not even
presented as witness during the hearing for the application of the subject search warrants;
and, as the Court of Appeals had declared: ". . . We cannot but entertain serious doubts as to
the regularity of the performance of his official function"?
IV.12. Whether or not PLDTs counsel can sue its own client, the applicant of the subject search
warrant?31
On the other hand, PLDT raised the following arguments in its Memorandum 32 dated June 16, 2008 to the
consolidated cases of G.R. No. 170217 and G.R. No. 170694:
I
THE COURT OF APPEALS GRAVELY MISAPPREHENDED THE FACTS WHEN IT SUSTAINED THE QUASHAL OF
THE SEARCH WARRANTS DESPITE THE CLEAR AND SUFFICIENT EVIDENCE ON RECORD ESTABLISHING
PROBABLE CAUSE FOR THE ISSUANCE THEREOF.
II
THE COURT OF APPEALS GRAVELY ERRED IN INDISCRIMINATELY RELYING UPON RULINGS OF THIS
HONORABLE COURT THAT ARE NOT APPLICABLE TO THIS CASE.
A. THE RULING IN LAGON V. HOOVEN COMALCO INDUSTRIES, INC. THAT LITIGATIONS SHOULD
NOT BE RESOLVED ON THE BASIS OF SUPPOSITIONS, DEDUCTIONS IS NOT PROPER IN THIS
CASE CONSIDERING THAT:
1. The Search Warrant Case is merely a step preparatory to the filing of criminal cases
against the Respondents. Thus, the applicant needed only to establish probable cause
for the issuance of the search warrants and not proof beyond reasonable doubt.
2. Even assuming arguendo that there is some controversy as to the value remaining in
theMabuhay card, the totality of evidence submitted during the applications for the
Search Warrant is more than sufficient to establish probable cause.
B. THE RULING IN DAYONOT V. NATIONAL LABOR RELATIONS COMMISSION THAT AN ADVERSE
INFERENCE ARISES FROM A PARTYS FAILURE TO REBUT AN ASSERTION THAT WOULD HAVE
NATURALLY INVITED AN IMMEDIATE AND PERVASIVE OPPOSITION IS INAPPLICABLE IN THIS
CASE CONSIDERING THAT:
1. PLDT sufficiently rebutted Respondents claim that PLDT has no cause to complain
because of its prior knowledge of HPSs internet services.
2. Assuming arguendo that PLDT had knowledge of HPSs internet services, such fact is
immaterial in the determination of the propriety of the Search Warrants issued in this
case. The Search Warrants were issued because the evidence presented by PAOCTF
overwhelmingly established the existence of probable cause that Respondents were

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probably committing a crime and the objects used for the crime are in the premises to
be searched.
III
THE COURT OF APPEALS GRAVELY ERRED IN SUSTAINING THE DISALLOWANCE OF A PORTION OF ENGR.
TOLENTINOS TESTIMONY AND OF THE INTRODUCTION OF THE MABUHAY CARD AND HIS
INVESTIGATION REPORT IN VIOLATION OF THE PRESUMPTION THAT OFFICIAL DUTY HAS BEEN
REGULARLY PERFORMED.
IV
THE COURT OF APPEALS GRAVELY ERRED IN SUSTAINING THE TRIAL COURTS JOINT ORDER WHICH WAS
ISSUED WITH UNDUE HASTE. THE COURT OF APPEALS OVERLOOKED FACTS WHICH CLEARLY
DEMONSTRATED THE TRIAL COURTS PREJUDGMENT OF THE CASE IN FAVOR OF RESPONDENTS, IN
VIOLATION OF PLDTS RIGHT TO DUE PROCESS.
V
THE COURT OF APPEALS GRAVELY ERRED IN DECLARING THAT THE CONTESTED SEARCH WARRANTS ARE
IN THE NATURE OF GENERAL WARRANTS CONSIDERING THAT:
A. THE ISSUE OF WHETHER THE SEARCH WARRANTS ARE GENERAL WARRANTS WAS NEVER
RAISED IN THE APPEAL BEFORE IT.
B. IN ANY CASE, THE SEARCH WARRANTS STATED WITH SUFFICIENT PARTICULARITY THE PLACE
TO BE SEARCHED AND THE OBJECTS TO BE SEIZED, IN CONFORMITY WITH THE
CONSTITUTIONAL AND JURISPRUDENTIAL REQUIREMENTS IN THE ISSUANCE OF SEARCH
WARRANTS.
VI
RESPONDENTS ALLEGATION THAT PLDT FAILED TO COMPLY WITH THE REQUIREMENTS OF SECTION 3,
RULE 45 AND SECTION 4, RULE 7 OF THE RULES OF COURT IS COMPLETELY BASELESS CONSIDERING
THAT:
A. PLDT COMPLIED WITH THE RULES ON PROOF OF SERVICE.
B. THE PETITION WAS PROPERLY VERIFIED. ASSUMING ARGUENDO THAT THE ORIGINAL
VERIFICATION SUBMITTED WAS DEFICIENT, THE SAME WAS PROMPTLY CORRECTED BY PLDT, IN
FULL COMPLIANCE WITH THE DIRECTIVE OF THIS HONORABLE COURT.
C. PLDT DID NOT ENGAGE IN FORUM-SHOPPING.
1. The issues, subject matter and reliefs prayed for in the Appeal Case and
the Certiorari Case are distinct and separate from one another.
2. Assuming arguendo that the Appeal Case involves the same parties, subject matter
and reliefs in the Certiorari Case, then Respondents are equally guilty of forum-shopping
when they elevated the Decision of the Court of Appeals in the Certiorari Case to this
Honorable Court.
VII
RESPONDENTS RELIANCE ON THE CASE OF LAUREL V. ABROGAR IS ERRONEOUS AND
MISLEADING. LAUREL V. ABROGAR IS NOT YET FINAL AND EXECUTORY, HENCE, CANNOT BIND EVEN THE
PARTIES THERETO, MUCH LESS RESPONDENTS HEREIN.33 (Citations omitted.)
A year later, on June 1, 2009, PLDT submitted a Supplemental Memorandum 34 to its June 16, 2008 Memorandum.
In the said pleading, PLDT pointed out the reversal by the Supreme Court En Banc of the February 27, 2006
Decision in Laurel v. Abrogar35 and raised it as a crucial issue in the present consolidated case:
IN A RESOLUTION DATED 13 JANUARY 2009, THIS HONORABLE COURT EN BANC SET ASIDE THE 27 FEBRUARY
2006 DECISION IN LAUREL V. ABROGAR. THEREFORE, THE PREVAILING DOCTRINE WITH RESPECT TO THE ACT OF
CONDUCTING ISR OPERATIONS IS THAT IT IS AN ACT OF SUBTRACTION COVERED BY THE PROVISIONS ON
THEFT, AND THAT THE BUSINESS OF PROVIDING TELECOMMUNICATION OR TELEPHONE SERVICE IS CONSIDERED
PERSONAL PROPERTY WHICH CAN BE THE OBJECT OF THEFT UNDER ARTICLE 308 OF THE REVISED PENAL CODE.
THUS, RESPONDENTS CAN NO LONGER RELY ON THE 27 FEBRUARY 2006 DECISION OF THIS HONORABLE COURT
IN LAUREL V. ABROGAR.36
After evaluating the aforementioned submissions, the Court has identified the following questions as the only
relevant issues that need to be resolved in this consolidated case:
I

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WHETHER OR NOT PLDT HAS LEGAL PERSONALITY TO FILE THE PETITION FOR SPECIAL CIVIL ACTION
OF CERTIORARI IN CA-G.R. SP No. 65682 AND, SUBSEQUENTLY, THE PETITION FOR REVIEW IN G.R. NO.
170694 WITHOUT THE CONSENT OR APPROVAL OF THE SOLICITOR GENERAL.
II
WHETHER OR NOT PLDTS PETITION FOR CERTIORARI SHOULD HAVE BEEN DISMISSED OUTRIGHT BY
THE COURT OF APPEALS SINCE NO MOTION FOR RECONSIDERATION WAS FILED BY PLDT FROM THE
ASSAILED MAY 23, 2001 JOINT ORDER OF THE TRIAL COURT.
III
WHETHER OR NOT PLDT COMMITTED FORUM-SHOPPING.
IV
WHETHER OR NOT THE TWO (2) SEARCH WARRANTS WERE IMPROPERLY QUASHED.
V
WHETHER OR NOT THE SUBJECT SEARCH WARRANTS ARE IN THE NATURE OF GENERAL WARRANTS.
VI
WHETHER OR NOT THE RELEASE OF THE ITEMS SEIZED BY VIRTUE OF THE SUBJECT SEARCH WARRANTS
WAS PROPER.
Before resolving the aforementioned issues, we will first discuss the state of jurisprudence on the issue of whether
or not the activity referred to as "international simple resale" (ISR) is considered a criminal act of Theft in this
jurisdiction.
To recall, HPS Corporation, et al. contends that PLDTs petition in G.R. No. 170694 has already become moot and
academic because the alleged criminal activity which PLDT asserts as having been committed by HPS
Corporation, et al. has been declared by this Court as not constituting the crime of Theft or any other crime for that
matter. HPS Corporation, et al. draws support for their claim from the February 27, 2006 Decision of this Court
in Laurel v. Abrogar.37
In that case, PLDT sued Baynet Co., Ltd. (Baynet) and its corporate officers for the crime of Theft through stealing
the international long distance calls belonging to PLDT by conducting 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. One of those
impleaded in the Amended Information, Luis Marcos P. Laurel (Laurel), moved for the quashal of the Amended
Information arguing that an ISR activity does not constitute the felony of Theft under Article 308 of the Revised
Penal Code (RPC). Both the trial court and the Court of Appeals did not find merit in his motion. However, this
Court speaking through its First Division upheld Laurels contention by ruling 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. The Court then explained the basis for this previous ruling in this wise:
In defining theft, under Article 308 of the Revised Penal Code, as the taking of personal property without the
consent of the owner thereof, the Philippine Legislature could not have contemplated the human voice which is
converted into electronic impulses or electrical current which are transmitted to the party called through the PSTN
of respondent PLDT and the ISR of Baynet Card Ltd. within its coverage. When the Revised Penal Code was
approved, on December 8, 1930, international telephone calls and the transmission and routing of electronic voice
signals or impulses emanating from said calls, through the PSTN, IPL and ISR, were still nonexistent. Case law is
that, where a legislative history fails to evidence congressional awareness of the scope of the statute claimed by
the respondents, a narrow interpretation of the law is more consistent with the usual approach to the construction
of the statute. Penal responsibility cannot be extended beyond the fair scope of the statutory mandate. 38
Undaunted, PLDT filed a Motion for Reconsideration with Motion to Refer the Case to the Supreme Court En Banc.
This motion was acted upon favorably by the Court En Banc in a Resolution39 dated January 13, 2009 thereby
reconsidering and setting aside the February 27, 2006 Decision. In resolving PLDTs motion, the Court En Banc held
that:
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 PLDTs telephone system, through which petitioner is able to resell or reroute international long
distance calls using respondent PLDTs facilities constitutes all three acts of subtraction mentioned above.

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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 the 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 Strocheker v. Ramirez, 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 enumeration of real properties under Article 415, it is
therefore personal property.
As can be clearly gleaned from the above disquisitions, petitioners acts constitute theft of respondent PLDTs
business and service, committed by means of the unlawful use of the latters facilities. x x x. 40 (Citations omitted.)
Plainly, from the aforementioned doctrinal pronouncement, this Court had categorically stated and still maintains
that an ISR activity is an act of subtraction covered by the provisions on Theft, and that the business of providing
telecommunication or telephone service is personal property, which can be the object of Theft under Article 308 of
the Revised Penal Code.
Having established that an ISR activity is considered as Theft according to the prevailing jurisprudence on the
matter, this Court will now proceed to discuss the central issues involved in this consolidated case.
Anent the first issue of whether PLDT possesses the legal personality to file the petition in G.R. No. 170694 in light
of respondents claim that, in criminal appeals, it is the Solicitor General which has the exclusive and sole power to
file such appeals in behalf of the People of the Philippines, this Court rules in the affirmative.
The petition filed by PLDT before this Court does not involve an ordinary criminal action which requires the
participation and conformity of the City Prosecutor or the Solicitor General when raised before appellate courts.
On the contrary, what is involved here is a search warrant proceeding which is not a criminal action, much less a
civil action, but a special criminal process. In the seminal case of Malaloan v. Court of Appeals,41 we expounded on
this doctrine in this wise:
The basic flaw in this reasoning is in erroneously equating the application for and the obtention of a search warrant
with the institution and prosecution of a criminal action in a trial court. It would thus categorize what is only a
special criminal process, the power to issue which is inherent in all courts, as equivalent to a criminal action,
jurisdiction over which is reposed in specific courts of indicated competence. It ignores the fact that the requisites,
procedure and purpose for the issuance of a search warrant are completely different from those for the institution
of a criminal action.
For, indeed, a warrant, such as a warrant of arrest or a search warrant, merely constitutes process. A search
warrant is defined in our jurisdiction as an order in writing issued in the name of the People of the Philippines
signed by a judge and directed to a peace officer, commanding him to search for personal property and bring it
before the court. A search warrant is in the nature of a criminal process akin to a writ of discovery. It is a special
and peculiar remedy, drastic in its nature, and made necessary because of a public necessity.
In American jurisdictions, from which we have taken our jural concept and provisions on search warrants, such
warrant is definitively considered merely as a process, generally issued by a court in the exercise of its ancillary
jurisdiction, and not a criminal action to be entertained by a court pursuant to its original jurisdiction. We
emphasize this fact for purposes of both issues as formulated in this opinion, with the catalogue of authorities
herein
Invariably, a judicial process is defined as a writ, warrant, subpoena, or other formal writing issued by authority of
law; also the means of accomplishing an end, including judicial proceedings, or all writs, warrants, summonses,
and orders of courts of justice or judicial officers. It is likewise held to include a writ, summons, or order issued in a
judicial proceeding to acquire jurisdiction of a person or his property, to expedite the cause or enforce the
judgment, or a writ, warrant, mandate, or other process issuing from a court of justice.42 (Citations omitted.)
Since a search warrant proceeding is not a criminal action, it necessarily follows that the requirement set forth in
Section 5, Rule 110 of the Rules on Criminal Procedure which states that "all criminal actions either commenced by
complaint or by information shall be prosecuted under the direction and control of a public prosecutor" does not
apply.

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In Columbia Pictures Entertainment, Inc. v. Court of Appeals,43 we sustained the legal personality of a private
complainant to file an action or an appeal without the imprimatur of government prosecutors on the basis of the
foregoing ratiocination:
The threshold issue that must first be determined is whether or not petitioners have the legal personality and
standing to file the appeal.
Private respondent asserts that the proceedings for the issuance and/or quashal of a search warrant are criminal in
nature. Thus, the parties in such a case are the "People" as offended party and the accused. A private complainant
is relegated to the role of a witness who does not have the right to appeal except where the civil aspect is deemed
instituted with the criminal case.
Petitioners, on the other hand, argue that as the offended parties in the criminal case, they have the right to
institute an appeal from the questioned order.
From the records it is clear that, as complainants, petitioners were involved in the proceedings which led to the
issuance of Search Warrant No. 23. In People v. Nano, the Court declared that while the general rule is that it is
only the Solicitor General who is authorized to bring or defend actions on behalf of the People or the Republic of the
Philippines once the case is brought before this Court or the Court of Appeals, if there appears to be grave error
committed by the judge or a lack of due process, the petition will be deemed filed by the private complainants
therein as if it were filed by the Solicitor General. In line with this ruling, the Court gives this petition due course
and will allow petitioners to argue their case against the questioned order in lieu of the Solicitor General. (Citation
omitted.)
Similarly, in the subsequent case of Sony Computer Entertainment, Inc. v. Bright Future Technologies, Inc.,44 we
upheld the right of a private complainant, at whose initiative a search warrant was issued, to participate in any
incident arising from or in connection with search warrant proceedings independently from the State. We quote the
relevant discussion in that case here:
The issue of whether a private complainant, like SCEI, has the right to participate in search warrant proceedings
was addressed in the affirmative in United Laboratories, Inc. v. Isip:
. . . [A] private individual or a private corporation complaining to the NBI or to a government agency charged with
the enforcement of special penal laws, such as the BFAD, may appear, participate and file pleadings in the search
warrant proceedings to maintain, inter alia, the validity of the search warrant issued by the court and
theadmissibility of the properties seized in anticipation of a criminal case to be filed; such private party may do so
in collaboration with the NBI or such government agency. The party may file an opposition to a motion to quash the
search warrant issued by the court, or a motion for the reconsideration of the court order granting such motion to
quash.45
With regard to the second issue of whether or not PLDTs petition for certiorari under Rule 65 of the 1997 Rules of
Civil Procedure should have been dismissed outright by the Court of Appeals since no motion for reconsideration
was filed by PLDT from the assailed May 23, 2001 Joint Order of the trial court, this Court declares that, due to the
peculiar circumstances obtaining in this case, the petition for certiorari was properly given due course by the Court
of Appeals despite the non-fulfillment of the requirement of the filing of a motion for reconsideration.
The general rule is that a motion for reconsideration is a condition sine qua non before a petition for certiorarimay
lie, its purpose being to grant an opportunity for the court a quo to correct any error attributed to it by a reexamination of the legal and factual circumstances of the case.46
However, the rule is not absolute and jurisprudence has laid down the following exceptions when the filing of a
petition for certiorari is proper notwithstanding the failure to file a motion for reconsideration:
(a) where the order is a patent nullity, as where the court a quo has no jurisdiction;
(b) where the questions raised in the certiorari proceedings have been duly raised and passed upon by the
lower court, or are the same as those raised and passed upon in the lower court;
(c) where there is an urgent necessity for the resolution of the question and any further delay would
prejudice the interests of the Government or of the petitioner or the subject matter of the petition is
perishable;
(d) where, under the circumstances, a motion for reconsideration would be useless;
(e) where petitioner was deprived of due process and there is extreme urgency for relief;
(f) where, in a criminal case, relief from an order of arrest is urgent and the granting of such relief by the
trial court is improbable;
(g) where the proceedings in the lower court are a nullity for lack of due process;
(h) where the proceeding was ex parte or in which the petitioner had no opportunity to object; and,
(i) where the issue raised is one purely of law or public interest is involved. 47

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In the case at bar, it is apparent that PLDT was deprived of due process when the trial court expeditiously released
the items seized by virtue of the subject search warrants without waiting for PLDT to file its memorandum and
despite the fact that no motion for execution was filed by respondents which is required in this case because, as
stated in the assailed March 26, 2004 Decision of the Court of Appeals in CA-G.R. SP No. 65682, the May 23, 2001
Joint Order of the trial court is a final order which disposes of the action or proceeding and which may be the
subject of an appeal. Thus, it is not immediately executory. Moreover, the items seized by virtue of the subject
search warrants had already been released by the trial court to the custody of respondents thereby creating a
situation wherein a motion for reconsideration would be useless. For these foregoing reasons, the relaxation of the
settled rule by the former Fourth Division of the Court of Appeals is justified.
Moving on to the third issue of whether PLDT was engaged in forum shopping when it filed a petition
for certiorariunder Rule 65 with the Court of Appeals despite the fact that it had previously filed an appeal from the
assailed May 23, 2001 Joint Order, this Court rules in the negative.
In Metropolitan Bank and Trust Company v. International Exchange Bank,48 we reiterated the jurisprudential
definition of forum shopping in this wise:
Forum shopping has been defined as an act of a party, against whom an adverse judgment has been rendered in
one forum, of seeking and possibly getting a favorable opinion in another forum, other than by appeal or a
special civil action for certiorari, or the institution of two or more actions or proceedings grounded on the same
cause on the supposition that one or the other court would make a favorable disposition. (Citation omitted.)
Thus, there is forum shopping when, between an action pending before this Court and another one, there exist: (1)
identity of parties, or at least such parties as represent the same interests in both actions; (2) identity of rights
asserted and relief prayed for, the relief being founded on the same facts; and (3) the identity of the two preceding
particulars is such that any judgment rendered in the other action will, regardless of which party is successful,
amount to res judicata in the action under consideration; said requisites also constitutive of the requisites for auter
action pendant or lis pendens.49
In the case at bar, forum shopping cannot be considered to be present because the appeal that PLDT elevated to
the Court of Appeals is an examination of the validity of the trial courts action of quashing the search warrants that
it initially issued while, on the other hand, the petition for certiorari is an inquiry on whether or not the trial court
judge committed grave abuse of discretion when he ordered the release of the seized items subject of the search
warrants despite the fact that its May 23, 2001 Joint Order had not yet become final and executory, nor had any
motion for execution pending appeal been filed by the HPS Corporation, et al. Therefore, it is readily apparent that
both cases posed different causes of action.
As to the fourth issue of whether or not the two search warrants at issue were improperly quashed, PLDT argues
that the Court of Appeals erroneously appreciated the facts of the case and the significance of the evidence on
record when it sustained the quashal of the subject search warrants by the trial court mainly on the basis of test
calls using a Mabuhay card with PIN code number 332 147922450 which was the same Mabuhay card that was
presented by PLDT to support its application for a search warrant against HPS Corporation, et al. These test calls
were conducted in NTC-Region VII Office on November 3, 2000 and in open court on January 10, 2001. PLDT
insists that these test calls, which were made after the issuance of the subject search warrants, are immaterial to
the issue of whether or not HPS Corporation, et al. were engaged in ISR activities using the equipment seized at
the time the subject search warrants were issued and implemented. PLDT further argues that a search warrant is
merely a preparatory step to the filing of a criminal case; thus, an applicant needs only to establish probable cause
for the issuance of a search warrant and not proof beyond reasonable doubt. In this case, PLDT believes that it had
established probable cause that is sufficient enough to defeat the motion to quash filed by HPS Corporation, et al.
We find that the contention is impressed with merit.
This Court has consistently held that the validity of the issuance of a search warrant rests upon the following
factors: (1) it must be issued upon probable cause; (2) the probable cause must be determined by the judge
himself and not by the applicant or any other person; (3) in the determination of probable cause, the judge must
examine, under oath or affirmation, the complainant and such witnesses as the latter may produce; and (4) the
warrant issued must particularly describe the place to be searched and persons and things to be seized. 51
Probable cause, as a condition for the issuance of a search warrant, is such reasons supported by facts and
circumstances as will warrant a cautious man to believe that his action and the means taken in prosecuting it are
legally just and proper. It requires facts and circumstances that would lead a reasonably prudent man to believe
that an offense has been committed and that the objects sought in connection with that offense are in the place to
be searched.52
In Microsoft Corporation v. Maxicorp, Inc.,[53] this Court held that the quantum of evidence required to prove
probable cause is not the same quantum of evidence needed to establish proof beyond reasonable doubt which is
required in a criminal case that may be subsequently filed. We ruled in this case that:
The determination of probable cause does not call for the application of rules and standards of proof that a
judgment of conviction requires after trial on the merits. As implied by the words themselves, "probable cause" is
concerned with probability, not absolute or even moral certainty. The prosecution need not present at this stage
proof beyond reasonable doubt. The standards of judgment are those of a reasonably prudent man, not the
exacting calibrations of a judge after a full-blown trial. 54 (Citation omitted.)
In the case at bar, both the trial court and the former Eighteenth Division of the Court of Appeals agree that no
probable cause existed to justify the issuance of the subject search warrants. In sustaining the findings of the trial
court, the Court of Appeals in its assailed Decision dated April 8, 2005 in CA-G.R. CV No. 75838 ratiocinated in this
manner:

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As a giant in the telecommunications industry, PLDTs declaration in page 21 of its appellants brief that it would
"take sometime, or after a certain number of minutes is consumed, before the true value of the card is
correspondingly reflected", by way of further explaining the nature of the subject Mabuhay Card as not being a
"smart" card, is conceded with much alacrity.
We are not, however, prepared to subscribe to the theory that the twenty (20) minutes deducted from the balance
of the subject Mabuhay Card after a couple of test calls were completed in open court on January 10, 2001 already
included the time earlier consumed by the PLDT personnel in conducting their test calls prior to the application for
the questioned warrants but belatedly deducted only during the test calls conducted by the court a quo. It is
beyond cavil that litigations cannot be properly resolved by suppositions, deductions, or even presumptions, with
no basis in evidence, for the truth must have to be determined by the hard rules of admissibility and proof. This
Court cannot quite fathom why PLDT, with all the resources available to it, failed to substantiate this particular
supposition before the court a quo, when it could have helped their case immensely. We note that at the hearing
held on January 10, 2001, the trial judge allowed the conduct of test calls in open court in order to determine if the
subject Mabuhay Card had in fact been used, as alleged by PLDT. However, it was proven that the Card retained its
original value of $10 despite several test calls already conducted in the past using the same. PLDT should have
refuted this damning evidence while it still had all the opportunity to do so, but it did not.
Moreover, if we go by the gauge set by PLDT itself that it would take a certain number of minutes before the true
value of the card is reflected accordingly, then we fail to see how the test calls conducted by its personnel on
September 13, 2000 could only be deducted on January 10, 2001, after almost four (4) months.
PLDT cannot likewise capitalize on the fact that, despite the series of test calls made by Engr. Jesus Laureno at the
NTC, Region VII office on November 3, 2000, the subject Mabuhay Card still had $10 worth of calls. Had PLDT
closely examined the testimony of Engr. Laureno in open court, it would have realized that not one of said calls
ever got connected to a destination number. Thus:
"Q You said that after you heard that female voice which says that you still have ten (10) dollars and you entered
your call at the country of destination, you did not proceed that call. Will you please tell the Court of the six test
calls that were conducted, how many calls were up to that particular portion?
A Five (5).
Q Will you please tell the Court who since that were five (5) test calls, how many calls did you personally make up
to that particular portion?
A Only one (1).
Q In whose presence?
A In the presence of Director Butaslac, Engr. Miguel, Engr. Yeban, Engr. Hinaut and three (3) PNP personnel, Atty.
Muntuerto and Atty. Paloma.
Q What about the other four (4)? You mentioned of five (5) test calls and you made only one, who did the other
four (4) test calls which give the said results?
A The third call was done by Engr. Yeban using the same procedure and then followed by the PNP personnel.
Actually, the first one who dial or demonstrate is Atty. Muntuerto, me is the second; third is Engr. Yeban; the fourth
is the PNP personnel and also the fifth; and the sixth test calls was Engr. Yeban and with that call, we already
proceeded to the dialing the destination number which we call one of the numbers of our office.
Q What number of the office was called following the instruction that you have ten (10) dollars and that you enter
your destination number now?
A 346-06-87.
Q What happened? You said that, that was done on the sixth test calls, what happened after that destination
number was entered?
A The call is not completed and the female voice said to retry again." (TSN, January 10, 2001, pp. 45-48)
In fine, PLDT cannot argue that the court a quo should not have relied heavily upon the result of the test calls
made by the NTC- Regional Office as well as those done in open court on January 10, 2001, as there are other
convincing evidence such as the testimonies of its personnel showing that, in fact, test calls and ocular inspections
had been conducted yielding positive results. Precisely, the trial court anchored its determination of probable cause
for the issuance of the questioned warrants on the sworn statements of the PLDT personnel that test calls had been
made using the subject Mabuhay Card. However, said statements were later proven to be wanting in factual basis. 55
Essentially, the reasoning of the Court of Appeals relies solely on the fact that the Mabuhay card with PIN code
number 332 1479224 with a card value of $10.00 did not lose any of its $10.00 value before it was used in the test
calls conducted at the NTC-Region VII office and in open court. Thus, the Court of Appeals concluded that, contrary
to PLDTs claims, no test calls using the same Mabuhay card were actually made by PLDTs witnesses when it
applied for a search warrant against HPS Corporation, et al.; otherwise, the Mabuhay card should have had less
than $10.00 value left in it.

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This Court cannot subscribe to such a hasty conclusion because the determination of whether or not test calls were
indeed made by PLDT on Mabuhay card with PIN code number 332 1479224 cannot be ascertained solely by
checking the value reflected on the aforementioned Mabuhay card. In fact, reliance on this method of verification is
fraught with questions that strike deep into the capability of the said Mabuhay card to automatically and accurately
reflect the fact that it had indeed been used by PLDTs witnesses to make test calls.
We find that indeed PLDT never represented that the Mabuhay card had an accurate recording system that would
automatically deduct the value of a call from the value of the card at the time the call was made. Certainly, PLDT
was not in a position to make such an assertion as it did not have a hand in the production and programming of
said Mabuhay card.
Furthermore, several plausible reasons could be entertained for the non-deduction of the value of the Mabuhaycard
other than the trial courts assertion that the said phone card could not have been utilized in test calls made by
PLDTs witnesses.
One explanation that PLDT offered is that the said Mabuhay card might not be a "smart" card which, in
telecommunications industry parlance, is a card that automatically debits the value of a call as it is made as
opposed to a non-"smart" card which takes a considerable amount of time before the true value of the card is
correspondingly reflected in the balance.
Another explanation that PLDT suggests is that the test calls that were conducted in NTC-Region VII on November
3, 2000 and in open court on January 10, 2001 were made long after the subject search warrants were issued
which was on October 20, 2000. During the time in between said events, the identity of the Mabuhaycard was
already a matter of judicial record and, thus, easily ascertainable by any interested party. PLDT asserts this
circumstance could have provided HPS Corporation, et al. the opportunity to examine the prosecutions evidence,
identify the specific Mabuhay card that PLDTs witnesses used and manipulate the remaining value reflected on the
said phone card. This idea is not farfetched considering that if HPS Corporation, et al. did indeed engage in illegal
ISR activities using Mabuhay cards then it would not be impossible for HPS Corporation, et al. to possess the
technical knowledge to reconfigure the Mabuhay card that was used in evidence by PLDT. In support of this
tampering theory, PLDT points to HPS Corporation, et al.s vehement opposition to the introduction of a
different Mabuhay card during the testimony of Engr. Tolentino, which PLDT attributes to HPS Corporation, et al.s
lack of opportunity to identify and manipulate this particular phone card.
Since the value of the subject Mabuhay card may be susceptible to tampering, it would have been more prudent for
the trial court and the Court of Appeals to weigh the other evidence on record. As summarized in its memorandum,
PLDT submitted the following to the trial court, during the application for the subject search warrants and during
the hearing on HPS Corporation, et al.s motion to suppress the evidence:
a. The affidavit 56 and testimony57 of PLDT employee Engr. Reuben C. Hinagdanan (Engr. Hinagdanan)
which was given during the application for the issuance of the subject search warrants. In his affidavit and
testimony, Engr. Hinagdanan averred that PLDT conducted surveillance on the ISR activities of HPS
Corporation, et al. and that the said surveillance operation yielded positive results that PLDT telephone
lines subscribed by Philip Yap and/or HPS Corporation were being utilized for illegal ISR operations.
b. The call detail records58 which are attached as Annex "C" to Engr. Hinagdanans affidavit which indicated
that test calls were made by Engr. Hinagdanan using the Mabuhay card with PIN code number 332
1479224. The said document also indicated that even if the calls originated from the United States of
America, the calling party reflected therein are local numbers of telephone lines which PLDT had verified
as the same as those subscribed by Philip Yap and/or HPS Corporation.
c. The affidavit59 and testimony60 of PLDT employee Engr. Richard L. Dira (Engr. Dira) which was given
during the application for the issuance of the subject search warrants. In his affidavit and testimony, Engr.
Dira averred that he personally conducted an ocular inspection in the premises of HPS Corporation and
that the said inspection revealed that all PLDT lines subscribed by Philip Yap and/or HPS Corporation were
illegally connected to various telecommunications and switching equipment which were used in illegal ISR
activities conducted by HPS Corporation, et al.
d. The testimony61 and investigation report62 of Engr. Tolentino which details the test calls he made
usingMabuhay card with PIN code number 349 4374802. This is a different Mabuhay card than what was
used by PLDT in its application for the subject search warrants. According to his investigation report, the
telephone lines subscribed by Philip Yap and/or HPS Corporation were indeed utilized for illegal ISR
operations.
e. The testimony63 of Police Officer Narciso Ouano, Jr. (Officer Ouano) of the Legal and Investigation
Division of the PAOCTF given during the hearing on the application for the issuance of the subject search
warrants wherein Officer Ouano averred that, upon complaint of PLDT, the PAOCTF conducted surveillance
operations which yielded positive results that HPS Corporation, et al. were engaged in illegal ISR activities.
f. The results of a traffic study64 conducted by PLDT on the twenty (20) direct telephone lines subscribed
by Philip Yap and/or HPS Corporation which detailed the extent of the losses suffered by PLDT as a result
of the illegal ISR activities conducted by HPS Corporation, et al.
Taken together, the aforementioned pieces of evidence are more than sufficient to support a finding that test calls
were indeed made by PLDTs witnesses using Mabuhay card with PIN code number 332 1479224 and, more
importantly, that probable cause necessary to engender a belief that HPS Corporation, et al. had probably
committed the crime of Theft through illegal ISR activities exists. To reiterate, evidence to show probable cause to
issue a search warrant must be distinguished from proof beyond reasonable doubt which, at this juncture of the
criminal case, is not required.

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With regard to the issue of whether or not the subject search warrants are in the nature of general warrants, PLDT
argues that, contrary to the ruling of the former Eighteenth Division of the Court of Appeals in its assailed Decision
dated April 8, 2005 in CA-G.R. CV No. 75838, the subject search warrants cannot be considered as such because
the contents of both stated, with sufficient particularity, the place to be searched and the objects to be seized, in
conformity with the constitutional and jurisprudential requirements in the issuance of search warrants. On the
other hand, HPS Corporation, et al. echoes the declaration of the Court of Appeals that the language used in the
subject search warrants are so all-embracing as to include all conceivable records and equipment of HPS
Corporation regardless of whether they are legal or illegal.
We rule that PLDTs argument on this point is well taken.
A search warrant issued must particularly describe the place to be searched and persons or things to be seized in
order for it to be valid, 65 otherwise, it is considered as a general warrant which is proscribed by both jurisprudence
and the 1987 Constitution.
In Uy Kheytin v. Villareal,66 we explained the purpose of the aforementioned requirement for a valid search
warrant, to wit:
[A] search warrant should particularly describe the place to be searched and the things to be seized. The evident
purpose and intent of this requirement is to limit the things to be seized to those, and only those, particularly
described in the search warrant x x x what articles they shall seize, to the end that "unreasonable searches and
seizures" may not be made, - that abuses may not be committed. x x x
In Bache & Co. (Phil.), Inc. v. Ruiz,67 we held that, among other things, it is only required that a search warrant be
specific as far as the circumstances will ordinarily allow, such that:
A search warrant may be said to particularly describe the things to be seized when the description therein is as
specific as the circumstances will ordinarily allow; or when the description expresses a conclusion of fact not of
law - by which the warrant officer may be guided in making the search and seizure; or when the things described
are limited to those which bear direct relation to the offense for which the warrant is being issued. x x x. (Citations
omitted.)
The disputed text of the subject search warrants reads as follows:
a. LINES, CABLES AND ANTENNAS or equipment or device capable of transmitting air waves or frequency,
such as an IPL and telephone lines and equipment;
b. COMPUTERS or any equipment or device capable of accepting information applying the described
process of the information and supplying the result of this processes;
c. MODEMS or any equipment or device that enables data terminal equipment such as computers to
communicate with each other data-terminal equipment via a telephone line;
d. MULTIPLEXERS or any equipment or device that enables two or more signals from different sources to
pass through a common cable or transmission line;
e. SWITCHING EQUIPMENT or equipment or device capable of connecting telephone lines;
f. SOFTWARE, DISKETTES, TAPES, OR EQUIPMENT, or device used for recording and storing information;
and
g. Manuals, phone cards, access codes, billing statements, receipts, contracts, checks, orders,
communications, and documents, lease and/or subscription agreements or contracts, communications and
documents pertaining to securing and using telephone lines and or equipment in relation to Mr. Yap/HPS
ISR Operations.
Utilizing the benchmark that was previously discussed, this Court finds that the subject search warrants are not
general warrants because the items to be seized were sufficiently identified physically and were also specifically
identified by stating their relation to the offenses charged which are Theft and Violation of Presidential Decree No.
401 through the conduct of illegal ISR activities.
Lastly, on the issue of whether or not the release of the items seized by virtue of the subject search warrants was
proper, this Court rules in the negative.
We quote with approval the disquisition of the Court of Appeals on this particular issue in its assailed Decision
dated March 26, 2004 in CA-G.R. SP No. 65682, to wit:
Although there was no separate order from the respondent judge directing the immediate release of the seized
items, such directive was already contained in the Joint Order dated May 23, 2001. The dispositive portion of the
assailed Joint Order reads:
"WHEREFORE, premises considered, the motion to quash the search warrants and return the things seized is
hereby granted. Search Warrant Nos. 2000-10-467 and 2000-10-468 are ordered quashed. The things seized
under the said search warrants are hereby ordered to be immediately returned to the respondent HPS Software
and Communication Corporation.

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SO ORDERED."
As properly pointed out by the petitioner PLDT, the May 23, 2001 Joint Order of the respondent judge is not
"immediately executory". It is a final order which disposes of the action or proceeding and which may be the
subject of an appeal. Section 1, Rule 39 of the 1997 Rules of Civil Procedure provides:
"Section 1. Execution upon judgments or final orders Execution shall issue as a matter of right, on motion, upon
judgment or order that disposes of the action or proceeding upon the expiration of the period to appeal therefrom,
if no appeal has been duly perfected.
xxxx
From the foregoing, it is clear that execution may issue only upon motion by a party and only upon the expiration
of the period to appeal, if no appeal has been perfected. Otherwise, if an appeal has been duly perfected, the
parties would have to wait for the final resolution of the appeal before it may execute the judgment or final order
except for instances where an execution pending appeal is granted by the proper court of law.
It would appear that despite the absence of any motion for execution, the respondent judge enforced his Joint
Order by directing the release of the seized items from the physical custody of the PNP Special Task Force on June
5, 2001 less than the fifteen-day prescribed period within which an aggrieved party may file an appeal or for such
Joint Order to become final and executory in the absence of an appeal. Clearly the release of the seized items was
enforced prematurely and without any previous motion for execution on record.
We cannot give weight to the argument that the seized items were voluntarily released by the PNP Special Task
Force, and thus, with such voluntary implementation of the May 23, 2001 Joint Order, the latter is already final and
executed.
We take note that the PNP Special Task Force only retained physical custody of the seized items.1wphi1 However,
it was clearly the respondent judge who ordered and released said seized items with his directive in the May 23,
2001 Joint Order. The PNP Special Task Force could not release the said items without the directive and authority of
the court a quo. Hence, such compliance cannot be deemed voluntary at all.
From the foregoing discussion, it is apparent that the respondent judges directive in the May 23, 2001 Joint Order
for the immediate return of the seized items to the respondent HPS was enforced prematurely and in grave abuse
of discretion. Clearly, the Joint Order dated May 23, 2001 was not yet final and executory when it was implemented
on June 5, 2001. Moreover, a motion for execution filed by the interested party is obviously lacking. Thus, this
Court concludes that there is no legal basis for the implementation of the May 23, 2001 Joint Order when the
seized items were released on June 5, 2001.68
In all, we agree with the former Fourth Division of the Court of Appeals that there was indeed grave abuse of
discretion on the part of the trial court in the premature haste attending the release of the items seized.
WHEREFORE, premtses considered, the petition of HPS Corporation, et al. in G.R. No. 170217 is DENIED for lack
of merit. The petition ofPLDT in G.R. No. 170694 is GRANTED. The assailed Decision dated April 8, 2005 as well as
the Resolution dated December 7, 2005 of the Court of Appeals in CA-G.R. CV No. 75838 are
herebyREVERSED and SET ASIDE. No costs.
SO ORDERED.
G.R. No. 202950, April 06, 2015
BALTAZAR IBOT, Petitioner, v. HEIRS OF FRANCISCO TAYCO, REPRESENTED BY FLORA TAYCO, WILLY
TAYCO AND MERLYN T. BULANTE, Respondents.
DECISION
REYES, J.:
This is a Petition for Review on Certiorari1 under Rule 45 of the 1997 Rules of Court, which seeks to annul and set
aside the Decision2 dated November 14, 2011 and Resolution3 dated July 16, 2012 of the Court of Appeals (CA) in
CA-G.R. CV No. 00377-MIN. The assailed decision reversed the Judgment 4 dated March 31, 2005 of the Regional
Trial Court (RTC) of Midsayap, Cotabato, Branch 18, in Civil Case No. 99-028, which granted the reconveyance of
Lot No. 299 to Flora Tayco, Willy Tayco and Merlyn Tayco Bulante (respondents) and not to Baltazar Ibot
(petitioner).chanRoblesvirtualLawlibrary
Facts of the Case
The dispute centers on the ownership of a residential land denominated as Lot No. 299, Bsd-101505 situated at
Poblacion 2, Pigcawayan, Province of Cotabato, measuring 536 square meters, more or less, and covered by
Original Certificate of Title (OCT) No. P-62053.5
The respondents are the heirs of deceased Francisco Tayco (Francisco) who presently occupy Lot No. 299, while the
petitioner is the registered owner of Lot No. 299 in whose name OCT No. P-62053 was issued by the Register of
Deeds of the Province of Cotabato on October 23, 1997.6
On September 23, 1999, a complaint for reconveyance of real property, damages and attorney's fees was filed
before the RTC by the respondents against the petitioner grounded on their claim as owners of Lot No. 299 because

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of their actual, continuous, exclusive and notorious possession thereof since 1964 through their predecessor-ininterest, Francisco.7
The respondents alleged that: in 1960, spouses Francisco and Flora Tayco (spouses Tayco) purchased Lot No. 299
from Amelita Ibot (Amelita) for a consideration of P1,200.00 which was set forth in a Deed of Sale that was
prepared by an attorney's clerk named Fe Clamor; Francisco commenced his Sales Application of Lot No. 299 with
the Bureau of Lands (Bureau) but it was discontinued due to his sickness; Francisco lost the documents necessary
for his sales application including the Deed of Sale; 9 their open, continuous, exclusive, and notorious possession
since 1964 and the introduction of improvements on Lot No. 299 entitles them to its reconveyance as owners; and
fraud attended the issuance of the petitioner's OCT in 1998. 10
In his answer,11 the petitioner denied the allegations and unequivocally declared that the respondents cannot
become owners of Lot No. 299 because his predecessor-in-interest, Amelita, merely tolerated their occupation; that
Calixta Tayco (Calixta), mother of Francisco, sought permission for them to be allowed to relocate their nipa hut on
Lot No. 299 due to the construction of Pigcawayan's public market; that despite Francisco's marriage, Amelita
continuously allowed them to stay on the lot with his family; 12 that in 1997, Amelita ceded to him all her rights on
Lot No. 299; that his Free Patent application to the Bureau was not fraudulent; that after complying with all legal
requisites imposed by law, he was issued OCT No. P-62053 by the Register of Deeds, Province of Cotabato on
October 23, 1997;13 that the respondents were allowed to remain in Lot No. 299 despite the death of Calixta and
Francisco; that upon learning about the respondents' sale of a portion of Lot No. 299 to Freddie Rizardo, the
petitioner formally demanded them to vacate Lot No. 299; that the respondents did not heed his demand for them
to vacate; that on August 20, 1999, the petitioner filed a complaint for unlawful detainer against the respondents
but it was dismissed due to lack of jurisdiction. 14
During the pre-trial conference, both parties agreed to the statement of the issue as: "(w)hich prevails, defendant's
title or plaintiff's occupation of the land since 1964 and up to the present?," 15 as well as the following admissions,
to wit:chanroblesvirtuallawlibrary
1. The petitioner admitted that the respondents have been occupying Lot No. 299 since 1964 but he denied that he
had never occupied the same for any given period of time and that all existing improvements were not all
introduced by the respondents; and
2. The respondents admitted that the petitioner is the registered owner of Lot No. 299 and that he has been paying
the taxes due on Lot No. 299. They, however, contest the regularity in the issuance of the petitioner's OCT.16
Trial on the merits then ensued.chanRoblesvirtualLawlibrary
Ruling of the RTC
On March 31, 2005, the RTC rendered Judgment17 upholding the petitioner's ownership of the subject property, the
decretal portion of which reads:chanroblesvirtuallawlibrary
WHEREFORE, in the light of all the foregoing considerations, the court hereby renders judgment in favor of the
[petitioner] and against the [respondents]:chanroblesvirtuallawlibrary
1. Denying the petition for reconveyance and dismissing the instant action;
2. Ordering the [respondents] to turn over the peaceful possession of Lot No. 299, Bsd-10105, [OCT] No. P62053, Register of Deeds of Cotabato unto and in favor of the defendant;
3. To remove all the structure that they have put up in the premises under pain of being removed at their own
expense.
4. No pronouncement as to cost.
IT IS SO DECIDED.18
According to the RTC, the circumstances behind the issuance of the petitioner's certificate of title clearly
established that he duly filed an application for registration of the property and complied with all the requirements
of the law. On the contrary, the respondents failed to present any document evidencing the alleged transfer of
rights from Amelita to the spouses Tayco in order to establish their claim of sale, and that what the respondents
presented were nothing more than mere allegations. 19 The RTC further noted that the petitioner's OCT No. P-62053
was issued on October 23, 1997 while the respondents' complaint for reconveyance was filed only on September
23, 1999. Considering that more than a year had lapsed before the case was filed, the title had become
indefeasible and can no longer be subject to review.20
On appeal, the CA reversed the judgment of the RTC and the decretal portion of its decision
reads:chanroblesvirtuallawlibrary
WHEREFORE, the assailed Decision is hereby REVERSED and SET ASIDE.
Appellants, HEIRS OF FRANCISCO TAYCO, represented by FLORA TAYCO, WILLY TAYCO and MERLYN T.
BULANTE, are hereby declared as the legal owners of Lot No. 299, Bsd-101505.
Appellee Baltazar Ibot, Jr. is ORDERED to RECONVEY the property described in Original Certificate of Title No. P62053 in favor to [sic] appellants.
SO ORDERED.22
The CA ratiocinated that respondents' open, continuous, adverse and uninterrupted possession of Lot No. 299 for
more than 30 years reckoned from 1964 remains uncontroverted while the Torrens title of the petitioner was
noticeably obtained only in 1997. Also, the long inaction or passivity of the petitioner or Amelita in asserting rights
over Lot No. 299 despite knowledge of the improvements introduced by the respondents precludes the petitioner
from recovering the same.23 The CA further stressed that land registration laws cannot give a person any better
title than what he actually has.24 The mere "[registration of a piece of land under the Torrens System does not
create or vest title [to the registrant], because it is not a mode of acquiring ownership." 25 Thus, notwithstanding
"the indefeasibility of the Torrens title, the registered owner may still be compelled to reconvey the registered
property to its true owners."26 Consequently, the decision of the RTC was reversed and set aside, and Lot No. 299
was ordered reconveyed to the respondents.
The petitioner filed a motion for reconsideration 27 but it was denied.28

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Unsatisfied, the petitioner instituted the present appeal 29 predicated on the following
issues:chanroblesvirtuallawlibrary
I
WHETHER THE [CA] MISAPPREHENDED] THE FACTS IN NOT ASSESSING CONSENT GIVEN TO RESPONDENTS BY
PETITIONER'S PREDECESSORS-IN-INTEREST TO STAY ON THE DISPUTED PROPERTY IN FAVOR OF THE
PETITIONER IN DETERMINING THE [EXTRAORDINARY] PRESCRIPTION.cralawlawlibrary
II
WHETHER THE [CA] ERRED IN NOT ASSESSING THE FINDING OF THE TRIAL COURT THAT RESPONDENTS, THEN
PLAINTIFFS COULD NOT EVEN SHOW ANY SEMBLANCE OF FRAUD IN THE MANNER THE CERTIFICATE OF TITLE
WAS ISSUED IN THE NAME OF THE DEFENDANT.cralawlawlibrary
III
WHETHER THE [CA] ERRED IN APPLYING THE DOCTRINE IN "AZNAR BROTHERS REALTY COMPANY VERSUS AYING"
AND "NAVAL VERSUS COURT OF APPEALS["] IN FAVOR OF THE RESPONDENTS.cralawlawlibrary
IV
WHETHER PRESCRIPTION AND EQUITABLE LACHES HAD SET IN AGAINST THE PETITIONER TO WARRANT
RECONVEYANCE OF THE DISPUTED PROPERTY TO RESPONDENTS.30
Foremost, it should be stressed that this Court is not a trier of facts. Only questions of law and not questions of fact
may be raised in a petition for review on certiorari under Rule 45.31 In the exercise of its power of review, the
factual findings of the CA are conclusive and binding on this Court and it is not our function to re-evaluate evidence
all over again. However, it is a recognized exception that when the CA's findings are incongruent to those of the
RTC, as in this case, there is a need to review the records to determine which of them should be preferred as more
conformable to evidentiary facts.32
Here, the RTC and the CA made contrasting conclusions on the issue of ownership. Hence, such issue is now the
subject of the Court's review.
To recapitulate, the respondents traced their claim of ownership of the subject property from the year 1960 when
their parents, the spouses Tayco, allegedly purchased the lot from Amelita for P1,200.00. To support their claim of
ownership over Lot No. 299, the respondents presented uncertified photocopies of Francisco's Miscellaneous Sales
Application No. XII-12-94 dated September 8, 1986 and the Community of Environment and Natural Resources
Office Appraisal Report dated April 9, 198733 and the explanation that their father Francisco lost the Deed of Sale
and the other documents pertinent to his application as he would just normally insert them all at the back of his
pants.34
To debunk the respondents' claim, the petitioner adduced certified copies of documents, such as: OCT No. P-62053
issued by the Office of the Register of Deeds, Province of Cotabato on October 23, 1997, 35 a tax declaration dated
in 1998, his free patent application and Department of Environment and Natural Resources (DENR) order wherein
Amelita requested for the rejection of her free application in favor of the petitioner. According to the petitioner, Lot
No. 299 was registered in his name after Amelita, his aunt, transfeiTed all her rights to him. Moreover, he argued
that the respondents cannot become owners of the lot because their stay is merely tolerated by his aunt who
consented to Calixta and Francisco's stay on the property in 1964. Thus, the respondents cannot become its
owners by acquisitive prescription.chanRoblesvirtualLawlibrary
Ruling of the Court
The petition is impressed with merit.
Burden of proof in reconveyance cases
Generally, "in civil cases, the burden of proof is on the plaintiff to establish his case by a preponderance of
evidence. If the plaintiff claims a right granted or created by law, the same must be proven by competent
evidence. The plaintiff must rely on the strength of his own evidence," 36 "or evidence which is of greater weight or
more convincing than that which is offered in opposition to it. Hence, parties who have the burden of proof must
produce such quantum of evidence, with plaintiffs having to rely on the strength of their own evidence, not on the
weakness of the defendant's."37 In an action for reconveyance, however, a party seeking it should establish not
merely by a preponderance of evidence but by clear and convincing evidence that the land sought to be
reconveyed is his.38
In the case at bar, the respondents failed to dispense their burden of proving by clear and convincing evidence that
they are entitled to the reconveyance of Lot No. 299.
Requisites for the reconveyance of property
Article 434 of the Civil Code provides:chanroblesvirtuallawlibrary
Art. 434. In an action to recover, the property must be identified, and the plaintiff must rely on the strength of his
title and not on the weakness of the defendant's claim.
In order to successfully maintain an action to recover the ownership of a real property, the person who claims a
better right to it must prove two things: first, the identity of the land claimed; and second, his title thereto.
As to the first requisite, there is no doubt that the land sought to be reconveyed is Lot No. 299, a residential lot
located at Pigcawayan, Province of Cotabato. As to the second requisite on title of ownership, the claims of the
parties conflict.
An evaluation of the assailed CA decision
A reading of the assailed CA decision shows that it recognized the respondents' failure to prove the sale between

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Amelita and Francisco. According to the CA, the exhibits that the respondents offered in
evidence, i.e., Miscellaneous Sale Application and Appraisal Report signed by Land Inspector Geminiano Oliva, are
not deeds of reconveyances or proofs of the alleged sale. The respondents, moreover, failed to prove that they
have an open, continuous, adverse and uninterrupted possession of the subject property for more than 30 years,
there being no document that would show that they, in the exercise of their claim as its owners, had and have been
paying the realty tax due on the subject property. As consistently held, tax receipts are not an evidence of
ownership but they are good indicia of possession in the concept of owner, for no one would ordinarily be paying
taxes for a property not in his actual or at least constructive possession. 40
Nonetheless, the CA confirmed the respondents' possession of the subject land for more than 30 years as
uncontroverted due to the improvements they introduced over the subject land since 1964, such as buildings and
concrete houses, among others. Applying the case of Heirs of Dela Cruz v. CA,41 the CA therefore concluded that
such acts could mean a clear exercise of ownership by the respondents.
Such analysis is inaccurate. The case of Dela Cruz does not apply in this case because of the varying factual
setting, to wit: (1) the respondents therein were able to prove the alleged sale to their predecessor-in-interest;
and (2) the defendant failed to send a demand letter or any form of dissent to the plaintiff to assert his claim of
ownership. Here, it is the reverse. The respondents failed to present any document to prove the alleged sale.
Moreover, the petitioner was able to assert his claim of ownership not only by sending a letter demanding for the
respondents to vacate the disputed property but he also filed an action for ejectment against them when his
demand to vacate was unheeded.
The CA also cited the case of Naval v. CA 42to emphasize the principle that the registration of a parcel of land under
the Torrens system does not vest or create ownership in favor of the registrant. It should be noted, however, that
in Naval, there was a sale of an unregistered land to different buyers at different times unlike in the instant case.
In Naval, the second buyer (who allegedly purchased the land in 1972) successfully had the disputed land titled in
her name upon which she based her claim of ownership. However, in that case, there was a prior sale of the same
unregistered land which was registered as early as 1969 coupled with the buyers' immediate possession thereof.
Here, the registration of Lot No. 299 was not preceded by a prior sale to the respondents' predecessor-in-interest.
As above discussed, the respondents failed to substantiate their claim that the same land was sold to the late
Francisco because the documents they presented in evidence did not prove the alleged sale. It can, therefore, be
stated that the OCT issued in the name of the petitioner over Lot No. 299 cannot be assailed by the respondents
considering that their claim of ownership has not been duly proved. Therefore, the case of Naval is also
inapplicable.
Citing the case of Aznar Brothers Realty Company v. Aying,43 the CA also pointed out that a constructive implied
trust was constituted in favor of the respondents in view of the fraud employed by the petitioner when he obtained
title over Lot No. 299 by misrepresenting that he is in actual possession thereof at the time he applied for its
registration. Contrary to the CA's disquisition, however, the Court finds that no implied trust was created between
the petitioner and the respondents. In Aznar, there was determination of who among the heirs did not sign the
deed of sale. Therefore, the Torrens title issued in the name of the buyer holds the same in trust for their benefit.
Here, it is again worthy to stress that the respondents had nothing to support their claim of ownership over that of
the petitioner.
Therefore, the petitioner, being a registered owner of the disputed lot, cannot be considered as a trustee in favor of
the respondents as cestui que trust.
Proof of Tolerance
The petitioner, on the other hand, unequivocally dispensed his burden of proving that the respondents' occupation
of Lot No. 299 was through the mere tolerance of his aunt Amelita. Tolerance must be shown by some overt act
such as the permission accorded by the petitioner and his predecessors-in-interest to occupy the disputed property
in order for it to be well-taken. Mere tolerance always carries with it "permission" and not merely silence or inaction
for silence or inaction is negligence, not tolerance.44 It must also be shown "that the supposed acts of tolerance
have been present right from the very start of the possession - from entry to the property."
To support his claim of ownership, the petitioner presented the following pieces of evidence, to wit: (1) OCT No. P6205346 dated October 23, 1997; (2) Tax Declaration No. 11-002-96-0077847 dated in 1998; (3) demand letter48 to
vacate dated May 25, 1999; (4) Barangay Certification to file action;49 (5) application50 and notice51 to file for Free
Patent dated July 7, and 24, 1987, respectively; (6) the Order of the DENR 52 dated December 11, 1996 wherein
Amelita requested for the rejection of her free patent application in favor of the petitioner; and the testimony of his
aunt Amelita on how the respondents and their predecessors-in-interest started to occupy Lot No. 299 and her
acquiescence to their occupation until she transferred all her rights over Lot No. 299 in favor of the petitioner.
Hence, as compared to the evidence of the respondents, the evidence of the petitioner clearly and convincingly
prove his exercise of ownership over the disputed property.
Prescinding from the foregoing, it is clear mere claim of ownership will not suffice. An action for reconveyance
should be maintained by the true owner. It will not suffice that the respondents are in possession of the land
subject thereof.53Thus, the scale of justice should tilt in favor of the petitioner and not the respondents.cralawred
WHEREFORE, in consideration of the foregoing premises, the Decision dated November 14, 2011 and Resolution
dated July 16, 2012 of the Court of Appeals in CA-G.R. CV No. 00377-MIN are REVERSED and SET ASIDE.
Accordingly, the Judgment dated March 31, 2005 of the Regional Trial Court of Midsayap, Cotabato, Branch 18, in
Civil Case No. 99-028, is REINSTATED.
SO ORDERED.

G.R. No. 124293

January 31, 2005

J.G. SUMMIT HOLDINGS, INC., petitioner,

vs.

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COURT OF APPEALS; COMMITTEE ON PRIVATIZATION, its Chairman and Members; ASSET

PRIVATIZATION TRUST; and PHILYARDS HOLDINGS, INC., respondents.
RESOLUTION
PUNO, J.:
For resolution before this Court are two motions filed by the petitioner, J.G. Summit Holdings, Inc. for
reconsideration of our Resolution dated September 24, 2003 and to elevate this case to the Court En Banc. The
petitioner questions the Resolution which reversed our Decision of November 20, 2000, which in turn reversed and
set aside a Decision of the Court of Appeals promulgated on July 18, 1995.
I. Facts
The undisputed facts of the case, as set forth in our Resolution of September 24, 2003, are as follows:
On January 27, 1997, the National Investment and Development Corporation (NIDC), a government corporation,
entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) for
the construction, operation and management of the Subic National Shipyard, Inc. (SNS) which subsequently
became the Philippine Shipyard and Engineering Corporation (PHILSECO). Under the JVA, the NIDC and KAWASAKI
will contribute P330 million for the capitalization of PHILSECO in the proportion of 60%-40% respectively. One of
its salient features is the grant to the parties of the right of first refusal should either of them decide to sell,
assign or transfer its interest in the joint venture, viz:
1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [PHILSECO] to any third party
without giving the other under the same terms the right of first refusal. This provision shall not apply if the
transferee is a corporation owned or controlled by the GOVERNMENT or by a KAWASAKI affiliate.
On November 25, 1986, NIDC transferred all its rights, title and interest in PHILSECO to the Philippine National
Bank (PNB). Such interests were subsequently transferred to the National Government pursuant to Administrative
Order No. 14. On December 8, 1986, President Corazon C. Aquino issued Proclamation No. 50 establishing the
Committee on Privatization (COP) and the Asset Privatization Trust (APT) to take title to, and possession of,
conserve, manage and dispose of non-performing assets of the National Government. Thereafter, on February 27,
1987, a trust agreement was entered into between the National Government and the APT wherein the latter was
named the trustee of the National Government's share in PHILSECO. In 1989, as a result of a quasi-reorganization
of PHILSECO to settle its huge obligations to PNB, the National Government's shareholdings in PHILSECO increased
to 97.41% thereby reducing KAWASAKI's shareholdings to 2.59%.
In the interest of the national economy and the government, the COP and the APT deemed it best to sell the
National Government's share in PHILSECO to private entities. After a series of negotiations between the APT and
KAWASAKI, they agreed that the latter's right of first refusal under the JVA be "exchanged" for the right to top by
five percent (5%) the highest bid for the said shares. They further agreed that KAWASAKI would be entitled to
name a company in which it was a stockholder, which could exercise the right to top. On September 7, 1990,
KAWASAKI informed APT that Philyards Holdings, Inc. (PHI) 1 would exercise its right to top.
At the pre-bidding conference held on September 18, 1993, interested bidders were given copies of the JVA
between NIDC and KAWASAKI, and of the Asset Specific Bidding Rules (ASBR) drafted for the National
Government's 87.6% equity share in PHILSECO. The provisions of the ASBR were explained to the interested
bidders who were notified that the bidding would be held on December 2, 1993. A portion of the ASBR reads:
1.0 The subject of this Asset Privatization Trust (APT) sale through public bidding is the National Government's
equity in PHILSECO consisting of 896,869,942 shares of stock (representing 87.67% of PHILSECO's outstanding
capital stock), which will be sold as a whole block in accordance with the rules herein enumerated.
xxx xxx xxx
2.0 The highest bid, as well as the buyer, shall be subject to the final approval of both the APT Board of Trustees
and the Committee on Privatization (COP).
2.1 APT reserves the right in its sole discretion, to reject any or all bids.
3.0 This public bidding shall be on an Indicative Price Bidding basis. The Indicative price set for the National
Government's 87.67% equity in PHILSECO is PESOS: ONE BILLION THREE HUNDRED MILLION
(P1,300,000,000.00).
xxx xxx xxx
6.0 The highest qualified bid will be submitted to the APT Board of Trustees at its regular meeting following the
bidding, for the purpose of determining whether or not it should be endorsed by the APT Board of Trustees to the
COP, and the latter approves the same. The APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee,
[PHILYARDS] Holdings, Inc., that the highest bid is acceptable to the National Government. Kawasaki Heavy
Industries, Inc. and/or [PHILYARDS] Holdings, Inc. shall then have a period of thirty (30) calendar days from the
date of receipt of such advice from APT within which to exercise their "Option to Top the Highest Bid" by offering a
bid equivalent to the highest bid plus five (5%) percent thereof.

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6.1 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. exercise their "Option to Top the
Highest Bid," they shall so notify the APT about such exercise of their option and deposit with APT the amount
equivalent to ten percent (10%) of the highest bid plus five percent (5%) thereof within the thirty (30)-day period
mentioned in paragraph 6.0 above. APT will then serve notice upon Kawasaki Heavy Industries, Inc. and/or
[PHILYARDS] Holdings, Inc. declaring them as the preferred bidder and they shall have a period of ninety (90) days
from the receipt of the APT's notice within which to pay the balance of their bid price.
6.2 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. fail to exercise their "Option to Top
the Highest Bid" within the thirty (30)-day period, APT will declare the highest bidder as the winning bidder.
xxx xxx xxx
12.0 The bidder shall be solely responsible for examining with appropriate care these rules, the official bid forms,
including any addenda or amendments thereto issued during the bidding period. The bidder shall likewise be
responsible for informing itself with respect to any and all conditions concerning the PHILSECO Shares which may,
in any manner, affect the bidder's proposal. Failure on the part of the bidder to so examine and inform itself shall
be its sole risk and no relief for error or omission will be given by APT or COP. . . .
At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc. 2 submitted a bid of Two Billion and
Thirty Million Pesos (P2,030,000,000.00) with an acknowledgment of KAWASAKI/[PHILYARDS'] right to top, viz:
4. I/We understand that the Committee on Privatization (COP) has up to thirty (30) days to act on APT's
recommendation based on the result of this bidding. Should the COP approve the highest bid, APT shall advise
Kawasaki Heavy Industries, Inc. and/or its nominee, [PHILYARDS] Holdings, Inc. that the highest bid is acceptable
to the National Government. Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. shall then have a
period of thirty (30) calendar days from the date of receipt of such advice from APT within which to exercise their
"Option to Top the Highest Bid" by offering a bid equivalent to the highest bid plus five (5%) percent thereof.
As petitioner was declared the highest bidder, the COP approved the sale on December 3, 1993 "subject to the
right of Kawasaki Heavy Industries, Inc./[PHILYARDS] Holdings, Inc. to top JGSMI's bid by 5% as specified in the
bidding rules."
On December 29, 1993, petitioner informed APT that it was protesting the offer of PHI to top its bid on the grounds
that: (a) the KAWASAKI/PHI consortium composed of KAWASAKI, [PHILYARDS], Mitsui, Keppel, SM Group, ICTSI
and Insular Life violated the ASBR because the last four (4) companies were the losing bidders thereby
circumventing the law and prejudicing the weak winning bidder; (b) only KAWASAKI could exercise the right to top;
(c) giving the same option to top to PHI constituted unwarranted benefit to a third party; (d) no right of first
refusal can be exercised in a public bidding or auction sale; and (e) the JG Summit consortium was not estopped
from questioning the proceedings.
On February 2, 1994, petitioner was notified that PHI had fully paid the balance of the purchase price of the subject
bidding. On February 7, 1994, the APT notified petitioner that PHI had exercised its option to top the highest bid
and that the COP had approved the same on January 6, 1994. On February 24, 1994, the APT and PHI executed a
Stock Purchase Agreement. Consequently, petitioner filed with this Court a Petition for Mandamus under G.R. No.
114057. On May 11, 1994, said petition was referred to the Court of Appeals. On July 18, 1995, the Court of
Appeals denied the same for lack of merit. It ruled that the petition for mandamus was not the proper remedy to
question the constitutionality or legality of the right of first refusal and the right to top that was exercised by
KAWASAKI/PHI, and that the matter must be brought "by the proper party in the proper forum at the proper time
and threshed out in a full blown trial." The Court of Appeals further ruled that the right of first refusal and the right
to top are prima facie legal and that the petitioner, "by participating in the public bidding, with full knowledge of the
right to top granted to KAWASAKI/[PHILYARDS] isestopped from questioning the validity of the award given to
[PHILYARDS] after the latter exercised the right to top and had paid in full the purchase price of the subject shares,
pursuant to the ASBR." Petitioner filed a Motion for Reconsideration of said Decision which was denied on March 15,
1996. Petitioner thus filed a Petition for Certiorari with this Court alleging grave abuse of discretion on the part of
the appellate court.
On November 20, 2000, this Court rendered x x x [a] Decision ruling among others that the Court of Appeals erred
when it dismissed the petition on the sole ground of the impropriety of the special civil action of mandamus
because the petition was also one of certiorari. It further ruled that a shipyard like PHILSECO is a public utility
whose capitalization must be sixty percent (60%) Filipino-owned. Consequently, the right to top granted to
KAWASAKI under the Asset Specific Bidding Rules (ASBR) drafted for the sale of the 87.67% equity of the National
Government in PHILSECO is illegal not only because it violates the rules on competitive bidding but more so,
because it allows foreign corporations to own more than 40% equity in the shipyard. It also held that "although the
petitioner had the opportunity to examine the ASBR before it participated in the bidding, it cannot be estopped
from questioning the unconstitutional, illegal and inequitable provisions thereof." Thus, this Court voided the
transfer of the national government's 87.67% share in PHILSECO to Philyard[s] Holdings, Inc., and upheld the right
of JG Summit, as the highest bidder, to take title to the said shares, viz:
WHEREFORE, the instant petition for review on certiorari is GRANTED. The assailed Decision and Resolution of the
Court of Appeals are REVERSED and SET ASIDE. Petitioner is ordered to pay to APT its bid price of Two Billion
Thirty Million Pesos (P2,030,000,000.00), less its bid deposit plus interests upon the finality of this Decision. In
turn, APT is ordered to:
(a) accept the said amount of P2,030,000,000.00 less bid deposit and interests from petitioner;
(b) execute a Stock Purchase Agreement with petitioner;
(c) cause the issuance in favor of petitioner of the certificates of stocks representing 87.6% of PHILSECO's
total capitalization;

155

(d) return to private respondent PHGI the amount of Two Billion One Hundred Thirty-One Million Five
Hundred Thousand Pesos (P2,131,500,000.00); and
(e) cause the cancellation of the stock certificates issued to PHI.
SO ORDERED.
In separate Motions for Reconsideration, respondents submit[ted] three basic issues for x x x resolution: (1)
Whether PHILSECO is a public utility; (2) Whether under the 1977 JVA, KAWASAKI can exercise its right of first
refusal only up to 40% of the total capitalization of PHILSECO; and (3) Whether the right to top granted to
KAWASAKI violates the principles of competitive bidding. 3 (citations omitted)
In a Resolution dated September 24, 2003, this Court ruled in favor of the respondents. On the first issue, we held
that Philippine Shipyard and Engineering Corporation (PHILSECO) is not a public utility, as by nature, a shipyard is
not a public utility4 and that no law declares a shipyard to be a public utility.5 On the second issue, we found
nothing in the 1977 Joint Venture Agreement (JVA) which prevents Kawasaki Heavy Industries, Ltd. of Kobe, Japan
(KAWASAKI) from acquiring more than 40% of PHILSECOs total capitalization. 6 On the final issue, we held that the
right to top granted to KAWASAKI in exchange for its right of first refusal did not violate the principles of
competitive bidding.7
On October 20, 2003, the petitioner filed a Motion for Reconsideration 8 and a Motion to Elevate This Case to the
Court En Banc.9 Public respondents Committee on Privatization (COP) and Asset Privatization Trust (APT), and
private respondent Philyards Holdings, Inc. (PHILYARDS) filed their Comments on J.G. Summit Holdings, Inc.s (JG
Summits) Motion for Reconsideration and Motion to Elevate This Case to the Court En Banc on January 29, 2004
and February 3, 2004, respectively.
II. Issues
Based on the foregoing, the relevant issues to resolve to end this litigation are the following:
1. Whether there are sufficient bases to elevate the case at bar to the Court en banc.
2. Whether the motion for reconsideration raises any new matter or cogent reason to warrant a
reconsideration of this Courts Resolution of September 24, 2003.
Motion to Elevate this Case to the
Court En Banc
The petitioner prays for the elevation of the case to the Court en banc on the following grounds:
1. The main issue of the propriety of the bidding process involved in the present case has been confused
with the policy issue of the supposed fate of the shipping industry which has never been an issue that is
determinative of this case.10
2. The present case may be considered under the Supreme Court Resolution dated February 23, 1984
which included among en banc cases those involving a novel question of law and those where a doctrine
or principle laid down by the Court en banc or in division may be modified or reversed.11
3. There was clear executive interference in the judicial functions of the Court when the Honorable Jose
Isidro Camacho, Secretary of Finance, forwarded to Chief Justice Davide, a memorandum dated November
5, 2001, attaching a copy of the Foreign Chambers Report dated October 17, 2001, which matter was
placed in the agenda of the Court and noted by it in a formal resolution dated November 28, 2001. 12
Opposing J.G. Summits motion to elevate the case en banc, PHILYARDS points out the petitioners inconsistency in
previously opposing PHILYARDS Motion to Refer the Case to the Court En Banc. PHILYARDS contends that J.G.
Summit should now be estopped from asking that the case be referred to the Court en banc. PHILYARDS further
contends that the Supreme Court en banc is not an appellate court to which decisions or resolutions of its divisions
may be appealed citing Supreme Court Circular No. 2-89 dated February 7, 1989. 13 PHILYARDS also alleges that
there is no novel question of law involved in the present case as the assailed Resolution was based on well-settled
jurisprudence. Likewise, PHILYARDS stresses that the Resolution was merely an outcome of the motions for
reconsideration filed by it and the COP and APT and is "consistent with the inherent power of courts to amend and
control its process and orders so as to make them conformable to law and justice. (Rule 135, sec. 5)" 14 Private
respondent belittles the petitioners allegations regarding the change in ponente and the alleged executive
interference as shown by former Secretary of Finance Jose Isidro Camachos memorandum dated November 5,
2001 arguing that these do not justify a referral of the present case to the Court en banc.
In insisting that its Motion to Elevate This Case to the Court En Banc should be granted, J.G. Summit further
argued that: its Opposition to the Office of the Solicitor Generals Motion to Refer is different from its own Motion to
Elevate; different grounds are invoked by the two motions; there was unwarranted "executive interference"; and
the change in ponente is merely noted in asserting that this case should be decided by the Court en banc.15
We find no merit in petitioners contention that the propriety of the bidding process involved in the present case
has been confused with the policy issue of the fate of the shipping industry which, petitioner maintains, has never
been an issue that is determinative of this case. The Courts Resolution of September 24, 2003 reveals a clear and
definitive ruling on the propriety of the bidding process. In discussing whether the right to top granted to

156

KAWASAKI in exchange for its right of first refusal violates the principles of competitive bidding, we made an
exhaustive discourse on the rules and principles of public bidding and whether they were complied with in the case
at bar.16 This Court categorically ruled on the petitioners argument that PHILSECO, as a shipyard, is a public utility
which should maintain a 60%-40% Filipino-foreign equity ratio, as it was a pivotal issue. In doing so, we
recognized the impact of our ruling on the shipbuilding industry which was beyond avoidance. 17
We reject petitioners argument that the present case may be considered under the Supreme Court Resolution
dated February 23, 1984 which included among en banc cases those involving a novel question of law and those
where a doctrine or principle laid down by the court en banc or in division may be modified or reversed. The case
was resolved based on basic principles of the right of first refusal in commercial law and estoppel in civil law.
Contractual obligations arising from rights of first refusal are not new in this jurisdiction and have been recognized
in numerous cases.18 Estoppel is too known a civil law concept to require an elongated discussion. Fundamental
principles on public bidding were likewise used to resolve the issues raised by the petitioner. To be sure, petitioner
leans on the right to top in a public bidding in arguing that the case at bar involves a novel issue. We are not
swayed. The right to top was merely a condition or a reservation made in the bidding rules which was fully
disclosed to all bidding parties. In Bureau Veritas, represented by Theodor H. Hunermann v. Office of the
President, et al., 19 we dealt with this conditionality, viz:
x x x It must be stressed, as held in the case of A.C. Esguerra & Sons v. Aytona, et al., (L-18751, 28 April 1962, 4
SCRA 1245), that in an "invitation to bid, there is a condition imposed upon the bidders to the effect that the
bidding shall be subject to the right of the government to reject any and all bids subject to its
discretion. In the case at bar, the government has made its choice and unless an unfairness or injustice
is shown, the losing bidders have no cause to complain nor right to dispute that choice. This is a wellsettled doctrine in this jurisdiction and elsewhere."
The discretion to accept or reject a bid and award contracts is vested in the Government agencies entrusted with
that function. The discretion given to the authorities on this matter is of such wide latitude that the Courts will not
interfere therewith, unless it is apparent that it is used as a shield to a fraudulent award (Jalandoni v. NARRA, 108
Phil. 486 [1960]). x x x The exercise of this discretion is a policy decision that necessitates prior inquiry,
investigation, comparison, evaluation, and deliberation. This task can best be discharged by the Government
agencies concerned, not by the Courts. The role of the Courts is to ascertain whether a branch or instrumentality of
the Government has transgressed its constitutional boundaries. But the Courts will not interfere with executive or
legislative discretion exercised within those boundaries. Otherwise, it strays into the realm of policy decisionmaking.
It is only upon a clear showing of grave abuse of discretion that the Courts will set aside the award of a contract
made by a government entity. Grave abuse of discretion implies a capricious, arbitrary and whimsical exercise of
power (Filinvest Credit Corp. v. Intermediate Appellate Court, No. 65935, 30 September 1988, 166 SCRA 155). The
abuse of discretion must be so patent and gross as to amount to an evasion of positive duty or to a virtual refusal
to perform a duty enjoined by law, as to act at all in contemplation of law, where the power is exercised in an
arbitrary and despotic manner by reason of passion or hostility (Litton Mills, Inc. v. Galleon Trader, Inc., et al[.], L40867, 26 July 1988, 163 SCRA 489).
The facts in this case do not indicate any such grave abuse of discretion on the part of public respondents when
they awarded the CISS contract to Respondent SGS. In the "Invitation to Prequalify and Bid" (Annex "C," supra),
the CISS Committee made an express reservation of the right of the Government to "reject any or all bids
or any part thereof or waive any defects contained thereon and accept an offer most advantageous to
the Government." It is a well-settled rule that where such reservation is made in an Invitation to Bid,
the highest or lowest bidder, as the case may be, is not entitled to an award as a matter of right (C & C
Commercial Corp. v. Menor, L-28360, 27 January 1983, 120 SCRA 112). Even the lowest Bid or any Bid may be
rejected or, in the exercise of sound discretion, the award may be made to another than the lowest bidder (A.C.
Esguerra & Sons v. Aytona, supra, citing 43 Am. Jur., 788). (emphases supplied)1awphi1.nt
Like the condition in the Bureau Veritas case, the right to top was a condition imposed by the government in the
bidding rules which was made known to all parties. It was a condition imposed on all bidders equally, based
on the APTs exercise of its discretion in deciding on how best to privatize the governments shares in
PHILSECO. It was not a whimsical or arbitrary condition plucked from the ether and inserted in the bidding rules
but a condition which the APT approved as the best way the government could comply with its contractual
obligations to KAWASAKI under the JVA and its mandate of getting the most advantageous deal for the
government. The right to top had its history in the mutual right of first refusal in the JVA and was reached by
agreement of the government and KAWASAKI.
Further, there is no "executive interference" in the functions of this Court by the mere filing of a memorandum by
Secretary of Finance Jose Isidro Camacho. The memorandum was merely "noted" to acknowledge its filing. It had
no further legal significance. Notably too, the assailed Resolution dated September 24, 2003 was decided
unanimously by the Special First Division in favor of the respondents.
Again, we emphasize that a decision or resolution of a Division is that of the Supreme Court 20 and the Court en
banc is not an appellate court to which decisions or resolutions of a Division may be appealed. 21
For all the foregoing reasons, we find no basis to elevate this case to the Court en banc.
Motion for Reconsideration
Three principal arguments were raised in the petitioners Motion for Reconsideration. First, that a fair resolution of
the case should be based on contract law, not on policy considerations; the contracts do not authorize the right to
top to be derived from the right of first refusal. 22 Second, that neither the right of first refusal nor the right to top
can be legally exercised by the consortium which is not the proper party granted such right under either the JVA or
the Asset Specific Bidding Rules (ASBR). 23 Third, that the maintenance of the 60%-40% relationship between the

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National Investment and Development Corporation (NIDC) and KAWASAKI arises from contract and from the
Constitution because PHILSECO is a landholding corporation and need not be a public utility to be bound by the
60%-40% constitutional limitation.24
On the other hand, private respondent PHILYARDS asserts that J.G. Summit has not been able to show compelling
reasons to warrant a reconsideration of the Decision of the Court.25 PHILYARDS denies that the Decision is based
mainly on policy considerations and points out that it is premised on principles governing obligations and contracts
and corporate law such as the rule requiring respect for contractual stipulations, upholding rights of first refusal,
and recognizing the assignable nature of contracts rights.26 Also, the ruling that shipyards are not public utilities
relies on established case law and fundamental rules of statutory construction. PHILYARDS stresses that
KAWASAKIs right of first refusal or even the right to top is not limited to the 40% equity of the latter.27 On the
landholding issue raised by J.G. Summit, PHILYARDS emphasizes that this is a non-issue and even involves a
question of fact. Even assuming that this Court can take cognizance of such question of fact even without the
benefit of a trial, PHILYARDS opines that landholding by PHILSECO at the time of the bidding is irrelevant because
what is essential is that ultimately a qualified entity would eventually hold PHILSECOs real estate
properties.28 Further, given the assignable nature of the right of first refusal, any applicable nationality restrictions,
including landholding limitations, would not affect the right of first refusal itself, but only the manner of its
exercise.29 Also, PHILYARDS argues that if this Court takes cognizance of J.G. Summits allegations of fact regarding
PHILSECOs landholding, it must also recognize PHILYARDS assertions that PHILSECOs landholdings were sold to
another corporation.30 As regards the right of first refusal, private respondent explains that KAWASAKIs reduced
shareholdings (from 40% to 2.59%) did not translate to a deprivation or loss of its contractually granted right of
first refusal.31 Also, the bidding was valid because PHILYARDS exercised the right to top and it was of no moment
that losing bidders later joined PHILYARDS in raising the purchase price. 32
In cadence with the private respondent PHILYARDS, public respondents COP and APT contend:
1. The conversion of the right of first refusal into a right to top by 5% does not violate any provision in the
JVA between NIDC and KAWASAKI.
2. PHILSECO is not a public utility and therefore not governed by the constitutional restriction on foreign
ownership.
3. The petitioner is legally estopped from assailing the validity of the proceedings of the public bidding as
it voluntarily submitted itself to the terms of the ASBR which included the provision on the right to top.
4. The right to top was exercised by PHILYARDS as the nominee of KAWASAKI and the fact that
PHILYARDS formed a consortium to raise the required amount to exercise the right to top the highest bid
by 5% does not violate the JVA or the ASBR.
5. The 60%-40% Filipino-foreign constitutional requirement for the acquisition of lands does not apply to
PHILSECO because as admitted by petitioner itself, PHILSECO no longer owns real property.
6. Petitioners motion to elevate the case to the Court en banc is baseless and would only delay the
termination of this case.33
In a Consolidated Comment dated March 8, 2004, J.G. Summit countered the arguments of the public and private
respondents in this wise:
1. The award by the APT of 87.67% shares of PHILSECO to PHILYARDS with losing bidders through the
exercise of a right to top, which is contrary to law and the constitution is null and void for being violative
of substantive due process and the abuse of right provision in the Civil Code.
a. The bidders[] right to top was actually exercised by losing bidders.
b. The right to top or the right of first refusal cannot co-exist with a genuine competitive bidding.
c. The benefits derived from the right to top were unwarranted.
2. The landholding issue has been a legitimate issue since the start of this case but is shamelessly ignored
by the respondents.
a. The landholding issue is not a non-issue.
b. The landholding issue does not pose questions of fact.
c. That PHILSECO owned land at the time that the right of first refusal was agreed upon and at
the time of the bidding are most relevant.
d. Whether a shipyard is a public utility is not the core issue in this case.
3. Fraud and bad faith attend the alleged conversion of an inexistent right of first refusal to the right to
top.
a. The history behind the birth of the right to top shows fraud and bad faith.

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b. The right of first refusal was, indeed, "effectively useless."

4. Petitioner is not legally estopped to challenge the right to top in this case.
a. Estoppel is unavailing as it would stamp validity to an act that is prohibited by law or against
public policy.
b. Deception was patent; the right to top was an attractive nuisance.
c. The 10% bid deposit was placed in escrow.
J.G. Summits insistence that the right to top cannot be sourced from the right of first refusal is not new and we
have already ruled on the issue in our Resolution of September 24, 2003. We upheld the mutual right of first
refusal in the JVA.34 We also ruled that nothing in the JVA prevents KAWASAKI from acquiring more than 40% of
PHILSECOs total capitalization.35 Likewise, nothing in the JVA or ASBR bars the conversion of the right of first
refusal to the right to top. In sum, nothing new and of significance in the petitioners pleading warrants a
reconsideration of our ruling.
Likewise, we already disposed of the argument that neither the right of first refusal nor the right to top can legally
be exercised by the consortium which is not the proper party granted such right under either the JVA or the ASBR.
Thus, we held:
The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group, Insular Life Assurance, Mitsui
and ICTSI), has joined PHILYARDS in the latter's effort to raise P2.131 billion necessary in exercising the right to
top is not contrary to law, public policy or public morals. There is nothing in the ASBR that bars the losing bidders
from joining either the winning bidder (should the right to top is not exercised) or KAWASAKI/PHI (should it
exercise its right to top as it did), to raise the purchase price. The petitioner did not allege, nor was it shown by
competent evidence, that the participation of the losing bidders in the public bidding was done with fraudulent
intent. Absent any proof of fraud, the formation by [PHILYARDS] of a consortium is legitimate in a free enterprise
system. The appellate court is thus correct in holding the petitioner estopped from questioning the validity of the
transfer of the National Government's shares in PHILSECO to respondent. 36
Further, we see no inherent illegality on PHILYARDS act in seeking funding from parties who were losing bidders.
This is a purely commercial decision over which the State should not interfere absent any legal infirmity. It is
emphasized that the case at bar involves the disposition of shares in a corporation which the government sought to
privatize. As such, the persons with whom PHILYARDS desired to enter into business with in order to raise funds to
purchase the shares are basically its business. This is in contrast to a case involving a contract for the operation of
or construction of a government infrastructure where the identity of the buyer/bidder or financier constitutes an
important consideration. In such cases, the government would have to take utmost precaution to protect public
interest by ensuring that the parties with which it is contracting have the ability to satisfactorily construct or
operate the infrastructure.
On the landholding issue, J.G. Summit submits that since PHILSECO is a landholding company, KAWASAKI could
exercise its right of first refusal only up to 40% of the shares of PHILSECO due to the constitutional prohibition on
landholding by corporations with more than 40% foreign-owned equity. It further argues that since KAWASAKI
already held at least 40% equity in PHILSECO, the right of first refusal was inutile and as such, could not
subsequently be converted into the right to top. 37 Petitioner also asserts that, at present, PHILSECO continues to
violate the constitutional provision on landholdings as its shares are more than 40% foreign-owned. 38PHILYARDS
admits that it may have previously held land but had already divested such landholdings. 39 It contends, however,
that even if PHILSECO owned land, this would not affect the right of first refusal but only the exercise thereof. If
the land is retained, the right of first refusal, being a property right, could be assigned to a qualified party. In the
alternative, the land could be divested before the exercise of the right of first refusal. In the case at bar,
respondents assert that since the right of first refusal was validly converted into a right to top, which was exercised
not by KAWASAKI, but by PHILYARDS which is a Filipino corporation (i.e., 60% of its shares are owned by
Filipinos), then there is no violation of the Constitution.40 At first, it would seem that questions of fact beyond
cognizance by this Court were involved in the issue. However, the records show that PHILYARDS admits it had
owned land up until the time of the bidding. 41 Hence, the only issue is whether KAWASAKI had a valid
right of first refusal over PHILSECO shares under the JVA considering that PHILSECO owned land until
the time of the bidding and KAWASAKI already held 40% of PHILSECOs equity.
We uphold the validity of the mutual rights of first refusal under the JVA between KAWASAKI and NIDC. First of all,
the right of first refusal is a property right of PHILSECO shareholders, KAWASAKI and NIDC, under the terms of
their JVA. This right allows them to purchase the shares of their co-shareholder before they are offered to a third
party. The agreement of co-shareholders to mutually grant this right to each other, by itself, does not
constitute a violation of the provisions of the Constitution limiting land ownership to Filipinos and
Filipino corporations. As PHILYARDS correctly puts it, if PHILSECO still owns land, the right of first refusal can be
validly assigned to a qualified Filipino entity in order to maintain the 60%-40% ratio. This transfer, by itself, does
not amount to a violation of the Anti-Dummy Laws, absent proof of any fraudulent intent. The transfer could be
made either to a nominee or such other party which the holder of the right of first refusal feels it can comfortably
do business with. Alternatively, PHILSECO may divest of its landholdings, in which case KAWASAKI, in exercising its
right of first refusal, can exceed 40% of PHILSECOs equity. In fact, it can even be said that if the foreign
shareholdings of a landholding corporation exceeds 40%, it is not the foreign stockholders ownership
of the shares which is adversely affected but the capacity of the corporation to own land that is, the
corporation becomes disqualified to own land. This finds support under the basic corporate law principle that the
corporation and its stockholders are separate juridical entities. In this vein, the right of first refusal over shares
pertains to the shareholders whereas the capacity to own land pertains to the corporation. Hence, the fact that
PHILSECO owns land cannot deprive stockholders of their right of first refusal. No law disqualifies a person
from purchasing shares in a landholding corporation even if the latter will exceed the allowed foreign
equity, what the law disqualifies is the corporation from owning land. This is the clear import of the
following provisions in the Constitution:

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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 productionsharing 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.
xxx xxx xxx
Section 7. Save in cases of hereditary succession, no private lands shall be transferred or conveyed except
to individuals, corporations, or associations qualified to acquire or hold lands of the public
domain.42(emphases supplied)
The petitioner further argues that "an option to buy land is void in itself (Philippine Banking Corporation v. Lui She,
21 SCRA 52 [1967]). The right of first refusal granted to KAWASAKI, a Japanese corporation, is similarly void.
Hence, the right to top, sourced from the right of first refusal, is also void." 43 Contrary to the contention of
petitioner, the case of Lui She did not that say "an option to buy land is void in itself," for we ruled as follows:
x x x To be sure, a lease to an alien for a reasonable period is valid. So is an option giving an alien the
right to buy real property on condition that he is granted Philippine citizenship. As this Court said in
Krivenko vs. Register of Deeds:
[A]liens are not completely excluded by the Constitution from the use of lands for residential purposes. Since their
residence in the Philippines is temporary, they may be granted temporary rights such as a lease contract which is
not forbidden by the Constitution. Should they desire to remain here forever and share our fortunes and
misfortunes, Filipino citizenship is not impossible to acquire.
But if an alien is given not only a lease of, but also an option to buy, a piece of land, by virtue of which
the Filipino owner cannot sell or otherwise dispose of his property, this to last for 50 years, then it
becomes clear that the arrangement is a virtual transfer of ownership whereby the owner divests
himself in stages not only of the right to enjoy the land (jus possidendi, jus utendi, jus fruendi and jus
abutendi) but also of the right to dispose of it (jus disponendi) rights the sum total of which make up
ownership. It is just as if today the possession is transferred, tomorrow, the use, the next day, the
disposition, and so on, until ultimately all the rights of which ownership is made up are consolidated in an
alien. And yet this is just exactly what the parties in this case did within this pace of one year, with the result that
Justina Santos'[s] ownership of her property was reduced to a hollow concept. If this can be done, then the
Constitutional ban against alien landholding in the Philippines, as announced in Krivenko vs. Register of Deeds,
is indeed in grave peril.44 (emphases supplied; Citations omitted)
In Lui She, the option to buy was invalidated because it amounted to a virtual transfer of ownership as the owner
could not sell or dispose of his properties. The contract in Lui She prohibited the owner of the land from selling,
donating, mortgaging, or encumbering the property during the 50-year period of the option to buy. This is not so in
the case at bar where the mutual right of first refusal in favor of NIDC and KAWASAKI does not amount to a virtual
transfer of land to a non-Filipino. In fact, the case at bar involves a right of first refusal over shares of
stock while the Lui She case involves an option to buy the land itself. As discussed earlier, there is a distinction
between the shareholders ownership of shares and the corporations ownership of land arising from the separate
juridical personalities of the corporation and its shareholders.
We note that in its Motion for Reconsideration, J.G. Summit alleges that PHILSECO continues to violate the
Constitution as its foreign equity is above 40% and yet owns long-term leasehold rights which are real
rights.45 It cites Article 415 of the Civil Code which includes in the definition of immovable property, "contracts for
public works, and servitudes and other real rights over immovable property." 46 Any existing landholding, however,
is denied by PHILYARDS citing its recent financial statements. 47 First, these are questions of fact, the veracity of
which would require introduction of evidence. The Court needs to validate these factual allegations based on
competent and reliable evidence. As such, the Court cannot resolve the questions they pose. Second, J.G. Summit
misreads the provisions of the Constitution cited in its own pleadings, to wit:
29.2 Petitioner has consistently pointed out in the past that private respondent is not a 60%-40% corporation, and
this violates the Constitution x x x The violation continues to this day because under the law, it continues to own
real property
xxx xxx xxx
32. To review the constitutional provisions involved, Section 14, Article XIV of the 1973 Constitution (the JVA was
signed in 1977), provided:
"Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals,
corporations, or associations qualified to acquire or hold lands of the public domain."
32.1 This provision is the same as Section 7, Article XII of the 1987 Constitution.
32.2 Under the Public Land Act, corporations qualified to acquire or hold lands of the public domain are
corporations at least 60% of which is owned by Filipino citizens (Sec. 22, Commonwealth Act 141, as amended).
(emphases supplied)

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As correctly observed by the public respondents, the prohibition in the Constitution applies only to ownership of
land.48 It does not extend to immovable or real property as defined under Article 415 of the Civil
Code.Otherwise, we would have a strange situation where the ownership of immovable property such as trees,
plants and growing fruit attached to the land 49 would be limited to Filipinos and Filipino corporations only.
III.
WHEREFORE, in view of the foregoing, the petitioners Motion for Reconsideration is DENIED WITH FINALITY and
the decision appealed from is AFFIRMED. The Motion to Elevate This Case to the Court En Banc is likewise DENIED
for lack of merit.
SO ORDERED.
G.R. No. 185407, June 22, 2015
SIO TIAT KING, Petitioner, v. VICENTE G. LIM, MICHAEL GEORGE O. LIM, MATHEW VINCENT O. LIM, MEL
PATRICK O. LIM, MOISES FRANCIS W. LIM, MARVIN JOHN W. LIM, AND SAARSTAHL PHILIPPINES,
INC.,Respondents.
DECISION
REYES, J.:
In Civil Case No. 94-71083, the Spouses Victoriano and Evelyn Calidguid (Spouses Calidguid) executed a
Compromise Agreement1 binding themselves to pay the amount of P2,520,000.00 to the Spouses Jaime Lee
(Jaime) and Lim Dechu (collectively, Spouses Lee), which was approved by the Regional Trial Court (RTC) of Manila,
Branch 4 in its Decision2dated April 24, 1995. However, the Spouses Calidguid failed to comply with the terms of
the said decision, leading the Spouses Lee to avail of the remedy of execution. A Writ of Execution 3 was issued on
August 2, 1995 to satisfy the compromise judgment and a property belonging to the Spouses Calidguid covered by
Transfer Certificate of Title (TCT) No. 85561 was levied on execution. During its sale at a public auction, the
judgment creditor, Jaime emerged as the highest bidder and a corresponding Certificate of Sale 4 was issued in his
favor.
As an assignee of the Spouses Calidguid, Sio Tiat King (King) redeemed the subject property on October 30, 1996,
before the expiration of the one-year period of right of redemption. Hence, the sheriff executed a Certificate of
Redemption.5
More than 11 years after the redemption of the subject property, King filed a motion for the issuance of a writ of
possession, which was granted by the RTC in its Order6 dated January 22, 2008. A Writ of Possession7 was
thereafter issued on January 25, 2008. Pursuant to this, Sheriff Cesar Javier served a Notice to Vacate 8 addressed
to the Spouses Calidguid, their agents and all other persons claiming rights under them at 109 P. Florentino Street
corner Araneta Avenue, Sto. Domingo, Quezon City, which is the location of the subject property.
On February 19, 2008, Michael George O. Lim, Mathew Vincent O. Lim, Mel Patrick O. Lim, Moises Francis W. Lim
and Marvin John W. Lim (Lims) filed a Joint Affidavit of Third Party Claim, 9 alleging that they are the registered
owners of the property situated at 109 P. Florentino Street corner Araneta Avenue, Sto. Domingo, Quezon City
under TCT No. 122207.
On February 21, 2008, the Lims filed an Entry of Appearance with Motion to Quash Writ of Execution. 10 On March
14, 2008, the RTC issued an Order setting the case for preliminary conference on April 11, 2008. On March 18,
2008, the actual and physical possession of a part of the subject property was turned over to King, prompting the
Lims to file an Extremely Urgent Motion to Issue Status Quo Ante Order.11 On April 4, 2008, the motion filed by the
Lims was granted but to last only until April 11, 2008.12
The Lims filed a Petition for Certiorari13 before the Court of Appeals (CA), alleging among others, that the RTC
judge committed grave abuse of discretion when they were ousted from their property by virtue of the writ of
possession, without a separate and independent action to resolve the issue of ownership. 14
Subsequently on April 11, 2008, the RTC issued an Order15 commanding the sheriff to defer completion of the
implementation of the writ of possession while the resolution of the motion to quash the writ of execution is
pending.
The RTC issued an Order16 dated April 28, 2008, denying the motion to quash of the Lims. The RTC also resolved
that the TCT of the Spouses Calidguid was issued at an earlier date; therefore it shall prevail over the TCT of the
Lims. This led the Lims to file a Motion to Admit the Attached Supplemental Petition, 17 which the CA granted in its
Resolution18 dated May 28, 2008. The CA also issued a temporary restraining order to preserve the rights of both
parties while awaiting resolution of the petition. 19 On June 4, 2008, the RTC issued an Order20 suspending the
execution of its Order dated April 28, 2008 and all allied processes pertinent to the case.
On July 22, 2008, the CA rendered a Decision,21 annulling the Order dated April 28, 2008 of the RTC. The
dispositive portion reads:chanroblesvirtuallawlibrary
WHEREFORE, the petition is GRANTED. The Order dated April 28, 2008 issued by the Regional Trial Court, Branch
4, Manila in Civil Case No. 94-71083 is ANNULLED and SET ASIDE. Accordingly, the Writ of Possession issued on
January 25, 2008 is QUASHED, without prejudice to any separate action which private respondent Sio Tiat King
may file against all parties concerned for the enforcement of whatever right he may have over the subject property.
SO ORDERED.22cralawlawlibrary
The CA decision granted the petition filed by the Lims for the following reasons:chanroblesvirtuallawlibrary
Firstly, Section 33, Rule 39 of the Rules of Court is not applicable. The second paragraph of said rule
provides:chanroblesvirtuallawlibrary

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"Upon expiration of the right of redemption, the purchaser or redemptioner shall be substituted to and
acquire all the rights, title, interest and claim of the judgment obligor to the property as of the time of the
levy. The possession of the property shall be given to the purchaser or last redemptioner by the same
officer unless a third party is actually holding the property adversely to the judgment obligor."
The above-rule contemplates two situations wherein a writ of possession may issue: (1) only upon the expiration of
the period of redemption and no such redemption having been made[;] and (2) only to a purchaser or
redemptioner in the execution sale.
In relation thereto, Sec. 27 of the same Rule enumerates the persons who are entitled to exercise the right of
redemption over a property sold on execution, thus:chanroblesvirtuallawlibrary
"Sec. 27. Who may redeem real property so sold. - Real property sold as provided in the last preceding section, or
any part thereof sold separately, may be redeemed in the manner hereinafter provided, by the following persons:
(a) The judgment obligor, or his successor-in-interest in the whole or any part of the property;
(b) A creditor having a lien by virtue of an attachment, judgment or mortgage on the property sold, or on some
part thereof, subsequent to the lien under which the property was sold. Such redeeming creditor is termed
as redemptioner."
The "successor-in-interest" contemplated under Sec. 27 includes a person to whom the judgment debtor has
transferred his right of redemption, or one to whom he has conveyed his interests in the property for purposes of
redemption, or one who succeeds to his property by operation of law, or a person with a joint interest in the
property, or his spouse or heirs. Hence, King, by virtue of a Deed of Assignment of Real Property and Right of
Redemption, is included within the term "successor in interest."
In this case, not only was there a redemption made by King within the redemption period but moreover, the writ of
possession was issued not to a purchaser or redemptioner but to King himself, a successor-in-interest of Spouses
Calidguid, the judgment obligors. Hence, it was no longer a ministerial duty of respondent Judge to issue the writ
of possession.
Secondly, contrary to the position of respondent Judge and the contending parties, the writ of possession applied
for by King cannot be deemed to be a continuation of the execution proceedings inCivil Case No. 94-71083 which
had been terminated long ago after the issuance of the Certificate of Redemption and the satisfaction of the claims
of the judgment creditors [Spouses Lee], x x x
xxxx
It must be noted that King, by virtue of a Deed of Assignment of Real Property and Right of Redemption, redeemed
the property in question as an "assignee" of Sps. Calidguid, the judgment debtors in Civil Case No. 94-71083, and
as such is deemed subrogated to the rights and obligations of the latter, x x x In this case, full ownership of the
subject property was restored to the judgment debtors, Spouses Calidguid, who were substituted by King, after the
redemption made by the latter as evidenced by theCertificate of Redemption, which
reads:chanroblesvirtuallawlibrary
xxxx
WHEREAS, by virtue of a Deed of Assignment of Real Property and Right of Redemption, dated October 30,
1996, the Assignee, [King], now offers to redeem the property from the highest bidder, [Jaime], the sum of
PHP2,941,478.53 in Equitable Banking Corporation Cashier Check No. 0066-724519 in full satisfaction of the bid
price including all interests, rights, shares titles, claims and participation of [Jaime] relative to the
aforesaid parcel of land covered by TCT No. 85561, subject matter of Civil Case No. 94-71083 of the
Regional Trial Court, Branch 04, Manila;
xxxx
WHEREFORE, in view of all the foregoing, the undersigned hereby executed this Certificate of
Redemption and hereby restores the [Spouses Calidguid], now being substituted by the Assignee,
[King], full ownership of the above-mentioned levied and sold property.
xxxx
Thirdly, it is improper to issue a writ of possession when there has been a redemption made by the judgment
debtor, as in this case, considering that it would be very difficult to implement the same. The dispositive portion of
the Order dated January 22, 2008 granting the Writ of Possession reads:chanroblesvirtuallawlibrary
"WHEREFORE, finding the motion to be meritorious, the same is hereby granted. As prayed for, let a writ of
possession be issued directing the Sheriff of this Court to place movant [King] in actual physical possession of the
levied property covered by [TCT] No. 85561 of the Registry of Deeds of Quezon City and to eject therefrom
[Spouses Calidguid] their agents and such other persons claiming rights under them."
while the Notice to Vacate reads:chanroblesvirtuallawlibrary
"TO: Sps. Evelyn P. Calidguid & Victoriano Calidguid,
their agents and ALL OTHER PERSONS
CLAIMING RIGHTS UNDER THEM
109 P. Florentino St., cor. Araneta Ave., SMH,
Quezon City
Greetings:
You are hereby notified by virtue of the Writ of Possession xxx being served upon you and all other persons
claiming rights upon you, DEMAND is hereby made upon you and all other persons claiming rights upon you to
VACATE the premises xxx covered by TCT No. 85561 of the Registry of Deeds for the City of Quezon City, within
five (5) days from receipt of this Notice.
x x x x"
This Court could hardly imagine how respondent Sheriff could possibly implement the aforequoted Writ of
Possession and Notice to Vacate by placing King in actual physical possession of the subject property and at the
same time evicting therefrom Spouses Calidguid, their agents and all other persons claiming rights under
them when King himself is one of the persons claiming rights under Spouses Calidguid, as he stepped into

162

the shoes of the latter by virtue of a Deed of Assignment of Real Property and Right of Redemption.
xxxx
Fourthly, even assuming that King is legally entitled to a writ of possession, the mere issuance of such writ cannot
summarily evict [the Lims] from the subject property since they are occupants therein under claim of ownership. If
King had been unlawfully deprived of possession of the subject property, he may file an independent action against
[the Lims]. He cannot enforce his claim of possession and ownership in the case terminated long ago. 23 (Citations
omitted and emphases in the original)
His motion for reconsideration24 having been denied by the CA in a Resolution25 dated November 13, 2008, King
filed the present petition.26
Issue
The primary issue is whether the Lims may be evicted from the property by virtue of a writ of possession issued in
favor of King.chanRoblesvirtualLawlibrary
Ruling of the Court
King deplored that the CA erred in ruling that he is a successor-in-interest of the judgment debtor and not a
redemptioner under Section 33 of Rule 39 of the 1997 Rules of Court, who is entitled to a writ of possession. He
averred that the word "redemptioner" found in the same section should be loosely applied to include the judgment
debtor's successor-in-interest.27 But King's line of reasoning is flawed. His understanding of the word
"redemptioner" notwithstanding, the fact is that the writ of possession can only be rightfully enforced against the
Spouses Calidguid and their successors-in-interest which ironically includes King himself. Even assuming for the
sake of argument that King is treated as a redemptioner, he seemed to have forgone that the same provision he
invoked provides for an exception, which is hereunder quoted:chanroblesvirtuallawlibrary
Sec. 33. Deed and possession to be given at expiration of redemption period; by whom executed or given. x x x.
xxx The possession of the property shall be given to the purchaser or last redemptioner by the same officer unless
a third party is actually holding the property adversely to the judgment obligor. (Emphasis ours)
King acquired his right over the property with TCT No. 85561 from the Spouses Calidguid when their right to
redeem the property was assigned to him and subsequently, when redemption was made; whereas the Lims' claim
of ownership is based on TCT No. 122207 registered in their names. This goes to show that the Lims hold the
property adversely to the judgment obligor, Spouses Calidguid.
The Lims are considered as a third party, whose possession over the subject property may not be defeated
summarily. "The third party's possession of the property is legally presumed to be based on a just title, a
presumption which may be overcome by the purchaser in a judicial proceeding for recovery of the property.
Through such a judicial proceeding, the nature of the adverse possession by the third party may be determined,
after such third party is accorded due process and the opportunity to be heard. The third party may be ejected
from the property only after he has been given an opportunity to be heard, conformably with the time-honored
principle of due process."28
The foregoing elucidations find legal basis under Article 433 of the Civil Code, to wit:chanroblesvirtuallawlibrary
Art. 433. Actual possession under claim of ownership raises a disputable presumption of ownership. The true owner
must resort to judicial process for the recovery of the property.
While King and the Lims are contending for the possession and ownership of the same property, which has been
the subject of levy and execution in Civil Case No. 94-71083, an ejectment suit should have been filed by King
before the Lims could be evicted from the property. This is due to the existence of their ostensibly conflicting titles
coupled with the Lims' actual possession over the property. "One who claims to be the owner of a property
possessed by another must bring the appropriate judicial action for its physical recovery. The 'judicial process'
could mean no less than an ejectment suit or a reivindicatory action, in which the ownership claims of the
contending parties may be properly heard and adjudicated." 29
King took a procedural shortcut when he applied for the issuance of a writ of possession instead of filing a suit to
recover possession of the property against the Lims. Besides, as the CA had espoused, the issuance of the writ of
possession produced a peculiar situation in which the writ sought by King was directed against himself as the
assignee of the judgment debtors.
The CA is also correct when it held that King cannot enforce his claim of possession and ownership in a case
terminated long ago,30 more so that the possession is with the Lims, who are considered as strangers in Civil Case
No. 94-71083. As can be readily gleaned from the records, the judgment in the aforecited case has already been
executed and satisfied. In their Comment31 to the petition before the CA, the Spouses Lee manifested that the
issuance of the Certificate of Redemption confirmed that their claims as judgment creditors had been fully
satisfied.32
As regards King's submission that the TCT of the Lims was fictitiously issued, the Court holds that this is not the
proper forum to resolve issues concerning ownership of the disputed property. Matters regarding its ownership
should be ventilated in a separate proceeding, as this case is limited to the propriety of the issuance of a writ of
possession following redemption.33
WHEREFORE, the petition is hereby DENIED. The Decision dated July 22, 2008 and the Resolution dated
November 13, 2008 of the Court of Appeals in CA-G.R. SP No. 103391 are AFFIRMED.
SO ORDERED.chanroblesvirtuallawlibrary
FIRST DIVISION
G.R. No. 155076

February 27, 2006

163

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.
DECISION
CALLEJO, SR., J.:
Before us is a Petition for Review on Certiorari of the Decision 1 of the Court of Appeals (CA) in CA-G.R. SP No.
68841 affirming the Order issued by Judge Zeus C. Abrogar, Regional Trial Court (RTC), Makati City, Branch 150,
which denied the "Motion to Quash (With Motion to Defer Arraignment)" in Criminal Case No. 99-2425 for theft.
Philippine Long Distance Telephone Company (PLDT) is the holder of a legislative franchise to render local and
international telecommunication services under Republic Act No. 7082. 2 Under said law, PLDT is authorized to
establish, operate, manage, lease, maintain and purchase telecommunication systems, including transmitting,
receiving and switching stations, for both domestic and international calls. For this purpose, it has installed an
estimated 1.7 million telephone lines nationwide. PLDT also offers other services as authorized by Certificates of
Public Convenience and Necessity (CPCN) duly issued by the National Telecommunications Commission (NTC), and
operates and maintains an International Gateway Facility (IGF). The PLDT network is thus principally composed of
the Public Switch Telephone Network (PSTN), telephone handsets and/or telecommunications equipment used by
its subscribers, the wires and cables linking said telephone handsets and/or telecommunications equipment,
antenna, the IGF, and other telecommunications equipment which provide interconnections. 3 1avvphil.net
PLDT alleges that one of the alternative calling patterns that constitute network fraud and violate its network
integrity is that which is known as International Simple Resale (ISR). ISR is a method of routing and completing
international long distance calls using International Private Leased Lines (IPL), cables, antenna or air wave or
frequency, which connect directly to the local or domestic exchange facilities of the terminating country (the
country where the call is destined). The IPL is linked to switching equipment which is connected to a PLDT
telephone line/number. In the process, the calls bypass the IGF found at the terminating country, or in some
instances, even those from the originating country.4
One such alternative calling service is that offered by Baynet Co., Ltd. (Baynet) which sells "Bay Super Orient Card"
phone cards to people who call their friends and relatives in the Philippines. With said card, one is entitled to a 27minute call to the Philippines for about 37.03 per minute. After dialing the ISR access number indicated in the
phone card, the ISR operator requests the subscriber to give the PIN number also indicated in the phone card.
Once the callers identity (as purchaser of the phone card) is confirmed, the ISR operator will then provide a
Philippine local line to the requesting caller via the IPL. According to PLDT, calls made through the IPL never pass
the toll center of IGF operators in the Philippines. Using the local line, the Baynet card user is able to place a call to
any point in the Philippines, provided the local line is National Direct Dial (NDD) capable. 5
PLDT asserts that Baynet conducts its ISR activities by utilizing an IPL to course its incoming international long
distance calls from Japan. The IPL is linked to switching equipment, which is then connected to PLDT telephone
lines/numbers and equipment, with Baynet as subscriber. Through the use of the telephone lines and other
auxiliary equipment, Baynet is able to connect an international long distance call from Japan to any part of the
Philippines, and make it appear as a call originating from Metro Manila. Consequently, the operator of an ISR is
able to evade payment of access, termination or bypass charges and accounting rates, as well as compliance with
the regulatory requirements of the NTC. Thus, the ISR operator offers international telecommunication services at
a lower rate, to the damage and prejudice of legitimate operators like PLDT.6
PLDT pointed out that Baynet utilized the following equipment for its ISR activities: lines, cables, and antennas or
equipment or device capable of transmitting air waves or frequency, such as an IPL and telephone lines and
equipment; computers or any equipment or device capable of accepting information applying the prescribed
process of the information and supplying the result of this process; modems or any equipment or device that
enables a data terminal equipment such as computers to communicate with other data terminal equipment via a
telephone line; multiplexers or any equipment or device that enables two or more signals from different sources to
pass through a common cable or transmission line; switching equipment, or equipment or device capable of
connecting telephone lines; and software, diskettes, tapes or equipment or device used for recording and storing
information.7
PLDT also discovered that Baynet subscribed to a total of 123 PLDT telephone lines/numbers. 8 Based on the Traffic
Study conducted on the volume of calls passing through Baynets ISR network which bypass the IGF toll center,
PLDT incurred an estimated monthly loss of P10,185,325.96.9 Records at the Securities and Exchange Commission
(SEC) also revealed that Baynet was not authorized to provide international or domestic long distance telephone
service in the country. The following are its officers: Yuji Hijioka, a Japanese national (chairman of the board of
directors); Gina C. Mukaida, a Filipina (board member and president); Luis Marcos P. Laurel, a Filipino (board
member and corporate secretary); Ricky Chan Pe, a Filipino (board member and treasurer); and Yasushi Ueshima,
also a Japanese national (board member).
Upon complaint of PLDT against Baynet for network fraud, and on the strength of two search warrants 10 issued by
the RTC of Makati, Branch 147, National Bureau of Investigation (NBI) agents searched its office at the 7th Floor,
SJG Building, Kalayaan Avenue, Makati City on November 8, 1999. Atsushi Matsuura, Nobuyoshi Miyake, Edourd D.
Lacson and Rolando J. Villegas were arrested by NBI agents while in the act of manning the operations of Baynet.
Seized in the premises during the search were numerous equipment and devices used in its ISR activities, such as
multiplexers, modems, computer monitors, CPUs, antenna, assorted computer peripheral cords and
microprocessors, cables/wires, assorted PLDT statement of accounts, parabolic antennae and voltage regulators.

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State Prosecutor Ofelia L. Calo conducted an inquest investigation and issued a Resolution 11 on January 28, 2000,
finding probable cause for theft under Article 308 of the Revised Penal Code and Presidential Decree No.
40112 against the respondents therein, including Laurel.
On February 8, 2000, State Prosecutor Calo filed an Information with the RTC of Makati City charging Matsuura,
Miyake, Lacson and Villegas with theft under Article 308 of the Revised Penal Code. After conducting the requisite
preliminary investigation, the State Prosecutor filed an Amended Information impleading Laurel (a partner in the
law firm of Ingles, Laurel, Salinas, and, until November 19, 1999, a member of the board of directors and
corporate secretary of Baynet), and the other members of the board of directors of said corporation, namely, Yuji
Hijioka, Yasushi Ueshima, Mukaida, Lacson and Villegas, as accused for theft under Article 308 of the Revised Penal
Code. The inculpatory portion of the Amended Information reads:
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.
CONTRARY TO LAW.13
Accused Laurel 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 under Article 308 of the Revised Penal
Code. He averred that the Revised Penal Code, or any other special penal law for that matter, does not prohibit ISR
operations. He claimed that telephone calls with the use of PLDT telephone lines, whether domestic or
international, belong to the persons making the call, not to PLDT. He argued that the caller merely uses the
facilities of PLDT, and what the latter owns are the telecommunication infrastructures or facilities through which the
call is made. He also asserted that PLDT is compensated for the callers use of its facilities by way of rental; for an
outgoing overseas call, PLDT charges the caller per minute, based on the duration of the call. Thus, no personal
property was stolen from PLDT. According to Laurel, the P20,370,651.92 stated in the Information, if anything,
represents the rental for the use of PLDT facilities, and not the value of anything owned by it. Finally, he averred
that the allegations in the Amended Information are already subsumed under the Information for violation of
Presidential Decree (P.D.) No. 401 filed and pending in the Metropolitan Trial Court of Makati City, docketed as
Criminal Case No. 276766.
The prosecution, through private complainant PLDT, opposed the motion, 14 contending that the movant unlawfully
took personal property belonging to it, as follows: 1) intangible telephone services that are being offered by PLDT
and other telecommunication companies, i.e., the connection and interconnection to their telephone lines/facilities;
2) the use of those facilities over a period of time; and 3) the revenues derived in connection with the rendition of
such services and the use of such facilities. 15
The prosecution asserted that the use of PLDTs intangible telephone services/facilities allows electronic voice
signals to pass through the same, and ultimately to the called partys number. It averred that such service/facility
is akin to electricity which, although an intangible property, may, nevertheless, be appropriated and be the subject
of theft. Such service over a period of time for a consideration is the business that PLDT provides to its customers,
which enables the latter to send various messages to installed recipients. The service rendered by PLDT is akin to
merchandise which has specific value, and therefore, capable of appropriation by another, as in this case, through
the ISR operations conducted by the movant and his co-accused.
The prosecution further alleged that "international business calls and revenues constitute personal property
envisaged in Article 308 of the Revised Penal Code." Moreover, the intangible telephone services/facilities belong to
PLDT and not to the movant and the other accused, because they have no telephone services and facilities of their
own duly authorized by the NTC; thus, the taking by the movant and his co-accused of PLDT services was with
intent to gain and without the latters consent.
The prosecution pointed out that the accused, as well as the movant, were paid in exchange for their illegal
appropriation and use of PLDTs telephone services and facilities; on the other hand, the accused did not pay a
single centavo for their illegal ISR operations. Thus, the acts of the accused were akin to the use of a "jumper" by a
consumer to deflect the current from the house electric meter, thereby enabling one to steal electricity. The
prosecution emphasized that its position is fortified by the Resolutions of the Department of Justice in PLDT v.
Tiongson, et al. (I.S. No. 97-0925) and in PAOCTF-PLDT v. Elton John Tuason, et al. (I.S. No. 2000-370) which
were issued on August 14, 2000 finding probable cause for theft against the respondents therein.
On September 14, 2001, the RTC issued an Order16 denying the Motion to Quash the Amended Information. The
court declared that, although there is no law that expressly prohibits the use of ISR, the facts alleged in the
Amended Information "will show how the alleged crime was committed by conducting ISR," to the damage and
prejudice of PLDT.
Laurel filed a Motion for Reconsideration 17 of the Order, alleging that international long distance calls are not
personal property, and are not capable of appropriation. He maintained that business or revenue is not considered
personal property, and that the prosecution failed to adduce proof of its existence and the subsequent loss of
personal property belonging to another. Citing the ruling of the Court in United States v. De Guzman, 18Laurel
averred that the case is not one with telephone calls which originate with a particular caller and terminates with the
called party. He insisted that telephone calls are considered privileged communications under the Constitution and
cannot be considered as "the property of PLDT." He further argued that there is no kinship between telephone calls
and electricity or gas, as the latter are forms of energy which are generated and consumable, and may be

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considered as personal property because of such characteristic. On the other hand, the movant argued, the
telephone business is not a form of energy but is an activity.
In its Order19 dated December 11, 2001, the RTC denied the movants Motion for Reconsideration. This time, it
ruled that what was stolen from PLDT was its "business" because, as alleged in the Amended Information, the
international long distance calls made through the facilities of PLDT formed part of its business. The RTC noted that
the movant was charged with stealing the business of PLDT. To support its ruling, it cited Strochecker v.
Ramirez,20 where the Court ruled that interest in business is personal property capable of appropriation. It further
declared that, through their ISR operations, the movant and his co-accused deprived PLDT of fees for international
long distance calls, and that the ISR used by the movant and his co-accused was no different from the "jumper"
used for stealing electricity.
Laurel then filed a Petition for Certiorari with the CA, assailing the Order of the RTC. He alleged that the respondent
judge gravely abused his discretion in denying his Motion to Quash the Amended Information. 21 As gleaned from
the material averments of the amended information, he was charged with stealing the international long distance
calls belonging to PLDT, not its business. Moreover, the RTC failed to distinguish between the business of PLDT
(providing services for international long distance calls) and the revenues derived therefrom. He opined that a
"business" or its revenues cannot be considered as personal property under Article 308 of the Revised Penal Code,
since a "business" is "(1) a commercial or mercantile activity customarily engaged in as a means of livelihood and
typically involving some independence of judgment and power of decision; (2) a commercial or industrial
enterprise; and (3) refers to transactions, dealings or intercourse of any nature." On the other hand, the term
"revenue" is defined as "the income that comes back from an investment (as in real or personal property); the
annual or periodical rents, profits, interests, or issues of any species of real or personal property." 22
Laurel further posited that an electric companys business is the production and distribution of electricity; a gas
companys business is the production and/or distribution of gas (as fuel); while a water companys business is the
production and distribution of potable water. He argued that the "business" in all these cases is the commercial
activity, while the goods and merchandise are the products of such activity. Thus, in prosecutions for theft of
certain forms of energy, it is the electricity or gas which is alleged to be stolen and not the "business" of providing
electricity or gas. However, since a telephone company does not produce any energy, goods or merchandise and
merely renders a service or, in the words of PLDT, "the connection and interconnection to their telephone
lines/facilities," such service cannot be the subject of theft as defined in Article 308 of the Revised Penal Code. 23
He further declared that to categorize "business" as personal property under Article 308 of the Revised Penal Code
would lead to absurd consequences; in prosecutions for theft of gas, electricity or water, it would then be
permissible to allege in the Information that it is the gas business, the electric business or the water business
which has been stolen, and no longer the merchandise produced by such enterprise. 24
Laurel further cited the Resolution of the Secretary of Justice in Piltel v. Mendoza, 25 where it was ruled that the
Revised Penal Code, legislated as it was before present technological advances were even conceived, is not
adequate to address the novel means of "stealing" airwaves or airtime. In said resolution, it was noted that the
inadequacy prompted the filing of Senate Bill 2379 (sic) entitled "The Anti-Telecommunications Fraud of 1997" to
deter cloning of cellular phones and other forms of communications fraud. The said bill "aims to protect in number
(ESN) (sic) or Capcode, mobile identification number (MIN), electronic-international mobile equipment identity
(EMEI/IMEI), or subscriber identity module" and "any attempt to duplicate the data on another cellular phone
without the consent of a public telecommunications entity would be punishable by law." 26 Thus, Laurel concluded,
"there is no crime if there is no law punishing the crime."
On August 30, 2002, the CA rendered judgment dismissing the petition. 27 The appellate court ruled that a petition
for certiorari under Rule 65 of the Rules of Court was not the proper remedy of the petitioner. On the merits of the
petition, it held that while business is generally an activity
which is abstract and intangible in form, it is nevertheless considered "property" under Article 308 of the Revised
Penal Code. The CA opined that PLDTs business of providing international calls is personal property which may be
the object of theft, and cited United States v. Carlos 28 to support such conclusion. The tribunal also cited
Strochecker v. Ramirez,29 where this Court ruled that one-half interest in a days business is personal property
under Section 2 of Act No. 3952, otherwise known as the Bulk Sales Law. The appellate court held that the
operations of the ISR are not subsumed in the charge for violation of P.D. No. 401.
Laurel, now the petitioner, assails the decision of the CA, contending that THE COURT OF APPEALS ERRED IN RULING THAT THE PERSONAL PROPERTY ALLEGEDLY STOLEN PER THE
INFORMATION IS NOT THE "INTERNATIONAL LONG DISTANCE CALLS" BUT THE "BUSINESS OF PLDT."
THE COURT OF APPEALS ERRED IN RULING THAT THE TERM "BUSINESS" IS PERSONAL PROPERTY
WITHIN THE MEANING OF ART. 308 OF THE REVISED PENAL CODE.30
Petitioner avers that the petition for a writ of certiorari may be filed to nullify an interlocutory order of the trial
court which was issued with grave abuse of discretion amounting to excess or lack of jurisdiction. In support of his
petition before the Court, he reiterates the arguments in his pleadings filed before the CA. He further claims that
while the right to carry on a business or an interest or participation in business is considered property under the
New Civil Code, the term "business," however, is not. He asserts that the Philippine Legislature, which approved the
Revised Penal Code way back in January 1, 1932, could not have contemplated to include international long
distance calls and "business" as personal property under Article 308 thereof.
In its comment on the petition, the Office of the Solicitor General (OSG) maintains that the amended information
clearly states all the essential elements of the crime of theft. Petitioners interpretation as to whether an
"international long distance call" is personal property under the law is inconsequential, as a reading of the amended
information readily reveals that specific acts and circumstances were alleged charging Baynet, through its officers,

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including petitioner, of feloniously taking, stealing and illegally using international long distance calls belonging to
respondent PLDT by conducting ISR operations, thus, "routing and completing international long distance calls
using lines, cables, antenna and/or airwave frequency which connect directly to the local or domestic exchange
facilities of the country where the call is destined." The OSG maintains that the international long distance calls
alleged in the amended information should be construed to mean "business" of PLDT, which, while abstract and
intangible in form, is personal property susceptible of appropriation. 31 The OSG avers that what was stolen by
petitioner and his co-accused is the business of PLDT providing international long distance calls which, though
intangible, is personal property of the PLDT.32
For its part, respondent PLDT asserts that personal property under Article 308 of the Revised Penal Code
comprehends intangible property such as electricity and gas which are valuable articles for merchandise, brought
and sold like other personal property, and are capable of appropriation. It insists that the business of international
calls and revenues constitute personal property because the same are valuable articles of merchandise. The
respondent reiterates that international calls involve (a) the intangible telephone services that are being offered by
it, that is, the connection and interconnection to the telephone network, lines or facilities; (b) the use of its
telephone network, lines or facilities over a period of time; and (c) the income derived in connection therewith. 33
PLDT further posits that business revenues or the income derived in connection with the rendition of such services
and the use of its telephone network, lines or facilities are personal properties under Article 308 of the Revised
Penal Code; so is the use of said telephone services/telephone network, lines or facilities which allow electronic
voice signals to pass through the same and ultimately to the called partys number. It is akin to electricity which,
though intangible property, may nevertheless be appropriated and can be the object of theft. The use of
respondent PLDTs telephone network, lines, or facilities over a period of time for consideration is the business that
it provides to its customers, which enables the latter to send various messages to intended recipients. Such use
over a period of time is akin to merchandise which has value and, therefore, can be appropriated by another.
According to respondent PLDT, this is what actually happened when petitioner Laurel and the other accused below
conducted illegal ISR operations.34
The petition is meritorious.
The issues for resolution are as follows: (a) whether or not the petition for certiorari is the proper remedy of the
petitioner in the Court of Appeals; (b) whether or not international telephone calls using Bay Super Orient Cards
through the telecommunication services provided by PLDT for such calls, or, in short, PLDTs business of providing
said telecommunication services, are proper subjects of theft under Article 308 of the Revised Penal Code; and (c)
whether or not the trial court committed grave abuse of discretion amounting to excess or lack of jurisdiction in
denying the motion of the petitioner to quash the amended information.
On the issue of whether or not the petition for certiorari instituted by the petitioner in the CA is proper, the general
rule is that a petition for certiorari under Rule 65 of the Rules of Court, as amended, to nullify an order denying a
motion to quash the Information is inappropriate because the aggrieved party has a remedy of appeal in the
ordinary course of law. Appeal and certiorari are mutually exclusive of each other. The remedy of the aggrieved
party is to continue with the case in due course and, when an unfavorable judgment is rendered, assail the order
and the decision on appeal. However, if the trial court issues the order denying the motion to quash the Amended
Information with grave abuse of discretion amounting to excess or lack of jurisdiction, or if such order is patently
erroneous, or null and void for being contrary to the Constitution, and the remedy of appeal would not afford
adequate and expeditious relief, the accused may resort to the extraordinary remedy of certiorari. 35 A special civil
action for certiorari is also available where there are special circumstances clearly demonstrating the inadequacy of
an appeal. As this Court held in Bristol Myers Squibb (Phils.), Inc. v. Viloria: 36
Nonetheless, the settled rule is that a writ of certiorari may be granted in cases where, despite availability of
appeal after trial, there is at least a prima facie showing on the face of the petition and its annexes that: (a) the
trial court issued the order with grave abuse of discretion amounting to lack of or in excess of jurisdiction; (b)
appeal would not prove to be a speedy and adequate remedy; (c) where the order is a patent nullity; (d) the
decision in the present case will arrest future litigations; and (e) for certain considerations such as public welfare
and public policy.37
In his petition for certiorari in the CA, petitioner averred that the trial court committed grave abuse of its discretion
amounting to excess or lack of jurisdiction when it denied his motion to quash the Amended Information despite his
claim that the material allegations in the Amended Information do not charge theft under Article 308 of the Revised
Penal Code, or any offense for that matter. By so doing, the trial court deprived him of his constitutional right to be
informed of the nature of the charge against him. He further averred that the order of the trial court is contrary to
the constitution and is, thus, null and void. He insists that he should not be compelled to undergo the rigors and
tribulations of a protracted trial and incur expenses to defend himself against a non-existent charge.
Petitioner is correct.
An information or complaint must state explicitly and directly every act or omission constituting an offense 38 and
must allege facts establishing conduct that a penal statute makes criminal; 39 and describes the property which is
the subject of theft to advise the accused with reasonable certainty of the accusation he is called upon to meet at
the trial and to enable him to rely on the judgment thereunder of a subsequent prosecution for the same
offense.40 It must show, on its face, that if the alleged facts are true, an offense has been committed. The rule is
rooted on the constitutional right of the accused to be informed of the nature of the crime or cause of the
accusation against him. He cannot be convicted of an offense even if proven unless it is alleged or necessarily
included in the Information filed against him.
As a general prerequisite, a motion to quash on the ground that the Information does not constitute the offense
charged, or any offense for that matter, should be resolved on the basis of said allegations whose truth and
veracity are hypothetically committed;41 and on additional facts admitted or not denied by the prosecution. 42 If the
facts alleged in the Information do not constitute an offense, the complaint or information should be quashed by
the court.43

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We have reviewed the Amended Information and find that, as mentioned by the petitioner, it does not contain
material allegations charging the petitioner of theft of personal property under Article 308 of the Revised Penal
Code. It, thus, behooved the trial court to quash the Amended Information. The Order of the trial court denying the
motion of the petitioner to quash the Amended Information is a patent nullity.
On the second issue, we find and so hold that the international telephone calls placed by Bay Super Orient Card
holders, the telecommunication services provided by PLDT and its business of providing said services are not
personal properties under Article 308 of the Revised Penal Code. The construction by the respondents of Article 308
of the said Code to include, within its coverage, the aforesaid international telephone calls, telecommunication
services and business is contrary to the letter and intent of the law.
The rule is that, penal laws are to be construed strictly. Such rule is founded on the tenderness of the law for the
rights of individuals and on the plain principle that the power of punishment is vested in Congress, not in the
judicial department. It is Congress, not the Court, which is to define a crime, and ordain its punishment. 44 Due
respect for the prerogative of Congress in defining crimes/felonies constrains the Court to refrain from a broad
interpretation of penal laws where a "narrow interpretation" is appropriate. The Court must take heed to language,
legislative history and purpose, in order to strictly determine the wrath and breath of the conduct the law
forbids.45 However, when the congressional purpose is unclear, the court must apply the rule of lenity, that is,
ambiguity concerning the ambit of criminal statutes should be resolved in favor of lenity.46
Penal statutes may not be enlarged by implication or intent beyond the fair meaning of the language used; and
may not be held to include offenses other than those which are clearly described, notwithstanding that the Court
may think that Congress should have made them more comprehensive. 47 Words and phrases in a statute are to be
construed according to their common meaning and accepted usage.
As Chief Justice John Marshall declared, "it would be dangerous, indeed, to carry the principle that a case which is
within the reason or
mischief of a statute is within its provision, so far as to punish a crime not enumerated in the statute because it is
of equal atrocity, or of kindred character with those which are enumerated. 48 When interpreting a criminal statute
that does not explicitly reach the conduct in question, the Court should not base an expansive reading on
inferences from subjective and variable understanding.49
Article 308 of the Revised Penal Code defines theft as follows:
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 latters
consent.
The provision was taken from Article 530 of the Spanish Penal Code which reads:
1. Los que con nimo de lucrarse, y sin violencia o intimidacin en las personas ni fuerza en las cosas, toman las
cosas muebles ajenas sin la voluntad de su dueo.50
For one to be guilty of theft, the accused must have an intent to steal (animus furandi) personal property, meaning
the intent to deprive another of his ownership/lawful possession of personal property which intent is apart from and
concurrently with the general criminal intent which is an essential element of a felony of dolo (dolus malus).
An information or complaint for simple theft must allege the following elements: (a) the taking of personal
property; (b) the said property belongs to another; (c) the taking be done with intent to gain; and (d) the taking
be accomplished without the use of violence or intimidation of person/s or force upon things. 51
One is apt to conclude that "personal property" standing alone, covers both tangible and intangible properties and
are subject of theft under the Revised Penal Code. But the words "Personal property" under the Revised Penal Code
must be considered in tandem with the word "take" in the law. The statutory definition of "taking" and movable
property indicates that, clearly, not all personal properties may be the proper subjects of theft. The general rule is
that, only movable properties which have physical or material existence and susceptible of occupation by another
are proper objects of theft.52 As explained by Cuelo Callon: "Cosa juridicamente es toda sustancia corporal,
material, susceptible de ser aprehendida que tenga un valor cualquiera." 53
According to Cuello Callon, in the context of the Penal Code, only those movable properties which can be taken and
carried from the place they are found are proper subjects of theft. Intangible properties such as rights and ideas
are not subject of theft because the same cannot be "taken" from the place it is found and is occupied or
appropriated.
Solamente las cosas muebles y corporales pueden ser objeto de hurto. La sustraccin de cosas inmuebles y la
cosas incorporales (v. gr., los derechos, las ideas) no puede integrar este delito, pues no es posible asirlas,
tomarlas, para conseguir su apropiacin. El Codigo emplea la expresin "cosas mueble" en el sentido de cosa que
es susceptible de ser llevada del lugar donde se encuentra, como dinero, joyas, ropas, etctera, asi que su
concepto no coincide por completo con el formulado por el Codigo civil (arts. 335 y 336). 54
Thus, movable properties under Article 308 of the Revised Penal Code should be distinguished from the rights or
interests to which they relate. A naked right existing merely in contemplation of law, although it may be very
valuable to the person who is entitled to exercise it, is not the subject of theft or larceny.55 Such rights or interests
are intangible and cannot be "taken" by another. Thus, right to produce oil, good will or an interest in business, or
the right to engage in business, credit or franchise are properties. So is the credit line represented by a credit card.
However, they are not proper subjects of theft or larceny because they are without form or substance, the mere
"breath" of the Congress. On the other hand, goods, wares and merchandise of businessmen and credit cards

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issued to them are movable properties with physical and material existence and may be taken by another; hence,
proper subjects of theft.
There is "taking" of personal property, and theft is consummated when the offender unlawfully acquires possession
of personal property even if for a short time; or if such property is under the dominion and control of the thief. The
taker, at some particular amount, must have obtained complete and absolute possession and control of the
property adverse to the rights of the owner or the lawful possessor thereof.56 It is not necessary that the property
be actually carried away out of the physical possession of the lawful possessor or that he should have made his
escape with it.57 Neither asportation nor actual manual possession of property is required. Constructive possession
of the thief of the property is enough.58
The essence of the element is the taking of a thing out of the possession of the owner without his privity and
consent and without animus revertendi. 59
Taking may be by the offenders own hands, by his use of innocent persons without any felonious intent, as well as
any mechanical device, such as an access device or card, or any agency, animate or inanimate, with intent to gain.
Intent to gain includes the unlawful taking of personal property for the purpose of deriving utility, satisfaction,
enjoyment and pleasure.60
We agree with the contention of the respondents that intangible properties such as electrical energy and gas are
proper subjects of theft. The reason for this is that, as explained by this Court in United States v. Carlos 61 and
United States v. Tambunting,62 based on decisions of the Supreme Court of Spain and of the courts in England and
the United States of America, gas or electricity are capable of appropriation by another other than the owner. Gas
and electrical energy may be taken, carried away and appropriated. In People v. Menagas, 63 the Illinois State
Supreme Court declared that electricity, like gas, may be seen and felt. 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. 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. Electrical energy may, likewise, be
taken and carried away. It is a valuable commodity, bought and sold like other personal property. It may be
transported from place to place. There is nothing in the nature of gas used for illuminating purposes which renders
it incapable of being feloniously taken and carried away.
In People ex rel Brush Electric Illuminating Co. v. Wemple, 64 the Court of Appeals of New York held that electric
energy is manufactured and sold in determinate quantities at a fixed price, precisely as are coal, kerosene oil, and
gas. It may be conveyed to the premises of the consumer, stored in cells of different capacity known as an
accumulator; or it may be sent through a wire, just as gas or oil may be transported either in a close tank or forced
through a pipe. Having reached the premises of the consumer, it may be used in any way he may desire, being,
like illuminating gas, capable of being transformed either into heat, light, or power, at the option of the purchaser.
In Woods v. People,65 the Supreme Court of Illinois declared that 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.
Gas and electrical energy should not be equated with business or services provided by business entrepreneurs to
the public. Business does not have an exact definition. Business is referred as that which occupies the time,
attention and labor of men for the purpose of livelihood or profit. It embraces everything that which a person can
be employed.66 Business may also mean employment, occupation or profession. Business is also defined as a
commercial activity for gain benefit or advantage.67 Business, like services in business, although are properties, are
not proper subjects of theft under the Revised Penal Code because the same cannot be "taken" or "occupied." If it
were otherwise, as claimed by the respondents, there would be no juridical difference between the taking of the
business of a person or the services provided by him for gain, vis--vis, the taking of goods, wares or merchandise,
or equipment comprising his business.68 If it was its intention to include "business" as personal property under
Article 308 of the Revised Penal Code, the Philippine Legislature should have spoken in language that is clear and
definite: that business is personal property under Article 308 of the Revised Penal Code. 69
We agree with the contention of the petitioner that, as gleaned from the material averments of the Amended
Information, he is charged of "stealing the international long distance calls belonging to PLDT" and the use thereof,
through the ISR. Contrary to the claims of the OSG and respondent PLDT, the petitioner is not charged of stealing
P20,370,651.95 from said respondent. Said amount of P20,370,651.95 alleged in the Amended Information is the
aggregate amount of access, transmission or termination charges which the PLDT expected from the international
long distance calls of the callers with the use of Baynet Super Orient Cards sold by Baynet Co. Ltd.
In defining theft, under Article 308 of the Revised Penal Code, as the taking of personal property without the
consent of the owner thereof, the Philippine legislature could not have contemplated the human voice which is
converted into electronic impulses or electrical current which are transmitted to the party called through the PSTN
of respondent PLDT and the ISR of Baynet Card Ltd. within its coverage. When the Revised Penal Code was
approved, on December 8, 1930, international telephone calls and the transmission and routing of electronic voice
signals or impulses emanating from said calls, through the PSTN, IPL and ISR, were still non-existent. Case law is
that, where a legislative history fails to evidence congressional awareness of the scope of the statute claimed by
the respondents, a narrow interpretation of the law is more consistent with the usual approach to the construction
of the statute. Penal responsibility cannot be extended beyond the fair scope of the statutory mandate. 70
Respondent PLDT does not acquire possession, much less, ownership of the voices of the telephone callers or of the
electronic voice signals or current emanating from said calls. The human voice and the electronic voice signals or
current caused thereby are intangible and not susceptible of possession, occupation or appropriation by the
respondent PLDT or even the petitioner, for that matter. PLDT merely transmits the electronic voice signals through
its facilities and equipment. Baynet Card Ltd., through its operator, merely intercepts, reroutes the calls and passes
them to its toll center. Indeed, the parties called receive the telephone calls from Japan.

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In this modern age of technology, telecommunications systems have become so tightly merged with computer
systems that it is difficult to know where one starts and the other finishes. The telephone set is highly
computerized and allows computers to communicate across long distances. 71 The instrumentality at issue in this
case is not merely a telephone but a telephone inexplicably linked to a computerized communications system with
the use of Baynet Cards sold by the Baynet Card Ltd. The corporation uses computers, modems and software,
among others, for its ISR.72
The conduct complained of by respondent PLDT is reminiscent of "phreaking" (a slang term for the action of making
a telephone system to do something that it normally should not allow by "making the phone company bend over
and grab its ankles"). A "phreaker" is one who engages in the act of manipulating phones and illegally markets
telephone services.73 Unless the phone company replaces all its hardware, phreaking would be impossible to stop.
The phone companies in North America were impelled to replace all their hardware and adopted full digital
switching system known as the Common Channel Inter Office Signaling. Phreaking occurred only during the 1960s
and 1970s, decades after the Revised Penal Code took effect.
The petitioner is not charged, under the Amended Information, for theft of telecommunication or telephone
services offered by PLDT. Even if he is, the term "personal property" under Article 308 of the Revised Penal Code
cannot be interpreted beyond its seams so as to include "telecommunication or telephone services" or computer
services for that matter. The word "service" has a variety of meanings dependent upon the context, or the sense in
which it is used; and, in some instances, it may include a sale. For instance, the sale of food by restaurants is
usually referred to as "service," although an actual sale is involved. 74 It may also mean the duty or labor to be
rendered by one person to another; performance of labor for the benefit of another.75 In the case of PLDT, it is to
render local and international telecommunications services and such other services as authorized by the CPCA
issued by the NTC. Even at common law, neither time nor services may be taken and occupied or appropriated. 76A
service is generally not considered property and a theft of service would not, therefore, constitute theft since there
can be no caption or asportation.77 Neither is the unauthorized use of the equipment and facilities of PLDT by the
petitioner theft under the aforequoted provision of the Revised Penal Code. 78
If it was the intent of the Philippine Legislature, in 1930, to include services to be the subject of theft, it should
have incorporated the same in Article 308 of the Revised Penal Code. The Legislature did not. In fact, the Revised
Penal Code does not even contain a definition of services.
If taking of telecommunication services or the business of a person, is to be proscribed, it must be by special
statute79 or an amendment of the Revised Penal Code. Several states in the United States, such as New York, New
Jersey, California and Virginia, realized that their criminal statutes did not contain any provisions penalizing the
theft of services and passed laws defining and penalizing theft of telephone and computer services. The
Pennsylvania Criminal Statute now penalizes theft of services, thus:
(a) Acquisition of services. -(1) A person is guilty of theft if he intentionally obtains services for himself or for another which he knows are
available only for compensation, by deception or threat, by altering or tampering with the public utility meter or
measuring device by which such services are delivered or by causing or permitting such altering or tampering, by
making or maintaining any unauthorized connection, whether physically, electrically or inductively, to a distribution
or transmission line, by attaching or maintaining the attachment of any unauthorized device to any cable, wire or
other component of an electric, telephone or cable television system or to a television receiving set connected to a
cable television system, by making or maintaining any unauthorized modification or alteration to any device
installed by a cable television system, or by false token or other trick or artifice to avoid payment for the service.
In the State of Illinois in the United States of America, theft of labor or services or use of property is penalized:
(a) A person commits theft when he obtains the temporary use of property, labor or services of another which are
available only for hire, by means of threat or deception or knowing that such use is without the consent of the
person providing the property, labor or services.
In 1980, the drafters of the Model Penal Code in the United States of America arrived at the conclusion that labor
and services, including professional services, have not been included within the traditional scope of the term
"property" in ordinary theft statutes. Hence, they decided to incorporate in the Code Section 223.7, which defines
and penalizes theft of services, thus:
(1) A person is guilty of theft if he purposely obtains services which he knows are available only for compensation,
by deception or threat, or by false token or other means to avoid payment for the service. "Services" include labor,
professional service, transportation, telephone or other public service, accommodation in hotels, restaurants or
elsewhere, admission to exhibitions, use of vehicles or other movable property. Where compensation for service is
ordinarily paid immediately upon the rendering of such service, as in the case of hotels and restaurants, refusal to
pay or absconding without payment or offer to pay gives rise to a presumption that the service was obtained by
deception as to intention to pay; (2) A person commits theft if, having control over the disposition of services of
others, to which he is not entitled, he knowingly diverts such services to his own benefit or to the benefit of
another not entitled thereto.
Interestingly, after the State Supreme Court of Virginia promulgated its decision in Lund v.
Commonwealth,80declaring that neither time nor services may be taken and carried away and are not proper
subjects of larceny, the General Assembly of Virginia enacted Code No. 18-2-98 which reads:
Computer time or services or data processing services or information or data stored in connection therewith is
hereby defined to be property which may be the subject of larceny under 18.2-95 or 18.2-96, or embezzlement
under 18.2-111, or false pretenses under 18.2-178.
In the State of Alabama, Section 13A-8-10(a)(1) of the Penal Code of Alabama of 1975 penalizes theft of services:

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"A person commits the crime of theft of services if: (a) He intentionally obtains services known by him to be
available only for compensation by deception, threat, false token or other means to avoid payment for the services
"
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 instrumentalities-identifier 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.
Section 33 of Republic Act No. 8792, Electronic Commerce Act of 2000 provides:
Sec. 33. Penalties. The following Acts shall be penalized by fine and/or imprisonment, as follows:
a) Hacking or cracking which refers to unauthorized access into or interference in a computer system/server or
information and communication system; or any access in order to corrupt, alter, steal, or destroy using a computer
or other similar information and communication devices, without the knowledge and consent of the owner of the
computer or information and communications system, including the introduction of computer viruses and the like,
resulting on the corruption, destruction, alteration, theft or loss of electronic data messages or electronic
documents shall be punished by a minimum fine of One hundred thousand pesos (P100,000.00) and a maximum
commensurate to the damage incurred and a mandatory imprisonment of six (6) months to three (3) years.
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.
G.R. No. 194077, December 03, 2014
FLORENTINO W. LEONG AND ELENA LEONG, ET AL., Petitioners, v. EDNA C. SEE, Respondent.
DECISION
LEONEN, J.:
Factual findings of lower courts are generally deemed conclusive and binding upon this court. 1 In any event, even
if the procurement of title was tainted with fraud and misrepresentation, such defective title may be the source of a
completely legal and valid title in the hands of an innocent purchaser for value.2
This petition originated from two civil complaints involving the sale of a parcel of land in favor of respondent Edna
C. See (Edna). Before us is a petition for review3 assailing the Court of Appeals (a) May 19, 2010 decision
affirming in toto the trial court's July 9, 2008 decision granting Edna possession and ownership over the land upon
finding her to be a buyer in good faith and for value, and (b) August 25, 2010 resolution denying reconsideration.
Petitioners pray for the reversal of the Court of Appeals decision and resolution, as well as the trial courts
decision.4 They pray that this court render its decision as follows:
(a) The Deed of Sale between Edna See and Carmelita Leong is hereby declared null and void. The Register [of]
Deeds for the City of Manila is hereby directed to cancel TCT No. 231105 in the name of Edna See and reinstating
TCT No. 175628;
(b) Confirming the right of Elena Leong and those people claiming right under her, to the possession over the
subject property; [and]
(c) Defendants Carmelita Leong and Edna See are declared to be jointly and severally liable to pay plaintiff,
Florentino Leong[,] the sum of Php50,000.00 as moral damages; the sum of Php50,000.00 a[s] Attorneys Fees;
and the cost of suit.5
The spouses Florentino Leong (Florentino) and Carmelita Leong (Carmelita) used to own the property located at
No. 53941 Z.P. De Guzman Street, Quiapo, Manila. 6
Petitioner Elena Leong (Elena) is Florentino's sister-in-law.7 She had stayed with her in-laws on the property
rental-free for over two decades until the building they lived in was razed by fire. 8 They then constructed
makeshift houses, and the rental-free arrangement continued. 9

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Florentino and Carmelita immigrated to the United States and eventually had their marriage dissolved in Illinois. 10
A provision in their marital settlement agreement states that Florentino shall convey and quitclaim all of his right,
title and interest in and to 540 De Guzman Street, Manila, Philippines . . . to Carmelita.11
The Court of Appeals found that [a]pparently intercalated in the lower margin of page 12 of the instrument was a
long-hand scribbling of a proviso, purporting to be a footnote remark: 12
Neither party shall evict or charge rent to relatives of the parties, or convey title, until it has been established that
Florentino has clear title to the Malabon property. Clear title to be established by the attorneys for the parties or
the ruling of a court of competent jurisdiction. In the event Florentino does not obtain clear title, this court
reserves jurisdiction to reapportion the properties or their values to effect a 50-50 division of the value of the 2
remaining Philippine properties.13
On November 14, 1996,14 Carmelita sold the land to Edna.15 In lieu of Florentino's signature of conformity in the
deed of absolute sale, Carmelita presented to Edna and her father, witness Ernesto See, a waiver of interest
notarized on March 11, 1996 in Illinois.16 In this waiver, Florentino reiterated his quitclaim over his right, title, and
interest to the land.17 Consequently, the lands title, covered by TCT No. 231105, was transferred to Edna's
name.18
Edna was aware of the Leong relatives staying in the makeshift houses on the land. 19 Carmelita assured her that
her nieces and nephews would move out, but demands to vacate were unheeded. 20
On April 1, 1997,21 Edna filed a complaint22 for recovery of possession against Elena and the other relatives of the
Leong ex-spouses.23
The complaint alleged that in 1995 after the fire had razed the building on the land, Elena erected makeshift
houses on the land without Carmelitas knowledge or consent. 24
In response, Elena alleged the titles legal infirmity for lack of Florentino's conformity to its sale. 25 She argued that
Carmelita's non-compliance with the proviso in the property agreement that the Quiapo property may not be
alienated without Florentino first obtaining a clean title over the Malabon property 26 annulled the transfer to
Edna.
On April 23, 1997, Florentino filed a complaint27 for declaration of nullity of contract, title, and damages against
Carmelita Leong, Edna C. See, and the Manila Register of Deeds, alleging that the sale was without his consent. 28
The two cases were consolidated.
The Regional Trial Court, in its decision 29 dated July 9, 2008, ruled in favor of Edna:
WHEREFORE, in view of the foregoing, judgment is hereby rendered as follows:
(a) Defendant Edna See is granted possession and ownership over the subject property;
(b) Defendants Elena Leong and all other persons are directed to vacate the premises at 539541 Guzman Street,
Quiapo, Manila; [and]
(c) Defendant Carmelita Leong is ordered to pay plaintiff, Florentino Leong his one-half (1/2) or P2 Million with
interest thereon at the rate of 6% per annum from the date of conveyance on November 12, 1996, up to the
finality of this Decision; the sum of PhP 50,000.00 as moral damages; the sum of PhP 50,000.00 for attorneys
fees; and, the costs of the suit.
SO ORDERED.30
The Court of Appeals, in its decision31 dated May 19, 2010, affirmed in toto the trial courts decision. 32 It likewise
denied reconsideration.
Thus, this petition for review was filed.
Petitioners contend that the principle of indefeasibility of Torrens titles does not apply when fraud exists, and
respondent was a buyer in bad faith.33 Respondent knew at the time of the purchase that Elena had actual
possession of the property, thus, she should have made inquiries on their right to the property.34
Petitioners argue the conjugal nature of the property, evidenced by the title in the names of Florentino and
Carmelita Leong, and the waiver relied upon by respondent.35 They cite Articles 336 and 1537 of the Civil Code, and
Articles 8738and 13439 of the Family Code, to support their contention that respondent should have demanded
Florentinos consent to the sale.40 Petitioners submit that Florentinos waiver is void since donations between
spouses are void.41
Petitioners argue that respondent should bear the loss 42 of her negligence in purchasing the property without
Florentinos consent.43 They cite at length Aggabao v. Parulan, Jr.44 to support their argument that respondent
failed to exercise the required due diligence in the purchase of the property.45 Consequently, petitioners submit
that the lower courts erred in ruling that respondent was entitled to possession of the property.46
Respondent counters that only questions of law can be raised in a petition for review on certiorari, and petitioners
raise purely factual questions.47
In any event, the lower courts correctly found that respondent is a purchaser in good faith for value who exercised
the necessary diligence in purchasing the property.48
First, good faith is presumed, and petitioners did not substantiate their bold allegation of fraud. 49 Second,
respondent did not rely on the clean title alone precisely because of the possession by third parties, thus, she also
relied on Florentinos waiver of interest.50 Respondent even verified the authenticity of the title at the Manila
Register of Deeds with her father and Carmelita. 51 These further inquiries prove respondents good faith.52

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Respondent submits that petitioners invocation of the Civil Code provisions misleads this court. 53 Philippine laws
cannot govern Florentino who was already an American citizen when he executed the waiver of interest, obtained a
divorce, and signed a marital settlement agreement with Carmelita on July 8, 1994. 54 The waiver was also a
consequence of the separation of properties and not in the nature of a donation between spouses. 55
Lastly, respondent argues that between possessors who are not owners and a buyer in good faith and for value, it
is clear in this case that the Respondent Edna See, the buyer in good faith, has the greater right to possession over
the subject property.56
The sole issue for resolution is whether respondent Edna C. See is a buyer in good faith and for value.
We affirm the Court of Appeals.
The Torrens system was adopted to obviate possible conflicts of title by giving the public the right to rely upon the
face of the Torrens certificate and to dispense, as a rule, with the necessity of inquiring further.57
One need not inquire beyond the four corners of the certificate of title when dealing with registered property.58
Section 44 of Presidential Decree No. 1529 known as the Property Registration Decree recognizes innocent
purchasers in good faith for value and their right to rely on a clean title:
Section 44. Statutory liens affecting title. - 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 in 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
encumbrances of record.
Second. Unpaid real estate taxes levied and assessed within two years immediately preceding the acquisition of
any right over the land by an innocent purchaser for value, without prejudice to the right of the government to
collect taxes payable before that period from the delinquent taxpayer alone.
Third. Any public highway or private way established or recognized by law, or any government irrigation canal or
lateral thereof, if the certificate of title does not state that the boundaries of such highway or irrigation canal or
lateral thereof have been determined.
Fourth. Any disposition of the property or limitation on the use thereof by virtue of, or pursuant to, Presidential
Decree No. 27 or any other law or regulations on agrarian reform.59 (Emphasis supplied)
An innocent purchaser for value refers to someone who buys the property of another without notice that some
other person has a right to or interest in it, and who pays a full and fair price at the time of the purchase or before
receiving any notice of another persons claim.60 One claiming to be an innocent purchaser for value has the
burden of proving such status.61
The protection of innocent purchasers in good faith for value grounds on the social interest embedded in the legal
concept granting indefeasibility of titles. Between the third party and the owner, the latter would be more familiar
with the history and status of the titled property. Consequently, an owner would incur less costs to discover
alleged invalidities relating to the property compared to a third party. Such costs are, thus, better borne by the
owner to mitigate costs for the economy, lessen delays in transactions, and achieve a less optimal welfare level for
the entire society.62
Both lower courts found respondent to be an innocent purchaser in good faith for value. 63 The trial court
discussed:
By her overt acts, Edna See with her father verified the authenticity of Carmelitas land title at the Registry of
Deeds of Manila. There was no annotation on the same thus deemed a clean title (page 19, TSN, 12 January
2005). Also, she relied on the duly executed and notarized Certificate of Authority issued by the State of Illinois
and Certificate of Authentication issued by the Consul of the Republic of the Philippines for Illinois in support to the
Waiver of Interest incorporated in the Deed of Absolute Sale presented to her by Carmelita (Exhibit 2).
Examination of the assailed Certificate of Authority shows that it is valid and regular on its face. It contains a
notarial seal. . . .
. . . . The assailed Certificate of Authority is a notarized document and therefore, presumed to be valid and duly
executed. Thus, Edna Sees reliance on the notarial acknowledgment found in the duly notarized Certificate of
Authority presented by Carmelita is sufficient evidence of good faith. . . . 64
A determination of whether a party is an innocent purchaser in good faith and for value involves a factual issue
beyond the ambit of a petition for review on certiorari. 65
Generally, factual findings of lower courts are deemed conclusive and binding upon this court. 66 No cogent reason
exists to overturn the findings of both lower courts.
Petitioners raise that actual possession of the property by a person other than the vendor should put the
purchaser in inquiry and absen[t] such inquiry[,] he cannot be regarded as a bona fide purchaser against such
possessors.67
As discussed by the Court of Appeals, respondent did conduct further inquiry by relying not only on the certificate
of title, but also on Florentinos waiver.68
Petitioners submit that respondent bought the property knowing that Florentino and Carmelita were married. 69
They then invoke Civil Code and Family Code provisions on the nature of conjugal properties and the prohibition
against donations between spouses.70

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Respondent counters that Florentino and Carmelita were already American citizens when they executed the marital
settlement agreement.71 She even presented before the trial court Florentinos special power of attorney executed
on March 25, 1997 to prove Florentinos citizenship. 72
The trial court disregarded petitioners argument on the applicability of our civil laws on the validity of the sale
since it already deemed respondent to be an innocent purchaser in good faith and for value. 73 The trial court added
that since [respondent] parted with a substantial amount of P4 Million, equity dictates that she shall have
possession of the property[,] [n]onetheless, Florentino Leong shall get his one-half share of the purchase price.74
On the other hand, the Court of Appeals discussed that Florentino was estopped from questioning the transfer of
the property since he already waived all his rights, title, and interests over the same. 75 The court also found that
the intercalated proviso in the marital settlement agreement violated the mutuality of contracts principle. 76
The question of whether Florentino and Carmelita were already American citizens at the time of the propertys sale
to Edna thus no longer covered by our laws relating to family rights and duties 77 involves a factual question
outside the ambit of a petition for review on certiorari.
In any event, respondent exerted due diligence when she ascertained the authenticity of the documents attached
to the deed of sale such as the marital settlement agreement with Florentinos waiver of interest over the property.
She did not rely solely on the title. She even went to the Registry of Deeds to verify the authenticity of the title. 78
These further inquiries were considered by the lower courts in finding respondent to be an innocent purchaser in
good faith and for value.
Lastly, an allegation of fraud must be substantiated. Rule 8, Section 5 of the Rules of Court provides:
SEC. 5. Fraud, mistake, condition of the mind. In all averments of fraud or mistake, the circumstances
constituting fraud or mistake must be stated with particularity . Malice intent, knowledge or other condition
of the mind of a person may be averred generally. (Emphasis supplied)
In petitioners memorandum before this court, they mentioned the rule of fraud as an exception to the
indefeasibility of title principle, but failed to substantiate their allegation by immediately concluding as follows:
Petitioners beg to disagree with the ruling of the Honorable Trial Court and the Honorable Court of Appeals.
Respondent Edna See is not a buyer in good faith. The ruling that every person can rely on the correctness of the
certificate of title and that the buyer need not go beyond the four corners of the title to determine the condition of
the property is not absolute and admits of exception. As held in the case of Remegia Feliciano vs. Sps. Zaldivar,
G.R. No. 162593, 2006 Sep 26 the principle of indefeasibilty of a Torrens title does not apply where fraud attended
the issuance of the title. The Torrens title does not furnish a shield for fraud. As such, a title issued based on void
documents may be annulled.79 (Emphasis in the original removed)
Even assuming the procurement of title was tainted with fraud and misrepresentation, such defective title may still
be the source of a completely legal and valid title in the hands of an innocent purchaser for value.80
Respondent, an innocent purchaser in good faith and for value with title in her name, has a better right to the
property than Elena. Elenas possession was neither adverse to nor in the concept of owner.81
Article 428 of the Civil Code provides:
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. 82
Thus, respondent had every right to pursue her claims as she did.
WHEREFORE, premises considered, the Court of Appeals decision in CA-G.R. CV No. 92289 is AFFIRMED.
SO ORDERED.

THIRD DIVISION

174

MANILA ELECTRIC COMPANY (MERALCO),

Petitioner,

G.R. NO. 160422

Present:

CARPIO MORALES, J., Chairperson,

-

versus -

BRION,
BERSAMIN,
ABAD,* and
VILLARAMA, JR., JJ.

SPS. EDITO and

JOSEFINA PAQUEO,

FELICIDAD

CHUA,

and

Promulgated:

Respondents.
July 5, 2010

x-------------------------------------------------------------------------------------------------------- x
DECISION
BRION, J.:

Manila Electric Company (MERALCO or petitioner) assails in this petition for review on certiorari[1] the
decision of the Court of Appeals (CA or appellate court), dated October 20, 2003,[2] in CA-G.R. SP No. 77034,
affirming with modification the March 26, 2003 decision of the Regional Trial Court (RTC) of Quezon City, Branch
82, in Civil Case No. Q-97-30503.[3]

The affirmed RTC decision ordered the petitioner to restore the electric power connection of spouses Edito
and Felicidad Chua (Chuas) at their residence, and awarded P300,000.00 as moral damages. The CA affirmed the
restoration of electric power connection but reduced the awarded moral damages to P100,000.00.

BACKGROUND FACTS

The facts, as found by the RTC and affirmed by the CA, are summarized below.

MERALCO is a utility company engaged in the business of sale and distribution of electricity within its franchise
area. The Chuas are the beneficial users at their residence of electric service provided by MERALCO, registered

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under the name of respondent Josefina Paqueo with Account Number 05091-4038-14. MERALCO installed an
electric meter with number Co. No. 33 SPN 46170 in front of the Chuas home to record the Chuas electric
consumption. The meter was in a concrete post outside the Chuas perimeter fence.[4]

From June 11, 1996 to September 11, 1996, the Chuas consumed between 231 to 269 kilowatt hours of electricity
per month, with their corresponding monthly electric bills ranging from P747.84 to P887.27. In October 1996, the
Chuas were surprised to receive an electricity bill for the amount of P4,906.87 for the period of September 11
to October 11, 1996 (September 1996 bill). According to this bill, they consumed 1,297 kilowatt hours for this one
month period, or approximately 553% higher than their previous monthly bill. [5] Alarmed by the significant
increase, Florence Chua (the Chuas daughter) went to the MERALCO office to question the bill. Florence paid the
bill under protest to avoid disconnection.

On October 31, 1996, MERALCO responded to the Chuas complaint by sending a representative, Francisco
Jose Albano, to their residence to inspect the electric meter. Albano filed a Meter/Socket Inspection Report stating
that he replaced the old meter [6] and installed a new one[7] because the old meters terminal seal was missing, the
cover seal was broken, and the meter had a broken sealing wire.[8]

The Chuas were billed based on the new meter and its readings from October 11, 1996 to January 24,
1997, with an average usage ranging from 227 to 254 kilowatt hours, with corresponding monthly electric bills
ranging from P700.00 to P800.00.[9]

On January 3, 1997, the Chuas received a letter from MERALCO, stating that:

Our Inspection Office has referred to us for appropriate action the following finding(s) of
our service inspectors and meter laboratory technicians after your metering installation at the
above address was inspected on OCTOBER 31, 1996:

1.

THE TERMINAL SEAL WAS MISSING.

2.

THE SEALING WIRE OF THE ERB AND MERALCO LEAD COVER SEALS WAS CUT.

3.

THE 1000TH, 100TH AND 10TH DIAL POINTERS OF THE REGISTER WERE OUT OF
ALIGNMENT.

Given the above condition(s) and in accordance with the rules implementing
Republic Act 7832, you are billed the amount of P183,983.66 (rate charge
ofP179,353.26 and energy tax of P4,630.40). Furthermore, the company is now allowed to
collect Surcharges as a penalty for all Violation of Contract cases apprehended effectiveJanuary
17, 1995, which would be collected later.

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This is a formal demand upon you to pay the above stated amount at this office within
ten days from your receipt of this letter; if no settlement is made within the given grace period,
your service shall be disconnected and the necessary criminal or civil action initiated against you
for violation of Republic Act 7832.[10]

The Chuas refused to pay as demanded. On January 24, 1997, MERALCO returned to their residence and
removed Meter No. 33RZN80082, thereby disconnecting their electric supply.

On February 5, 1997, MERALCO sent the Chuas another demand letter stating that it had re-evaluated the
Chuas case based on field findings and the documents they furnished, and reduced the amount they had to pay
from P183,983.66 to P71,737.49.[11]

On March 11, 1997, the Chuas filed a complaint for mandamus and damages, [12] praying that they be
granted a preliminary mandatory injunction to compel MERALCO to restore the electrical connection to their
residence. The Chuas also asked the court to award them moral and exemplary damages, attorneys fees, and
litigation expenses.

After trial, the RTC rendered its decision, whose dispositive portion states:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and
against the defendant ordering the latter as follows:

1)

To restore to plaintiffs at their residence at #9 Hukvet St., Area I, Veterans Village, Quezon
City their electric power connection and/or services;

2)

To pay the plaintiffs the sum of P300,000.00 as and by way of moral damages;

3)

To pay the plaintiffs the sum of P30,000.00 as and by way of attorneys fees;

4)

To pay the cost of suit.

SO ORDERED.[13]

MERALCO appealed the trial courts decision to the CA.

The CA affirmed the RTC decision. [14] The appellate court confirmed that the meter had been tampered, but found
that the tampering was mitigated by the Chuas voluntary act of going to MERALCO to report the possible defect in

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their meter. The voluntary act, according to the court, constituted good faith as MERALCO would not have
discovered the defects in the meter if the Chuas had not reported the matter.

The appellate court also noted that while Section 6 of Republic Act No. 7832 (RA 7832), or the AntiElectricity and Electric Transmission Lines/Materials Pilferage Act of 1994, allows MERALCO to immediately
disconnect electric service, it may only do so when the owner of the house has either been caught in flagrante
delicto in any of the acts constituting prima facie evidence of illegal use, or has been discovered a second time in
any of the enumerated circumstances. In the Chuas case, they were not caught in flagrante delicto as they in fact
reported the defect in their meter. This was the first instance, too, that MERALCO had discovered any tampering in
the Chuas meter. Under these circumstances, the appellate court concluded that MERALCO had no legal right to
disconnect the Chuas electrical service.

While upholding the RTCs factual findings, the CA modified the RTC decision by reducing the awarded moral
damages from P300,000.00 to P100,000.00.

THE PETITION

MERALCO filed the present petition, raising the following arguments: [15]

I.

II.

III.

The CA erred in ruling that MERALCO had no right to disconnect the electric service of the Chuas.

MERALCO is entitled to collect the differential billing of P183,983.66.

Even assuming that MERALCO had no right to disconnect the Chuas electric service, they are
nevertheless not entitled to moral damages in the absence of evidence of damages they sustained.

MERALCO points out that it did not immediately disconnect electric service to the Chuas. It first sent
several demand letters explaining the meter tampering and demanding payment for the billed differential in the
sum of P183,983.66. It was only after the Chuas refused to pay the differential billing that MERALCO disconnected
their electric service.

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Additionally, MERALCO contends that based on Section 9 of RA 7832, no writs of injunction shall be issued
by any court against any private electric utility exercising its right and authority to disconnect electric service
unless there is prima facie evidence that the disconnection was made with evident bad faith or grave abuse of
authority. Since the Chuas failed to prove MERALCOs evident bad faith in disconnecting their electric service, they
are not entitled to an injunctive writ.

MERALCO further posits that the deliberate manipulation of the dial pointers prevented the full and correct
billing of the electric energy actually delivered to and consumed by the Chuas. The differential billing represents
the monetary equivalent of the electricity used by the Chuas but not registered by the meter.

Lastly, MERALCO maintains that even if it had no right to disconnect the Chuas electric service, the Chuas
nevertheless are not entitled to moral damages. The Chuas did not sustain damages after the disconnection since
they sourced their electric supply from another electric meter within the premises.

THE COURTS RULING

We deny the petition for lack of merit.

Prima facie evidence of

illegal use of electricity

MERALCO claims that the meter tampering in this case stands undisputed in the evidence on
record. Under RA 7832, the law presumes that the person benefited by the unlawful use of electricity is the
perpetrator of the meter tampering. Thus, no need arose for MERALCO to prove that the Chuas actually tampered
with their meter; pursuant to Section 4 of RA 7832, Meralco had the right to immediately disconnect the Chuas
electric service.

We find MERALCOs position legally incorrect. Essential to the resolution of this issue is Section 4 of RA 7832,
which reads:

SEC. 4. Prima Facie Evidence.

(a) The presence of any of the following circumstances shall constitute prima facie evidence of
illegal use of electricity, as defined in this Act, by the person benefited thereby, and shall
be the basis for: (1) the immediate disconnection by the electric utility to such person
after due notice, x x x
(iv) The presence of a tampered, broken, or fake seal on the meter, or mutilated,
altered, or tampered meter recording chart or graph or computerized chart, graph,
or log.

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xxx
(viii) x x x Provided, however, That the discovery of any of the foregoing
circumstances, in order to constitute prima facie evidence, must be personally
witnessed and attested to by an officer of the law or a duly authorized
representative of the Energy Regulatory Board (ERB).

To reiterate, the discovery of a tampered, broken, or fake seal on the meter shall only constitute prima
facie evidence of illegal use of electricity by the person who benefits from the illegal use if such discovery
is personally witnessed and attested to by an officer of the law or a duly authorized representative of
the Energy Regulatory Board (ERB). With such prima facie evidence, MERALCO is within its rights to
immediately disconnect the electric service of the consumer after due notice.

Section 1, Rule III of the Rules and Regulations Implementing RA 7832 (IRR) defines an officer of the law as
one who, by direct supervision of law or by election or by appointment by competent authority, is charged with the
maintenance of public order and the protection and security of life and property, such as barangay captain,
barangay chairman, barangay councilman, barangay leader, officer or member of Barangay Community Brigades,
barangay policeman, PNP policeman, municipal councilor, municipal mayor and provincial fiscal.

The importance of having an authorized government representative present during an inspection was
highlighted during the Senate deliberations on RA 7832 when Senator John H. Osmea, the laws author, explained:

Mr. President, if a utility like MERALCO finds certain circumstances or situations which
are listed in Section 2 of this bill to be prima facie evidence, I think they should be prudent
enough to bring in competent authority, either the police or the NBI, to verify or
substantiate their finding. If they were to summarily proceed to disconnect on the basis of
their findings and later on there would be a court case and the customer or the user would deny
the existence of what is listed in Section 2, then they could be in a lot of trouble. [16]

We emphasized the significance of this requirement in Sps. Quisumbing v. MERALCO,[17] when we said:

The presence of government agents who may authorize immediate disconnections go

into the essence of due process. Indeed, we cannot allow respondent to act virtually as
prosecutor and judge in imposing the penalty of disconnection due to alleged meter tampering.
That would not sit well in a democratic country. After all, Meralco is a monopoly that derives its
power from the government. Clothing it with unilateral authority to disconnect would be
equivalent to giving it a license to tyrannize its hapless customers. [18]

After thoroughly examining the records of this case, we find no proof that MERALCO ever complied with the
required presence of an officer of the law. In his testimony, Albano never mentioned that he was accompanied by

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an authorized government representative during the inspection. As evident from the Meter/Socket Inspection
Report, only Albano inspected the Chuas electric meter; no evidence shows that he was accompanied by anyone
else. Most telling of all, MERALCO does not even allege in its submissions with this Court that an ERB
representative or an officer of the law ever accompanied its representative during the inspection of the Chuas
electric meter.

We note, too, that while MERALCO claimed in its Answer that an ERB representative was present and
witnessed the testing of the Chuas electric meter at the MERALCO laboratory,[19] it never once identified this ERB
representative. MERALCO did not allege in either the present petition or in the Memorandum it filed with this Court
that an ERB representative witnessed the laboratory testing of the Chuas electric meter. The Meter Verification
Report,[20] the document that contains the results of the laboratory testing, was also not signed by either an ERB
representative or by any officer of the law.

For lack of any evidence showing that a government representative personally witnessed and attested to
the discovery of the Chuas tampered electric meter, no supporting prima facie evidence can be invoked for the
immediate disconnection of the Chuas electric service pursuant to Section 4 of RA 7832.

Consumer not the proper witness to inspection

Rule III, Section 1 of the IRR provides: In order to constitute prima facie evidence, the discovery of any of
the circumstances enumerated in Section 1 hereof, must be personally witnessed and attested to by the
consumer concerned or a duly authorized ERB representative or any officer of the law, as the case may be.

We hold the view, however, that the inclusion of the phrase by the consumer concerned in the
IRR is invalid because it is in excess of what the law being implemented provides. As RA 7832 stands,
only the presence of an authorized government agent, either an officer of the law or an authorized representative
of the ERB, during the MERALCO inspection would allow any of the circumstances enumerated in Section 4 of RA
7832 to be considered prima facie evidence of illegal use of electricity by the benefited party. The law does not
include the consumer or the consumers representative in this enumeration.

In legal contemplation, the ERBs inclusion of the phrase by the consumer concerned in Rule III, Section 1
of the IRR expanded the clear wording of the lawand violated the recognized principle that an administrative
agencys rule-making power is confined to filling in the gaps and the necessary details in carrying into effect the law
as enacted; rule-making cannot extend, amend, or expand statutory requirements or embrace matters not covered
by the law being implemented. Administrative regulations must always be in harmony with the provisions of the
law because any resulting discrepancy between the two will always be resolved in favor of the basic law. [21] In the
present case, the consumer cannot in any way be considered to be in the same classification as the named
government representatives so that his or her presence can be a substitute for the presence of these
representatives.

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For this reason, even if Florence Chua, the Chuas daughter, acknowledged that she witnessed Albanos
examination of the electric meter outside their house so that she signed the Meter/Socket Inspection Report, her
presence did not characterize the discovered broken meter seal as prima facie evidence of illegal use of electricity
justifying immediate disconnection.
Legal requirements for authority
to disconnect electricity

Section 6 of RA 7832 provides another mandatory requirement before MERALCO can immediately
disconnect a consumers electric service. The provision reads:

SEC. 6. Disconnection of Electric Service. - The private electric utility or rural electric
cooperative concerned shall have the right and authority to disconnect immediately the electric
service after serving the written notice or warning to the effect, without the need of a court or
administrative order, and deny restoration of the same, when the owner of the house or
establishment concerned or someone acting in his behalf shall have been caught en
flagrante delicto doing any of the acts enumerated in section 4 (a) hereof, or when any of
the circumstances so enumerated shall have been discovered for the second
time: Provided, That in the second case, a written notice or warning shall have been issued upon
the first discovery: Provided, further, That the electric service shall not be immediately
disconnected or shall be immediately restored upon the deposit of the amount representing the
differential billing by the person denied the service, with the private electric utility or the rural
cooperative concerned or with the competent court as the case may be: Provided, furthermore,
That if the court finds that illegal use of electricity has not been committed by the same person,
the amount deposited shall be credited against future billings, with legal interest thereon
chargeable against the private utility or rural electric cooperative, and the utility or cooperative
shall be made to immediately pay such person double the value of the payment or deposit with
legal interest, which amount shall likewise be creditable against immediate future billings, without
prejudice to any criminal, civil or administrative action that such person may be entitled to file
under existing laws, rules and regulations: Provided, finally, That if the court finds the same
person guilty of such illegal use of electricity, he shall, upon final judgment, be made to pay the
electric utility or the rural electric cooperative concerned double the value of the estimated
electricity illegally used which is referred to in this section as differential billing.

In other words, MERALCO is authorized to immediately disconnect the electric service of its
consumers without the need of a court or administrative order when: (a) the consumer, or someone acting in
his behalf, is caught in flagrante delicto in any of the acts enumerated in Section 4 of RA 7832; or (b) when
any of the circumstances constituting prima facie evidence of illegal use of electricity is discovered for the
second time.

In flagrante delicto means [i]n the very act of committing the crime. [22] To be caught in flagrante
delicto, therefore, necessarily implies positive identification by an eyewitness or eyewitnesses to the act of
tampering so that there is direct evidence of culpability, or that which proves the fact in dispute without the aid
of any inference or presumption.[23]

In the present case, however, MERALCO presented no proof that it ever caught the Chuas, or anyone
acting in the Chuas behalf, in the act of tampering with their electric meter. As correctly observed by the CA,

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the Chuas could not have been caught in flagrante delicto committing the tampering since in the first place,
they were the ones who reported the defect in their meter. Moreover, the presence of a broken cover seal,
broken sealing wire, and a missing terminal seal, is not enough to declare the Chuas in flagrante
delicto tampering with the electric meter. As the basic complaint for mandamus alleged, without any serious
refutation from the petitioner, the electric meter is in a concrete post outside of the Chuas perimeter fence;
hence, in a location accessible to the public. We note, too, that MERALCO did not present any evidence that it
caught the Chuas committing any of the acts constituting prima facie evidence of illegal use of electricity for
the second time.

In view of MERALCOs failure to comply with both Section 4 and Section 6 of RA 7832, MERALCO
obviously had no authority to immediately disconnect the Chuas electric service.

Writ of Mandatory Injunction

On the validity of the injunctive writ the lower court issued in the Chuas favor, MERALCO submits that the
Chuas were not entitled to an injunctive writ since it had a right, under the law, to automatically disconnect
the latters electric service. Furthermore, Section 9 of RA 7832 prohibits courts from issuing injunctions or
restraining orders against electric utilities from disconnecting service unless the consumer proves that the
electric utility acted with evident bad faith in disconnecting the electric service. This cited provision states:
Section 9. Restriction on the Issuance of Restraining Orders or Writs of Injunction. No writ of
injunction or restraining order shall be issued by any court against any private electric utility or
rural electric cooperative exercising the right and authority to disconnect electric service as
provided in this Act, unless there is prima facie evidence that the disconnection was made with
evident bad faith or grave abuse of authority.

We have fully discussed above why MERALCO was not in the position under RA 7832 to immediately
disconnect the Chuas electric service. We add that while electricity is property [24] whose enjoyment, as a

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general rule, the owner may extend or deny to others, [25] electricity is not an ordinary kind of property
that a service provider may grant or withhold to consumers at will. Electricity is a basic necessity whose
generation and distribution is imbued with public interest, and its provider is a public utility subject to strict
regulation by the State in the exercise of police power.[26] In view of the serious consequences resulting from
immediate disconnection of electric service, the law provides strict requisites that MERALCO must follow before
it can be granted authority to undertake instant disconnection of electric service due to its consumers. In view
of MERALCOs dominance over its market and its customers and the latters relatively weak bargaining position
as against MERALCO, and in view too of the serious consequences and hardships a customer stands to suffer
upon service disconnection, MERALCOs failure to strictly observe these legal requirements can be equated to
the bad faith or abuse of right[27] that the law speaks of.

Under the circumstances, we cannot but conclude that MERALCO abused its superior and dominant
position as well as the authority granted to it by law as a service provider when it persisted in disconnecting
the Chuas electric service. Hence, the general prohibition against the issuance of a restraining order or an
injunction under Section 9 of RA 7832 cannot apply. Rather, what must prevail is the exception: an injunction
can issue when a disconnection has been attended by bad faith or grave abuse of authority.
As to whether the Chuas are entitled to a writ of mandatory injunction, we rule in the affirmative. An
injunctive writ issues only upon a showing that: a) the applicant possesses a clear and unmistakable right; b)
there is a material and substantial invasion of such right; and c) there is urgent and permanent necessity for
aninjunctive writ to prevent serious damage.[28]

In the present case, the Chuas have established that they are paying MERALCO customers. In the
absence of the prima facie evidence required by Section 4 and by the requirements of Section 6 of RA 7832
that the Chuas tampered with their electric meter, and in light as well of the merits of the Chuas case as
discussed below, the Chuas have an unmistakable right to be provided with continuous power supply a right
MERALCO obviously invaded when it cut off the Chuas electric service. Electricity being what it is and has been
in modern day living, an urgent and permanent need exists to prevent MERALCO from cutting off the Chuas
electric service under the circumstances that gave rise to the present dispute. Accordingly, we uphold the RTC
and CA decisions ordering MERALCO to immediately restore the Chuas electric service.

Differential billing

MERALCO further asserts that the Chuas should be made to pay the differential billing for the
electricity that they actually consumed but which was not reflected on their electric bills due to the tampered
electric meter. Since the prima facie presumption afforded by Section 4 of RA 7832 does not apply, it falls
uponMERALCO to first prove that the Chuas actually manipulated the dial pointers on their meter before it can

184

hold them accountable for the differential billing. The circumstances discussed below, however, cast serious
doubt on the allegation and assumption that the Chuas ever tampered with their electric meter.

First, we stress once again that the Chuas themselves requested MERALCO to inspect their meter for
possible defects after they received their unusually high September 1996 bill; the Chuas themselves were
instrumental in discovering the tampered condition of their electric meter. Had the Chuas been guilty of
tampering as MERALCO assumed, they would not have drawn attention to themselves by reporting the
problem with their meter; as the beneficial users of the electric service, they would have been MERALCOs main
suspects once the tampering came to light. We thus find it highly illogical for the Chuas to be guilty of actual
tampering given their actions on record on the discovery of the tampered condition of their meter.
Second, we observe that based on the Chuas billing record, no discernable difference exists
between the Chuas electric bills before and after MERALCO had replaced their tampered meter. The
Chuas consumed between 231 to 269 kilowatt hours of electricity per month from June 11, 1996 to September
11, 1996, with their corresponding monthly electric bills ranging from P747.84 to P887.27. (Their long-term
usage record is further reflected in the appropriate footnoted table below.) The following usage record is
undisputed after MERALCO installed a new meter to replace the tampered one.

Date

Kilowatt hours

Amount Paid (pesos)

October 1996

1,297

4,906.87

November

227

781.86

December

228

806.19

January 1997

254

898.89

January 24, 1997

96

331.04

Tampering with the electric meter is committed by the consumer to prevent the meter from
registering the correct amount of electric consumed; thus, while using the same regular power supply, they
are billed for less than what they actually consumed. Tampering affects only the registered usage as reflected
in the electric meter, not the amount of electricity actually used,

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assuming a more or less uniform monthly usage of electricity.[29] Stated otherwise, when an electric
meter is tampered, the recorded consumption is less than the electricity actually used. Consequently, when a
tampered electric meter is replaced, assuming the same amount of monthly rate of usage, the new
electric meter will register the increased use of electricity that had previously been concealed by
the tampered meter.[30]

If the Chuas had truly tampered with their electric meter, it stands to reason that after MERALCO
replaced the tampered electric meter with a new one, the Chuas electric bills would have gone up to reflect the
electricity they were actually consuming. That the Chuas monthly electric consumption remained
virtually unchanged even after the defective electric meter had been replaced strongly disproves
the contentions that the Chuas tampered with their electric meter and that the Chuas electric meter
registered less than the electricity they had actually consumed. Given the surrounding circumstance,
the sequence of events, and the electric meter readings, i.e., the exposed location of the Chuas electric meter,
the long-term consumption record shown below, the unusual upward spike of the meter reading in September
1996, the inspection and the replacement by a new electric meter, and the continued readings consistent with
the readings prior to the September 1996 spike, it would not be surprising if the tampering of the seals came
immediately before September 1996 and were made by parties other than the Chuas for their own reasons. To
be sure, the Chuas would not have tampered with their own meter to increase their meter reading.

Aside from the doubtful veracity of the allegation and assumption that the Chuas tampered with their
meter, we also consider that MERALCO did not provide any factual or legal basis for its differential billing.
Section 6 of RA 7832 supplies the manner by which a public utility can compute the differential billing.

SEC. 6. Disconnection of Electric Service. x x x

For purposes of this Act, differential billing shall refer to the amount to be charged to the person
concerned for the unbilled electricity illegally consumed by him as determined through the use of
methodologies which utilize, among other, as basis for determining the amount of monthly electric
consumption in kilowatt-hours to be billed either: (a) the highest recorded monthly consumption
within the five-year billing period preceding the time of the discovery, (b) the estimated
monthly consumption as per the report of load inspection conducted during the time of the discovery,
(c) the higher consumption between the average consumption before or after the highest drastic drop
in consumption within the five year billing period preceding the discovery, (d) the highest recorded
monthly consumption within four (4) months after the time of discovery, or (e) the result of the ERB
test during the time of discovery and, as basis for determining the period to be recovered by
the differential billing, either: (1) the time when the electric service of the person concerned
recorded an abrupt or abnormal drop in consumption, or (2) when there was change in his
service connection such as a change in his service connection such as a change of meter, change of
seal or reconnection, or in the absence thereof, a maximum of sixty (60) billing months, up to the
time of discovery: Provided, however, That such period shall, in no case, be less than one (1) year
preceding the date of discovery of the illegal use of electricity.

According to MERALCOs witness, Enrique Katipunan, the period affected by the Chuas tampered
electric meter was from August 17, 1992 to October 11, 1996 (affected period).[31] In line with the fundamental

186

rule that the burden of evidence lies with the person who asserts the affirmative allegation,[32] MERALCO thus
carried the burden to prove that the Chuas electric meter had been tampered with as early as August 17,
1992.

Significantly, while Katipunan stated that he studied the Chuas billing history to establish the affected
period from August 17, 1992 to October 11, 1996,[33]we find conspicuously absent from his testimony
any statement explaining how he established this four-year period as the period affected by the
tampered electric meter. Katipunan did not mention any abrupt or abnormal drop in the Chuas electric
consumption, nor did he identify anything suspicious in the Chuas billing history that would lead him to
conclude that the tampering began on August 17, 1992. All we have to rely on is Katipunans assurance that
the Chuas electric meter existed in a tampered state for this whole four-year period. This testimony, however,
is uncorroborated by evidence.

We are not unaware that MERALCO used the Chuas September 1996 bill to compute the differential
billing the same bill that the Chuas protested with Meralco for being extraordinarily high. While Section 6 of RA
7832 does allow MERALCO to use the consumers highest recorded monthly consumption as the basis to
compute the differential billing, still, Meralco after examining the Chuas records for the past four
years [34] should have noticed that the September 1996 bill was truly unusual. As seen from their billing history,
while the Chuas consistently consumed no more than 300 kilowatt hours of electricity every month for the past
four years, in their September bill, their usage dramatically spiked to 1,297 kilowatt hours, or a difference of
more than 400%. Even more telling is that after MERALCO replaced the alleged tampered electric
meter, the Chuas continued to consume the same amount of electricity they had consumed prior to
the September 1996 bill.

Given the strange circumstances surrounding the September 1996 bill, MERALCO should have
exercised prudence and employed another method to compute the Chuas differential billing, such as using the
estimated monthly consumption based on a load inspection report. At the very least, MERALCO should have
exerted efforts to investigate the Chuas complaint regarding the sudden increase in their electric bill, especially
considering the Chuas claim that they had not done anything new or used any additional appliances during the
period covered by the September 1996 bill. [35] We find it significant that nothing in the record suggests that
MERALCO even attempted to study, or even tried to explain, the sudden surge in the Chuas September 1996
bill.

We highlight another important point to consider - that MERALCO sent the Chuas another letter
dated February 5, 1997, where it reduced the Chuas differential billing from P183,983.66 to P71,737.49.
[36]

While MERALCO admitted the existence of this letter in the proceedings before the lower courts, it chose

to ignore the existence of this February 5, 1997 letter in its submissions with this Court; instead, in
the Petition and Memorandum it filed with this Court, MERALCO reverted to its demand that the Chuas pay the

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original differential billing of P183,983.66. This unexplained and inconsistent MERALCO posture further
strengthens our doubts on to the legitimacy and correctness of the Chuas differential billing.
MERALCO is duty bound to explain to its customers the basis for arriving at any given billing,
particularly in cases of unregistered consumptions. Otherwise, consumers will stand piteously at the public
utilitys mercy.[37] Courts cannot and will not in any way blindly grant a public utilitys claim for differential billing
if there is no sufficient evidence to prove entitlement. [38] As MERALCO has failed to substantiate its claim for
the differential billing, we rule that the Chuas cannot be held to account for the billed amount.

MERALCO guilty of inexcusable negligence

Apart from lacking factual or legal basis, another reason for us not to hold the Chuas accountable
for MERALCOs differential billing is our previous ruling inRidjo Tape & Chemical Corp. v. CA,[39] where we said:
It has been held that notice of a defect need not be direct and express; it is enough that the
same had existed for such a length of time that it is reasonable to presume that it had
been detected, and the presence of a conspicuous defect which has existed for a
considerable

length

of

time

will

create

presumption

of

constructive

notice

thereof.Hence, MERALCOs failure to discover the defect, if any, considering the length
of time, amounts to inexcusable negligence. Furthermore, we need not belabor the point
that as a public utility, MERALCO has the obligation to discharge its functions with utmost care
and diligence.

Accordingly, we are left with no recourse but to conclude that this is a case of negligence on the
part of MERALCO for which it must bear the consequences. Its failure to make the necessary
repairs and replacement of the defective electric meter installed within the premises of petitioners
was obviously the proximate cause of the instant dispute between the parties.

Indeed, if an unusual electric consumption was not reflected in the statements of account of
petitioners, MERALCO, considering its technical knowledge and vast experience in providing
electric service, could have easily verified any possible error in the meter reading. In the absence
of such a mistake, the electric meters themselves should be inspected for possible defects or
breakdowns and forthwith repaired and, if necessary, replaced. x x x

The rationale behind this ruling is that public utilities should be put on notice, as a
deterrent, that if they completely disregard their duty of keeping their electric meters
in serviceable condition, they run the risk of forfeiting, by reason of their negligence,
amounts originally due from their customers. Certainly, we cannot sanction a situation
wherein the defects in the electric meter are allowed to continue indefinitely until suddenly the
public utilities concerned demand payment for the unrecorded electricity utilized when, in the first

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place, they should have remedied the situation immediately. If we turn a blind eye on MERALCOs
omission, it may encourage negligence on the part of public utilities, to the detriment of the
consuming public. [40]

While Ridjo involved a defective meter, we have, on occasion, applied this same doctrine to cases that
involved allegations of meter tampering. In both Manila Electric Company v. Macro Textile Mills, Corp.
[41]

and Davao Light & Power Co., Inc. v. Opena,[42] we faulted the electric companies involved for not

immediately inspecting the electric meters after they noted a sudden drop in the consumers registered electric
consumption. Since, in both cases, the public utility companies allowed several years to lapse before deciding
to conduct an inspection of the electric meters, we ruled that they were both negligent and consequently
barred them from collecting their claims of differential billing against the consumers.

With these rulings in mind, we held in MERALCO v. Wilcon Builders Supply, Inc. [43] that the use of the
words defect and defective in Ridjo does not restrict the inexcusable negligence doctrine to cases of
mechanical defects in installed electric meters. We said:
The Ridjo doctrine simply states that the public utility has the imperative duty to make a
reasonable and proper inspection of its apparatus and equipment to ensure that they do not
malfunction. Its failure to discover the defect, if any, considering the length of time, amounts to
inexcusable negligence; its failure to make the necessary repairs and replace the defective
electric meter installed within the consumers premises limits the latters liability. The use of the
words defect and defective in the above-cited case does not restrict the application of the
doctrine to cases of mechanical defects in the installed electric meters. A more plausible
interpretation

is

to

apply

the

rule

on

negligence

whether

the

defect

is

inherent, intentional or unintentional, which therefore covers tampering, mechanical

defects and mistakes in the computation of the consumers billing. [44]

The production and distribution of electricity is a highly technical business undertaking. In conducting
its operation, it is only logical for a public utility, such as MERALCO, to employ mechanical devices and
equipment for the orderly pursuit of its business. [45] MERALCO has the imperative duty to make a reasonable
and proper inspection of its apparatus and equipment to ensure that they do not malfunction, and the due
diligence to discover and repair defects therein. Failure to perform such duties constitutes negligence. [46]

True, consumers who tamper with their electric meter do so surreptitiously to avoid being detected by
the public utility providing the service; hence, at first glance, it may seem unreasonable for us to chastise
MERALCO for not detecting the alleged tampering sooner. However, what stands out in this case is the sheer
length of time that the Chuas electric meter allegedly existed in a tampered state without being discovered
by MERALCO if indeed the electric meter had been defective since 1992. If we presume MERALCOs findings to

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be correct, MERALCO discovered the broken seals in the Chuas meter after more than four years(from
August 1992 to October 1996), and only because the Chuas reported a possible defect with their electric meter
to the public utility company.

Aside from the long period of time involved, we also underscore the fact that the alleged tampering in
this case did not require special training or knowledge to be detected. Certainly, the missing terminal seal, the
broken cover seal, and the broken sealing wire of the meter [47] are visible to the naked eye and would have
caught the attention of MERALCOs personnel in the course of their meter readings.

As in Ridjo, we take judicial notice that during this long period of time, MERALCOs personnel had the
opportunity to inspect and examine the Chuas electric meter for the purpose of determining the monthly dues
payable. Even if MERALCO did not conduct these regular monthly inspections, we find it reasonable to expect
that within this four-year period, MERALCO would, at the very least, annually examine the electric meter to
verify its condition and to determine the accuracy of its readings if ordinary examination shows defects as in
the case of the Chuas meter. That it failed to do so constitutes negligence on its part, and bars it from
collecting its claim for differential billing.

On the issue of moral damages

Article 32 of the Civil Code provides that moral damages are proper when the rights of individuals,
including the right against deprivation of property without due process of law, are violated. Jurisprudence has
established the following requisites for the award of moral damages: (1) there is an injury whether physical,
mental, or psychological clearly sustained by the claimant; (2) there is a culpable act or omission factually
established; (3) the wrongful act or omission of the defendant is the proximate cause of the injury sustained
by the claimant; and (4) the award of damages is predicated on any of the cases stated in Article 2219 of the
Civil Code.[48]

Considering the manner MERALCO disconnected the Chuas electric service, we find the award of moral
damages proper. Apart from the havoc wreaked on the Chuas daily lives when MERALCO abruptly and without
legal basis cut off their electricity, the removal of the electric meter also caused the Chuas extreme social
humiliation and embarrassment as they were subjected to speculations in their neighborhood of being power
thieves. As Mrs. Felicidad Chua testified, she suffered sleepless nights and felt serious anxiety after the
removal of their electric meter came to the attention of the barangay. In fact, she even had to consult a doctor
for this anxiety.[49] Thus, even if the Chuas did subsequently obtain their electricity from another source, [50] the
damage to the Chuas reputation and social standing had already been done.

However, moral damages, which are left largely to the sound discretion of the courts, should be
granted in reasonable amounts, considering the attendant facts and circumstances. [51] Moral damages, though
incapable of pecuniary estimation, are designed to compensate the claimant for actual injury suffered and not

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to impose a penalty.[52] As prevailing jurisprudence[53] deems the award of moral damages in the amount
of P100,000.00 appropriate in cases where MERALCOwrongfully disconnected electric service, we uphold the
CA ruling, reducing the moral damages awarded from P300,000.00 to P100,000.00.

WHEREFORE,

the

petition

is

hereby DENIED. The

assailed

decision

of

the

Court

of

Appeals

dated October 20, 2003 in CA-G.R. SP No. 77034 isAFFIRMED in toto.

SO ORDERED.
G.R. No. 178407, March 18, 2015
METROPOLITAN BANK AND TRUST COMPANY, Petitioner, v. S.F. NAGUIAT ENTERPRISES,
INC., Respondent.
DECISION
LEONEN, J.:
This case calls for the determination of whether the approval and consent of the insolvency court is required under
Act No. 1956, otherwise known as the Insolvency Law, before a secured creditor like petitioner Metropolitan Bank
and Trust Company can proceed with the extrajudicial foreclosure of the mortgaged property.
This is a Petition for Review 1 under Rule 45, seeking to reverse and set aside the November 15, 2006 Decision 2 and
June 14, 2007 Resolution3 of the Court of Appeals (Sixth Division) in CA-G.R. SP No. 94968. The questioned
Decision and Resolution dismissed Metropolitan Bank and Trust Company's Petition for Certiorari and
Mandamus4 and denied its subsequent Motion for Reconsideration and Clarification. 5
Sometime in April 1997, Spouses Rommel Naguiat and Celestina Naguiat and S.F. Naguiat Enterprises, Inc. (S.F.
Naguiat) executed a real estate mortgage6 in favor of Metropolitan Bank and Trust Company (Metrobank) to secure
certain credit accommodations obtained from the latter amounting to P17 million. The mortgage was constituted
over the following properties:
(1) TCT No. 586767 - a parcel of land in the Barrio of Pulung Bulu, Angeles, Pampanga, with an area of 489 square
meters; and
(2) TCT No. 310523 - a parcel of land in Marikina, Rizal, with an area of 1,200.10 square meters. 8
On March 3, 2005, S.F. Naguiat represented by Celestina T. Naguiat, Eugene T. Naguiat, and Anna N. Africa
obtained a loan9 from Metrobank in the amount of P1,575,000.00. The loan was likewise secured by the 1997 real
estate mortgage by virtue of the Agreement on Existing Mortgage(s) 10 executed between the parties on March 15,
2004.
On July 7, 2005, S.F. Naguiat filed a Petition for Voluntary Insolvency with Application for the Appointment of a
Receiver11 pursuant to Act No. 1956, as amended,12 before the Regional Trial Court of Angeles City and which was
raffled to Branch 56.13 Among the assets declared in the Petition was the property covered by TCT No. 58676 (one
of the properties mortgaged to Metrobank). 14
Presiding Judge Irin Zenaida S. Buan (Judge Buan) issued the Order 15 dated July 12, 2005, declaring S.F. Naguiat
insolvent; directing the Deputy Sheriff to take possession of all the properties of S.F. Naguiat until the appointment
of a receiver/assignee; and forbidding payment of any debts due, delivery of properties, and transfer of any of its
properties.
Pending the appointment of a receiver, Judge Buan directed the creditors, including Metrobank, to file their
respective Comments on the Petition. 16 In lieu of a Comment, Metrobank filed a Manifestation and
Motion17 informing the court of Metrobank's decision to withdraw from the insolvency proceedings because it
intended to extrajudicially foreclose the mortgaged property to satisfy its claim against S.F. Naguiat. 18
Subsequently, S.F. Naguiat defaulted in paying its loan.19 On November 8, 2005, Metrobank instituted an
extrajudicial foreclosure proceeding against the mortgaged property covered by TCT No. 58676 20 and sold the
property at a public auction held on December 9, 2005 to Phoenix Global Energy, Inc., the highest
bidder.21 Afterwards, Sheriff Claude B. Balasbas prepared the Certificate of Sale 22 and submitted it for approval to
Clerk of Court Vicente S. Fernandez, Jr. and Executive Judge Bernardita Gabitan-Erum (Executive Judge GabitanErum). However, Executive Judge Gabitan-Erum issued the Order23dated December 15, 2005 denying her
approval of the Certificate of Sale in view of the July 12, 2005 Order issued by the insolvency court. Metrobank's
subsequent Motion for Reconsideration was also denied in theOrder24dated April 24, 2006.
Aggrieved by both Orders of Executive Judge Gabitan-Erum, Metrobank filed a Petition 25 for certiorari and
mandamus before the Court of Appeals on June 22, 2006. S.F. Naguiat filed its Manifestation 26 stating that it was
not interposing any objection to the Petition and requested that the issues raised in the Petition be resolved without
objection and argument on its part.27

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On November 15, 2006, the Court of Appeals rendered its Decision dismissing the Petition on the basis of
Metrobank's failure to "obtain the permission of the insolvency court to extrajudicially foreclose the mortgaged
property."28 The Court of Appeals declared that "a suspension of the foreclosure proceedings is in order, until an
assignee [or receiver,] is elected or appointed [by the insolvency court] so as to afford the insolvent debtor proper
representation in the foreclosure [proceedings]." 29
Metrobank filed a Motion for Reconsideration and Clarification, which was denied by the Court of Appeals in its
Resolution dated June 14, 2007.30 The Court of Appeals held that leave of court must be obtained from the
insolvency court whether the foreclosure suit was instituted judicially or extrajudicially so as to afford the insolvent
estate's proper representation (through the assignee) in such action 31 and "to avoid the dissipation of the insolvent
debtor's assets in possession of the insolvency court without the latter's knowledge." 32
Hence, the present Petition for Review was filed. Petitioner contends that the Court of Appeals decided questions of
substance in a way not in accord with law and with the applicable decisions of this court:
A.
By ruling that there must be a motion for leave of court to be filed and granted by the insolvency court, before the
petitioner, as a secured creditor of an insolvent, can extrajudicially foreclose the mortgaged property, which is
tantamount to a judicial legislation.
B.
By ruling that the Honorable Executive Judge Bernardita Gabitan-Erum did not abuse her discretion in refusing to
perform her ministerial duty of approving the subject certificate of sale, despite the fact that the petitioner and the
designated sheriff complied with all the requirements mandated by Act No. 3135, as amended, circulars,
administrative matters and memorandums issued by the Honorable Supreme Court.
C.
By ruling that the action of the Honorable Executive Judge Bernardita Gabitan-Erum is proper in denying the
approval of the Certificate of Sale on the grounds that the issuance of the Order dated 12 July 2005 declaring
respondent insolvent and the pendency of the insolvency proceeding forbid the petitioner, as a secured creditor, to
foreclose the subject mortgaged property.33 (Emphasis supplied)
On October 20, 2007, S.F. Naguiat filed a Manifestation34 stating that it interposed no objection to the Petition and
submitted the issues raised therein without any argument.
On November 28, 2007, the court resolved "to give due course to the petition [and] to decide the case according to
the pleadings already filed[.]" 35
The issues for resolution are:
First, whether the Court of Appeals erred in ruling that prior leave of the insolvency court is necessary before a
secured creditor, like petitioner Metropolitan Bank and Trust Company, can extrajudicially foreclose the mortgaged
property.
Second, whether the Court of Appeals erred in ruling that Executive Judge Gabitan-Erum did not abuse her
discretion in refusing to approve the Certificate of Sale.
Petitioner argues that nowhere in Act No. 1956 does it require that a secured creditor must first obtain leave or
permission from the insolvency court before said creditor can foreclose on the mortgaged property.36 It adds that
this procedural requirement applies only to civil suits, and not when the secured creditor opts to exercise the right
to foreclose extrajudicially the mortgaged property under Act No. 3135, as amended, because extrajudicial
foreclosure is not a civil suit.37 Thus, the Court of Appeals allegedly imposed a new condition that was tantamount
to unauthorized judicial legislation when it required petitioner to file a Motion for Leave of the insolvency
court.38 Said condition, petitioner argues, defeated and rendered inutile its right or prerogative under Act No. 1956
to independently initiate extrajudicial foreclosure of the mortgaged property.39
Nonetheless, petitioner contends that the filing of its Manifestation before the insolvency court served as sufficient
notice of its intention and, in effect, asked the court's permission to foreclose the mortgaged property.40
Petitioner further contends that "the powers and responsibilities of an Executive Judge in extrajudicial foreclosure
proceedings, in line with Administrative Order No. 6, is merely to supervise the conduct of the extra-judicial
foreclosure of the property"41 and to oversee that the procedural requirements are faithfully complied with; 42 and
when "the Clerk of Court and Sheriff concerned complied with their designated duties and responsibilities under the
[administrative] directives and under Act No. 3135, as amended, and the corresponding filing and legal fees were
duly paid, it becomes a ministerial duty on the part of the executive judge to approve the certificate of
sale."43 Thus, Executive Judge Gabitan-Erum allegedly exceeded her authority by "exercising judicial discretion in
issuing her Orders dated December 15, 2006 and April 24, 2006 . . . despite the fact that Sheriff Balasbas complied
with all the notices requirements under Act No. 3135, [as] amended, . . . and the petitioner and the highest bidder
paid all the requisite filing and legal fees[.]"44
Furthermore, citing Chartered Bank v. C.A. Imperial and National Bank,45 petitioner submits that the order of
insolvency affected only unsecured creditors and not secured creditors, like petitioner, which did not surrender its
right over the mortgaged property.46 Hence, it contends that the Court of Appeals seriously erred in holding as
proper Executive Judge Gabitan-Erum's disapproval of the Certificate of Sale on account of the Order of insolvency
issued by the insolvency court.47
Finally, petitioner points out that contrary to the Court of Appeals' ruling, "there is nothing more to suspend
because the extrajudicial foreclosure of the mortgaged property was already a fait accompli as the public auction
sale was conducted on December 9, 2005 and all the requisite legal fees were paid and a Certificate of Sale was
already prepared."48 "The only remaining thing to do [was] for the . . . Executive Judge to sign the Certificate of

192

Sale, which she . . . refused to do." 49

The Petition has no merit.
I
A look at the historical background of the laws governing insolvency in this country will be helpful in resolving the
questions presented before us.
The first insolvency law, Act No. 1956, was enacted on May 20, 1909. It was derived from the Insolvency Act of
California (1895), with a few provisions taken from the United States Bankruptcy Act of 1898. 50 Act No. 1956 was
entitled "An Act Providing for the Suspension of Payments, the Relief of Insolvent Debtors, the Protection of
Creditors, and the Punishment of Fraudulent Debtors." The remedies under the law were through a suspension of
payment51 (for a debtor who was solvent but illiquid) or a discharge from debts and liabilities through the
voluntary52 or involuntary53insolvency proceedings (for a debtor who was insolvent).
The objective of suspension of payments is the deferment of the payment of debts until such time as the debtor,
which possesses sufficient property to cover all its debts, is able to convert such assets into cash or otherwise
acquires the cash necessary to pay its debts. On the other hand, the objective in insolvency proceedings is "to
effect an equitable distribution of the bankrupt's properties among his creditors and to benefit the debtor by
discharging54 him from his liabilities and enabling him to start afresh with the property set apart for him as
exempt."55
Act No. 1956 was meant to be a complete law on insolvency,56 and debts were to be liquidated in accordance with
the order of priority set forth under Chapter VI, Sections 48 to 50 on "Classification and Preference of Creditors";
and Sections 29 and 59 with respect to mortgage or pledge of real or personal property, or lien thereon.
Jurisdiction over suspension of payments and insolvency was vested in the Courts of First Instance (now the
Regional Trial Courts).57
The Civil Code58 (effective August 30, 1950) established a system of concurrence and preference of credits, which
finds particular application in insolvency proceedings. 59Philippine Savings Bank v. Hon. Lantin60 explains this
scheme:
Concurrence of credits occurs when the same specific property of the debtor or all of his property is subjected to
the claims of several creditors. The concurrence of credits raises no questions of consequence where the value of
the property or the value of all assets of the debtor is sufficient to pay in full all the creditors. However, it becomes
material when said assets are insufficient for then some creditors of necessity will not be paid or some creditors will
not obtain the full satisfaction of their claims. In this situation, the question of preference will then arise, that is to
say who of the creditors will be paid ahead of the others. (Caguioa, Comments and Cases on Civil Law, 1970 ed.,
Vol. VI, p. 472.)61
The credits are classified into three general categories, namely, "(a) special preferred credits listed in Articles
224162and 2242,63 (b) ordinary preferred credits listed in Article 2244[,] 64and (c) common credits under Article
2245."65
The special preferred credits enumerated in Articles 2241 (with respect to movable property) and 2242 (with
respect to immovable property) are considered as mortgages or pledges of real or personal property, or liens within
the purview of Act No. 1956.66 These credits, which enjoy preference with respect to a specific movable or
immovable property, exclude all others to the extent of the value of the property.67 If there are two or more liens
on the same specific property, the lienholders divide the value of the property involved pro rata, after the taxes on
the same property are fully paid. 68
"Credits which are specially preferred because they constitute liens (tax or non-tax) in turn, take precedence over
ordinary preferred credits so far as concerns the property to which the liens have attached. The specially preferred
credits must be discharged first out of the proceeds of the property to which they relate, before ordinary preferred
creditors may lay claim to any part of such proceeds." 69
"In contrast with Articles 2241 and 2242, Article 2244 creates no liens on determinate property which follow such
property. What Article 2244 creates are simply rights in favor of certain creditors to have the cash and other assets
of the insolvent applied in a certain sequence or order of priority." 70
It was held that concurrence and preference of credits can only be ascertained in the context of a general
liquidation proceeding that is in rem, such as an insolvency proceeding, where properties of the debtor are
inventoried and liquidated and the claims of all the creditors may be bindingly adjudicated. 71 The application of this
order of priorities established under the Civil Code in insolvency proceedings assures that priority of claims are
respected and credits belonging to the same class are equitably treated.
Conformably, it is the policy of Act No. 1956 to place all the assets and liabilities of the insolvent debtor completely
within the jurisdiction and control of the insolvency court without the intervention of any other court in the
insolvent debtor's concerns or in the administration of the estate. 72 It was considered to be of prime importance
that the insolvency proceedings follow their course as speedily as possible in order that a discharge, if the insolvent
debtor is entitled to it, should be decreed without unreasonable delay. "Proceedings of [this] nature cannot proceed
properly or with due dispatch unless they are controlled absolutely by the court having charge thereof." 73
In 1981, Presidential Decree No. 1758 amended Presidential Decree No. 902-A, the Securities and Exchange
Commission charter. Under its terms,74 jurisdiction regarding corporations that sought suspension of payments
process was taken away from the regular courts and given to the Securities and Exchange Commission. 75 In
addition, an alternative to suspension of payments rehabilitation was introduced. It enables a corporation
whose assets are not sufficient to cover its liabilities to apply to the Securities and Exchange Commission for the
appointment of a rehabilitation receiver and/or management committee 76 and then to develop a rehabilitation plan
with a view to rejuvenating a financially distressed corporation. However, the procedure to avail of the remedy was
not spelled out until 20 years later when the Securities and Exchange Commission finally adopted the Rules of
Procedure on Corporate Recovery on January 4, 2000.

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Shortly thereafter, with the passage of Republic Act No. 8799 or The Securities Regulation Code on July 19, 2000,
jurisdiction over corporation rehabilitation cases was reverted to the Regional Trial Courts designated as
commercial courts or rehabilitation courts. 77 This legal development was implemented by the Interim Rules of
Procedure on Corporate Rehabilitation (made effective in December 2000), which was later replaced by A.M. 00-810-SC or the Rules of Procedure on Corporate Rehabilitation of 2008.
Act No. 1956 continued to remain in force and effect until its express repeal on July 18, 2010 when Republic Act
No. 10142,78 otherwise known as the Financial Rehabilitation and Insolvency Act of 2010, took effect. Republic Act
No. 10142 now provides for court proceedings in the rehabilitation or liquidation of debtors, both juridical and
natural persons, in a "timely, fair, transparent, effective and efficient" 79 manner. The purpose of insolvency
proceedings is "to encourage debtors . . . and their creditors to collectively and realistically resolve and adjust
competing claims and property rights"80while "maintaining] certainty and predictability in commercial affairs,
preserving] and maximizing] the value of the assets of these debtors, recognizing] creditor rights and respecting]
priority of claims, and ensuring] equitable treatment of creditors who are similarly situated." 81 It has also been
provided that whenever rehabilitation is no longer feasible, "it is in the interest of the State to facilitate a speedy
and orderly liquidation of [the] debtors' assets and the settlement of their obligations." 82
Unlike Act No. 1956, Republic Act No. 10142 provides a broad definition of the term, "insolvent":
SEC. 4. Definition of Terms. - As used in this Act, the term:
....
(p) Insolvent shall refer to the financial condition of a debtor that is generally unable to pay its or his liabilities as
they fall due in the ordinary course of business or has liabilities that are greater than its or his assets.
Republic Act No. 10142 also expressly categorizes different forms of debt relief available to a corporate debtor in
financial distress. These are out-of-court restructuring agreements; 83 pre-negotiated rehabilitation; 84 courtsupervised rehabilitation;85 and liquidation (voluntary and involuntary). 86 An insolvent individual debtor can avail of
suspension of payments,87 or liquidation.88
During liquidation proceedings, a secured creditor may waive its security or lien, prove its claim, and share in the
distribution of the assets of the debtor, in which case it will be admitted as an unsecured creditor; or maintain its
rights under the security or lien,89 in which case:
1.

[T]he value of the property may be fixed in a manner agreed upon by the creditor and the liquidator.
When the value of the property is less than the claim . . . the [creditor] will be admitted ... as a creditor
for the balance. If its value exceeds the claim . . . the liquidator may convey the property to the creditor
and waive the debtor's right of redemption upon receiving the excess from the creditor;

2.

[T]he liquidator may sell the property and satisfy the secured creditor's entire claim from the proceeds of
the sale; or

3.

[T]he secured creditor may enforce the lien or foreclose on the property pursuant to applicable laws. 90

A secured creditor, however, is subject to the temporary stay of foreclosure proceedings for a period of 180
days,91upon the issuance by the court of the Liquidation Order.92
Republic Act No. 10142 was to govern all petitions filed after it had taken effect, and all further proceedings in
pending insolvency, suspension of payments, and rehabilitation cases, except when its application "would not be
feasible or would work injustice, in which event the procedures set forth in prior laws and regulations shall apply."93
The relevant proceedings in this case took place prior to Republic Act No. 10142; hence, the issue will be resolved
according to the provisions of Act No. 1956.
II
Act No. 1956 impliedly requires a secured creditor to ask the permission of the insolvent court before said creditor
can foreclose the mortgaged property.
When read together, the following provisions of Act No. 1956 reveal the necessity for leave of the insolvency court:
(A)

(B)

(C)

Under Section 14, "[a]n insolvent debtor, owing debts exceeding in amount the sum of one thousand pesos,
may apply to be discharged from his debts and liabilities by petition to the Court of First Instance of the
province or city in which he has resided for six months next preceding the filing of such petition. In his
petition, he shall set forth his place of residence, the period of his residence therein immediately prior to filing
said petition, his inability to pay all his debts in full, his willingness to surrender all his property, estate, and
effects not exempt from execution for the benefit of his creditors, and an application to be adjudged an
insolvent. He shall annex to his petition a schedule and inventory in the form hereinafter provided. The filing
of such petition shall be an act of insolvency."
Under Section 16, "[the] inventory must contain, besides the creditors, an accurate description of all the
real and personal property, estate, and effects of the [insolvent], including his homestead, if any, together
with a statement of the value of each item of said property, estate, and effects and its location, and a
statement of the incumbrances thereon. All property exempt by law from execution shall be set out in said
inventory with a statement of its valuation, location, and the incumbrances thereon, if any. The inventory
shall contain an outline of the facts giving rises [sic], or which might give rise, to a right of action in favor of
the insolvent debtor."
Under Section 18, upon receipt of the petition, the court shall issue an order declaring the petitioner
insolvent, and directing the sheriff to take possession of and safely keep, until the appointment of a receiver
or assignee, all the debtor's real and personal property, except those exempt by law from execution. The

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(D)

order also forbids the transfer of any property by the debtor.

Under Section 32, once an assignee is elected and qualified, the clerk of court shall assign and convey to the
assignee all the real and personal property of the debtor, not exempt from execution, and such assignment
shall relate back to the commencement of the insolvency proceedings, and by operation n of law, shall vest
the tide to all such property in the assignee.

With the declaration of insolvency of the debtor, insolvency courts "obtain full and complete jurisdiction over all
property of the insolvent and of all claims by and against [it.]" 94 It follows that the insolvency court has exclusive
jurisdiction to deal with the property of the insolvent. 95 Consequently, after the mortgagor-debtor has been
declared insolvent and the insolvency court has acquired control of his estate, a mortgagee may not, without the
permission of the insolvency court, institute proceedings to enforce its lien. In so doing, it would interfere with the
insolvency court's possession and orderly administration of the insolvent's properties. 96
It is true that under Section 59 of Act No. 1956, the creditor is given the option to participate in the insolvency
proceedings by proving the balance of his debt, after deducting the value of the mortgaged property as agreed
upon with the receiver or determined by the court or by a sale of the property as directed by the court; or proving
his whole debt, after releasing his claim to the receiver/sheriff before the election of an assignee, or to the
assignee. However, Section 59 of Act No. 1956 proceeds to state that when "the property is not sold or released,
and delivered up, or its value fixed, the creditor [is] not allowed to prove any part of his debt," but the assignee
shall deliver to the creditor the mortgaged property. Hence, explicitly under Section 59 and as a necessary
consequence flowing from the exclusive jurisdiction of the insolvency court over the estate of the insolvent, the
mortgaged property must first be formally delivered by the court or the assignee (if one has already been elected)
before a mortgagee-creditor can initiate proceedings for foreclosure. 97
Here, the foreclosure and sale of the mortgaged property of the debtor, without leave of court, contravene the
provisions of Act No. 1956 and violate the Order dated July 12, 2005 of the insolvency court which declared S.F.
Naguiat insolvent and forbidden from making any transfer of any of its properties to any person.
Petitioner would insist that "respondent was given the opportunity to be represented in the public auction sale
conducted on December 9, 2005"98 because it received a copy of the Notice of the Sheriffs Sale on November 11,
2005;"99 and the Notice of Auction Sale was published in a newspaper of general circulation. 100 However,
respondent allegedly opted not to participate by not attending the public auction sale. 101
Such was to be expected because when the foreclosure proceeding was initiated, respondent was already declared
insolvent. Indeed, upon the adjudication of insolvency, the insolvent ceased to exist and was in effect judicially
declared dead as of the filing of the insolvency petition and by the nature of things had no further interest in the
property covered by the mortgage.102 Under Section 32 of Act No. 1956, title to the insolvent's estate relates back
to the filing of the insolvency petition upon the election of the assignee who shall thereafter act on behalf of all the
creditors. Under Section 36, the assignee has the power to redeem all valid mortgages or sell property subject to
mortgage. Thus, the extrajudicial foreclosure of the mortgaged property initiated by petitioner without leave of
insolvency court would effectively exclude the assignee's right to participate in the public auction sale of the
property and to redeem the foreclosed property103 to the prejudice of all the other creditors of the insolvent.
Petitioner filed its Manifestation and Motion before the insolvency court on September 7, 2005, 104 praying that it
would no longer file the Comment required as it opted to exercise its right to extrajudicially foreclose the property
mortgaged and that it "be allowed to temporarily withdraw its active participation in the . . . proceeding pending
the outcome of the extra-judicial foreclosure proceeding of the mortgaged property." 105
Petitioner should have waited for the insolvency court to act on its Manifestation and Motion before foreclosing the
mortgaged property and its lien (assuming valid) would not be impaired or its claim in any way jeopardized by any
reasonable delay. There are mechanisms within Act No. 1956 such as Section 59 that ensure that the interests of
the secured creditor are adequately protected. Parenthetically, mortgage liens are retained in insolvency
proceedings. What is merely suspended until court approval is obtained is the creditor's enforcement of such
preference.
On the other hand, to give the secured creditor a free hand in foreclosing its collateral upon the initiation of
insolvency proceedings may frustrate the basic objectives of Act No. 1956 of maximizing the value of the estate of
the insolvent or obtaining the highest return possible from its sale for the benefit of all the creditors (both secured
and unsecured).
III
Executive Judge Gabitan-Erum did not unlawfully neglect to perform her duty when she refused to approve and
sign the Certificate of Sale, as would warrant the issuance of a writ of mandamus against her.
An executive judge has the administrative duty in extrajudicial foreclosure proceedings to ensure that all the
conditions of Act No. 3135 have been complied with before approving the sale at public auction of any mortgaged
property.106
"Certain requisites must be established before a creditor can proceed to an extrajudicial foreclosure, namely: first,
there must have been the failure to pay the loan obtained from the mortgagee-creditor; second, the loan obligation
must be secured by a real estate mortgage; and third, the mortgagee-creditor has the right to foreclose the real
estate mortgage either judicially or extrajudicially." 107
Furthermore, Act No. 3135 outlines the notice and publication requirements and the procedure for the extrajudicial
foreclosure which constitute a condition sine qua non for its validity. Specifically, Sections 2, 3, and 4 of the law
prescribe the formalities of the extrajudicial foreclosure proceeding:
SEC. 2. Said sale cannot be made legally outside of the province in which the property sold is situated; and in case
the place within said province in which the sale is to be made is the subject of stipulation, such sale shall be made
in said place or in the municipal building of the municipality in which the property or part thereof is situated.
SEC. 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public
places of the municipality or city where the property is situated, and if such property is worth more than four

195

hundred pesos, such notice shall also be published once a week for at least three consecutive weeks in a
newspaper of general circulation in the municipality or city.
SEC. 4. The sale shall be made at public auction, between the hours of nine in the morning and four in the
afternoon; and shall be under the direction of the sheriff of the province, the justice or auxiliary justice of the
peace of the municipality in which such sale has to be made, or a notary public of said municipality, who shall be
entitled to collect a fee of five pesos for each day of actual work performed, in addition to his expenses.
''Mandamus will not issue to enforce a right which is in substantial dispute or to which a substantial doubt
exists."108
There was a valid reason for Executive Judge Gabitan-Erum to doubt the propriety of the foreclosure sale. Her
verification with the records of the Clerk of Court showed that a Petition for Insolvency had been filed and had
already been acted upon by the insolvency court prior to the application for extrajudicial foreclosure of the
mortgaged properties. Among the inventoried unpaid debts and properties attached to the Petition for Insolvency
was the loan secured by the real estate mortgage subject of the application for extrajudicial foreclosure
sale.109 With the pendency of the insolvency case, substantial doubt exists to justify the refusal by Executive Judge
Gabitan-Erum to approve the Certificate of Sale as the extrajudicial foreclosure sale without leave of the insolvency
court may contravene the policy and purpose of Act No. 1956.110
Act No. 3135 is silent with respect to mortgaged properties that are in custodia legis, such as the property in this
case, which was placed under the control and supervision of the insolvency court. This court has declared that "[a]
court which has control of such property, exercises exclusive jurisdiction over the same, retains all incidents
relative to the conduct of such property. No court, except one having supervisory control or superior jurisdiction in
the premises, has a right to interfere with and change that possession." 111 The extrajudicial foreclosure and sale of
the mortgaged property of the debtor would clearly constitute an interference with the insolvency court's
possession of the property.
Furthermore, Executive Judge Gabitan-Erum noticed that the President of the highest bidder in the public auction
sale may be related to the owners of S.F. Naguiat Enterprises, Inc. The President of the highest bidder, Phoenix
Global Energy, Inc., was a certain Eugene T. Naguiat. 112 "Among the incorporators of S.F. Naguiat Enterprises, Inc.
[the insolvent corporation] [were] Sergio F. Naguiat, Maningning T. Naguiat, Antolin M. Tiglao, Nero F. Naguiat and
Antolin T. Naguiat. Later[,] its capital was increased and the listed subscribers [were] Celestina T. Naguiat, Rommel
T. Naguiat, Antolin T. Naguiat, Sergio T. Naguiat, Jr., Alexander T. Naguiat, Coumelo T. Naguiat, Fely Ann Breggs
and Teresita Celine Quemer." 113
Under the foregoing circumstances, the refusal of Executive Judge Gabitan-Erum to approve the Certificate of Sale
was in accord with her duty to act with prudence, caution, and attention in the performance of her functions.
WHEREFORE, the Petition is DENIED, and the Court of Appeals' Decision dated November 15, 2006 and
Resolution dated June 14, 2007 are AFFIRMED.
SO ORDERED.

G.R. No. 189061

August 6, 2014

MIDWAY MARITIME AND TECHNOLOGICAL FOUNDATION, represented by its Chairman/President PhD

in Education DR. SABINO M. MANGLICMOT, Petitioner,
vs.
MARISSA E. CASTRO, ET AL., Respondents.
DECISION
REYES, J.:
The petitioner Midway Maritime and Technological Foundation (petitioner) is the lessee of two parcels of land in
Cabanatuan City. Its president, Dr. Sabino Manglicmot (Manglicmot), is married to Adoracion Cloma (Adoracion),
who is the registered owner of the property under Transfer Certificate of Title (TCT) Nos. T-71321 and T-71322.
Inside said property stands a residential building, which is now the subject matter of the dispute, owned by the
respondents.
The two parcels of land, on a portion of which the residential building stand, were originally owned by the
respondents father Louis Castro, Sr. The elder Castro was also the president of Cabanatuan City Colleges (CCC).
On August 15, 1974, Castro mortgaged the property to Bancom Development Corporation (Bancom) to secure a
loan. During the subsistence of the mortgage, CCCs board of directors agreed to a 15-year lease of a portion of the
property to the Castrochildren, herein respondents, who subsequently built the residential house nowin dispute.
The lease was to expire in 1992.
When CCC failed to pay its obligation, Bancom foreclosed the mortgage and the property was sold at public auction
in 1979, with Bancom as the highest bidder. Bancom thereafter assigned the credit to Union Bank of the Philippines
(Union Bank), and later on, Union Bank consolidated its ownership over the properties in 1984 due to CCCs failure
to redeem the property. When Union Bank sought the issuance of a writ of possession over the properties, which
included the residential building, respondents opposed the same. The case reached the Court in G.R. No. 97401
entitled, Castro, Jr. v. CA,1 and in a Decision dated December 6, 1995, the Court ruled that the residential house
owned by the respondents should not have been included in the writ of possession issued by the trial court as CCC
has no title over it.
In the meantime, Adoracions father, Tomas Cloma (Tomas), bought the two parcels of land from Union Bank in an
auction sale conducted on July 13, 1993. Tomas subsequently leased the property to the petitioner and thereafter,
sold the same to Adoracion.Several suits were brought by the respondents against the petitioner, including the case

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at bench, which is an action for Ownership, Recovery of Possession and Damages, docketed as Civil Case No. 3700
(AF).
In their Amended Complaint2 dated April 19, 2000, the respondents alleged that: (1) they are the owners ofthe
residential building subject of the dispute, which they used from 1977 to 1985 when they left for the United States
of America and instituted their uncle, Josefino C. Castro (Josefino), as the caretaker; (2) Manglicmot, who was the
President of the petitioner Midway Maritime and Technological Foundation, leased the building (except for the
portion occupied by Josefino) from Lourdes Castro, mother of the respondents, in June 1993 withmonthly rent
ofP6,000.00, which was later to be increased to P10,000.00 in October 1995 after Josefino vacates his occupied
portion; (3) the petitioner failed to pay rent starting August 1995, thus prompting the respondents to file the
action. The respondents prayed that they be declared as the owners of the residential building, and that the
petitioner be ordered to vacate the same and pay rent arrearages and damages. 3
The petitioner, however, denied respondents ownership of the residential building and claimed that Adoracion owns
the building, having bought the same together with the land on which it stands. 4
In a Decision5 dated July 2, 2001, the Regional Trial Court (RTC) of Cabanatuan City, Branch 28, rendered
judgment in favor of the respondents, declared them as the absolute owners of the residential building and ordered
petitioner to pay the respondents unpaidrentals from August 1995 until fully paid. The dispositive portion of the
RTC decision reads:
WHEREFORE, judgment is hereby rendered:
1. Declaring the [respondents] asthe absolute owners of the building in question described as follows:
xxxx
2. Ordering the [petitioner] topay the [respondents] the sum of [P]672,000.00 by way of unpaid rentals
from August 1995 at [P]6,000.00 and from October 1995 at [P]10,000.00 until fully paid.
3. The claim for moral damages,other litigation expenses and attorneys fees are dismissed for lack of
merit.
SO ORDERED.6
The Court of Appeals (CA) dismissed the petitioners appeal and affirmed the RTC decision in the assailed
Decision7 dated October 29, 2008 and Resolution8 dated August 3, 2009. Hence, this petition.
The petitioner contests the award ofrentals made by the RTC, which was affirmed by the CA, contending that when
Tomas bought the two parcels of land from Union Bank in 1993, the sale included the improvements thereon, one
of which was the residential house in dispute. The petitioner also argues that the lease between CCC and the
respondents already expired at the time of the sale and they are now the current lessees of the property, albeit the
residential house is still standing inside the school compound. 9 The petitioner relies on a decision rendered by the
RTC of Cabanatuan City, Branch 26, in Civil Case No. 2939 (AF),which was an appeal from the trial courts dismissal
of the complaint for Ejectment with Damages filed by the respondents against the petitioner. In said decision, the
RTC stated that "in the advertised sale of the lots covered by TCT Nos. T-45816 and [T-45817] of the land records
of Cabanatuan City, all improvements were included, hence, the instant case has no factual and legal
basis."10 Ruling of the Court
The first issue to be resolved iswhether there was a lease agreement between the petitioner and the respondents
as regards the residential building. Such issue, it must beemphasized, is a question of fact 11 that has been resolved
by the RTC in the affirmative, towit: "from June 1993 to July 25, 1995 or for a period of 26 months, the [petitioner]
has been paying rentals for the building in question and paid a rental of [P]156,000.00 which rental was
increasedto P10,000.00 beginning October 1995 when the caretaker of the [respondents] Mr. Josefino Castro was
ejected therefrom and the entire building was leased to the [petitioner], represented by Dr. Sabino
Manglicmot."12 Such finding is borne by the records of this case. Exhibit "J" 13 for the respondents is a cash
disbursement voucher issued by the petitioner to Mrs. Lourdes Castro. The voucher contained the statement
"payment of building rentals x x x from June 01 to December 01, 1993" in the total amount of P36,000.00. The
petitioners payment of the foregoing rentals confirms the existence of its agreement to lease the residential
building from the respondents.
Given the existence of the lease,the petitioners claim denying the respondents ownership of the residential house
must be rejected.1wphi1 According to the petitioner, it is Adoracion who actually owns the residential building
having bought the same, together withthe two parcels of land, from her father Tomas, who, in turn, bought it in an
auction sale.
It is settled that "[o]nce a contact of lease is shown to exist between the parties, the lessee cannot by any proof,
however strong, overturn the conclusive presumption that the lessor has a valid title to or a better right of
possession to the subject premises than the lessee." 14 Section 2(b), Rule 131 of the Rules of Court prohibits a
tenant from denying the title of his landlord at the time of the commencement of the relation of landlord and
tenant between them.15 In Santos v. National Statistics Office, 16 the Court expounded on the rule on estoppel
against a tenant and further clarified that what a tenant is estopped from denying is the title of his landlord at the
time of the commencement of the landlord-tenant relation. If the title asserted is one that is alleged to have been
acquired subsequent to the commencement of that relation, the presumption will not apply.17
In this case, the petitioners basis for insisting on Adoracions ownership dates back to the latters purchase of the
two parcels of land from her father, Tomas. It was Tomas who bought the property in an auction sale by Union
Bank in 1993 and leased the same to the petitioner in the same year. Note must be madethat the petitioners

197

president, Manglicmot, is the husband of Adoracion and son-in-law of Tomas. It is not improbable that at the time
the petitioner leased the residential building from the respondents mother in 1993, it was aware of the
circumstances surrounding the sale of the two parcels of land and the natureof the respondents claim over the
residential house. Yet, the petitioner still chose to lease the building. Consequently, the petitioner is now estopped
from denying the respondents title over the residential building.
More importantly, the respondentsownership of the residential building is already an established fact.
"Nemo dat quod non habet. One can sell only what one owns or is authorized to sell, and the buyer can acquire no
more right than what the seller can transfer legally." 18 It must be pointed out that what Tomas bought from Union
Bank in the auction sale werethe two parcels of land originally owned and mortgaged by CCC to Bancom, and
which mortgage was later assigned by Bancom to Union Bank. Contrary to the petitioners assertion, the property
subject of the mortgage and consequently the auction sale pertains only to these two parcels of land and did not
include the residential house. This was precisely the tenor of Castro, Jr. v. CA 19 where the Court nullified the writ of
possession issued by the trial court insofar as it affected the residential house constructed by the respondents on
the mortgaged property as it was not owned by CCC, which was the mortgagor. The Court ruled:
[Article 2127 of the Civil Code] extends the effects of the real estate mortgage to accessions and accessories found
on the hypothecated property when the secured obligation becomes due. The law is predicated on an assumption
that the ownership of such accessions and accessories also belongs to the mortgagor as the owner of the principal.
The provision has thus been seen by the Court, x x x, to mean that all improvements subsequently introduced or
owned by the mortgagor on the encumbered property are deemed to form part of the mortgage. That the
improvements are to be considered so incorporated only if so owned by the mortgagor is a rule that can hardly be
debated since a contract of security, whether real or personal, needs as an indispensable element thereof the
ownership by the pledgor ormortgagor of the property pledged or mortgaged. The rationale shouldbe clear enough
in the event of default on the secured obligation, the foreclosure sale of the property would naturally be the next
step that can expectedly follow. 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 thing sold (Article 1458, Civil Code). It is to say, in the
instant case, that a foreclosure would be ineffective unless the mortgagor has title to the property to be
foreclosed.20 (Citations omitted and emphasis ours) The rule is that "when a decision becomes final and executory,
it becomes valid and binding upon the parties and their successors in interest." 21 Such being the case, Castro,
which already determined with finality the respondents ownership of the residential house in question, is applicable
and binding in this case and the petitioner cannotbe allowed to challenge the same. Thus, as correctlyruled by the
CA, "[t]o our mind, the pronouncement resolving the said issue necessarily touches also the issue on the ownership
of the building. x x x The finding of the Court [in Castro], now being final and executory, is no longer open for
inquiry and therefore, has attained its immutability." 22
As regards the ruling of the RTC of Cabanatuan City, Branch 26, in Civil Case No. 2939 (AF) that the advertised sale
of the property included allthe improvements thereon,23 suffice it to say that said case involved an action for
ejectment and any resolution by the RTC on the matter of the ownership of the improvements of the property is
merely provisional and cannot surpass the Courts pronouncement in Castro and in the present case. The petitioner
should be reminded that "in ejectment suits, the only issue for resolution is the physical or materialpossession of
the property involved, independent of any claim of ownership by any of the party litigants. However, the issue of
ownership may be provisionally ruled upon for the sole purpose of determining who is entitled to possession de
facto."24 The MTC and RTCs adjudication of ownership is merely provisionaland would not bar or prejudice an action
between the same parties involving title to the property.25
Also, Adoracions subsequent acquisition of the two parcels of land from her father does not necessarily entail the
acquisition of the residential building. "A building by itself is a realor immovable property distinct from the land on
which it is constructed and therefore can be a separate subject of contracts." 26 Whatever Adoracion acquired from
her father is still subject to the limitation pronounced by the Court in Castro, and the sale between Adoracion and
Tomas is confined only to the two parcels of land and excluded the residential building owned by the respondents.
It is beyond question that Tomas, and subsequently, Adoracion, could nothave acquired a right greater than what
their predecessors-in-interest CCC and later, Union Bank had. 27
The petitioner also insists thatthe lease between CCC and the respondents already expired whenAdoracion bought
the property from Tomas. The foregoing issue, however, cannot be considered in the present action. As established
from the facts ofthis case, the residential house is located on a portion of the property that was leased by CCC to
the respondents. Disputing the lease between CCC and the respondents, in effect, goes into the right of the
respondents to maintain the residential house in question and eventually, their right to have the same leased to the
petitioner. Such argument, obviously, is a disguised effort to contest the title of the respondents over the
residential house leased to the petitioner, which, as the Court previously discussed, cannot be allowed since they
are estopped from denying the same.
There is also nothing on record that will prove the petitioners claim that the lease between CCC and the
respondents already expired. The fact that Adoracion subsequently bought the property did not ipso facto
terminate the lease. While the lease between CCC and the respondents contained a 15-year period, to end in 1992,
the petitioner failed to show that the subsequent transferors/purchasers of the two parcels of land opted to
terminate the lease or instituted any action for its termination. Bancom bought the property at an auction sale in
1979; Union Bank, in 1984; Tomas, and later, Adoracion, acquired the property in 1993.
Article 1676 of the Civil Code provides:
The purchaser of a piece of land which is under a lease that is not recorded in the Registry of property may
terminate the lease, save when there is a stipulation to the contrary in the contract of sale, or when the purchaser
knows of the existence of the lease.
x x x x.

198

It cannot be denied that the transferors/purchasers of the property all had knowledge of the lease between CCC
and the respondents; yet, not any of the transferors/purchasers moved to terminate the lease. In Bernabe v. Judge
Luna,28 the Court stated:
[P]etitioners are in error when they say that because they are the buyers of the lot involved herein, they ipso facto
have the right to terminate an existing lease. They can do so but only if the lease itself is not recorded, and they,
as buyers, are not aware of the lease's existence and duration, thus Art. 1676 of the Civil Code says:
xxxx
In the present case, the lease is not recorded, and although petitioner knew of its existence, there was no fixed
period for its duration - hence the lease was generally terminable at the will of the buyerspetitioners. But of course
they had to make a demand for its termination. x x x.29 (Citation omitted and emphasis ours)
This was, in fact, the significance of the Court's statement in Castro, that
[I]n respect of the lease on the foreclosed property, the buyer at the foreclosure sale merely succeeds to the rights
and obligations of the pledgor-mortgagor subject, however, to the fcrovisions of Article 1676 of the Civil Code on its
possible termination.30 (Citation omitted, emphasis and underscoring ours)
Given, however, the lack of substantiation, the petitioner's insistence on the expiry of the lease between CCC and
the respondents, at this point, must fail.
WHEREFORE, the petition is DENIED for lack of merit.
SO ORDERED.
G.R. No. 182839, June 02, 2014
PHILIPPINE NATIONAL BANK, Petitioner, v. JOSE GARCIA AND CHILDREN NORA GARCIA, JOSE GARCIA,
JR., BOBBY GARCIA AND JIMMY GARCIA AND HEIRS OF ROGELIO GARCIA NAMELY: CELEDONIO
GARCIA, DANILO GARCIA, ELSA GARCIA, FERMIN GARCIA, HEHERSON GARCIA, GREGORIO GARCIA,
IMELDA GARCIA AND JANE GARCIA, Respondent.
DECISION
BRION, J.:
We resolve this petition for review on certiorari1 assailing the decision 2 dated September 26, 2007 and the
resolution3dated May 6, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 71356.
These challenged CA rulings reversed and set aside the decision of the Regional Trial Court (RTC), Branch 23,
Roxas, Isabela, dismissing Civil Case No. Branch 23-500-96 for lack of cause of action.
The Factual Background
The facts of the case, gathered from the records, are briefly summarized below.
The subject of the present case is a parcel of residential land with all its improvements (subject property) located
in Barrio Olango, Mallig, Isabela. The land is covered by Transfer Certificate of Title (TCT) No. T-44422 under the
name of Jose Garcia Sr. (Jose Sr.) who acquired the subject property during his marriage with Ligaya Garcia.
Ligaya died on January 21, 1987.
The marriage of Jose Sr. and Ligaya produced the following children: Nora, Jose Jr., Bobby and Jimmy, all surnamed
Garcia, who are the respondents in the present case.
Sometime in 1989, the spouses Rogelio and Celedonia Garcia (Spouses Garcia) obtained a loan facility from the
petitioner, Philippine National Bank (petitioner bank), initially for P150,000.00. The loan was secured by a Real
Estate Mortgage over their property covered by TCT No. 177585. The spouses Garcia increased their loan to
P220,000.00 and eventually to P600,000.00. As security for the increased loan, they offered their property covered
by TCT No. 75324 and the subject property covered by TCT No. T-44422.
Jose Sr. agreed to accommodate the spouses Garcia by offering the subject property as additional collateral
security for the latters increased loan. For this purpose, Jose Sr. executed Special Powers of Attorney (SPAs) dated
April 14, 1992 and October 6, 1993, respectively, expressly authorizing the Spouses Garcia to apply for, borrow, or
secure any loan from the petitioner bank, and to convey and transfer the subject property by way of mortgage.
Jose Sr. also executed an Amendment of Real Estate Mortgage in favor of the petitioner bank. The SPAs and the
Amendment of Real Estate Mortgage are both inscribed on TCT No. T-44422. All of these transactions, however,
were without the knowledge and consent of Jose Sr.s children.
On maturity of the loan on April 20, 1994, the spouses Garcia failed to pay their loan to the petitioner bank
despite repeated demands.
On January 12, 1996, the respondents filed before the RTC a Complaint for Nullity of the Amendment of Real Estate
Mortgage, Damages with Preliminary Injunction against the spouses Garcia and the petitioner bank. They claimed
that the Amendment of Real Estate Mortgage was null and void as to respondents Nora, Jose Jr., Bobby and Jimmy
as they were not parties to the contract.

199

The respondents alleged that the subject property was a conjugal property of Jose Sr. and his deceased spouse,
Ligaya, as they acquired the subject property during their marriage; that upon Ligayas death, Jose Sr., together
with his children Nora, Jose Jr., Bobby and Jimmy, by law, became owners pro indiviso of the subject property; that
the petitioner bank was at fault for not including Jose Sr. as payee to the check representing the loan despite its
knowledge that Jose Sr. was a signatory to the real estate mortgage; that the real estate mortgage executed by
Jose Sr. could not bind his children as they did not give their consent or approval to the encumbrance; and that
the real estate mortgage was also void as to Jose Sr. since he never benefitted from the loan.
In their answer, the Spouses Garcia alleged that Jose Sr. was indebted to them in the amount of P133,800.00. To
settle this indebtedness, Jose Sr. volunteered to give the subject property as additional security for their (the
Garcias) loan to the petitioner bank.
The petitioner bank, on the other hand, claimed that the mortgage was made in good faith and for value, and
maintained that the respondents complaint stated no cause of action against it. It alleged that the real estate
mortgage over the properties was duly registered and inscribed on their titles and was thus binding on the whole
world.
In the course of the proceedings, Nora, Jose Jr., Bobby and Jimmy executed an SPA dated May 31, 1996
authorizing Jose Sr. to act as their attorney-in-fact during the pretrial of the case.
The Ruling of the RTC
The RTC dismissed the complaint for lack of cause of action. The court held that the subject property was a
conjugal property since it was acquired by Jose Sr. during his marriage with his now deceased wife. As a conjugal
property, it is presumed that upon the death of his spouse, one-half of the property passed on to Jose Sr., while
the other half went to Jose and his children as co-owners and as forced heirs of his deceased spouse. Without the
consent of the children, the trial court ruled that the conjugal property could only be transferred or encumbered to
the extent of Jose Sr.s share in the conjugal partnership, plus his share as an heir in the other half pertaining to
the estate of his deceased spouse.
The RTC nevertheless declared that by virtue of the SPA executed by Nora, Jose Jr., Bobby and Jimmy in this suit,
they are already estopped from questioning the mortgage and from alleging lack of consent or knowledge in the
transaction. It held Jose Sr. liable as an accommodation party and upheld the petitioner banks right to collect the
debt.
The respondents disagreed with the RTC ruling and elevated the case to the CA via an ordinary
appeal.cra1awredjgc
The Ruling of the CA
On September 26, 2007, the CA upheld the trial courts finding that the subject property was conjugal, but
reversed and set aside its ruling in so far as it declared valid and binding the Amendment of Real Estate Mortgage
between the petitioner bank, on one hand, and the spouses Garcia and Jose Sr., on the other hand, with respect to
respondents Nora, Jose Jr., Bobby and Jimmy. Relying on the Courts ruling in Nufable v. Nufable,4 the CA ruled that
the encumbrance Jose Sr. made over the entire conjugal property, without his childrens conformity, was null and
void because a mere part owner could not alienate the shares of the other co-owners.
The CA also declared that the conjugal property could only be liable to the extent of Jose Sr.s shares; Jose Sr.s
acts could not affect his childrens pro-indiviso shares in the subject property. It disagreed with the trial courts
estoppel theory and held that their execution of the SPA should not be construed as acquiescence to the mortgage
transaction. Lastly, it ruled that Jose Sr. could not escape liability from the mortgage since he voluntarily bound
himself as the Spouses Garcias accommodation mortgagor.cra1awredjgc
The petition
The petitioner bank disputes the CAs finding that the subject property was conjugal in nature. It argues that, as
can be gleaned from TCT No. T-44422, the subject property was registered in the name of Jose Sr. alone, who
was described in the title as widower and not married. The petitioner bank posits that as a mortgagee in
good faith, it had the right to rely on the mortgagors certificate of title; in the absence of any indication that could
arouse suspicion, it had no obligation to undertake further investigation and verify whether the property was
conjugal or was acquired during marriage or thereafter.
Since the subject property belonged to Jose Sr., insofar as petitioner bank as mortgagee was concerned, Jose Sr.
had the right under Article 428 of the Civil Code to mortgage it without the consent of his children. Accordingly, the
mortgage in its entirety should be declared valid.cra1awredjgc
The Comment
The respondents state that the issues raised by petitioner bank are essentially factual; hence, they are beyond the
competence of this Court in a petition for review. They submit that in a certiorari petition under Rule 45 of the
Rules of Court, only questions of law may be entertained because the Court is not a trier of facts.cra1awredjgc
The Courts Ruling
We deny the petition for lack of merit.
The petition before us raises both questions of fact and of law. Whether petitioner bank is a mortgagee in good
faith and for value and whether the subject property was conjugal, are factual issues that this Court cannot look
into as our examination would entail going into factual matters and records of the case. In Rule 45 petitions, only
questions of law may be put into issue. Questions of fact cannot be entertained. 5
Although there are exceptions to the rule that only questions of law may be raised in a petition for certiorari, the
petitioner bank failed to show that this case falls under any of the established exceptions. Too, since the CA

200

partially affirmed the findings of the trial court and absent any indication that these courts committed a serious
error in its findings, this Court is bound by these courts findings. 6
Moreover, even if we were to review the factual issues raised by the petitioner bank, we still find no reason to
depart from the CAs ruling.
The Subject Property is Conjugal
a. All property acquired during marriage
is presumed conjugal
Since Jose Sr. and Ligaya were married prior to the effectivity of the Family Code, their property relations were
governed by the conjugal partnership of gains as provided under Article 119 of the Civil Code. Under Article 160 of
the Civil Code, all property of the marriage is presumed to belong to the conjugal partnership, unless it can be
proven that it pertains exclusively to the husband or to the wife.
In his testimony, Jose Sr. admitted that at the time he acquired the land through sale, he was already married. The
material portion of his testimony is as follows:chanroblesvirtuallawlibrary
Q:
A:
Q:
A:
Q:
A:
Q:
A:
Q:
A:
Q:
A:

Upon the death of your wife did you and your wife ever own a piece of land?
Yes, sir.
Where is that land situated?
In Centro, District 2, Mallig[,] Isabela.
Is that land titled in your names?
Yes, sir.
xxxx
You and your wife acquired that piece of land?
Yes, sir.
xxxx
May we know from you[,] Mr. Witness, how did you acquire this parcel of land presently embraced and
covered by TCT No. T-44422?
I purchased that piece of land from the Baniqued Family during my incumbency as Municipal Mayor, sir.
What was your civil status at the time you purchased that piece of land?
I was already married, sir. (Emphasis ours, TSN, July 24, 1997, Jose Garcia Sr.)7

Because of the petitioner banks failure to rebut the allegation that the subject property was acquired during the
formers marriage to Ligaya, the legal presumption of the conjugal nature of the property, in line with Article 160 of
the Civil Code, applies to this property. Proof of the subject propertys acquisition during the subsistence of
marriage suffices to render the statutory presumption operative. 8
b. Registration of the subject property in
the name of one spouse does not destroy
the presumption that the property is conjugal
The petitioner bank claims that the CA failed to consider that the subject property was registered in the name of
Jose Sr. alone. Likewise, it raises the argument that Jose Sr.s change of status in the subject propertys title from
married to widower prior to the constitution of the real estate mortgage showed that the property was no
longer conjugal.
We do not consider this argument persuasive.
Registration of a property alone in the name of one spouse does not destroy its conjugal nature. What is material
is the time when the property was acquired.9 The registration of the property is not conclusive evidence of the
exclusive ownership of the husband or the wife. Although the property appears to be registered in the name of the
husband, it has the inherent character of conjugal property if it was acquired for valuable consideration during
marriage.10 It retains its conjugal nature.
In order to rebut the presumptive conjugal nature of the property, the petitioner must present strong, clear and
convincing evidence of exclusive ownership of one of the spouses. 11 The burden of proving that the property
belongs exclusively to the wife or to the husband rests upon the party asserting it.
In the present case, aside from its allegation that the subject property is no longer conjugal and its assertion that it
is a mortgagee in good faith, the petitioner bank offered no evidence, convincing to this Court, that the subject
property exclusively belonged to Jose Sr. As stated earlier, the petitioner bank failed to overcome the legal
presumption that the disputed property was conjugal. Thus, the conclusion of both lower courts that the subject
property was conjugal property holds. Factual findings of the CA affirming those of the trial court are binding on
this Court unless there is a clear showing that such findings are tainted with arbitrariness, capriciousness or
palpable error.12
The conjugal partnership was converted
into an implied ordinary co-ownership
upon the death of Ligaya
Upon the death of Ligaya on January 21, 1987, the conjugal partnership was automatically dissolved and
terminated pursuant to Article 175(1) of the Civil Code,13 and the successional rights of her heirs vest, as provided
under Article 777 of the Civil Code, which states that [t]he rights to the succession are transmitted from the
moment of the death of the decedent.
Consequently, the conjugal partnership was converted into an implied ordinary co-ownership between the surviving
spouse, on the one hand, and the heirs of the deceased, on the other.14 This resulting ordinary co-ownership
among the heirs is governed by Article 493 of the Civil Code which reads:chanroblesvirtuallawlibrary
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 of the mortgage, with respect to the co-

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owners shall be limited to the portion which may be allotted to him in the division upon the termination
of the co-ownership. (Emphasis supplied)ChanRoblesVirtualawlibrary
Under this provision, each co-owner has the full ownership of his part or share in the co-ownership and may,
therefore, alienate, assign or mortgage it except when personal rights are involved. Should a co-owner alienate or
mortgage the co-owned property itself, the alienation or mortgage shall remain valid but only to the extent of the
portion which may be allotted to him in the division upon the termination of the co-ownership. 15 In Carvajal v.
Court of Appeals,16 the Court said:chanroblesvirtuallawlibrary
While under Article 493 of the New Civil Code, each co-owner shall have the full ownership of his part and of the
fruits and benefits pertaining thereto and he may alienate, assign or mortgage it, and even substitute another
person in its enjoyment, the effect of the alienation or the mortgage with respect to the co-owners, shall
be limited, by mandate of the same article, to the portion which may be allotted to him in the division
upon the termination of the co-ownership. He has no right to sell or alienate a concrete, specific, or
determinate part of the thing in common to the exclusion of the other co-owners because his right over
the thing is represented by an abstract or Ideal portion without any physical adjudication.3 An individual
co- owner cannot adjudicate to himself or claim title to any definite portion of the land or thing owned in common
until its actual partition by agreement or judicial decree. Prior to that time all that the co-owner has is an Ideal or
abstract quota or proportionate share in the entire thing owned in common by all the co-owners. 4 What a co owner
may dispose of is only his undivided aliquot share, which shall be limited to the portion that may be allotted to him
upon partition. [emphasis supplied].
In the present case, Jose Sr. constituted the mortgage over the entire subject property after the death of Ligaya,
but before the liquidation of the conjugal partnership. While under Article 493 of the Civil Code, even if he had the
right to freely mortgage or even sell his undivided interest in the disputed property, he could not dispose of or
mortgage the entire property without his childrens consent. As correctly emphasized by the trial court, Jose Sr.s
right in the subject property is limited only to his share in the conjugal partnership as well as his share as
an heir on the other half of the estate which is his deceased spouses share. Accordingly, the mortgage
contract is void insofar as it extends to the undivided shares of his children (Nora, Jose Jr., Bobby and Jimmy)
because they did not give their consent to the transaction. 17
Accordingly, the Amendment of Real Estate Mortgage constituted by Jose Sr. over the entire property without his
co-owners consent is not necessarily void in its entirety. The right of the petitioner bank as mortgagee is limited
though only to the portion which may be allotted to Jose Sr. in the event of a division and liquidation of the subject
property.cra1awlaw1ibrary
WHEREFORE, in view of the foregoing, we hereby AFFIRM the Decision dated September 26, 2007of the Court of
Appeals in CA-G.R. CV No. 71356. Costs against petitioner Philippine National Bank.
SO ORDERED.

G.R. No. 197676

February 4, 2014

REMMAN ENTERPRISES, INC. and CHAMBER OF REAL ESTATE AND BUILDERS'ASSOCIATION, Petitioners,
vs.
PROFESSIONAL REGULATORY BOARD OF REAL ESTATE SERVICE and PROFESSIONAL REGULATION
COMMISSION, Respondents.
DECISION
VILLARAMA, JR., J.:
Assailed in this petition for review under Rule 45 is the Decision 1 dated July 12, 2011 of the Regional Trial Court
(RTC) of Manila, Branch 42 denying the petition to declare as unconstitutional Sections 28(a), 29 and 32 of
Republic Act (R.A.) No. 9646.
R.A. No. 9646, otherwise known as the "Real Estate Service Act of the Philippines" was signed into law on June 29,
2009 by President Gloria Macapagal-Arroyo. It aims to professionalize the real estate service sector under a
regulatory scheme of licensing, registration and supervision of real estate service practitioners (real estate brokers,
appraisers, assessors, consultants and salespersons) in the country. Prior to its enactment, real estate service
practitioners were under the supervision of the Department of Trade and Industry (DTI) through the Bureau of
Trade Regulation and Consumer Protection (BTRCP), in the exercise of its consumer regulation functions. Such
authority is now transferred to the Professional Regulation Commission (PRC) through the Professional Regulatory
Board of Real Estate Service (PRBRES) created under the new law.
The implementing rules and regulations (IRR) of R.A. No. 9646 were promulgated on July 21, 2010 by the PRC and
PRBRES under Resolution No. 02, Series of 2010.
On December 7, 2010, herein petitioners Remman Enterprises, Inc. (REI) and the Chamber of Real Estate and
Builders Association (CREBA) instituted Civil Case No. 10-124776 in the Regional Trial Court of Manila, Branch 42.
Petitioners sought to declare as void and unconstitutional the following provisions of R.A. No. 9646:
SEC. 28. Exemptions from the Acts Constituting the Practice of Real Estate Service. The provisions of this Act and
its rules and regulations shall not apply to the following:
(a) Any person, natural or juridical, who shall directly perform by himself/herself the acts mentioned in Section 3
hereof with reference to his/her or its own property, except real estate developers;

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xxxx
SEC. 29. Prohibition Against the Unauthorized Practice of Real Estate Service. No person shall practice or offer to
practice real estate service in the Philippines or offer himself/herself as real estate service practitioner, or use the
title, word, letter, figure or any sign tending to convey the impression that one is a real estate service practitioner,
or advertise or indicate in any manner whatsoever that one is qualified to practice the profession, or be appointed
as real property appraiser or assessor in any national government entity or local government unit, unless he/she
has satisfactorily passed the licensure examination given by the Board, except as otherwise provided in this Act, a
holder of a valid certificate of registration, and professional identification card or a valid special/temporary permit
duly issued to him/her by the Board and the Commission, and in the case of real estate brokers and private
appraisers, they have paid the required bond as hereto provided.
xxxx
SEC. 32. Corporate Practice of the Real Estate Service. (a) No partnership or corporation shall engage in the
business of real estate service unless it is duly registered with the Securities and Exchange Commission (SEC), and
the persons authorized to act for the partnership or corporation are all duly registered and licensed real estate
brokers, appraisers or consultants, as the case may be. The partnership or corporation shall regularly submit a list
of its real estate service practitioners to the Commission and to the SEC as part of its annual reportorial
requirements. There shall at least be one (1) licensed real estate broker for every twenty (20) accredited
salespersons.
(b) Divisions or departments of partnerships and corporations engaged in marketing or selling any real estate
development project in the regular course of business must be headed by full-time registered and licensed real
estate brokers.
(c) Branch offices of real estate brokers, appraisers or consultants must be manned by a duly licensed real estate
broker, appraiser or consultant as the case may be.
In case of resignation or termination from employment of a real estate service practitioner, the same shall be
reported by the employer to the Board within a period not to exceed fifteen (15) days from the date of effectivity of
the resignation or termination.
Subject to the provisions of the Labor Code, a corporation or partnership may hire the services of registered and
licensed real estate brokers, appraisers or consultants on commission basis to perform real estate services and the
latter shall be deemed independent contractors and not employees of such corporations. (Emphasis and
underscoring supplied.)
According to petitioners, the new law is constitutionally infirm because (1) it violates Article VI, Section 26 (1) of
the 1987 Philippine Constitution which mandates that "[e]very bill passed by Congress shall embrace only one
subject which shall be expressed in the title thereof"; (2) it is in direct conflict with Executive Order (E.O.) No. 648
which transferred the exclusive jurisdiction of the National Housing Authority (NHA) to regulate the real estate
trade and business to the Human Settlements Commission, now the Housing and Land Use Regulatory Board
(HLURB), which authority includes the issuance of license to sell of subdivision owners and developers pursuant to
Presidential Decree (P.D.) No. 957; (3) it violates the due process clause as it impinges on the real estate
developers most basic ownership rights, the right to use and dispose property, which is enshrined in Article 428 of
the Civil Code; and (4) Section 28(a) of R.A. No. 9646 violates the equal protection clause as no substantial
distinctions exist between real estate developers and the exempted group mentioned since both are property
owners dealing with their own property.
Additionally, petitioners contended that the lofty goal of nurturing and developing a "corps of technically
competent, reasonable and respected professional real estate service practitioners" is not served by curtailing the
right of real estate developers to conduct their business of selling properties. On the contrary, these restrictions
would have disastrous effects on the real estate industry as the additional cost of commissions would affect the
pricing and affordability of real estate packages. When that happens, petitioners claimed that the millions of jobs
and billions in revenues that the real estate industry generates for the government will be a thing of the past.
After a summary hearing, the trial court denied the prayer for issuance of a writ of preliminary injunction.
On July 12, 2011, the trial court rendered its Decision 2 denying the petition. The trial court held that the assailed
provisions are relevant to the title of the law as they are intended to regulate the practice of real estate service in
the country by ensuring that those who engage in it shall either be a licensed real estate broker, or under the
latters supervision. It likewise found no real discord between E.O. No. 648 and R.A. No. 9646 as the latter does
not render nugatory the license to sell granted by the HLURB to real estate developers, which license would still
subsist. The only difference is that by virtue of the new law, real estate developers will now be compelled to hire
the services of one licensed real estate broker for every twenty salespersons to guide and supervise the coterie of
salespersons under the employ of the real estate developers.
On the issue of due process, the trial court said that the questioned provisions do not preclude property owners
from using, enjoying, or disposing of their own property because they can still develop and sell their properties
except that they have to secure the services of a licensed real estate broker who shall oversee the actions of the
unlicensed real estate practitioners under their employ. Since the subject provisions merely prescribe the
requirements for the regulation of the practice of real estate services, these are consistent with a valid exercise of
the States police power. The trial court further ruled that Section 28(a) does not violate the equal protection clause
because the exemption of real estate developers was anchored on reasonable classification aimed at protecting the
buying public from the rampant misrepresentations often committed by unlicensed real estate practitioners, and to
prevent unscrupulous and unethical real estate practices from flourishing considering the large number of
consumers in the regular course of business compared to isolated sale transactions made by private individuals
selling their own property.

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Hence, this appeal on the following questions of law:

1. Whether there is a justiciable controversy for this Honorable Court to adjudicate;
2. Whether [R.A. No. 9646] is unconstitutional for violating the "one title-one subject" rule under Article
VI, Section 26 (1) of the Philippine Constitution;
3. Whether [R.A. No. 9646] is in conflict with PD 957, as amended by EO 648, with respect to the
exclusive jurisdiction of the HLURB to regulate real estate developers;
4. Whether Sections 28(a), 29, and 32 of [R.A. No. 9646], insofar as they affect the rights of real estate
developers, are unconstitutional for violating substantive due process; and
5. Whether Section 28(a), which treats real estate developers differently from other natural or juridical
persons who directly perform acts of real estate service with reference to their own property, is
unconstitutional for violating the equal protection clause.3
The Courts Ruling
The petition has no merit.
Justiciable Controversy
The Constitution4 requires as a condition precedent for the exercise of judicial power the existence of an actual
controversy between litigants. An actual case or controversy involves a conflict of legal rights, an assertion of
opposite legal claims susceptible to judicial resolution. 5 The controversy must be justiciable definite and concrete
touching on the legal relations of parties having adverse legal interests, which may be resolved by a court of law
through the application of a law.6 In other words, the pleadings must show an active antagonistic assertion of a
legal right, on the one hand, and a denial thereof on the other; that is, it must concern a real and not a merely
theoretical question or issue. There ought to be an actual and substantial controversy admitting of specific relief
through a decree conclusive in nature, as distinguished from an opinion advising what the law would be upon a
hypothetical state of facts.7 An actual case is ripe for adjudication when the act being challenged has a direct
adverse effect on the individual challenging it. 8
There is no question here that petitioners who are real estate developers are entities directly affected by the
prohibition on performing acts constituting practice of real estate service without first complying with the
registration and licensing requirements for brokers and agents under R.A. No. 9646. The possibility of criminal
sanctions for disobeying the mandate of the new law is likewise real. Asserting that the prohibition violates their
rights as property owners to dispose of their properties, petitioners challenged on constitutional grounds the
implementation of R.A. No. 9646 which the respondents defended as a valid legislation pursuant to the States
police power. The Court thus finds a justiciable controversy that calls for immediate resolution.
No Violation of One-Title One-Subject Rule
Section 26(1), Article VI of the Constitution states:
SEC. 26 (1). Every bill passed by the Congress shall embrace only one subject which shall be expressed in the title
thereof.
In Farias v. The Executive Secretary,9 the Court explained the provision as follows:
The proscription is aimed against the evils of the so-called omnibus bills and log-rolling legislation as well as
surreptitious and/or unconsidered encroaches. The provision merely calls for all parts of an act relating to its
subject finding expression in its title.
To determine whether there has been compliance with the constitutional requirement that the subject of an act
shall be expressed in its title, the Court laid down the rule that
Constitutional provisions relating to the subject matter and titles of statutes should not be so narrowly construed as
to cripple or impede the power of legislation. The requirement that the subject of an act shall be expressed in its
title should receive a reasonable and not a technical construction. It is sufficient if the title be comprehensive
enough reasonably to include the general object which a statute seeks to effect, without expressing each and every
end and means necessary or convenient for the accomplishing of that object. Mere details need not be set forth.
The title need not be an abstract or index of the Act.10 (Emphasis supplied.)
The Court has previously ruled that the one-subject requirement under the Constitution is satisfied if all the parts
of the statute are related, and are germane to the subject matter expressed in the title, or as long as they are not
inconsistent with or foreign to the general subject and title. 11 An act having a single general subject, indicated in
the title, may contain any number of provisions, no matter how diverse they may be, so long as they are not
inconsistent with or foreign to the general subject, and may be considered in furtherance of such subject by
providing for the method and means of carrying out the general object. 12
It is also well-settled that the "one title-one subject" rule does not require the Congress to employ in the title of the
enactment language of such precision as to mirror, fully index or catalogue all the contents and the minute details
therein. The rule is sufficiently complied with if the title is comprehensive enough as to include the general object

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which the statute seeks to effect.13 Indeed, this Court has invariably adopted a liberal rather than technical
construction of the rule "so as not to cripple or impede legislation." 14
R.A. No. 9646 is entitled "An Act Regulating the Practice of Real Estate Service in the Philippines, Creating for the
Purpose a Professional Regulatory Board of Real Estate Service, Appropriating Funds Therefor and For Other
Purposes." Aside from provisions establishing a regulatory system for the professionalization of the real estate
service sector, the new law extended its coverage to real estate developers with respect to their own properties.
Henceforth, real estate developers are prohibited from performing acts or transactions constituting real estate
service practice without first complying with registration and licensing requirements for their business, brokers or
agents, appraisers, consultants and salespersons.
Petitioners point out that since partnerships or corporations engaged in marketing or selling any real estate
development project in the regular course of business are now required to be headed by full-time, registered and
licensed real estate brokers, this requirement constitutes limitations on the property rights and business
prerogatives of real estate developers which are not all reflected in the title of R.A. No. 9646. Neither are real
estate developers, who are already regulated under a different law, P.D. No. 957, included in the definition of real
estate service practitioners.
We hold that R.A. No. 9646 does not violate the one-title, one-subject rule.
The primary objective of R.A. No. 9646 is expressed as follows:
SEC. 2. Declaration of Policy. The State recognizes the vital role of real estate service practitioners in the social,
political, economic development and progress of the country by promoting the real estate market, stimulating
economic activity and enhancing government income from real property-based transactions. Hence, it shall develop
and nurture through proper and effective regulation and supervision a corps of technically competent, responsible
and respected professional real estate service practitioners whose standards of practice and service shall be
globally competitive and will promote the growth of the real estate industry.
We find that the inclusion of real estate developers is germane to the laws primary goal of developing "a corps of
technically competent, responsible and respected professional real estate service practitioners whose standards of
practice and service shall be globally competitive and will promote the growth of the real estate industry." Since the
marketing aspect of real estate development projects entails the performance of those acts and transactions
defined as real estate service practices under Section 3(g) of R.A. No. 9646, it is logically covered by the regulatory
scheme to professionalize the entire real estate service sector.
No Conflict Between R.A. No. 9646
and P.D. No. 957, as amended by E.O. No. 648
Petitioners argue that the assailed provisions still cannot be sustained because they conflict with P.D. No. 957 which
decreed that the NHA shall have "exclusive jurisdiction to regulate the real estate trade and business." Such
jurisdiction includes the authority to issue a license to sell to real estate developers and to register real estate
dealers, brokers or salesmen upon their fulfillment of certain requirements under the law. By imposing limitations
on real estate developers property rights, petitioners contend that R.A. No. 9646 undermines the licenses to sell
issued by the NHA (now the HLURB) to real estate developers allowing them to sell subdivision lots or condominium
units directly to the public. Because the HLURB has been divested of its exclusive jurisdiction over real estate
developers, the result is an implied repeal of P.D. No. 957 as amended by E.O. No. 648, which is not favored in law.
It is a well-settled rule of statutory construction that repeals by implication are not favored. In order to effect a
repeal by implication, the later statute must be so irreconcilably inconsistent and repugnant with the existing law
that they cannot be made to reconcile and stand together. The clearest case possible must be made before the
inference of implied repeal may be drawn, for inconsistency is never presumed. There must be a showing of
repugnance clear and convincing in character. The language used in the later statute must be such as to render it
irreconcilable with what had been formerly enacted. An inconsistency that falls short of that standard does not
suffice.15 Moreover, the failure to add a specific repealing clause indicates that the intent was not to repeal any
existing law, unless an irreconcilable inconsistency and repugnancy exist in the terms of the new and old laws. 16
There is nothing in R.A. No. 9646 that repeals any provision of P.D. No. 957, as amended by E.O. No. 648. P.D. No.
957, otherwise known as "The Subdivision and Condominium Buyers Protective Decree," 17 vested the NHA with
exclusive jurisdiction to regulate the real estate trade and business in accordance with its provisions. It empowered
the NHA to register, approve and monitor real estate development projects and issue licenses to sell to real estate
owners and developers. It further granted the NHA the authority to register and issue/revoke licenses of brokers,
dealers and salesmen engaged in the selling of subdivision lots and condominium units.
E.O. No. 648, issued on February 7, 1981, reorganized the Human Settlements Regulatory Commission (HSRC) and
transferred the regulatory functions of the NHA under P.D. 957 to the HSRC. Among these regulatory functions
were the (1) regulation of the real estate trade and business; (2) registration of subdivision lots and condominium
projects; (3) issuance of license to sell subdivision lots and condominium units in the registered units; (4) approval
of performance bond and the suspension of license to sell; (5) registration of dealers, brokers and salesman
engaged in the business of selling subdivision lots or condominium units; and (6) revocation of registration of
dealers, brokers and salesmen.18
E.O. No. 90, issued on December 17, 1986, renamed the HSRC as the Housing and Land Use Regulatory Board
(HLURB) and was designated as the regulatory body for housing and land development under the Housing and
Urban Development Coordinating Council (HUDCC). To date, HLURB continues to carry out its mandate to register
real estate brokers and salesmen dealing in condominium, memorial parks and subdivision projects pursuant to
Section 11 of P.D. No. 957, which reads:

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SECTION 11. Registration of Dealers, Brokers and Salesmen. No real estate dealer, broker or salesman shall
engage in the business of selling subdivision lots or condominium units unless he has registered himself with the
Authority in accordance with the provisions of this section.
If the Authority shall find that the applicant is of good repute and has complied with the applicable rules of the
Authority, including the payment of the prescribed fee, he shall register such applicant as a dealer, broker or
salesman upon filing a bond, or other security in lieu thereof, in such sum as may be fixed by the Authority
conditioned upon his faithful compliance with the provisions of this Decree: Provided, that the registration of a
salesman shall cease upon the termination of his employment with a dealer or broker.
Every registration under this section shall expire on the thirty-first day of December of each year. Renewal of
registration for the succeeding year shall be granted upon written application therefore made not less than thirty
nor more than sixty days before the first day of the ensuing year and upon payment of the prescribed fee, without
the necessity of filing further statements or information, unless specifically required by the Authority. All
applications filed beyond said period shall be treated as original applications.
The names and addresses of all persons registered as dealers, brokers, or salesmen shall be recorded in a Register
of Brokers, Dealers and Salesmen kept in the Authority which shall be open to public inspection.
On the other hand, Section 29 of R.A. No. 9646 requires as a condition precedent for all persons who will engage in
acts constituting real estate service, including advertising in any manner ones qualifications as a real estate service
practitioner, compliance with licensure examination and other registration requirements including the filing of a
bond for real estate brokers and private appraisers. While Section 11 of P.D. No. 957 imposes registration
requirements for dealers, brokers and salespersons engaged in the selling of subdivision lots and condominium
units, Section 29 of R.A. No. 9646 regulates all real estate service practitioners whether private or government.
While P.D. No. 957 seeks to supervise brokers and dealers who are engaged in the sale of subdivision lots and
condominium units, R.A. No. 9646 aims to regulate the real estate service sector in general by professionalizing
their ranks and raising the level of ethical standards for licensed real estate professionals.
There is no conflict of jurisdiction because the HLURB supervises only those real estate service practitioners
engaged in the sale of subdivision lots and condominium projects, specifically for violations of the provisions of P.D.
No. 957, and not the entire real estate service sector which is now under the regulatory powers of the PRBRES.
HLURBs supervision of brokers and dealers to effectively implement the provisions of P.D. No. 957 does not
foreclose regulation of the real estate service as a profession. Real estate developers already regulated by the
HLURB are now further required to comply with the professional licensure requirements under R.A. No. 9646, as
provided in Sections 28, 29 and 32. Plainly, there is no inconsistency or contradiction in the assailed provisions of
R.A. No. 9646 and P.D. No. 957, as amended.
The rule is that every statute must be interpreted and brought into accord with other laws in a way that will form a
uniform system of jurisprudence. The legislature is presumed to have known existing laws on the subject and not
to have enacted conflicting laws.19 Congress, therefore, could not be presumed to have intended Sections 28, 29
and 32 of R.A. No. 9646 to run counter to P.D. No. 957.
No Violation of Due Process
Petitioners contend that the assailed provisions of R.A. No. 9646 are unduly oppressive and infringe the
constitutional rule against deprivation of property without due process of law. They stress that real estate
developers are now burdened by law to employ licensed real estate brokers to sell, market and dispose of their
properties. Despite having invested a lot of money, time and resources in their projects, petitioners aver that real
estate developers will still have less control in managing their business and will be burdened with additional
expenses.
The contention has no basis. There is no deprivation of property as no restriction on their use and enjoyment of
property is caused by the implementation of R.A. No. 9646. If petitioners as property owners feel burdened by the
new requirement of engaging the services of only licensed real estate professionals in the sale and marketing of
their properties, such is an unavoidable consequence of a reasonable regulatory measure.
Indeed, no right is absolute, and the proper regulation of a profession, calling, business or trade has always been
upheld as a legitimate subject of a valid exercise of the police power of the State particularly when their conduct
affects the execution of legitimate governmental functions, the preservation of the State, public health and welfare
and public morals. 20 In any case, where the liberty curtailed affects at most the rights of property, the permissible
scope of regulatory measures is certainly much wider. To pretend that licensing or accreditation requirements
violate the due process clause is to ignore the settled practice, under the mantle of police power, of regulating
entry to the practice of various trades or professions.21
Here, the legislature recognized the importance of professionalizing the ranks of real estate practitioners by
increasing their competence and raising ethical standards as real property transactions are "susceptible to
manipulation and corruption, especially if they are in the hands of unqualified persons working under an ineffective
regulatory system." The new regulatory regime aimed to fully tap the vast potential of the real estate sector for
greater contribution to our gross domestic income, and real estate practitioners "serve a vital role in spearheading
the continuous flow of capital, in boosting investor confidence, and in promoting overall national progress." 22
We thus find R.A. No. 9646 a valid exercise of the States police power. As we said in another case challenging the
constitutionality of a law granting discounts to senior citizens:
The law is a legitimate exercise of police power which, similar to the power of eminent domain, has general welfare
for its object. Police power is not capable of an exact definition, but has been purposely veiled in general terms to
underscore its comprehensiveness to meet all exigencies and provide enough room for an efficient and flexible
response to conditions and circumstances, thus assuring the greatest benefits. Accordingly, it has been described

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as "the most essential, insistent and the least limitable of powers, extending as it does to all the great public
needs." It is "[t]he power vested in the legislature by the constitution to make, ordain, and establish all manner of
wholesome and reasonable laws, statutes, and ordinances, either with penalties or without, not repugnant to the
constitution, as they shall judge to be for the good and welfare of the commonwealth, and of the subjects of the
same."
For this reason, when the conditions so demand as determined by the legislature, property rights must bow to the
primacy of police power because property rights, though sheltered by due process, must yield to general welfare.
Police power as an attribute to promote the common good would be diluted considerably if on the mere plea of
petitioners that they will suffer loss of earnings and capital, the questioned provision is invalidated. Moreover, in the
absence of evidence demonstrating the alleged confiscatory effect of the provision in question, there is no basis for
its nullification in view of the presumption of validity which every law has in its favor.23 (Emphasis supplied.)
No Violation of Equal Protection Clause
Section 28 of R.A. No. 9646 exempts from its coverage natural and juridical persons dealing with their own
property, and other persons such as receivers, trustees or assignees in insolvency or bankruptcy proceedings.
However, real estate developers are specifically mentioned as an exception from those enumerated therein.
Petitioners argue that this provision violates the equal protection clause because it unjustifiably treats real estate
developers differently from those exempted persons who also own properties and desire to sell them. They insist
that no substantial distinctions exist between ordinary property owners and real estate developers as the latter, in
fact, are more capable of entering into real estate transactions and do not need the services of licensed real estate
brokers.1wphi1 They assail the RTC decision in citing the reported fraudulent practices as basis for the exclusion
of real estate developers from the exempted group of persons under Section 28(a).
We sustain the trial courts ruling that R.A. No. 9646 does not violate the equal protection clause.
In Ichong v. Hernandez,24 the concept of equal protection was explained as follows:
The equal protection of the law clause is against undue favor and individual or class privilege, as well as hostile
discrimination or the oppression of inequality. It is not intended to prohibit legislation, which is limited either in the
object to which it is directed or by territory within which it is to operate. It does not demand absolute equality
among residents; it merely requires that all persons shall be treated alike, under like circumstances and conditions
both as to privileges conferred and liabilities enforced. The equal protection clause is not infringed by legislation
which applies only to those persons falling within such class, and reasonable grounds exists for making a distinction
between those who fall within such class and those who do not. (2 Cooley, Constitutional Limitations, 824-825). 25
Although the equal protection clause of the Constitution does not forbid classification, it is imperative that the
classification should be based on real and substantial differences having a reasonable relation to the subject of the
particular legislation.26 If classification is germane to the purpose of the law, concerns all members of the class, and
applies equally to present and future conditions, the classification does not violate the equal protection guarantee. 27
R.A. No. 9646 was intended to provide institutionalized government support for the development of "a corps of
highly respected, technically competent, and disciplined real estate service practitioners, knowledgeable of
internationally accepted standards and practice of the profession." 28 Real estate developers at present constitute a
sector that hires or employs the largest number of brokers, salespersons, appraisers and consultants due to the
sheer number of products (lots, houses and condominium units) they advertise and sell nationwide. As early as in
the 70s, there has been a proliferation of errant developers, operators or sellers who have reneged on their
representation and obligations to comply with government regulations such as the provision and maintenance of
subdivision roads, drainage, sewerage, water system and other basic requirements. To protect the interest of home
and lot buyers from fraudulent acts and manipulations perpetrated by these unscrupulous subdivision and
condominium sellers and operators, P.D. No. 957 was issued to strictly regulate housing and real estate
development projects. Hence, in approving R.A. No. 9646, the legislature rightfully recognized the necessity of
imposing the new licensure requirements to all real estate service practitioners, including and more importantly,
those real estate service practitioners working for real estate developers. Unlike individuals or entities having
isolated transactions over their own property, real estate developers sell lots, houses and condominium units in the
ordinary course of business, a business which is highly regulated by the State to ensure the health and safety of
home and lot buyers.
The foregoing shows that substantial distinctions do exist between ordinary property owners exempted under
Section 28(a) and real estate developers like petitioners, and the classification enshrined in R.A. No. 9646 is
reasonable and relevant to its legitimate purpose. The Court thus rules that R.A. No. 9646 is valid and
constitutional.
Since every law is presumed valid, the presumption of constitutionality can be overcome only by the clearest
showing that there was indeed an infraction of the Constitution, and only when such a conclusion is reached by the
required majority may the Court pronounce, in the discharge of the duty it cannot escape, that the challenged act
must be struck down.29
Indeed, "all presumptions are indulged in favor of constitutionality; one who attacks a statute, alleging
unconstitutionality must prove its invalidity beyond a reasonable doubt; that a law may work hardship does not
render it unconstitutional; that if any reasonable basis may be conceived which supports the statute, it will be
upheld, and the challenger must negate all possible bases; that the courts are not concerned with the wisdom,
justice, policy, or expediency of a statute; and that a liberal interpretation of the constitution in favor of the
constitutionality of legislation should be adopted." 30
WHEREFORE, the petition is DENIED. The Decision dated July 12, 2011 of the Regional Trial Court of Manila, Branch
42 in Civil Case No. 10-124776 is hereby AFFIRMED and UPHELD.

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No pronouncement as to costs.
SO ORDERED.
G.R. No. 191109

July 18, 2012

REPUBLIC OF THE PHILIPPINES, represented by the PHILIPPINE RECLAMATION AUTHORITY

(PRA),Petitioner,
vs.
CITY OF PARANAQUE, Respondent.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, on pure questions of
law, assailing the January 8, 2010 Order1 of the Regional Trial Court, Branch 195, Parafiaque City (RTC), which
ruled that petitioner Philippine Reclamation Authority (PRA) is a government-owned and controlled corporation
(GOCC), a taxable entity, and, therefore, . not exempt from payment of real property taxes. The pertinent portion
of the said order reads:
In view of the finding of this court that petitioner is not exempt from payment of real property taxes, respondent
Paraaque City Treasurer Liberato M. Carabeo did not act xxx without or in excess of jurisdiction, or with grave
abuse of discretion amounting to lack or in excess of jurisdiction in issuing the warrants of levy on the subject
properties.
WHEREFORE, the instant petition is dismissed. The Motion for Leave to File and Admit Attached Supplemental
Petition is denied and the supplemental petition attached thereto is not admitted.
The Public Estates Authority (PEA) is a government corporation created by virtue of Presidential Decree (P.D.) No.
1084 (Creating the Public Estates Authority, Defining its Powers and Functions, Providing Funds Therefor and For
Other Purposes) which took effect on February 4,
1977 to provide a coordinated, economical and efficient reclamation of lands, and the administration and operation
of lands belonging to, managed and/or operated by, the government with the object of maximizing their utilization
and hastening their development consistent with public interest.
On February 14, 1979, by virtue of Executive Order (E.O.) No. 525 issued by then President Ferdinand Marcos, PEA
was designated as the agency primarily responsible for integrating, directing and coordinating all reclamation
projects for and on behalf of the National Government.
On October 26, 2004, then President Gloria Macapagal-Arroyo issued E.O. No. 380 transforming PEA into PRA,
which shall perform all the powers and functions of the PEA relating to reclamation activities.
By virtue of its mandate, PRA reclaimed several portions of the foreshore and offshore areas of Manila Bay,
including those located in Paraaque City, and was issued Original Certificates of Title (OCT Nos. 180, 202, 206,
207, 289, 557, and 559) and Transfer Certificates of Title (TCT Nos. 104628, 7312, 7309, 7311, 9685, and 9686)
over the reclaimed lands.
On February 19, 2003, then Paraaque City Treasurer Liberato M. Carabeo (Carabeo) issued Warrants of Levy on
PRAs reclaimed properties (Central Business Park and Barangay San Dionisio) located in Paraaque City based on
the assessment for delinquent real property taxes made by then Paraaque City Assessor Soledad Medina Cue for
tax years 2001 and 2002.
On March 26, 2003, PRA filed a petition for prohibition with prayer for temporary restraining order (TRO) and/or
writ of preliminary injunction against Carabeo before the RTC.
On April 3, 2003, after due hearing, the RTC issued an order denying PRAs petition for the issuance of a temporary
restraining order.
On April 4, 2003, PRA sent a letter to Carabeo requesting the latter not to proceed with the public auction of the
subject reclaimed properties on April 7, 2003. In response, Carabeo sent a letter stating that the public auction
could not be deferred because the RTC had already denied PRAs TRO application.
On April 25, 2003, the RTC denied PRAs prayer for the issuance of a writ of preliminary injunction for being moot
and academic considering that the auction sale of the subject properties on April 7, 2003 had already been
consummated.
On August 3, 2009, after an exchange of several pleadings and the failure of both parties to arrive at a compromise
agreement, PRA filed a Motion for Leave to File and Admit Attached Supplemental Petition which sought to declare
as null and void the assessment for real property taxes, the levy based on the said assessment, the public auction
sale conducted on April 7, 2003, and the Certificates of Sale issued pursuant to the auction sale.
On January 8, 2010, the RTC rendered its decision dismissing PRAs petition. In ruling that PRA was not exempt
from payment of real property taxes, the RTC reasoned out that it was a GOCC under Section 3 of P.D. No. 1084. It
was organized as a stock corporation because it had an authorized capital stock divided into no par value shares. In

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fact, PRA admitted its corporate personality and that said properties were registered in its name as shown by the
certificates of title. Therefore, as a GOCC, local tax exemption is withdrawn by virtue of Section 193 of Republic Act
(R.A.) No. 7160 Local Government Code (LGC) which was the prevailing law in 2001 and 2002 with respect to real
property taxation. The RTC also ruled that the tax exemption claimed by PRA under E.O. No. 654 had already been
expressly repealed by R.A. No. 7160 and that PRA failed to comply with the procedural requirements in Section 206
thereof.
Not in conformity, PRA filed this petition for certiorari assailing the January 8, 2010 RTC Order based on the
following GROUNDS
I
THE TRIAL COURT GRAVELY ERRED IN FINDING THAT PETITIONER IS LIABLE TO PAY REAL PROPERTY TAX ON THE
SUBJECT RECLAIMED LANDS CONSIDERING
THAT PETITIONER IS AN INCORPORATED INSTRUMENTALITY OF THE NATIONAL GOVERNMENT AND IS,
THEREFORE, EXEMPT FROM PAYMENT OF REAL PROPERTY TAX UNDER SECTIONS 234(A) AND 133(O) OF
REPUBLIC ACT 7160 OR THE LOCAL GOVERNMENT CODE VIS--VIS MANILA INTERNATIONAL AIRPORT AUTHORITY
V. COURT OF APPEALS.
II
THE TRIAL COURT GRAVELY ERRED IN FAILING TO CONSIDER THAT RECLAIMED LANDS ARE PART OF THE PUBLIC
DOMAIN AND, HENCE, EXEMPT FROM REAL PROPERTY TAX.
PRA asserts that it is not a GOCC under Section 2(13) of the Introductory Provisions of the Administrative Code.
Neither is it a GOCC under Section 16, Article XII of the 1987 Constitution because it is not required to meet the
test of economic viability. Instead, PRA is a government instrumentality vested with corporate powers and
performing an essential public service pursuant to Section 2(10) of the Introductory Provisions of the
Administrative Code. Although it has a capital stock divided into shares, it is not authorized to distribute dividends
and allotment of surplus and profits to its stockholders. Therefore, it may not be classified as a stock corporation
because it lacks the second requisite of a stock corporation which is the distribution of dividends and allotment of
surplus and profits to the stockholders.
It insists that it may not be classified as a non-stock corporation because it has no members and it is not organized
for charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil
service, or similar purposes, like trade, industry, agriculture and like chambers as provided in Section 88 of the
Corporation Code.
Moreover, PRA points out that it was not created to compete in the market place as there was no competing
reclamation company operated by the private sector. Also, while PRA is vested with corporate powers under P.D.
No. 1084, such circumstance does not make it a corporation but merely an incorporated instrumentality and that
the mere fact that an incorporated instrumentality of the National Government holds title to real property does not
make said instrumentality a GOCC. Section 48, Chapter 12, Book I of the Administrative Code of 1987 recognizes a
scenario where a piece of land owned by the Republic is titled in the name of a department, agency or
instrumentality.
Thus, PRA insists that, as an incorporated instrumentality of the National Government, it is exempt from payment
of real property tax except when the beneficial use of the real property is granted to a taxable person. PRA claims
that based on Section 133(o) of the LGC, local governments cannot tax the national government which delegate to
local governments the power to tax.
It explains that reclaimed lands are part of the public domain, owned by the State, thus, exempt from the payment
of real estate taxes. Reclaimed lands retain their inherent potential as areas for public use or public service. While
the subject reclaimed lands are still in its hands, these lands remain public lands and form part of the public
domain. Hence, the assessment of real property taxes made on said lands, as well as the levy thereon, and the
public sale thereof on April 7, 2003, including the issuance of the certificates of sale in favor of the respondent
Paraaque City, are invalid and of no force and effect.
On the other hand, the City of Paraaque (respondent) argues that PRA since its creation consistently represented
itself to be a GOCC. PRAs very own charter (P.D. No. 1084) declared it to be a GOCC and that it has entered into
several thousands of contracts where it represented itself to be a GOCC. In fact, PRA admitted in its original and
amended petitions and pre-trial brief filed with the RTC of Paraaque City that it was a GOCC.
Respondent further argues that PRA is a stock corporation with an authorized capital stock divided into 3 million no
par value shares, out of which 2 million shares have been subscribed and fully paid up. Section 193 of the LGC of
1991 has withdrawn tax exemption privileges granted to or presently enjoyed by all persons, whether natural or
juridical, including GOCCs.
Hence, since PRA is a GOCC, it is not exempt from the payment of real property tax.
THE COURTS RULING
The Court finds merit in the petition.
Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a GOCC as follows:

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SEC. 2. General Terms Defined. x x x x

(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock
corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and
owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case
of stock corporations, to the extent of at least fifty-one
(51) percent of its capital stock: x x x.
On the other hand, Section 2(10) of the Introductory Provisions of the Administrative Code defines a government
"instrumentality" as follows:
SEC. 2. General Terms Defined. x x x x
(10) Instrumentality refers to any agency of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually through a charter. x x x
From the above definitions, it is clear that a GOCC must be "organized as a stock or non-stock corporation" while
an instrumentality is vested by law with corporate powers. Likewise, when the law makes a government
instrumentality operationally autonomous, the instrumentality remains part of the National Government machinery
although not integrated with the department framework.
When the law vests in a government instrumentality corporate powers, the instrumentality does not necessarily
become a corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it
remains a government instrumentality exercising not only governmental but also corporate powers.
Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock
corporations, which is a necessary condition before an agency or instrumentality is deemed a GOCC. Examples are
the Mactan International Airport Authority, the Philippine Ports Authority, the University of the Philippines, and
Bangko Sentral ng Pilipinas. All these government instrumentalities exercise corporate powers but they are not
organized as stock or non-stock corporations as required by Section 2(13) of the Introductory Provisions of the
Administrative Code. These government instrumentalities are sometimes loosely called government corporate
entities. They are not, however, GOCCs in the strict sense as understood under the Administrative Code, which is
the governing law defining the legal relationship and status of government entities. 2
Correlatively, Section 3 of the Corporation Code defines a stock corporation as one whose "capital stock is divided
into shares and x x x authorized to distribute to the holders of such shares dividends x x x." Section 87 thereof
defines a non-stock corporation as "one where no part of its income is distributable as dividends to its members,
trustees or officers." Further, Section 88 provides that non-stock corporations are "organized for charitable,
religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar
purposes, like trade, industry, agriculture and like chambers."
Two requisites must concur before one may be classified as a stock corporation, namely: (1) that it has capital
stock divided into shares; and (2) that it is authorized to distribute dividends and allotments of surplus and profits
to its stockholders. If only one requisite is present, it cannot be properly classified as a stock corporation. As for
non-stock corporations, they must have members and must not distribute any part of their income to said
members.3
In the case at bench, PRA is not a GOCC because it is neither a stock nor a non-stock corporation. It cannot be
considered as a stock corporation because although it has a capital stock divided into no par value shares as
provided in Section 74 of P.D. No. 1084, it is not authorized to distribute dividends, surplus allotments or profits to
stockholders. There is no provision whatsoever in P.D. No. 1084 or in any of the subsequent executive issuances
pertaining to PRA, particularly, E.O. No. 525, 5 E.O. No. 6546 and EO No. 7987 that authorizes PRA to distribute
dividends, surplus allotments or profits to its stockholders.
PRA cannot be considered a non-stock corporation either because it does not have members. A non-stock
corporation must have members.8 Moreover, it was not organized for any of the purposes mentioned in Section 88
of the Corporation Code. Specifically, it was created to manage all government reclamation projects.
Furthermore, there is another reason why the PRA cannot be classified as a GOCC. Section 16, Article XII of the
1987 Constitution provides as follows:
Section 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of
private corporations. Government-owned or controlled corporations may be created or established by special
charters in the interest of the common good and subject to the test of economic viability.
The fundamental provision above authorizes Congress to create GOCCs through special charters on two conditions:
1) the GOCC must be established for the common good; and 2) the GOCC must meet the test of economic viability.
In this case, PRA may have passed the first condition of common good but failed the second one - economic
viability. Undoubtedly, the purpose behind the creation of PRA was not for economic or commercial activities.
Neither was it created to compete in the market place considering that there were no other competing reclamation
companies being operated by the private sector. As mentioned earlier, PRA was created essentially to perform a
public service considering that it was primarily responsible for a coordinated, economical and efficient reclamation,
administration and operation of lands belonging to the government with the object of maximizing their utilization
and hastening their development consistent with the public interest. Sections 2 and 4 of P.D. No. 1084 reads, as
follows:

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Section 2. Declaration of policy. It is the declared policy of the State to provide for a coordinated, economical and
efficient reclamation of lands, and the administration and operation of lands belonging to, managed and/or
operated by the government, with the object of maximizing their utilization and hastening their development
consistent with the public interest.
Section 4. Purposes. The Authority is hereby created for the following purposes:
(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 services as may be necessary for the efficient, economical
and beneficial utilization of the above properties.
The twin requirement of common good and economic viability was lengthily discussed in the case of Manila
International Airport Authority v. Court of Appeals, 9 the pertinent portion of which reads:
Third, the government-owned or controlled corporations created through special charters are those that meet the
two conditions prescribed in Section 16, Article XII of the Constitution.
The first condition is that the government-owned or controlled corporation must be established for the common
good. The second condition is that the government-owned or controlled corporation must meet the test of
economic viability. Section 16, Article XII of the 1987 Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of
private corporations. Government-owned or controlled corporations may be created or established by special
charters in the interest of the common good and subject to the test of economic viability.
The Constitution expressly authorizes the legislature to create "government-owned or controlled corporations"
through special charters only if these entities are required to meet the twin conditions of common good and
economic viability. In other words, Congress has no power to create government-owned or controlled corporations
with special charters unless they are made to comply with the two conditions of common good and economic
viability. The test of economic viability applies only to government-owned or controlled corporations that perform
economic or commercial activities and need to compete in the market place. Being essentially economic vehicles of
the State for the common good meaning for economic development purposes these government-owned or
controlled corporations with special charters are usually organized as stock corporations just like ordinary private
corporations.
In contrast, government instrumentalities vested with corporate powers and performing governmental or public
functions need not meet the test of economic viability. These instrumentalities perform essential public services for
the common good, services that every modern State must provide its citizens. These instrumentalities need not be
economically viable since the government may even subsidize their entire operations. These instrumentalities are
not the "government-owned or controlled corporations" referred to in Section 16, Article XII of the 1987
Constitution.
Thus, the Constitution imposes no limitation when the legislature creates government instrumentalities vested with
corporate powers but performing essential governmental or public functions. Congress has plenary authority to
create government instrumentalities vested with corporate powers provided these instrumentalities perform
essential government functions or public services. However, when the legislature creates through special charters
corporations that perform economic or commercial activities, such entities known as "government-owned or
controlled corporations" must meet the test of economic viability because they compete in the market place.
This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines and similar
government-owned or controlled corporations, which derive their incometo meet operating expenses solely from
commercial transactions in competition with the private sector. The intent of the Constitution is to prevent the
creation of government-owned or controlled corporations that cannot survive on their own in the market place and
thus merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the Constitutional Commission
the purpose of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is really that when the government creates a corporation,
there is a sense in which this corporation becomes exempt from the test of economic performance. We know what
happened in the past. If a government corporation loses, then it makes its claim upon the taxpayers' money
through new equity infusions from the government and what is always invoked is the common good. That is the
reason why this year, out of a budget of P115 billion for the entire government, about P28 billion of this will go into
equity infusions to support a few government financial institutions. And this is all taxpayers' money which could
have been relocated to agrarian reform, to social services like health and education, to augment the salaries of
grossly underpaid public employees. And yet this is all going down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good," this becomes a
restraint on future enthusiasts for state capitalism to excuse themselves from the responsibility of meeting the
market test so that they become viable. And so, Madam President, I reiterate, for the committee's consideration
and I am glad that I am joined in this proposal by Commissioner Foz, the insertion of the standard of "ECONOMIC
VIABILITY OR THE ECONOMIC TEST," together with the common good.1wphi1

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Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his textbook The 1987
Constitution of the Republic of the Philippines: A Commentary:
The second sentence was added by the 1986 Constitutional Commission. The significant addition, however, is the
phrase "in the interest of the common good and subject to the test of economic viability." The addition includes the
ideas that they must show capacity to function efficiently in business and that they should not go into activities
which the private sector can do better. Moreover, economic viability is more than financial viability but also includes
capability to make profit and generate benefits not quantifiable in financial terms.
Clearly, the test of economic viability does not apply to government entities vested with corporate powers and
performing essential public services. The State is obligated to render essential public services regardless of the
economic viability of providing such service. The non-economic viability of rendering such essential public service
does not excuse the State from withholding such essential services from the public.
However, government-owned or controlled corporations with special charters, organized essentially for economic or
commercial objectives, must meet the test of economic viability. These are the government-owned or controlled
corporations that are usually organized under their special charters as stock corporations, like the Land Bank of the
Philippines and the Development Bank of the Philippines. These are the government-owned or controlled
corporations, along with government-owned or controlled corporations organized under the Corporation Code, that
fall under the definition of "government-owned or controlled corporations" in Section 2(10) of the Administrative
Code. [Emphases supplied]
This Court is convinced that PRA is not a GOCC either under Section 2(3) of the Introductory Provisions of the
Administrative Code or under Section 16, Article XII of the 1987 Constitution. The facts, the evidence on record
and jurisprudence on the issue support the position that PRA was not organized either as a stock or a non-stock
corporation. Neither was it created by Congress to operate commercially and compete in the private market.
Instead, PRA is a government instrumentality vested with corporate powers and performing an essential public
service pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. Being an incorporated
government instrumentality, it is exempt from payment of real property tax.
Clearly, respondent has no valid or legal basis in taxing the subject reclaimed lands managed by PRA. On the other
hand, Section 234(a) of the LGC, in relation to its Section 133(o), exempts PRA from paying realty taxes and
protects it from the taxing powers of local government units.
Sections 234(a) and 133(o) of the LGC provide, as follows:
SEC. 234. Exemptions from Real Property Tax The following are exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the
beneficial use thereof has been granted, for consideration or otherwise, to a taxable person.
xxxx
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided
herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the
levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National Government, its agencies and instrumentalities, and local
government units. [Emphasis supplied]
It is clear from Section 234 that real property owned by the Republic of the Philippines (the Republic) is exempt
from real property tax unless the beneficial use thereof has been granted to a taxable person. In this case, there is
no proof that PRA granted the beneficial use of the subject reclaimed lands to a taxable entity. There is no showing
on record either that PRA leased the subject reclaimed properties to a private taxable entity.
This exemption should be read in relation to Section 133(o) of the same Code, which prohibits local governments
from imposing "taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities x
x x." The Administrative Code allows real property owned by the Republic to be titled in the name of agencies or
instrumentalities of the national government. Such real properties remain owned by the Republic and continue to
be exempt from real estate tax.
Indeed, the Republic grants the beneficial use of its real property to an agency or instrumentality of the national
government. This happens when the title of the real property is transferred to an agency or instrumentality even as
the Republic remains the owner of the real property. Such arrangement does not result in the loss of the tax
exemption, unless "the beneficial use thereof has been granted, for consideration or otherwise, to a taxable
person."10
The rationale behind Section 133(o) has also been explained in the case of the Manila International Airport
Authority,11 to wit:
Section 133(o) recognizes the basic principle that local governments cannot tax the national government, which
historically merely delegated to local governments the power to tax. While the 1987 Constitution now includes
taxation as one of the powers of local governments, local governments may only exercise such power "subject to
such guidelines and limitations as the Congress may provide."

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When local governments invoke the power to tax on national government instrumentalities, such power is
construed strictly against local governments. The rule is that a tax is never presumed and there must be clear
language in the law imposing the tax. Any doubt whether a person, article or activity is taxable is resolved against
taxation. This rule applies with greater force when local governments seek to tax national government
instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption. However,
when Congress grants an exemption to a national government instrumentality from local taxation, such exemption
is construed liberally in favor of the national government instrumentality. As this Court declared in Maceda v.
Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or
its agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that has to
be handled by government in the course of its operations. For these reasons, provisions granting exemptions to
government agencies may be construed liberally, in favor of non tax-liability of such agencies.
There is, moreover, no point in national and local governments taxing each other, unless a sound and compelling
policy requires such transfer of public funds from one government pocket to another.
There is also no reason for local governments to tax national government instrumentalities for rendering essential
public services to inhabitants of local governments. The only exception is when the legislature clearly intended to
tax government instrumentalities for the delivery of essential public services for sound and compelling policy
considerations. There must be express language in the law empowering local governments to tax national
government instrumentalities. Any doubt whether such power exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code, local
governments cannot tax national government instrumentalities. As this Court held in Basco v. Philippine
Amusements and Gaming Corporation:
The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the
operation of constitutional laws enacted by Congress to carry into execution the powers vested in the federal
government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the National Government over local governments.
"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part of the
States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland,
254 US 51) and it can be agreed that no state or political subdivision can regulate a federal instrumentality in such
a way as to prevent it from consummating its federal responsibilities, or even to seriously burden it in the
accomplishment of them." (Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities
may perceive to be undesirable activities or enterprise using the power to tax as "a tool for regulation." (U.S. v.
Sanchez, 340 US 42)
The power to tax which was called by Justice Marshall as the "power to destroy" (McCulloch v. Maryland, supra)
cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield
it. [Emphases supplied]
The Court agrees with PRA that the subject reclaimed lands are still part of the public domain, owned by the State
and, therefore, exempt from payment of real estate taxes.
Section 2, Article XII of the 1987 Constitution reads in part, as follows:
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 productionsharing agreements with Filipino citizens, or corporations or associations at least 60 per centum of whose capital is
owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not
more than twenty-five years, and under such terms and conditions as may provided by law. In cases of water
rights for irrigation, water supply, fisheries, or industrial uses other than the development of waterpower, beneficial
use may be the measure and limit of the grant.
Similarly, Article 420 of the Civil Code enumerates properties belonging to the State:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by
the State, banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some public
service or for the development of the national wealth. [Emphases supplied]

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Here, the subject lands are reclaimed lands, specifically portions of the foreshore and offshore areas of Manila Bay.
As such, these lands remain public lands and form part of the public domain. In the case of Chavez v. Public
Estates Authority and AMARI Coastal Development Corporation, 12 the Court held that foreshore and submerged
areas irrefutably belonged to the public domain and were inalienable unless reclaimed, classified as alienable lands
open to disposition and further declared no longer needed for public service. The fact that alienable lands of the
public domain were transferred to the PEA (now PRA) and issued land patents or certificates of title in PEAs name
did not automatically make such lands private. This Court also held therein that reclaimed lands retained their
inherent potential as areas for public use or public service.
As the central implementing agency tasked to undertake reclamation projects nationwide, with authority to sell
reclaimed lands, PEA took the place of DENR as the government agency charged with leasing or selling reclaimed
lands of the public domain. The reclaimed lands being leased or sold by PEA are not private lands, in the same
manner that DENR, when it disposes of other alienable lands, does not dispose of private lands but alienable lands
of the public domain. Only when qualified private parties acquire these lands will the lands become private lands.
In the hands of the government agency tasked and authorized to dispose of alienable of disposable lands of the
public domain, these lands are still public, not private lands.
Furthermore, PEA's charter expressly states that PEA "shall hold lands of the public domain" as well as "any and all
kinds of lands." PEA can hold both lands of the public domain and private lands. Thus, the mere fact that alienable
lands of the public domain like the Freedom Islands are transferred to PEA and issued land patents or certificates of
title in PEA's name does not automatically make such lands private. 13
Likewise, it is worthy to mention Section 14, Chapter 4, Title I, Book III of the Administrative Code of 1987, thus:
SEC 14. Power to Reserve Lands of the Public and Private Dominion of the Government.(1)The President shall have the power to reserve for settlement or public use, and for specific public purposes, any
of the lands of the public domain, the use of which is not otherwise directed by law. The reserved land shall
thereafter remain subject to the specific public purpose indicated until otherwise provided by law or proclamation.
Reclaimed lands such as the subject lands in issue are reserved lands for public use. They are properties of public
dominion. The ownership of such lands remains with the State unless they are withdrawn by law or presidential
proclamation from public use.
Under Section 2, Article XII of the 1987 Constitution, the foreshore and 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.
As the Court has repeatedly ruled, properties of public dominion are not subject to execution or foreclosure
sale.14 Thus, the assessment, levy and foreclosure made on the subject reclaimed lands by respondent, as well as
the issuances of certificates of title in favor of respondent, are without basis.
WHEREFORE, the petition is GRANTED. The January 8, 2010 Order of the Regional Trial Court, Branch 195,
Paraaque City, is REVERSED and SET ASIDE. All reclaimed properties owned by the Philippine Reclamation
Authority are hereby declared EXEMPT from real estate taxes. All real estate tax assessments, including the final
notices of real estate tax delinquencies, issued by the City of Paraaque on the subject reclaimed properties; the
assailed auction sale, dated April 7, 2003; and the Certificates of Sale subsequently issued by the Paraaque City
Treasurer in favor of the City of Paraaque, are all declared VOID.
SO ORDERED.

214

REPUBLIC OF THE PHILIPPINES, represented by the

NATIONAL IRRIGATION ADMINISTRATION (NIA),
Petitioner,

G. R. No. 185124

- versus RURAL BANK OF KABACAN, INC., LITTIE SARAH A.

AGDEPPA,
LEOSA
NANETTE
AGDEPPA
and
MARCELINO VIERNES,
MARGARITA TABOADA,
PORTIA CHARISMA RUTH ORTIZ, represented by
LINA ERLINDA A. ORTIZ and MARIO ORTIZ, JUAN
MAMAC and GLORIA MATAS,
Respondents.

Present:
CARPIO, J., Chairperson,
PEREZ,
SERENO,
REYES, and
PERLAS-BERNABE, JJ.*
Promulgated:
January 25, 2012

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
SERENO, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, seeking the
reversal of the 12 August 2008 Court of Appeals (CA) Decision and 22 October 2008 Resolution in CA-G.R. CV No.
65196.

The assailed issuances affirmed with modification the 31 August 1999 Judgment promulgated by the
Regional Trial Court (RTC), Branch 22, Judicial Region, Kabacan, Cotabato. The RTC had fixed the just
compensation for the value of the land and improvements thereon that were expropriated by petitioner, but
excluded the value of the excavated soil. Petitioner Republic of the Philippines is represented in this case by the
National Irrigation Authority (NIA).

The Facts

NIA is a government-owned-and-controlled corporation created under Republic Act No. (R.A.) 3601 on 22
June 1963. It is primarily responsible for irrigation development and management in the country. Its charter was
amended by Presidential Decree (P.D.) 552 on 11 September 1974 and P.D. 1702 on 17 July 1980. To carry out its
purpose, NIA was specifically authorized under P.D. 552 to exercise the power of eminent domain.[1]

NIA needed some parcels of land for the purpose of constructing the Malitubog-Marigadao Irrigation
Project. On 08 September 1994, it filed with the RTC of Kabacan, Cotabato a Complaint for the expropriation of a
portion of three (3) parcels of land covering a total of 14,497.91 square meters. [2] The case was docketed as
Special Civil Case No. 61 and was assigned to RTC-Branch 22. The affected parcels of land were the following:

1)

Lot No. 3080 covered by Transfer Certificate of Title (TCT) No. T-61963 and registered under
the Rural Bank of Kabacan

2)

Lot No. 455 covered by TCT No. T-74516 and registered under the names of RG May, Ronald
and Rolando, all surnamed Lao

215

3)

Lot No. 3039 registered under the name of Littie Sarah Agdeppa[3]

On 11 July 1995, NIA filed an Amended Complaint to include Leosa Nanette A. Agdeppa and Marcelino
Viernes as registered owners of Lot No. 3039.[4]

On 25 September 1995, NIA filed a Second Amended Complaint to allege properly the area sought to be
expropriated, the exact address of the expropriated properties and the owners thereof. NIA further prayed that it
be authorized to take immediate possession of the properties after depositing with the Philippine National Bank the
amount of 19,246.58 representing the provisional value thereof.[5]

On 31 October 1995, respondents filed their Answer with Affirmative and Special Defenses and
Counterclaim. [6] They alleged, inter alia, that NIA had no authority to expropriate portions of their land, because it
was not a sovereign political entity; that it was not necessary to expropriate their properties, because there was an
abandoned government property adjacent to theirs, where the project could pass through; that Lot No. 3080 was
no longer owned by the Rural Bank of Kabacan; that NIAs valuation of their expropriated properties was inaccurate
because of the improvements on the land that should have placed its value at 5 million; and that NIA never
negotiated with the landowners before taking their properties for the project, causing permanent and irreparable
damages to their properties valued at 250,000. [7]

On 11 September 1996, the RTC issued an Order forming a committee tasked to determine the fair
market

value

of

the

expropriated

properties to establish the just compensation to be paid to the owners. The committee was composed of the Clerk
of Court of RTC Branch 22 as chairperson and two (2) members of the parties to the case. [8]

On 20 September 1996, in response to the expropriation Complaint, respondents-intervenors Margarita

Tabaoda, Portia Charisma Ruth Ortiz, Lina Erlinda Ortiz, Mario Ortiz, Juan Mamac and Gloria Matas filed their
Answer-in-Intervention with Affirmative and Special Defenses and Counter-Claim. They essentially adopted the
allegations in the Answer of the other respondents and pointed out that Margarita Tabaoda and Portia Charisma
Ruth Ortiz were the new owners of Lot No. 3080, which the two acquired from the Rural Bank of Kabacan. They
further alleged that the four other respondents-intervenors were joint tenants-cultivators of Lot Nos. 3080 and
3039.[9]

On 10 October 1996, the lower court issued an Order stating it would issue a writ of possession in favor
of NIA upon the determination of the fair market value of the properties, subject of the expropriation proceedings.
[10]

The lower court later amended its ruling and, on 21 October 1996, issued a Writ of Possession in favor of NIA. [11]

On 15 October 1996, the committee submitted a Commissioners Report [12] to the RTC stating the following
observations:
In the process of ocular inspection, the following were jointly observed:
1)
2)
3)

The area that was already occupied is 6x200 meters which is equivalent to 1,200 square
meters;
The area which is to be occupied is 18,930 square meters, more or less;
That the area to be occupied is fully planted by gmelina trees with a spacing of 1x1
meters;

216

4)

That the gmelina tress found in the area already occupied and used for [the] road is
planted with gmelina with spacing of 2x2 and more or less one (1) year old;

5)

That the gmelina trees found in the area to be occupied are already four (4) years old;

6)

That the number of banana clumps (is) two hundred twenty (220);

7)

That the number of coco trees found (is) fifteen (15).[13]

The report, however, stated that the committee members could not agree on the market value of the
subject properties and recommended the appointment of new independent commissioners to replace the ones
coming from the parties only.[14] On 22 October 1996, the RTC issued an Order [15] revoking the appointments of
Atty. Agdeppa and Engr. Mabang as members of the committee and, in their stead, appointed Renato Sambrano,
Assistant Provincial Assessor of the Province of Cotabato; and Jack Tumacmol, Division Chief of the Land Bank of
the PhilippinesKidapawan Branch.[16]

On 25 November 1996, the new committee submitted its Commissioners Report to the lower court. The
committee had agreed that the fair market value of the land to be expropriated should be 65 per square meter
based on the zonal valuation of the Bureau of Internal Revenue (BIR). As regards the improvement on the
properties, the report recommended the following compensation:

a.

200 for each gmelina tree that are more than four (4) years old

b.

150 for each gmelina tree that are more than one (1) year old

c.

164 for each coco tree

d.

270 for each banana clump[17]

On 03 December 1997, the committee submitted to the RTC another report, which had adopted the first
Committee Report, as well as the formers 25 November 1996 report. However, the committee added to its
computation the value of the earthfill excavated from portions of Lot Nos. 3039 and 3080. [18] Petitioner objected to
the inclusion of the value of the excavated soil in the computation of the value of the land. [19]

The Ruling of the Trial Court

On 31 August 1999, the RTC promulgated its Judgment,[20] the dispositive portion of which reads:
WHEREFORE, IN VIEW of all the foregoing considerations, the court finds and so holds
that the commissioners have arrived at and were able to determine the fair market value of the
properties. The court adopts their findings, and orders:
1.

That 18,930 square meters of the lands owned by the defendants is hereby
expropriated in favor of the Republic of the Philippines through the National
Irrigation Administration;

2.

That the NIA shall pay to the defendants the amount of 1,230,450 for the 18,930
square meters expropriated in proportion to the areas so expropriated;

3.

That the NIA shall pay to the defendant-intervenors, owners of Lot No. 3080, the
sum of 5,128,375.50, representing removed earthfill;

4.

That the NIA shall pay to the defendants, owners of Lot No. 3039, the sum of
P1,929,611.30 representing earthfill;

5.

To pay to the defendants the sum of 60,000 for the destroyed G-melina trees (1
year old);

6.

To pay to the defendants the sum of 3,786,000.00 for the 4-year old G-melina
trees;

7.

That NIA shall pay to the defendants the sum of 2,460.00 for the coconut trees;

217

8.

That all payments intended for the defendant Rural Bank of Kabacan shall be given
to the defendants and intervenors who have already acquired ownership over the
land titled in the name of the Bank.[21]

NIA, through the Office of the Solicitor General (OSG), appealed the Decision of the RTC to the CA, which
docketed the case as CA-G.R. CV No. 65196. NIA assailed the trial courts adoption of the Commissioners Report,
which had determined the just compensation to be awarded to the owners of the lands expropriated. NIA also
impugned as error the RTCs inclusion for compensation of the excavated soil from the expropriated properties.
Finally, it disputed the trial courts Order to deliver the payment intended for the Rural Bank of Kabacan to
defendants-intervenors, who allegedly acquired ownership of the land still titled in the name of the said rural bank.
[22]

The Ruling of the Court of Appeals

On 12 August 2008, the CA through its Twenty-First (21 st) Division, promulgated a Decision [23] affirming
with modification the RTC Decision. It ruled that the committee tasked to determine the fair market value of the
properties and improvements for the purpose of arriving at the just compensation, properly performed its function.
The appellate court noted that the committee members had conducted ocular inspections of the area surrounding
the expropriated properties and made their recommendations based on official documents from the BIR with regard
to the zonal valuations of the affected properties. [24] The CA observed that, as far as the valuation of the
improvements on the properties was concerned, the committee members took into consideration the provincial
assessors appraisal of the age of the trees, their productivity and the inputs made. [25] The appellate court further
noted that despite the Manifestation of NIA that it be allowed to present evidence to rebut the recommendation of
the committee on the valuations of the expropriated properties, NIA failed to do so. [26]

The assailed CA Decision, however, deleted the inclusion of the value of the soil excavated from the
properties in the just compensation. It ruled that the property owner was entitled to compensation only for the
value of the property at the time of the taking. [27] In the construction of irrigation projects, excavations are
necessary to build the canals, and the excavated soil cannot be valued separately from the land expropriated.
Thus, it concluded that NIA, as the new owner of the affected properties, had the right to enjoy and make use of
the property, including the excavated soil, pursuant to the latters objectives. [28]

Finally, the CA affirmed the trial courts ruling that recognized defendants-intervenors Margarita Tabaoda
and Portia Charisma Ruth Ortiz as the new owners ofLot No. 3080 and held that they were thus entitled to just
compensation. The appellate court based its conclusion on the non-participation by the Rural Bank of Kabacan in
the expropriation proceedings and the latters Manifestation that it no longer owned Lot No. 3080. [29]

On 11 September 2008, the NIA through the OSG filed a Motion for Reconsideration of the 12 August
2008 Decision, but that motion was denied.[30]

Aggrieved by the appellate courts Decision, NIA now comes to this Court via a Petition for Review on
Certiorari under Rule 45.

The Issues

The following are the issues proffered by petitioner:

218

THE COURT OF APPEALS SERIOUSLY ERRED IN AFFIRMING THE TRIAL COURTS FINDING OF JUST
COMPENSATION OF THE LAND AND THE IMPROVEMENTS THEREON BASED ON THE REPORT OF
THE COMMISSIONERS.

THE COURT OF APPEALS ERRED IN RULING THAT THE PAYMENT OF JUST COMPENSATION FOR
LOT NO. 3080 SHOULD BE MADE TO RESPONDENTS MARGARITA TABOADA AND PORTIA
CHARISMA RUTH ORTIZ.[31]

The Courts Ruling

On the first issue, the Petition is not meritorious.

In expropriation proceedings, just compensation is defined as the full and fair equivalent of the property
taken from its owner by the expropriator. The measure is not the taker's gain, but the owner's loss. The word just
is used to intensify the meaning of the word compensation and to convey thereby the idea that the equivalent to be
rendered for the property to be taken shall be real, substantial, full and ample. [32] The constitutional limitation of
just compensation is considered to be a sum equivalent to the market value of the property, broadly defined as the
price fixed by the seller in open market in the usual and ordinary course of legal action and competition; or the fair
value of the property; as between one who receives and one who desires to sell it, fixed at the time of the actual
taking by the government.[33]

In the instant case, we affirm the appellate courts ruling that the commissioners properly determined the
just compensation to be awarded to the landowners whose properties were expropriated by petitioner.

The records show that the trial court dutifully followed the procedure under Rule 67 of the 1997 Rules of
Civil Procedure when it formed a committee that was tasked to determine the just compensation for the
expropriated properties. The first set of committee members made an ocular inspection of the properties, subject
of the expropriation. They also determined the exact areas affected, as well as the kinds and the number of
improvements on the properties. [34] When the members were unable to agree on the valuation of the land and the
improvements thereon, the trial court selected another batch of disinterested members to carry out the task of
determining the value of the land and the improvements.

The new committee members even made a second ocular inspection of the expropriated areas. They also
obtained data from the BIR to determine the zonal valuation of the expropriated properties, interviewed the
adjacent property owners, and considered other factors such as distance from the highway and the nearby town
center.[35] Further, the committee members also considered Provincial Ordinance No. 173, which was promulgated
by the Province of Cotabato on 15 June 1999, and which provide for the value of the properties and the
improvements for taxation purposes.[36]

We can readily deduce from these established facts that the committee members endeavored a rigorous process to
determine the just compensation to be awarded to the owners of the expropriated properties. We cannot, as
petitioner would want us to, oversimplify the process undertaken by the committee in arriving at its
recommendations, because these were not based on mere conjectures and unreliable data.

In National Power Corporation v. Diato-Bernal,[37] this Court emphasized that the just-ness of the compensation
could only be attained by using reliable and actual data as bases for fixing the value of the condemned property.
The reliable and actual data we referred to in that case were the sworn declarations of realtors in the area, as well

219

as tax declarations and zonal valuation from the BIR. In disregarding the Committee Report assailed by the
National Power Corporation in the said case, we ruled thus:
It is evident that the above conclusions are highly speculative and devoid of any actual and
reliable basis. First, the market values of the subject propertys neighboring lots were mere estimates
and unsupported by any corroborative documents, such as sworn declarations of realtors in the area
concerned, tax declarations or zonal valuation from the Bureau of Internal Revenue for the contiguous
residential dwellings and commercial establishments. The report also failed to elaborate on how and
by how much the community centers and convenience facilities enhanced the value of respondents
property. Finally, the market sales data and price listings alluded to in the report were not even
appended thereto.
As correctly invoked by NAPOCOR, a commissioners report of land prices which is not based on
any documentary evidence is manifestly hearsay and should be disregarded by the court.
The trial court adopted the flawed findings of the commissioners hook, line, and sinker. It did
not even bother to require the submission of the alleged market sales data and price listings. Further,
the RTC overlooked the fact that the recommended just compensation was gauged as of September
10, 1999 or more than two years after the complaint was filed on January 8, 1997. It is settled that
just compensation is to be ascertained as of the time of the taking, which usually coincides with the
commencement of the expropriation proceedings. Where the institution of the action precedes entry
into the property, the just compensation is to be ascertained as of the time of the filing of the
complaint. Clearly, the recommended just compensation in the commissioners report is unacceptable.
[38]

In the instant case, the committee members based their recommendations on reliable data and, as aptly
noted by the appellate court, considered various factors that affected the value of the land and the improvements.
[39]

Petitioner, however, strongly objects to the CAs affirmation of the trial courts adoption of Provincial
Ordinance No. 173. The OSG, on behalf of petitioner, strongly argues that the recommendations of the committee
formed by the trial court were inaccurate. The OSG contends that the ordinance reflects the 1999 market values of
real properties in the Province of Cotabato, while the actual taking was made in 1996. [40]

We are not persuaded.

We note that petitioner had ample opportunity to rebut the testimonial, as well as documentary evidence
presented by respondents when the case was still on trial.It failed to do so, however. The issue raised by petitioner
was adequately addresses by the CAs assailed Decision in this wise:
A thorough scrutiny of the records reveals that the second set of Commissioners, with Atty.
Marasigan still being the Chairperson and Mr. Zambrano and Mr. Tomacmol as members, was not
arbitrary and capricious in performing the task assigned to them. We note that these
Commissioners were competent and disinterested persons who were handpicked by the court a
quo due to their expertise in appraising the value of the land and the improvements thereon in
the province of Cotabato. They made a careful study of the area affected by the expropriation,
mindful of the fact that the value of the land and its may be affected by many factors. The duly
appointed Commissioners made a second ocular inspection of the subject area on 4 September
1997; went to the BIR office in order to get the BIR zonal valuation of the properties located in
Carmen, Cotabato; interviewed adjacent property owners; and took into consideration various
factors such as the location of the land which is just less than a kilometer away from the
Poblacion and half a kilometer away from the highway and the fact that it is near a military
reservation. With regard to the improvements, the Commissioners took into consideration the
valuation of the Provincial Assessor, the age of the trees, and the inputs and their productivity.
Thus, it could not be said that the schedule of market values in Ordinance No. 173 was the
sole basis of the Commissioners in arriving at their valuation. Said ordinance merely gave
credence to their valuation which is comparable to the current price at that time. Besides, Mr.
Zambrano testified that the date used as bases for Ordinance No. 173 were taken from 1995 to
1996.[41]

Moreover, factual findings of the CA are generally binding on this Court. The rule admits of exceptions,
though, such as when the factual findings of the appellate court and the trial court are contradictory, or when the

220

findings are not supported by the evidence on record. [42] These exceptions, however, are not present in the instant
case.

Thus, in the absence of contrary evidence, we affirm the findings of the CA, which sustained the trial courts
Decision adopting the committees recommendations on the just compensation to be awarded to herein
respondents.

We also uphold the CA ruling, which deleted the inclusion of the value of the excavated soil in the payment for just
compensation. There is no legal basis to separate the value of the excavated soil from that of the expropriated
properties, contrary to what the trial court did. In the context of expropriation proceedings, the soil has no value
separate from that of the expropriated land. Just compensation ordinarily refers to the value of the land to
compensate for what the owner actually loses. Such value could only be that which prevailed at the time of the
taking.

In National Power Corporation v. Ibrahim, et al.,[43] we held that rights over lands are indivisible, viz:
[C]onsequently, the CAs findings which upheld those of the trial court that respondents owned
and possessed the property and that its substrata was possessed by petitioner since 1978 for the
underground tunnels, cannot be disturbed. Moreover, the Court sustains the finding of the lower
courts that the sub-terrain portion of the property similarly belongs to respondents. This
conclusion is drawn from Article 437 of the Civil Code which provides:
ART. 437. The owner of a parcel of land is the owner of its surface and of
everything under it, and he can construct thereon any works or make any plantations
and excavations which he may deem proper, without detriment to servitudes and subject
to special laws and ordinances. He cannot complain of the reasonable requirements of
aerial navigation.
Thus, the ownership of land extends to the surface as well as to the subsoil under it.
xxx xxx xxx
Registered landowners may even be ousted of ownership and possession of their properties in the
event the latter are reclassified as mineral lands because real properties are characteristically
indivisible. For the loss sustained by such owners, they are entitled to just compensation under
the Mining Laws or in appropriate expropriation proceedings.
Moreover, petitioners argument that the landowners right extends to the sub-soil insofar as
necessary for their practical interests serves only to further weaken its case. The theory would
limit the right to the sub-soil upon the economic utility which such area offers to the surface
owners. Presumably, the landowners right extends to such height or depth where it is possible for
them to obtain some benefit or enjoyment, and it is extinguished beyond such limit as there
would be no more interest protected by law.

Hence, the CA correctly modified the trial courts Decision when it ruled thus:
We agree with the OSG that NIA, in the construction of irrigation projects, must
necessarily make excavations in order to build the canals. Indeed it is preposterous that NIA will
be made to pay not only for the value of the land but also for the soil excavated from such land
when such excavation is a necessary phase in the building of irrigation projects. That NIA will
make use of the excavated soil is of no moment and is of no concern to the landowner who has
been paid the fair market value of his land. As pointed out by the OSG, the law does not limit the
use of the expropriated land to the surface area only. Further, NIA, now being the owner of the
expropriated property, has the right to enjoy and make use of the property in accordance with its
mandate and objectives as provided by law. To sanction the payment of the excavated soil is to
allow the landowners to recover more than the value of the land at the time when it was taken,
which is the true measure of the damages, or just compensation, and would discourage the
construction of important public improvements.[44]
On the second issue, the Petition is meritorious.

The CA affirmed the ruling of the trial court, which had awarded the payment of just compensation
intended for Lot No. 3080 registered in the name of the Rural Bank of Kabacan to the defendants-intervenors on

221

the basis of the non-participation of the rural bank in the proceedings and the latters subsequent Manifestation that
it was no longer the owner of that lot. The appellate court erred on this matter.

It should be noted that eminent domain cases involve the expenditure of public funds. [45] In this kind of
proceeding, we require trial courts to be more circumspect in their evaluation of the just compensation to be
awarded to the owner of the expropriated property.[46] Thus, it was imprudent for the appellate court to rely on the
Rural Bank of Kabacans mere declaration of non-ownership and non-participation in the expropriation proceeding to
validate defendants-intervenors claim of entitlement to that payment.

The law imposes certain legal requirements in order for a conveyance of real property to be valid. It
should be noted that Lot No. 3080 is a registered parcel of land covered by TCT No. T-61963. In order for the
reconveyance of real property to be valid, the conveyance must be embodied in a public document [47] and
registered in the office of the Register of Deeds where the property is situated. [48]

We have scrupulously examined the records of the case and found no proof of conveyance or evidence of
transfer of ownership of Lot No. 3080 from its registered owner, the Rural Bank of Kabacan, to defendantsintervenors. As it is, the TCT is still registered in the name of the said rural bank. It is not disputed that the bank
did not participate in the expropriation proceedings, and that it manifested that it no longer owned Lot No. 3080.
The trial court should have nevertheless required the rural bank and the defendants-intervenors to show proof or
evidence pertaining to the conveyance of the subject lot. The court cannot rely on mere inference, considering that
the payment of just compensation is intended to be awarded solely owner based on the latters proof of ownership.

The trial court should have been guided by Rule 67, Section 9 of the 1997 Rules of Court, which provides
thus:
SEC. 9. Uncertain ownership; conflicting claims. If the ownership of the property taken is
uncertain, or there are conflicting claims to any part thereof, the court may order any sum or
sums awarded as compensation for the property to be paid to the court for the benefit of the
person adjudged in the same proceeding to be entitled thereto. But the judgment shall require
the payment of the sum or sums awarded to either the defendant or the court before the plaintiff
can enter upon the property, or retain it for the public use or purpose if entry has already been
made.

Hence, the appellate court erred in affirming the trial courts Order to award payment of just compensation
to the defendants-intervenors. There is doubt as to the real owner of Lot No. 3080. Despite the fact that the
lot was covered by TCT No. T-61963 and was registered under its name, the Rural Bank of Kabacan manifested that
the owner of the lot was no longer the bank, but the defendants-intervenors; however, it presented no proof as to
the conveyance thereof. In this regard, we deem it proper to remand this case to the trial court for the reception of
evidence to establish the present owner of Lot No. 3080 who will be entitled to receive the payment of just
compensation.

WHEREFORE, the Petition is PARTLY GRANTED. The 12 August 2008 CA Decision in CA-G.R. CV No.
65196, awarding just compensation to the defendants as owners of the expropriated properties and deleting the
inclusion of the value

of the excavated

soil, is hereby AFFIRMED with MODIFICATION. The case is

hereby REMANDED to the trial court for the reception of evidence to establish the present owner of Lot No. 3080.
No pronouncements as to cost.

222

SO ORDERED.

G.R. No. 160453

November 12, 2012

REPUBLIC OF THE PHILIPPINES, Petitioner,

vs.
ARCADIO IVAN A. SANTOS III, and ARCADIO C. SANTOS, JR., Respondents.
DECISION
BERSAMIN, J.:
By law, accretion - the gradual and imperceptible deposit made through the effects of the current of the waterbelongs to the owner of the land adjacent to the banks of rivers where it forms. The drying up of the river is not
accretion. Hence, the dried-up river bed belongs to the State as property of public dominion, not to the riparian
owner, unless a law vests the ownership in some other person.
Antecedents
Alleging continuous and adverse possession of more than ten years, respondent Arcadio Ivan A. Santos III (Arcadio
Ivan) applied on March 7, 1997 for the registration of Lot 4998-B (the property) in the Regional Trial Court (RTC) in
Parafiaque City. The property, which had an area of 1,045 square meters, more or less, was located in Barangay
San Dionisio, Paraaque City, and was bounded in the Northeast by Lot 4079 belonging to respondent Arcadio C.
Santos, Jr. (Arcadio, Jr.), in the Southeast by the Paraaque River, in the Southwest by an abandoned road, and in
the Northwest by Lot 4998-A also owned by Arcadio Ivan. 1
On May 21, 1998, Arcadio Ivan amended his application for land registration to include Arcadio, Jr. as his coapplicant because of the latters co-ownership of the property. He alleged that the property had been formed
through accretion and had been in their joint open, notorious, public, continuous and adverse possession for more
than 30 years.2
The City of Paraaque (the City) opposed the application for land registration, stating that it needed the property
for its flood control program; that the property was within the legal easement of 20 meters from the river bank;
and that assuming that the property was not covered by the legal easement, title to the property could not be
registered in favor of the applicants for the reason that the property was an orchard that had dried up and had not
resulted from accretion.3
Ruling of the RTC
On May 10, 2000,4 the RTC granted the application for land registration, disposing:
WHEREFORE, the Court hereby declares the applicants, ARCADIO IVAN A. SANTOS, III and ARCADIO C. SANTOS,
JR., both Filipinos and of legal age, as the TRUE and ABSOLUTE OWNERS of the land being applied for which is
situated in the Barangay of San Dionisio, City of Paraaque with an area of one thousand forty five (1045) square
meters more or less and covered by Subdivision Plan Csd-00-000343, being a portion of Lot 4998, Cad. 299, Case
4, Paraaque Cadastre, LRC Rec. No. and orders the registration of Lot 4998-B in their names with the following
technical description, to wit:
xxxx
Once this Decision became (sic) final and executory, let the corresponding Order for the Issuance of the Decree be
issued.
SO ORDERED.
The Republic, through the Office of the Solicitor General (OSG), appealed.
Ruling of the CA
In its appeal, the Republic ascribed the following errors to the RTC, 5 to wit:
I
THE TRIAL COURT ERRED IN RULING THAT THE PROPERTY SOUGHT TO BE REGISTERED IS AN ACCRETION TO THE
ADJOINING PROPERTY OWNED BY APPELLEES DESPITE THE ADMISSION OF APPELLEE ARCADIO C. SANTOS JR.
THAT THE SAID PROPERTY WAS NOT FORMED AS A RESULT OF THE GRADUAL FILLING UP OF SOIL THROUGH THE
CURRENT OF THE RIVER.
II
THE TRIAL COURT ERRED IN GRANTING THE APPLICATION FOR LAND REGISTRATION DESPITE APPELLEES
FAILURE TO FORMALLY OFFER IN EVIDENCE AN OFFICIAL CERTIFICATION THAT THE SUBJECT PARCEL OF LAND IS
ALIENABLE AND DISPOSABLE.

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III
THE TRIAL COURT ERRED IN RULING THAT APPELLEES HAD SUFFICIENTLY ESTABLISHED THEIR CONTINUOUS,
OPEN, PUBLIC AND ADVERSE OCCUPATION OF THE SUBJECT PROPERTY FOR A PERIOD OF MORE THAN THIRTY
(30) YEARS.
On May 27, 2003, the CA affirmed the RTC.6
The Republic filed a motion for reconsideration, but the CA denied the motion on October 20, 2003. 7
Issues
Hence, this appeal, in which the Republic urges that:8
I
RESPONDENTS CLAIM THAT THE SUBJECT PROPERTY IS AN ACCRETION TO THEIR ADJOINING LAND THAT WOULD
ENTITLE THEM TO REGISTER IT UNDER ARTICLE 457 OF THE NEW CIVIL CODE IS CONTRADICTED BY THEIR OWN
EVIDENCE.
II
ASSUMING THAT THE LAND SOUGHT TO BE REGISTERED WAS "PREVIOUSLY A PART OF THE PARAAQUE RIVER
WHICH BECAME AN ORCHARD AFTER IT DRIED UP," THE REGISTRATION OF SAID PROPERTY IN FAVOR OF
RESPONDENTS CANNOT BE ALTERNATIVELY JUSTIFIED UNDER ARTICLE 461 OF THE CIVIL CODE.
III
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT RULING THAT THE FAILURE OF RESPONDENTS
TO FORMALLY OFFER IN EVIDENCE AN OFFICIAL CERTIFICATION THAT THE SUBJECT PROPERTY IS ALIENABLE
AND DISPOSABLE IS FATAL TO THEIR APPLICATION FOR LAND REGISTRATION.
IV
THE FINDING OF THE COURT OF APPEALS THAT RESPONDENTS HAVE CONTINUOUSLY, OPENLY, PUBLICLY AND
ADVERSELY OCCUPIED THE SUBJECT PROPERTY FOR MORE THAN THIRTY (30) YEARS IS NOT SUPPORTED BY
WELL-NIGH INCONTROVERTIBLE EVIDENCE.
To be resolved are whether or not Article 457 of the Civil Code was applicable herein; and whether or not
respondents could claim the property by virtue of acquisitive prescription pursuant to Section 14(1) of Presidential
Decree No. 1529 (Property Registration Decree).
Ruling
The appeal is meritorious.
I.
The CA grossly erred in applying Article 457 of the Civil Code to respondents benefit
Article 457 of the Civil Code provides that "(t)o the owners of lands adjoining the banks of rivers belong the
accretion which they gradually receive from the effects of the currents of the waters."
In ruling for respondents, the RTC pronounced as follows:
On the basis of the evidence presented by the applicants, the Court finds that Arcadio Ivan A. Santos III and
Arcadio C. Santos, Jr., are the owners of the land subject of this application which was previously a part of the
Paraaque River which became an orchard after it dried up and further considering that Lot 4 which adjoins the
same property is owned by applicant, Arcadio C. Santos, Jr., after it was obtained by him through inheritance from
his mother, Concepcion Cruz, now deceased. Conformably with Art. 457 of the New Civil Code, it is provided that:
"Article 457. To the owners of the lands adjoining the bank of rivers belong the accretion which they gradually
receive from the effects of the current of the waters."9
The CA upheld the RTCs pronouncement, holding:
It could not be denied that "to the owners of the lands adjoining the banks of rivers belong the accretion which
they gradually receive from the effects of the current of the waters" (Article 457 New Civil Code) as in this case,
Arcadio Ivan Santos III and Arcadio Santos, Jr., are the owners of the land which was previously part of the
Paraaque River which became an orchard after it dried up and considering that Lot 4 which adjoins the same
property is owned by the applicant which was obtained by the latter from his mother (Decision, p. 3; p. 38 Rollo). 10

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The Republic submits, however, that the application by both lower courts of Article 457 of the Civil Code was
erroneous in the face of the fact that respondents evidence did not establish accretion, but instead the drying up
of the Paraaque River.
The Republics submission is correct.
Respondents as the applicants for land registration carried the burden of proof to establish the merits of their
application by a preponderance of evidence, by which is meant such evidence that is of greater weight, or more
convincing than that offered in opposition to it.11 They would be held entitled to claim the property as their own and
apply for its registration under the Torrens system only if they established that, indeed, the property was an
accretion to their land.
Accretion is the process whereby the soil is deposited along the banks of rivers. 12 The deposit of soil, to be
considered accretion, must be: (a) gradual and imperceptible; (b) made through the effects of the current of the
water; and (c) taking place on land adjacent to the banks of rivers. 13
Accordingly, respondents should establish the concurrence of the elements of accretion to warrant the grant of their
application for land registration.
However, respondents did not discharge their burden of proof. They did not show that the gradual and
imperceptible deposition of soil through the effects of the current of the river had formed Lot 4998-B. Instead, their
evidence revealed that the property was the dried-up river bed of the Paraaque River, leading both the RTC and
the CA to themselves hold that Lot 4998-B was "the land which was previously part of the Paraaque River xxx
(and) became an orchard after it dried up."
Still, respondents argue that considering that Lot 4998-B did not yet exist when the original title of Lot 4 was
issued in their mothers name in 1920, and that Lot 4998-B came about only thereafter as the land formed
between Lot 4 and the Paraaque River, the unavoidable conclusion should then be that soil and sediments had
meanwhile been deposited near Lot 4 by the current of the Paraaque River, resulting in the formation of Lot 4998B.
The argument is legally and factually groundless. For one, respondents thereby ignore that the effects of the
current of the river are not the only cause of the formation of land along a river bank. There are several other
causes, including the drying up of the river bed. The drying up of the river bed was, in fact, the uniform conclusion
of both lower courts herein. In other words, respondents did not establish at all that the increment of land had
formed from the gradual and imperceptible deposit of soil by the effects of the current. Also, it seems to be highly
improbable that the large volume of soil that ultimately comprised the dry land with an area of 1,045 square
meters had been deposited in a gradual and imperceptible manner by the current of the river in the span of about
20 to 30 years the span of time intervening between 1920, when Lot 4 was registered in the name of their
deceased parent (at which time Lot 4998-B was not yet in existence) and the early 1950s (which respondents
witness Rufino Allanigue alleged to be the time when he knew them to have occupied Lot 4988-B). The only
plausible explanation for the substantial increment was that Lot 4988-B was the dried-up bed of the Paraaque
River. Confirming this explanation was Arcadio, Jr.s own testimony to the effect that the property was previously a
part of the Paraaque River that had dried up and become an orchard.
We observe in this connection that even Arcadio, Jr.s own Transfer Certificate of Title No. 44687 confirmed the
uniform conclusion of the RTC and the CA that Lot 4998-B had been formed by the drying up of the Paraaque
River. Transfer Certificate of Title No. 44687 recited that Lot 4 of the consolidated subdivision plan Pcs-13-002563,
the lot therein described, was bounded "on the SW along line 5-1 by Dried River Bed." 14
That boundary line of "SW along line 5-1" corresponded with the location of Lot 4998-B, which was described as
"bounded by Lot 4079 Cad. 299, (Lot 1, Psu-10676), in the name of respondent Arcadio Santos, Jr. (Now Lot 4,
Psd-13-002563) in the Northeast."15
The RTC and the CA grossly erred in treating the dried-up river bed as an accretion that became respondents
property pursuant to Article 457 of the Civil Code. That land was definitely not an accretion. The process of drying
up of a river to form dry land involved the recession of the water level from the river banks, and the dried-up land
did not equate to accretion, which was the gradual and imperceptible deposition of soil on the river banks through
the effects of the current. In accretion, the water level did not recede and was more or less maintained. Hence,
respondents as the riparian owners had no legal right to claim ownership of Lot 4998-B. Considering that the clear
and categorical language of Article 457 of the Civil Code has confined the provision only to accretion, we should
apply the provision as its clear and categorical language tells us to. Axiomatic it is, indeed, that where the language
of the law is clear and categorical, there is no room for interpretation; there is only room for application. 16 The first
and fundamental duty of courts is then to apply the law.17
The State exclusively owned Lot 4998-B and may not be divested of its right of ownership. Article 502 of the Civil
Code expressly declares that rivers and their natural beds are public dominion of the State. 18 It follows that the
river beds that dry up, like Lot 4998-B, continue to belong to the
State as its property of public dominion, unless there is an express law that provides that the dried-up river beds
should belong to some other person.19
II
Acquisitive prescription was
not applicable in favor of respondents

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The RTC favored respondents application for land registration covering Lot 4998-B also because they had taken
possession of the property continuously, openly, publicly and adversely for more than 30 years based on their
predecessor-in-interest being the adjoining owner of the parcel of land along the river bank. It rendered the
following ratiocination, viz: 20
In this regard, the Court found that from the time the applicants became the owners thereof, they took possession
of the same property continuously, openly, publicly and adversely for more than thirty (30) years because their
predecessors-in-interest are the adjoining owners of the subject parcel of land along the river bank. Furthermore,
the fact that applicants paid its realty taxes, had it surveyed per subdivision plan Csd-00-000343 (Exh. "L") which
was duly approved by the Land Management Services and the fact that Engr. Chito B. Cainglet, OICChief, Surveys
Division Land Registration Authority, made a Report that the subject property is not a portion of the Paraaque
River and that it does not fall nor overlap with Lot 5000, thus, the Court opts to grant the application.
Finally, in the light of the evidence adduced by the applicants in this case and in view of the foregoing reports of
the Department of Agrarian Reforms, Land Registration Authority and the Department of Environment and Natural
Resources, the Court finds and so holds that the applicants have satisfied all the requirements of law which are
essential to a government grant and is, therefore, entitled to the issuance of a certificate of title in their favor. So
also, oppositor failed to prove that the applicants are not entitled thereto, not having presented any witness.
In fine, the application is GRANTED.
As already mentioned, the CA affirmed the RTC.
Both lower courts erred.
The relevant legal provision is Section 14(1) of Presidential Decree No. 1529 (Property Registration Decree), which
pertinently states:
Section 14. Who may apply. The following persons may file in the proper [Regional Trial Court] an application for
registration of title to land, whether personally or through their duly authorized representatives:
(1) 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 ownership since June 12, 1945, or earlier.
xxxx
Under Section 14(1), then, applicants for confirmation of imperfect title must prove the following, namely: (a) that
the land forms part of the disposable and alienable agricultural lands of the public domain; and (b) that they have
been in open, continuous, exclusive, and notorious possession and occupation of the land under a bona fide claim
of ownership either since time immemorial or since June 12, 1945. 21
The Republic assails the findings by the lower courts that respondents "took possession of the same property
continuously, openly, publicly and adversely for more than thirty (30) years." 22
Although it is well settled that the findings of fact of the trial court, especially when affirmed by the CA, are
accorded the highest degree of respect, and generally will not be disturbed on appeal, with such findings being
binding and conclusive on the Court,23 the Court has consistently recognized exceptions to this rule, including the
following, to wit: (a) when the findings are grounded entirely on speculation, surmises, or conjectures; (b) when
the inference made is manifestly mistaken, absurd, or impossible; (c) when there is grave abuse of discretion; (d)
when the judgment is based on a misapprehension of facts; (e) when the findings of fact are conflicting; (f) 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; (g) when the findings are contrary to those of the trial court; (h) when the
findings are conclusions without citation of specific evidence on which they are based; (i) when the facts set forth
in the petition as well as in the petitioners main and reply briefs are not disputed by respondent; and (j) when the
findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record. 24
Here, the findings of the RTC were obviously grounded on speculation, surmises, or conjectures; and that the
inference made by the RTC and the CA was manifestly mistaken, absurd, or impossible. Hence, the Court should
now review the findings.
In finding that respondents had been in continuous, open, public and adverse possession of the land for more than
30 years, the RTC declared:
In this regard, the Court found that from the time the applicant became the owners thereof, they took possession
of the same property continuously, openly, publicly and adversely for more than thirty years because their
predecessor in interest are the adjoining owners of the subject parcel of land along the river banks. Furthermore,
the fact that the applicant paid its realty taxes, had it surveyed per subdivision plan Csd-00-000343 (Exh. "L")
which was duly approved by the Land Management Services and the fact that Engr. Chito B. Cainglet, OIC Chief,
Surveys Division Land Registration Authority, made a Report that the subject property is not a portion of the
Paraaque River and that it does not fall nor overlap with Lot 5000, thus, the Court opts to grant the application.
The RTC apparently reckoned respondents period of supposed possession to be "more than thirty years" from the
fact that "their predecessors in interest are the adjoining owners of the subject parcel of land." Yet, its decision
nowhere indicated what acts respondents had performed showing their possession of the property "continuously,
openly, publicly and adversely" in that length of time. The decision mentioned only that they had paid realty taxes
and had caused the survey of the property to be made. That, to us, was not enough to justify the foregoing

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findings, because, firstly, the payment of realty taxes did not conclusively prove the payors ownership of the land
the taxes were paid for,25 the tax declarations and payments being mere indicia of a claim of ownership; 26 and,
secondly, the causing of surveys of the property involved was not itself an of continuous, open, public and adverse
possession.
The principle that the riparian owner whose land receives the gradual deposits of soil does not need to make an
express act of possession, and that no acts of possession are necessary in that instance because it is the law itself
that pronounces the alluvium to belong to the riparian owner from the time that the deposit created by the current
of the water becomes manifest27 has no applicability herein. This is simply because Lot 4998-B was not formed
through accretion. Hence, the ownership of the land adjacent to the river bank by respondents predecessor-ininterest did not translate to possession of Lot 4998-B that would ripen to acquisitive prescription in relation to Lot
4998-B.
On the other hand, the claim of thirty years of continuous, open, public and adverse possession of Lot 4998-B was
not even validated or preponderantly established. The admission of respondents themselves that they declared the
property for taxation purposes only in 1997 and paid realty taxes only from 1999 28 signified that their alleged
possession would at most be for only nine years as of the filing of their application for land registration on March 7,
1997.
Yet, even conceding, for the sake of argument, that respondents possessed Lot 4998-B for more than thirty years
in the character they claimed, they did not thereby acquire the land by prescription or by other means without any
competent proof that the land was already declared as alienable and disposable by the Government. Absent that
declaration, the land still belonged to the State as part of its public dominion.
Article 419 of the Civil Code distinguishes property as being either of public dominion or of private ownership.
Article 420 of the Civil Code lists the properties considered as part of public dominion, namely: (a) 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; and (b) 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. As earlier mentioned,
Article 502 of the Civil Code declares that rivers and their natural beds are of public dominion.
Whether the dried-up river bed may be susceptible to acquisitive prescription or not was a question that the Court
resolved in favor of the State in Celestial v. Cachopero,29 a case involving the registration of land found to be part
of a dried-up portion of the natural bed of a creek. There the Court held:
As for petitioners claim of ownership over the subject land, admittedly a dried-up bed of the Salunayan Creek,
based on (1) her alleged long term adverse possession and that of her predecessor-in-interest, Marcelina Basadre,
even prior to October 22, 1966, when she purchased the adjoining property from the latter, and (2) the right of
accession under Art. 370 of the Spanish Civil Code of 1889 and/or Article 461 of the Civil Code, the same must fail.
Since property of public dominion is outside the commerce of man and not susceptible to private appropriation and
acquisitive prescription, the adverse possession which may be the basis of a grant of title in the confirmation of an
imperfect title refers only to alienable or disposable portions of the public domain. It is only after the Government
has declared the land to be alienable and disposable agricultural land that the year of entry, cultivation and
exclusive and adverse possession can be counted for purposes of an imperfect title.
A creek, like the Salunayan Creek, is a recess or arm extending from a river and participating in the ebb and flow
of the sea. As such, under Articles 420(1) and 502(1) of the Civil Code, the Salunayan Creek, including its natural
bed, is property of the public domain which is not susceptible to private appropriation and acquisitive prescription.
And, absent any declaration by the government, that a portion of the creek has dried-up does not, by itself, alter
its inalienable character.
xxxx
Had the disputed portion of the Salunayan Creek dried up after the present Civil Code took effect, the subject land
would clearly not belong to petitioner or her predecessor-in-interest since under the aforementioned provision of
Article 461, "river beds which are abandoned through the natural change in the course of the waters ipso facto
belong to the owners of the land occupied by the new course," and the owners of the adjoining lots have the right
to acquire them only after paying their value.
And both Article 370 of the Old Code and Article 461 of the present Civil Code are applicable only when "river beds
are abandoned through the natural change in the course of the waters." It is uncontroverted, however, that, as
found by both the Bureau of Lands and the DENR Regional Executive Director, the subject land became dry as a
result of the construction an irrigation canal by the National Irrigation Administration. Thus, in Ronquillo v. Court of
Appeals, this Court held:
The law is clear and unambiguous. It leaves no room for interpretation. Article 370 applies only if there is a natural
change in the course of the waters. The rules on alluvion do not apply to man-made or artificial accretions nor to
accretions to lands that adjoin canals or esteros or artificial drainage systems. Considering our earlier finding that
the dried-up portion of Estero Calubcub was actually caused by the active intervention of man, it follows that
Article 370 does not apply to the case at bar and, hence, the Del Rosarios cannot be entitled thereto supposedly as
riparian owners.
The dried-up portion of Estero Calubcub should thus be considered as forming part of the land of the public domain
which cannot be subject to acquisition by private ownership. xxx (Emphasis supplied)
Furthermore, both provisions pertain to situations where there has been a change in the course of a river, not
where the river simply dries up. In the instant Petition, it is not even alleged that the Salunayan Creek changed its

227

course. In such a situation, commentators are of the opinion that the dry river bed remains property of public
dominion. (Bold emphases supplied)
Indeed, under the Regalian doctrine, all lands not otherwise appearing to be clearly within private ownership are
presumed to belong to the State.30 No public land can be acquired by private persons without any grant, express or
implied, from the Government. It is indispensable, therefore, that there is a showing of a title from the
State.31Occupation of public land in the concept of owner, no matter how long, cannot ripen into ownership and be
registered as a title.32
Subject to the exceptions defined in Article 461 of the Civil Code (which declares river beds that are abandoned
through the natural change in the course of the waters as ipso facto belonging to the owners of the land occupied
by the new course, and which gives to the owners of the adjoining lots the right to acquire only the abandoned
river beds not ipso facto belonging to the owners of the land affected by the natural change of course of the waters
only after paying their value), all river beds remain property of public dominion and cannot be acquired by
acquisitive prescription unless previously declared by the Government to be alienable and disposable. Considering
that Lot 4998-B was not shown to be already declared to be alienable and disposable, respondents could not be
deemed to have acquired the property through prescription.
Nonetheless, respondents insist that the property was already classified as alienable and disposable by the
Government. They cite as proof of the classification as alienable and disposable the following notation found on the
survey plan, to wit:33
NOTE
ALL CORNERS NOT OTHERWISE DESCRIBED ARE OLD BL CYL. CONC. MONS 15 X 60CM
All corners marked PS are cyl. conc. mons 15 x 60 cm
Surveyed in accordance with Survey Authority NO. 007604-48 of the Regional Executive Director issued by the
CENR-OFFICER dated Dec. 2, 1996.
This survey is inside L.C. Map No. 2623, Proj. No. 25 classified as alienable/disposable by the Bureau of Forest
Devt. on Jan. 3, 1968.
Lot 4998-A = Lot 5883} Cad 299
Lot 4998-B = Lot 5884} Paranaque Cadastre.
Was the notation on the survey plan to the effect that Lot 4998-B was "inside" the map "classified as
alienable/disposable by the Bureau of Forest Development on 03 Jan. 1968" sufficient proof of the propertys
nature as alienable and disposable public land?
To prove that the land subject of an application for registration is alienable, an applicant must conclusively establish
the existence of a positive act of the Government, such as a presidential proclamation, executive order,
administrative action, investigation reports of the Bureau of Lands investigator, or a legislative act or statute. Until
then, the rules on confirmation of imperfect title do not apply.
As to the proofs that are admissible to establish the alienability and disposability of public land, we said in
Secretary of the Department of Environment and Natural Resources v. Yap 34 that:
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 (or claiming ownership), who must prove that the land subject of the application is
alienable or disposable. To overcome this presumption, incontrovertible evidence must be established that the land
subject of the application (or claim) is alienable or disposable.There must still be a positive act declaring land of the
public domain as alienable and disposable. To prove that the land subject of an 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 Bureau of Lands
investigators; and a legislative act or a statute. The applicant may also secure a certification from the government
that the land claimed to have been possessed for the required number of years is alienable and disposable.
In the case at bar, no such proclamation, executive order, administrative action, report, statute, or certification was
presented to the Court. The records are bereft of evidence showing that, prior to 2006, the portions of Boracay
occupied by private claimants were subject of a government proclamation that the land is alienable and disposable.
Absent such well-nigh incontrovertible evidence, the Court cannot accept the submission that lands occupied by
private claimants were already open to disposition before 2006. Matters of land classification or reclassification
cannot be assumed. They call for proof." (Emphasis supplied)
In Menguito v. Republic,35 which we reiterated in Republic v. Sarmiento,36 we specifically resolved the issue of
whether the notation on the survey plan was sufficient evidence to establish the alienability and disposability of
public land, to wit:
To prove that the land in question formed part of the alienable and disposable lands of the public domain,
petitioners relied on the printed words which read: "This survey plan is inside Alienable and Disposable Land Area,
Project No. 27-B as per L.C. Map No. 2623, certified by the Bureau of Forestry on January 3, 1968," appearing on
Exhibit "E" (Survey Plan No. Swo-13-000227).

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This proof is not sufficient. Section 2, Article XII of the 1987 Constitution, provides: "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. x x x."
For the original registration of title, the applicant (petitioners in this case) must overcome the presumption that the
land sought to be registered forms part of the public domain. 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. Indeed, "occupation
thereof in the concept of owner, no matter how long, cannot ripen into ownership and be registered as a title." To
overcome such presumption, incontrovertible evidence must be shown by the applicant. Absent such evidence, the
land sought to be registered remains inalienable.
In the present case, petitioners cite a surveyor-geodetic engineers notation in Exhibit "E" indicating that the survey
was inside alienable and disposable land. Such notation does not constitute a positive government act validly
changing the classification of the land in question. Verily, a mere surveyor has no authority to reclassify lands of
the public domain. By relying solely on the said surveyors assertion, petitioners have not sufficiently proven that
the land in question has been declared alienable. (Emphasis supplied)
In Republic v. T.A.N. Properties, Inc.,37 we dealt with the sufficiency of the certification by the Provincial
Environmental Officer (PENRO) or Community Environmental Officer (CENRO) to the effect that a piece of public
land was alienable and disposable in the following manner, viz:
x x x it is not enough for the PENRO or CENRO to certify that a land is alienable and disposable. The applicant for
land registration must prove that the DENR Secretary had approved the land classification and released the land of
the public domain as alienable and disposable, and that the land subject of the application for registration falls
within the approved area per verification through survey by the PENRO or CENRO. In addition, the applicant for
land registration must present a copy of the original classification approved by the DENR Secretary and certified as
a true copy by the legal custodian of the official records. These facts must be established to prove that the land is
alienable and disposable. Respondent failed to do so because the certifications presented by respondent do not, by
themselves, prove that the land is alienable and disposable.
Only Torres, respondents Operations Manager, identified the certifications submitted by respondent.1wphi1 The
government officials who issued the certifications were not presented before the trial court to testify on their
contents. The trial court should not have accepted the contents of the certifications as proof of the facts stated
therein. Even if the certifications are presumed duly issued and admissible in evidence, they have no probative
value in establishing that the land is alienable and disposable.
xxxx
The CENRO and Regional Technical Director, FMS-DENR, certifications do not prove that Lot 10705-B falls within the
alienable and disposable land as proclaimed by the DENR Secretary. Such government certifications do not, by their
mere issuance, prove the facts stated therein. Such government certifications may fall under the class of
documents contemplated in the second sentence of Section 23 of Rule 132. As such, the certifications are prima
facie evidence of their due execution and date of issuance but they do not constitute prima facie evidence of the
facts stated therein. (Emphasis supplied)
These rulings of the Court indicate that the notation on the survey plan of Lot 4998-B, Cad-00-000343 to the effect
that the "survey is inside a map classified as alienable/disposable by the Bureau of Forest Devt" did not prove that
Lot 4998-B was already classified as alienable and disposable. Accordingly, respondents could not validly assert
acquisitive prescription of Lot 4988-B.
WHEREFORE, the Court REVERSES and SETS ASIDE the decision of the Court of Appeals promulgated on May 27,
2003; DISMISSES the application for registration of Arcadio C. Santos, Jr. and Arcadio Ivan S. Santos III respecting
Lot 4998-B with a total area of 1,045 square meters, more or less, situated in Barangay San Dionisio, Paraaque
City, Metro Manila; and DECLARES Lot 4998-B as exclusively belonging to the State for being part of the dried--up
bed of the Parat1aque River.
Respondents shall pay the costs of suit.
SO ORDERED.
G.R. No. 180027

July 18, 2012

REPUBLIC OF THE PHILIPPINES, Petitioner,

vs.
MICHAEL C. SANTOS, VANNESSA C. SANTOS, MICHELLE C. SANTOS and DELFIN SANTOS, all represented
by DELFIN C. SANTOS, Attorney-in-Fact, Respondents.
DECISION
PEREZ, J.:
For review1 is the Decision2 dated 9 October 2007 of the Court of Appeals in CA-G.R. CV No. 86300. In the said
decision, the Court of Appeals affirmed in toto the 14 February 2005 ruling 3 of the Regional Trial Court (RTC),
Branch 15, of Naic, Cavite in LRC Case No. NC-2002-1292. The dispositive portion of the Court of Appeals decision
accordingly reads:

229

WHEREFORE, the instant appeal is hereby DENIED. The assailed decision dated February 14, 2005 of the Regional
Trial Court (Branch 15) in Naic, Cavite, in LRC Case No. NC-2002-1292 is AFFIRMED in toto. No costs. 4
The aforementioned ruling of the RTC granted the respondents Application for Original Registration of a parcel of
land under Presidential Decree No. 1529.
The antecedents are as follows:
Prelude
In October 1997, the respondents purchased three (3) parcels of unregistered land situated in Barangay Carasuchi,
Indang, Cavite.5 The 3 parcels of land were previously owned by one Generosa Asuncion (Generosa), one Teresita
Sernal (Teresita) and by the spouses Jimmy and Imelda Antona, respectively.6
Sometime after the said purchase, the respondents caused the survey and consolidation of the parcels of land.
Hence, per the consolidation/subdivision plan Ccs-04-003949-D, the 3 parcels were consolidated into a single lot
"Lot 3"with a determined total area of nine thousand five hundred seventy-seven (9,577) square meters. 7
The Application for Land Registration
On 12 March 2002, the respondents filed with the RTC an Application 8 for Original Registration of Lot 3. Their
application was docketed as LRC Case No. NC-2002-1292.
On the same day, the RTC issued an Order9 setting the application for initial hearing and directing the satisfaction
of jurisdictional requirements pursuant to Section 23 of Presidential Decree No. 1529. The same Order, however,
also required the Department of Environment and Natural Resources (DENR) to submit a report on the status of Lot
3.10
On 13 March 2002, the DENR Calabarzon Office submitted its Report 11 to the RTC. The Report relates that the area
covered by Lot 3 "falls within the Alienable and Disposable Land, Project No. 13 of Indang, Cavite per LC 123013
certified on March 15, 1982." Later, the respondents submitted a Certification 13 from the DENR-Community
Environment and Natural Resources Office (CENRO) attesting that, indeed, Lot 3 was classified as an "Alienable or
Disposable Land" as of 15 March 1982.
After fulfillment of the jurisdictional requirements, the government, through the Office of the Solicitor General, filed
the lone opposition14 to the respondents application on 13 May 2003.
The Claim, Evidence and Opposition
The respondents allege that their predecessors-in-interest i.e., the previous owners of the parcels of land making
up Lot 3, have been in "continuous, uninterrupted, open, public and adverse" possession of the said parcels "since
time immemorial." 15 It is by virtue of such lengthy possession, tacked with their own, that respondents now hinge
their claim of title over Lot 3.
During trial on the merits, the respondents presented, among others, the testimonies of Generosa 16 and the
representatives of their two (2) other predecessors-in-interest. 17 The said witnesses testified that they have been in
possession of their respective parcels of land for over thirty (30) years prior to the purchase thereof by the
respondents in 1997.18 The witnesses also confirmed that neither they nor the interest they represent, have any
objection to the registration of Lot 3 in favor of the respondents. 19
In addition, Generosa affirmed in open court a Joint Affidavit 20 she executed with Teresita.21 In it, Generosa
revealed that the portions of Lot 3 previously pertaining to her and Teresita were once owned by her father, Mr.
Valentin Sernal (Valentin) and that the latter had "continuously, openly and peacefully occupied and tilled as
absolute owner" such lands even "before the outbreak of World War 2." 22
To substantiate the above testimonies, the respondents also presented various Tax Declarations 23 covering certain
areas of Lot 3the earliest of which dates back to 1948 and covers the portions of the subject lot previously
belonging to Generosa and Teresita.24
On the other hand, the government insists that Lot 3 still forms part of the public domain and, hence, not subject
to private acquisition and registration. The government, however, presented no further evidence to controvert the
claim of the respondents.25
The Decision of the RTC and the Court of Appeals
On 14 February 2005, the RTC rendered a ruling granting the respondents Application for Original Registration of
Lot 3. The RTC thus decreed:
WHEREFORE, in view of the foregoing, this Court confirming its previous Order of general default, decrees and
adjudges Lot 3 (Lot 1755) Ccs-04-003949-D of Indang, Cadastre, with a total area of NINE THOUSAND FIVE
HUNDRED FIFTY SEVEN (9,577) square meters and its technical description as above-described and situated in
Brgy. [Carasuchi], Indang, Cavite, pursuant to the provisions of Act 496 as amended by P.D. No. 1529, it is hereby
decreed and adjudged to be confirmed and registered in the name of herein applicants MICHAEL C. SANTOS,
VANESSA C. SANTOS, MICHELLE C. SANTOS, and DELFIN C. SANTOS, all residing at No. 60 Rockville Subdivision,
Novaliches, Quezon City.

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Once this decision has become final, let the corresponding decree of registration be issued by the Administrator,
Land Registration Authority.26
The government promptly appealed the ruling of the RTC to the Court of Appeals. 27 As already mentioned earlier,
the Court of Appeals affirmed the RTCs decision on appeal.
Hence, this petition.28
The sole issue in this appeal is whether the Court of Appeals erred in affirming the RTC ruling granting original
registration of Lot 3 in favor of the respondents.
The government would have Us answer in the affirmative. It argues that the respondents have failed to offer
evidence sufficient to establish its title over Lot 3 and, therefore, were unable to rebut the Regalian presumption in
favor of the State.29
The government urges this Court to consider the DENR Calabarzon Office Report as well as the DENR-CENRO
Certification, both of which clearly state that Lot 3 only became "Alienable or
Disposable Land" on 15 March 1982.30 The government posits that since Lot 3 was only classified as alienable and
disposable on 15 March 1982, the period of prescription against the State should also commence to run only from
such date.31 Thus, the respondents 12 March 2002 applicationfiled nearly twenty (20) years after the said
classificationis still premature, as it does not meet the statutory period required in order for extraordinary
prescription to set in.32
OUR RULING
We grant the petition.
Jura Regalia and the Property Registration Decree
We start our analysis by applying the principle of Jura Regalia or the Regalian Doctrine. 33 Jura Regalia simply means
that the State is the original proprietor of all lands and, as such, is the general source of all private titles. 34Thus,
pursuant to this principle, all claims of private title to land, save those acquired from native title, 35 must be traced
from some grant, whether express or implied, from the State. 36 Absent a clear showing that land had been let into
private ownership through the States imprimatur, such land is presumed to belong to the State. 37
Being an unregistered land, Lot 3 is therefore presumed as land belonging to the State. It is basic that those who
seek the entry of such land into the Torrens system of registration must first establish that it has acquired valid title
thereto as against the State, in accordance with law.
In this connection, original registration of title to land is allowed by Section 14 of Presidential Decree No. 1529, or
otherwise known as the Property Registration Decree. The said section 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 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 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.
(4) Those who have acquired ownership of land in any other manner provided for by law. (Emphasis
supplied)
Basing from the allegations of the respondents in their application for land registration and subsequent pleadings, it
appears that they seek the registration of Lot 3 under either the first or the second paragraph of the quoted
section.
However, after perusing the records of this case, as well as the laws and jurisprudence relevant thereto, We find
that neither justifies registration in favor of the respondents.
Section 14(1) of Presidential Decree No. 1529
Section 14(1) of Presidential Decree No. 1529 refers to the original registration of "imperfect" titles to public land
acquired under Section 11(4) in relation to Section 48(b) of Commonwealth Act No. 141, or the Public Land Act, as
amended.38 Section 14(1) of Presidential Decree No. 1529 and Section 48(b) of Commonwealth Act No. 141 specify
identical requirements for the judicial confirmation of "imperfect" titles, to wit: 39
1. That the subject land forms part of the alienable and disposable lands of the public domain;.

231

2. That the applicants, by themselves or through their predecessors-in-interest, have been in open,
continuous, exclusive and notorious possession and occupation of the subject land under a bona fide claim
of ownership, and;
3. That such possession and occupation must be since June 12, 1945 or earlier.
In this case, the respondents were not able to satisfy the third requisite, i.e., that the respondents failed to
establish that they or their predecessors-in-interest, have been in possession and occupation of Lot 3 "since June
12, 1945 or earlier." An examination of the evidence on record reveals so:
First. The testimonies of respondents predecessors-in-interest and/or their representatives were patently deficient
on this point.
None of them testified about possession and occupation of the subject parcels of land dating back to 12 June 1945
or earlier. Rather, the said witnesses merely related that they have been in possession of their lands "for over thirty
years" prior to the purchase thereof by respondents in 1997.40
Neither can the affirmation of Generosa of the Joint Affidavit be considered as sufficient to prove compliance with
the third requisite. The said Joint Affidavit merely contains a general claim that Valentin had "continuously, openly
and peacefully occupied and tilled as absolute owner" the parcels of Generosa and Teresita even "before the
outbreak of World War 2" which lacks specificity and is unsupported by any other evidence. In Republic v. East
Silverlane Realty Development Corporation,41 this Court dismissed a similar unsubstantiated claim of possession as
a "mere conclusion of law" that is "unavailing and cannot suffice:"
Moreover, Vicente Oco did not testify as to what specific acts of dominion or ownership were performed by the
respondents predecessors-in-interest and if indeed they did. He merely made a general claim that they came into
possession before World War II, which is a mere conclusion of law and not factual proof of possession, and
therefore unavailing and cannot suffice.42 Evidence of this nature should have been received with suspicion, if not
dismissed as tenuous and unreliable.
Second. The supporting tax declarations presented by the respondents also fall short of proving possession since
12 June 1945 or earlier. The earliest declaration submitted by the respondents i.e., Tax Declaration No. 9412, 43was
issued only in 1948 and merely covers the portion of Lot 3 previously pertaining to Generosa and Teresita. Much
worse, Tax Declaration No. 9412 shows no declared improvements on such portion of Lot 3 as of 1948posing an
apparent contradiction to the claims of Generosa and Teresita in their Joint Affidavit.
Indeed, the evidence presented by the respondents does not qualify as the "well-nigh incontrovertible" kind that is
required to prove title thru possession and occupation of public land since 12 June 1945 or earlier.44 Clearly,
respondents are not entitled to registration under Section 14(1) of Presidential Decree No. 1529.
Section 14(2) of Presidential Decree No. 1529
The respondents, however, make an alternative plea for registration, this time, under Section 14(2) of Presidential
Decree No. 1529. Notwithstanding their inability to comply with Section 14(1) of Presidential Decree No. 1529, the
respondents claim that they were at least able to establish possession and occupation of Lot 3 for a sufficient
number of years so as to acquire title over the same via prescription. 45
As earlier intimated, the government counters the respondents alternative plea by arguing that the statutory
period required in order for extraordinary prescription to set in was not met in this case. 46 The government cites
the DENR Calabarzon Office Report as well as the DENR-CENRO Certification, both of which state that Lot 3 only
became "Alienable or Disposable Land" on 15 March 1982.47 It posits that the period of prescription against the
State should also commence to run only from such date.48 Hence, the government concludes, the respondents 12
March 2002 application is still premature.49
We find the contention of the government inaccurate but nevertheless deny registration of Lot 3 under Section
14(2) of Presidential Decree No. 1529.
Section 14(2) of Presidential Decree No. 1529 sanctions the original registration of lands acquired by prescription
"under the provisions of existing law." In the seminal case of Heirs of Mario Malabanan v. Republic, 50 this Court
clarified that the "existing law" mentioned in the subject provision refers to no other than Republic Act No. 386, or
the Civil Code of the Philippines.
Malabanan acknowledged that only lands of the public domain that are "patrimonial in character" are "susceptible
to acquisitive presecription" and, hence, eligible for registration under Section 14(2) of Presidential Decree No.
1529.51 Applying the pertinent provisions of the Civil Code,52 Malabanan further elucidated that in order for public
land to be considered as patrimonial "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." 53 Until then, the period of acquisitive prescription against the State will not
commence to run.54
The requirement of an "express declaration" contemplated by Malabanan is separate and distinct from the mere
classification of public land as alienable and disposable.55 On this point, Malabanan was reiterated by the recent
case of Republic v. Rizalvo, Jr.56
In this case, the respondents were not able to present any "express declaration" from the State, attesting to the
patrimonial character of Lot 3. To put it bluntly, the respondents were not able to prove that acquisitive prescription
has begun to run against the State, much less that they have acquired title to Lot 3 by virtue thereof. As

232

jurisprudence tells us, a mere certification or report classifying the subject land as alienable and disposable is not
sufficient.57 We are, therefore, left with the unfortunate but necessary verdict that the respondent are not entitled
to the registration under Section 14(2) of Presidential Decree No. 1529.
There being no compliance with either the first or second paragraph of Section 14 of Presidential Decree No. 1529,
the Regalian presumption stands and must be enforced in this case. We accordingly overturn the decisions of the
RTC and the Court of Appeals for not being supported by the evidence at hand.
WHEREFORE, the instant petition is GRANTED. The 9 October 2007 Decision of the Court of Appeals in CA-G.R. CV
No. 86300 affirming the 14 February 2005 Decision of the Regional Trial Court, Branch 15, of Naic, Cavite in LRC
Case No. NC-2002-1292 is hereby REVERSED and SET ASIDE. The respondents application for registration is,
accordingly, DENIED.
Costs against respondents.
SO ORDERED.

[G.R. No. 156295. September 23, 2003]

MARCELO R. SORIANO, petitioner, vs. SPOUSES RICARDO and ROSALINA GALIT, respondents.
DECISION
YNARES-SANTIAGO, J.:
Petitioner was issued a writ of possession in Civil Case No. 6643 [1] for Sum of Money by the Regional Trial
Court of Balanga, Bataan, Branch 1. The writ of possession was, however, nullified by the Court of Appeals in CAG.R. SP No. 65891[2] because it included a parcel of land which was not among those explicitly enumerated in the
Certificate of Sale issued by the Deputy Sheriff, but on which stand the immovables covered by the said Certificate.
Petitioner contends that the sale of these immovables necessarily encompasses the land on which they stand.
Dissatisfied, petitioner filed the instant petition for review on certiorari.
Respondent Ricardo Galit contracted a loan from petitioner Marcelo Soriano, in the total sum of P480,000.00,
evidenced by four promissory notes in the amount of P120,000.00 each dated August 2, 1996;[3] August 15, 1996;
[4]
September 4, 1996[5] and September 14, 1996.[6] This loan was secured by a real estate mortgage over a parcel
of land covered by Original Certificate of Title No. 569. [7] After he failed to pay his obligation, Soriano filed a
complaint for sum of money against him with the Regional TrialCourt of Balanga City, Branch 1, which was
docketed as Civil Case No. 6643.[8]
Respondents, the Spouses Ricardo and Rosalina Galit, failed to file their answer. Hence, upon motion of
Marcelo Soriano, the trial court declared the spouses in default and proceeded to receive evidence for
petitioner Soriano ex parte.
On July 7, 1997, the Regional Trial Court of Balanga City, Branch 1 rendered judgment [9] in favor of
petitioner Soriano, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant ordering the latter to
pay:
1. the plaintiff the amount of P350,000.00 plus 12% interest to be computed from the dates of maturity
of the promissory notes until the same are fully paid;
2. the plaintiff P20,000.00, as attorneys fees; and
3. the costs of suit.
SO ORDERED.[10]
The judgment became final and executory. Accordingly, the trial court issued a writ of execution in due
course, by virtue of which, Deputy Sheriff Renato E. Robles levied on the following real properties of
the Galit spouses:
1. A parcel of land covered by Original Certificate of Title No. T-569 (Homestead Patent No. 14692)
situated in the Bo. of Tapulac, Orani, Bataan. Bounded on the SW, along line 1-2 by Lot No. 3,
Cad. 145; containing an area of THIRTY FIVE THOUSAND SEVEN HUNDRED FIFTY NINE (35,759)
SQUARE METERS, more or less x x x;
2. STORE/HOUSE CONSTRUCTED on Lot No. 1103 made of strong materials G.I. roofing situated at
Centro I, Orani, Bataan, x x x containing an area of 30 sq. meters, more or less xx x (constructed
on TCT No. T40785);

233

3. BODEGA constructed on Lot 1103, made of strong materials, G.I. roofing, situated in Centro
I, Orani, Bataan, x x x with a floor area of 42.75 sq. m. more or less x x x.[11]
At the sale of the above-enumerated properties at public auction held on December 23, 1998, petitioner was
the highest and only bidder with a bid price of P483,000.00.Accordingly, on February 4, 1999, Deputy Sheriff
Robles issued a Certificate of Sale of Execution of Real Property,[12] which reads:
CERTIFICATE OF SALE ON EXECUTION OF REAL PROPERTY
TO ALL WHO MAY SEE THESE PRESENTS:
GREETINGS:
I HEREBY that (sic) by virtue of the writ of execution dated October 16, 1998, issued in the above-entitled case by
the HON. BENJAMIN T. VIANZON, ordering the Provincial Sheriff ofBataan or her authorized Deputy Sheriff to cause
to be made (sic) the sum of P350,000.00 plus 12% interest to be computed from the date of maturity of the
promissory notes until the same are fully paid; P20,000.00 as attorneys fees plus legal expenses in the
implementation of the writ of execution, the undersigned Deputy Sheriff sold at public auction on December 23,
1998 the rights and interests of defendants Sps. Ricardo and Rosalina Galit, to the plaintiff Marcelo Soriano, the
highest and only bidder for the amount of FOUR HNDRED EIGHTY THREE THOUSAND PESOS (P483,000.00,
Philippine Currency), the following real estate properties more particularly described as follows :
ORIGINAL CERTIFICATE OF TITLE NO. T-569
A parcel of land (Homestead Patent No. 14692) situated in the Bo. of Tapulac, Orani, Bataan, x x x. Bounded on the
SW., along line 1-2 by Lot No. 3, Cad. 145, containing an area of THIRTY FIVE THOUSAND SEVEN HUNDRED FIFTY
NINE (35,759) SQUARE METERS, more or less x x x
TAX DEC. NO. PROPERTY INDEX NO. 018-09-001-02
STOREHOUSE constructed on Lot 1103, made of strong materials G.I. roofing situated at Centro
I, Orani, Bataan x x x containing an area of 30 sq. meters, more or less x x (constructed on TCT No. 40785)
TAX DEC. NO. 86 PROPERTY INDEX No. 018-09-001-02
BODEGA constructed on Lot 1103, made of strong materials G.I. roofing situated in Centro I, Orani, Bataan,
x x x with a floor area of 42.75 sq. m. more or less x x x
IT IS FURTHER CERTIFIED, that the aforesaid highest and lone bidder, Marcelo Soriano, being the plaintiff did not
pay to the Provincial Sheriff of Bataan the amount of P483,000.00, the sale price of the above-described property
which amount was credited to partial/full satisfaction of the judgment embodied in the writ of execution.
The period of redemption of the above described real properties together with all the improvements thereon will
expire One (1) year from and after the registration of this Certificate of Sale with the Register of Deeds.
This Certificate of Sheriffs Sale is issued to the highest and lone bidder, Marcelo Soriano, under guarantees
prescribed by law.
Balanga, Bataan, February 4, 1999.
On April 23, 1999, petitioner caused the registration of the Certificate of Sale on Execution of Real Property
with the Registry of Deeds.
The said Certificate of Sale registered with the Register of Deeds includes at the dorsal portion thereof the
following entry, not found in the Certificate of Sale on file with Deputy Sheriff Renato E. Robles:[13]
ORIGINAL CERTIFICATE OF TITLE NO. T-40785
A parcel of land (Lot No. 1103 of the Cadastral Survey of Orani) , with the improvements thereon, situated in the
Municipality of Orani, Bounded on the NE; by Calle P. Gomez; on the E. by Lot No. 1104; on the SE
by Calle Washington; and on the W. by Lot 4102, containing an area of ONE HUNDRED THIRTY NINE (139) SQUARE
METERS, more or less. All points referred to are indicated on the plan; bearing true; declination 0 deg. 40E., date
of survey, February 191-March 1920.
On February 23, 2001, ten months from the time the Certificate of Sale on Execution was registered with the
Registry of Deeds, petitioner moved [14] for the issuance of a writ of possession. He averred that the one-year period
of redemption had elapsed without the respondents having redeemed the properties sold at public auction; thus,
the sale of said properties had already become final. He also argued that after the lapse of the redemption period,
the titles to the properties should be considered, for all legal intents and purposes, in his name and favor.[15]
On June 4, 2001, the Regional Trial Court of Balanga City, Branch 1 granted the motion for issuance of writ of
possession.[16] Subsequently, on July 18, 2001, a writ of possession[17] was issued in petitioners favor which reads:
WRIT OF POSSESSION
Mr. Renato E. Robles

234

Deputy Sheriff
RTC, Br. 1, Balanga City
Greetings :
WHEREAS on February 3, 2001, the counsel for plaintiff filed Motion for the Issuance of Writ of Possession;
WHEREAS on June 4, 2001, this court issued an order granting the issuance of the Writ of Possession;
WHEREFORE, you are hereby commanded to place the herein plaintiff Marcelo Soriano in possession of the
property involved in this case situated (sic) more particularly described as:
1. STORE HOUSE constructed on Lot No. 1103 situated at Centro 1, Orani, Bataan covered by TCT No.
40785;
2. BODEGA constructed on Lot No. 1103 with an area of 42.75 square meters under Tax Declaration No.
86 situated at Centro 1, Orani, Bataan;
3. Original Certificate of Title No. 40785 with an area of 134 square meters known as Lot No. 1103 of
the Cadastral Survey of Orani
against the mortgagor/former owners Sps. Ricardo and Rosalinda (sic) Galit, her (sic) heirs, successors, assigns
and all persons claiming rights and interests adverse to the petitioner and make a return of this writ every thirty
(30) days from receipt hereof together with all the proceedings thereon until the same has been fully satisfied.
WITNESS THE HONORABLE BENJAMIN T. VIANZON, Presiding Judge, this 18 th day of July 2001, at Balanga City.
(Sgd) GILBERT S.
ARGONZA

OI
C

Respondents filed a petition for certiorari with the Court of Appeals, which was docketed as CA-G.R. SP No.
65891, assailing the inclusion of the parcel of land covered by Transfer Certificate of Title No. T-40785 among the
list of real properties in the writ of possession. [18] Respondents argued that said property was not among those sold
on execution by Deputy Sheriff Renato E. Robles as reflected in the Certificate of Sale on Execution of Real
Property.
In opposition, petitioner prayed for the dismissal of the petition because respondent spouses failed to move
for the reconsideration of the assailed order prior to the filing of the petition. Moreover, the proper remedy against
the assailed order of the trial court is an appeal, or a motion to quash the writ of possession.
On May 13, 2002, the Court of Appeals rendered judgment as follows:
WHEREFORE, the instant petition is hereby GRANTED. Accordingly, the writ of possession issued by
the Regional Trial Court of Balanga City, Branch 1, on 18 July 2001 is declared NULLand VOID.
In the event that the questioned writ of possession has already been implemented, the Deputy Sheriff of
the Regional Trial Court of Balanga City, Branch 1, and private respondent MarceloSoriano are hereby ordered to
cause the redelivery of Transfer Certificate of Title No. T-40785 to the petitioners.
SO ORDERED.[19]
Aggrieved, petitioner now comes to this Court maintaining that
1.) THE SPECIAL CIVIL ACTION OF CERTIORARI UNDER RULE 65 IS NOT THE PLAIN, SPEEDY AND
ADEQUATE REMEDY OF THE RESPONDENTS IN ASSAILING THE WRIT OF POSSESSION ISSUED
BY THE LOWER COURT BUT THERE WERE STILL OTHER REMEDIES AVAILABLE TO THEM AND
WHICH WERE NOT RESORTED TO LIKE THE FILING OF A MOTION FOR RECONSIDERATION OR
MOTION TO QUASH OR EVEN APPEAL.
2.) THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN DECLARAING THE CERTIFICATE OF SALE
ON EXECUTION OF REAL PROPERTY AS NULL AND VOID AND SUBSEQUENTLY THE WRIT OF
POSSESSION BECAUSE THE SAME IS A PUBLIC DOCUMENT WHICH ENJOYS THE PRESUMPTION
OF REGULARITY AND IT CANNOT BE OVERCOME BY A MERE STRANGE FEELING THAT
SOMETHING IS AMISS ON ITS SURFACE SIMPLY BECAUSE THE TYPEWRITTEN WORDS ON THE
FRONT PAGE AND AT THE DORSAL PORTION THEREOF IS DIFFERENT OR THAT IT IS UNLIKELY
FOR THE SHERIFF TO USE THE DORSAL PORTION OF THE FIRST PAGE BECAUSE THE SECOND
PAGE IS MERELY HALF FILLED AND THE NOTATION ON THE DORSAL PORTION COULD STILL BE
MADE AT THE SECOND PAGE.
On the first ground, petitioner contends that respondents were not without remedy before the trial court. He
points out that respondents could have filed a motion for reconsideration of the Order dated June 4, 1999, but they
did not do so. Respondents could also have filed an appeal but they, likewise, did not do so. When the writ of
possession was issued, respondents could have filed a motion to quash the writ. Again they did not. Respondents
cannot now avail of the special civil action for certiorari as a substitute for these remedies. They should suffer the
consequences for sleeping on their rights.

235

We disagree.
Concededly, those who seek to avail of the procedural remedies provided by the rules must adhere to the
requirements thereof, failing which the right to do so is lost. It is, however, equally settled that the Rules of Court
seek to eliminate undue reliance on technical rules and to make litigation as inexpensive as practicable and as
convenient as can be done.[20] This is in accordance with the primary purpose of the 1997 Rules of Civil Procedure
as provided in Rule 1, Section 6, which reads:
Section 6. Construction. These rules shall be liberally construed in order to promote their objective of securing a
just, speedy and inexpensive determination of every action and proceeding. [21]
The rules of procedure are not to be applied in a very rigid, technical sense and are used only to help secure
substantial justice. If a technical and rigid enforcement of the rules is made, their aim would be defeated. [22] They
should be liberally construed so that litigants can have ample opportunity to prove their claims and thus prevent a
denial of justice due to technicalities. [23] Thus, in China Banking Corporation v. Members of the Board of Trustees of
Home Development Mutual Fund,[24] it was held:
while certiorari as a remedy may not be used as a substitute for an appeal, especially for a lost appeal, this rule
should not be strictly enforced if the petition is genuinely meritorious. [25] It has been said that where the rigid
application of the rules would frustrate substantial justice, or bar the vindication of a legitimate
grievance, the courts are justified in exempting a particular case from the operation of the rules.
[26]
(Emphasis ours)
Indeed, well-known is the rule that departures from procedure may be forgiven where they do not appear to
have impaired the substantial rights of the parties.[27] Apropos in this regard is Cometa v. CA,[28] where we said that
There is no question that petitioners were remiss in attending with dispatch to the protection of their interests as
regards the subject lots, and for that reason the case in the lower court was dismissed on a technicality and no
definitive pronouncement on the inadequacy of the price paid for the levied properties was ever made. In this
regard, it bears stressing that procedural rules are not to be belittled or dismissed simply because their nonobservance may have resulted in prejudice to a partys substantive rights as in this case. Like all rules, they are
required to be followed except when only for the most persuasive of reasons they may be relaxed to
relieve a litigant of an injustice not commensurate with the degree of his thoughtlessness in not
complying with the procedure prescribed.[29] (emphasis and italics supplied.)
In short, since rules of procedure are mere tools designed to facilitate the attainment of justice, their strict
and rigid application which would result in technicalities that tend to frustrate rather than promote substantial
justice must always be avoided. [30] Technicality should not be allowed to stand in the way of equitably and
completely resolving the rights and obligations of the parties. [31]
Eschewing, therefore, the procedural objections raised by petitioner, it behooves us to address the issue of
whether or not the questioned writ of possession is in fact a nullity considering that it includes real property not
expressly mentioned in the Certificate of Sale of Real Property.
Petitioner, in sum, dwells on the general proposition that since the certificate of sale is a public document, it
enjoys the presumption of regularity and all entries therein are presumed to be done in the performance of regular
functions.
The argument is not persuasive.
There are actually two (2) copies of the Certificate of Sale on Execution of Real Properties issued on February
4, 1999 involved, namely: (a) copy which is on file with the deputy sheriff; and (b) copy registered with the
Registry of Deeds. The object of scrutiny, however, is not the copy of the Certificate of Sale on Execution of Real
Properties issued by the deputy sheriff on February 4, 1999, [32] but the copy thereof subsequently registered by
petitioner with the Registry of Deeds on April 23, 1999, [33] which included an entry on the dorsal portion of the first
page thereof describing a parcel of land covered by OCT No. T-40785 not found in the Certificate of Sale of Real
Properties on file with the sheriff.
True, public documents by themselves may be adequate to establish the presumption of their validity.
However, their probative weight must be evaluated not in isolation but in conjunction with other evidence adduced
by the parties in the controversy, much more so in this case where the contents of a copy thereof subsequently
registered for documentation purposes is being contested. No reason has been offered how and why the questioned
entry was subsequently intercalated in the copy of the certificate of sale subsequently registered with the Registry
of Deeds. Absent any satisfactory explanation as to why said entry was belatedly inserted, the surreptitiousness of
its inclusion coupled with the furtive manner of its intercalation casts serious doubt on the authenticity of
petitioners copy of the Certificate of Sale. Thus, it has been held that while a public document like a notarized deed
of sale is vested with the presumption of regularity, this is not a guarantee of the validity of its contents.[34]
It must be pointed out in this regard that the issuance of a Certificate of Sale is an end result of judicial
foreclosure where statutory requirements are strictly adhered to; where even the slightest deviations therefrom will
invalidate the proceeding [35] and the sale.[36] Among these requirements is an explicit enumeration and correct
description of what properties are to be sold stated in the notice. The stringence in the observance of these
requirements is such that an incorrect title number together with a correct technical description of the property to
be sold and vice versa is deemed a substantial and fatal error which results in the invalidation of the sale. [37]
The certificate of sale is an accurate record of what properties were actually sold to satisfy the debt. The
strictness in the observance of accuracy and correctness in the description of the properties renders the
enumeration in the certificate exclusive. Thus, subsequently including properties which have not been explicitly
mentioned therein for registration purposes under suspicious circumstances smacks of fraud. The explanation that
the land on which the properties sold is necessarily included and, hence, was belatedly typed on the dorsal portion
of the copy of the certificate subsequently registered is at best a lame excuse unworthy of belief.
The appellate court correctly observed that there was a marked difference in the appearance of the
typewritten words appearing on the first page of the copy of the Certificate of Sale registered with the Registry of

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Deeds[38] and those appearing at the dorsal portion thereof. Underscoring the irregularity of the intercalation is the
clearly devious attempt to let such an insertion pass unnoticed by typing the same at the back of the first page
instead of on the second page which was merely half-filled and could accommodate the entry with room to spare.
The argument that the land on which the buildings levied upon in execution is necessarily included is,
likewise, tenuous. Article 415 of the Civil Code provides:
ART. 415. The following are immovable property:
(1) Land, buildings, roads and constructions of all kinds adhered to the soil.
xxxxxxxxx
(3) Everything attached to an immovable in a fixed manner, in such a way that it cannot be
separated therefrom without breaking them material or deterioration of the object;
(4) Statues, reliefs, paintings or other objects for use or ornamentation, placed in buildings or on lands by the
owner of the immovable in such a manner that it reveals the intention to attach them permanently to the
tenements;
(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;
(6) Animal houses, pigeon houses, beehives, fish ponds or breeding places of similar nature, in case their owner
has placed them or preserves them with the intention to have them permanently attached to the land, and forming
a permanent part of it; the animals in these places are also included;
xxxxxxxxx
(9) Docks and structures which, though floating, are intended by their nature and object to remain at a fixed place
on a river, lake or coast;
x x x x x x x x x.
The foregoing provision of the Civil Code enumerates land and buildings separately. This can only mean that a
building is, by itself, considered immovable.[39] Thus, it has been held that
. . . 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 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.[40] (emphasis and italics
supplied)
In this case, considering that what was sold by virtue of the writ of execution issued by the trial court was
merely the storehouse and bodega constructed on the parcel of land covered by Transfer Certificate of Title No. T40785, which by themselves are real properties of respondents spouses, the same should be regarded as separate
and distinct from the conveyance of the lot on which they stand.
WHEREFORE, in view of all the foregoing, the petition is hereby DENIED for lack of merit. The Decision
dated May 13, 2002 of the Court of Appeals in CA-G.R. SP No. 65891, which declared the writ of possession issued
by the Regional Trial Court of Balanga City, Branch 1, on July 18, 2001, null and void, is AFFIRMED in toto.
SO ORDERED.
G.R. No. 199032

November 19, 2014

RETIRED SP04 BIENVENIDO LAUD, Petitioner,

vs.
PEOPLE OF THE PHILIPPINES, Respondent.
DECISION
PER CURIAM:
Assailed in this petition for review on certiorari 1 are the Decision2 dated April 25, 2011 and the Resolution3 dated
October 17, 2011 of the Court of Appeals (CA) in CA-G.R. SP. No. 113017 upholding the validity of Search Warrant
No. 09-14407.4
The Facts
On July 10, 2009, the Philippine National Police (PNP), through Police Senior Superintendent Roberto B. Fajardo,
applied with the Regional Trial Court (RTC) of Manila, Branch50 (Manila-RTC) for a warrant to search three (3)
caves located inside the Laud Compound in Purok 3, Barangay Ma-a, Davao City, where the alleged remains of the
victims summarily executed by the so-called "Davao Death Squad" may be found. 5 In support of the application, a
certain Ernesto Avasola (Avasola) was presented to the RTC and there testified that he personally witnessed the
killing of six (6) persons in December 2005, and was, in fact, part of the group that buried the victims. 6

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Judge William Simon P. Peralta (Judge Peralta), acting as Vice Executive Judge of the Manila-RTC, found probable
cause for the issuance of a search warrant, and thus, issued Search Warrant No. 09-14407 7 which was later
enforced by the elements ofthe PNP-Criminal Investigation and Detection Group, in coordination withthe members
of the Scene of the Crime Operatives on July 15, 2009.The search of the Laud Compound caves yielded positive
results for the presence of human remains.8
On July 20, 2009, herein petitioner, retired SPO4 Bienvenido Laud (Laud), filed an Urgent Motion to Quash and to
Suppress Illegally Seized Evidence9 premised on the following grounds: (a) Judge Peralta had no authority to act on
the application for a search warrant since he had been automatically divested of his position asVice Executive Judge
when several administrative penalties were imposed against him by the Court; 10 (b) the Manila-RTC had no
jurisdiction to issue Search Warrant No. 09-14407 which was to be enforced in Davao City; 11 (c) the human
remains sought to be seized are not a proper subject of a search warrant; 12 (d) the police officers are mandated to
follow the prescribed procedure for exhumation of human remains;13 (e) the search warrant was issued despite lack
of probable cause;14 (f) the rule against forum shopping was violated; 15 and (g) there was a violation of the rule
requiring one specific offense and the proper specification of the place to be searched and the articles to be
seized.16
The Manila-RTC Ruling
In an Order17 dated July 23, 2009, the Manila-RTC granted the motion of Laud "after a careful consideration [of]
the grounds alleged [therein]." Aside from this general statement, the said Order contained no discussion on the
particular reasons from which the Manila-RTC derived its conclusion.
Respondent, the People of the Philippines (the People), filed a Motion for Reconsideration 18 which was, however,
denied in an Order19 dated December 8, 2009, wherein the Manila-RTC, this time, articulated its reasons for the
warrants quashal, namely: (a) the People failed to show any compelling reason to justify the issuanceof a search
warrant by the Manila RTC which was to be implemented in Davao City where the offense was allegedly committed,
in violation of Section 2, Rule 126 of the Rules of Court; 20 (b) the fact that the alleged offense happened almost
four (4) years before the search warrant application was filed rendered doubtful the existence of probable
cause;21 and (c) the applicant, i.e., the PNP, violated the rule against forum shopping as the subject matter of the
present search warrant application is exactly the sameas the one contained in a previous application 22 before the
RTC of Davao City, Branch 15 (Davao-RTC) which had been denied. 23
Unconvinced, the People filed a petition for certioraribefore the CA, docketed as CA-G.R. SP. No. 113017.
The CA Ruling
In a Decision24 dated April 25, 2011, the CA granted the Peoples petition and thereby annulled and set aside the
Orders of the Manila-RTC for having been tainted with grave abuse of discretion.
It held that the requirements for the issuance of a search warrant were satisfied, pointing out that an application
therefor involving a heinous crime, such as Murder, is an exception to the compelling reasons requirement under
Section 2, Rule 126 of the Rules of Court as explicitly recognized in A.M. No. 99-20-09-SC 25 and reiterated in A.M.
No. 03-8-02-SC,26 provided that the application is filed by the PNP, the National Bureau of Investigation (NBI), the
Presidential Anti-Organized Crime Task Force (PAOC-TF) or the Reaction Against Crime Task Force (REACTTF),27 with the endorsement of its head, before the RTC of Manila or Quezon City, and the warrant be consequently
issued by the Executive Judge or Vice-Executive Judge of either of the said courts, as in this case. 28
Also, the CA found that probable cause was established since, among others, witness Avasola deposed and testified
that he personally witnessed the murder of six (6) persons in December 2005 and was actually part of the group
that buried the victims two bodies in each of the three (3) caves. 29 Further, it observed that the Manila-RTC failed
to consider the fear of reprisal and natural reluctance of a witness to get involved in a criminal case, stating that
these are sufficient reasons to justify the delay attending the application of a search warrant. 30Accordingly, it
deemed that the physical evidence of a protruding human bone in plain view in one of the caves, and Avasolas
first-hand eye witness account both concur and point to the only reasonable conclusion that the crime ofMurder
had been committed and that the human remains of the victims were located in the Laud Compound. 31
Finally, the CA debunked the claim of forum shopping, finding that the prior application for a search warrant filed
before the Davao-RTC was based on facts and circumstances different from those in the application filed before the
Manila-RTC.32
Dissatisfied, Laud moved for reconsideration which was, however, denied in a Resolution 33 dated October 17,
2011,hence, this petition.
The Issues Before the Court
The issues for the Courts resolution are as follows: (a) whether the administrative penalties imposed on Judge
Peralta invalidated Search Warrant No. 09-14407; (b) whether the Manila-RTC had jurisdiction to issue the said
warrant despite non-compliance with the compelling reasons requirement under Section 2, Rule126 of the Rules of
Court; (c) whether the requirements of probable cause and particular description were complied with and the onespecific-offense rule under Section 4, Rule 126 of the Rules of Court was violated; and (d) whether the applicant
for the search warrant,i.e., the PNP, violated the rule against forum shopping.1wphi1
The Court's Ruling
The petition has no merit.

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A. Effect of Judge Peraltas Administrative Penalties.

Citing Section 5, Chapter III of A.M. No. 03-8-02-SC which provides that "[t]he imposition upon an Executive Judge
or Vice-Executive Judge of an administrative penalty of at least a reprimand shall automatically operate to divest
him of his position as such,"Laud claims that Judge Peralta had no authority to act as Vice-Executive Judge and
accordingly issue Search Warrant No. 09-14407 in view of the Courts Resolution in Dee C. Chuan & Sons, Inc. v.
Judge Peralta34 wherein he was administratively penalized with fines of P15,000.00 and P5,000.00.35
While the Court does agree that the imposition of said administrative penalties did operate to divest Judge Peraltas
authority to act as ViceExecutive Judge, it must be qualified thatthe abstraction of such authority would not, by and
of itself, result in the invalidity of Search Warrant No. 09-14407 considering that Judge Peralta may be considered
to have made the issuance as a de facto officer whose acts would, nonetheless, remain valid.
Funa v. Agra36 defines who a de factoofficer is and explains that his acts are just as valid for all purposes as those
of a de jureofficer, in so far as the public or third persons who are interested therein are concerned, viz.:
A de facto officer is one who derives his appointment from one having colorable authority to appoint, if the office is
an appointive office, and whose appointment is valid on its face. He may also be one who is in possession of an
office, and is discharging [his] duties under color of authority, by which is meant authority derived from an
appointment, however irregular or informal, so that the incumbent is not a mere volunteer. Consequently, the acts
of the de factoofficer are just as valid for all purposes as those of a de jure officer, in so far as the public or third
persons who are interested therein are concerned.37
The treatment of a de factoofficers acts is premised on the reality that third persons cannot always investigate the
right of one assuming to hold an important office and, as such, have a right to assume that officials apparently
qualified and in office are legally such.38 Public interest demands that acts of persons holding, under color of title,
an office created by a valid statute be, likewise, deemed valid insofar as the public as distinguished from the
officer in question is concerned.39 Indeed, it is far more cogently acknowledged that the de factodoctrine has
been formulated, not for the protection of the de facto officer principally, but rather for the protection of the public
and individuals who get involved in the official acts of persons discharging the duties of an office without being
lawful officers.40
In order for the de facto doctrine to apply, all of the following elements must concur: (a) there must be a de
jureoffice; (b) there must be color of right or general acquiescence by the public; and (c) there must be actual
physical possession of the office in good faith. 41
The existence of the foregoing elements is rather clear in this case. Undoubtedly, there is a de jureoffice of a 2nd
Vice-Executive Judge. Judge Peralta also had a colorable right to the said office as he was duly appointed to such
position and was only divested of the same by virtue of a supervening legal technicality that is, the operation of
Section 5, Chapter III of A.M. No. 03-8-02-SC as above-explained; also, it may be said that there was general
acquiescence by the public since the search warrant application was regularly endorsed to the sala of Judge Peralta
by the Office of the Clerk of Court of the Manila-RTC under his apparent authority as 2nd Vice Executive
Judge.42 Finally, Judge Peraltas actual physical possession of the said office is presumed to bein good faith, as the
contrary was not established.43 Accordingly, Judge Peralta can be considered to have acted as a de factoofficer
when he issued Search Warrant No. 09-14407, hence, treated as valid as if it was issued by a de jureofficer
suffering no administrative impediment.
B. Jurisdiction of the Manila-RTC to Issue Search Warrant No. 09- 14407; Exception to the Compelling Reasons
Requirement Under Section 2, Rule 126 of the Rules of Court.

Section 12, Chapter V of A.M.No. 03-8-02-SC states the requirements for the issuance of search warrants in special
criminal cases by the RTCs of Manilaand Quezon City. These special criminal cases pertain to those "involving
heinous crimes, illegal gambling, illegal possession of firearms and ammunitions, as well as violations of the
Comprehensive Dangerous Drugs Act of 2002, the Intellectual Property Code, the Anti-Money Laundering Act of
2001, the Tariff and Customs Code, as amended, and other relevant laws that may hereafter be enacted by
Congress, and included herein by the Supreme Court." Search warrant applications for such cases may befiled by
"the National Bureau of Investigation (NBI), the Philippine National Police(PNP) and the AntiCrime Task Force
(ACTAF)," and "personally endorsed by the heads of such agencies." As in ordinary search warrant applications,
they "shall particularly describe therein the places to be searched and/or the property or things to be seized as
prescribed in the Rules of Court." "The Executive Judges [of these RTCs] and,whenever they are on official leave of
absence or are not physically present in the station, the Vice-Executive Judges" are authorized to act on such
applications and "shall issue the warrants, if justified, which may be served in places outside the territorial
jurisdiction of the said courts."
The Court observes that all the above-stated requirements were complied with in this case.
As the records would show, the search warrant application was filed before the Manila-RTC by the PNP and was
endorsed by its head, PNP Chief Jesus Ame Versosa,44 particularly describing the place to be searched and the
things to be seized (as will be elaborated later on) in connection with the heinous crime of Murder.45 Finding
probable cause therefor, Judge Peralta, in his capacity as 2nd Vice-Executive Judge, issued Search Warrant No. 0914407 which, as the rules state, may be served in places outside the territorial jurisdiction of the said RTC.
Notably, the fact that a search warrant application involves a "special criminal case" excludes it from the compelling
reason requirement under Section 2, Rule 126 of the Rules of Court which provides:

239

SEC. 2. Court where application for search warrant shall be filed. An application for search warrant shall be filed
with the following:
a) Any court within whose territorial jurisdiction a crime was committed.
b) For compelling reasons stated in the application, any court within the judicial region where the crime
was committed if the place of the commission of the crime isknown, or any court within the judicial region
where the warrant shall be enforced.
However, if the criminal action has already been filed, the application shall only be made in the court where the
criminal action is pending. (Emphasis supplied)
As explicitly mentioned in Section 12, Chapter V of A.M. No. 03-8- 02-SC, the rule on search warrant applications
before the Manila and Quezon City RTCs for the above-mentioned special criminal cases "shall be an exception to
Section 2 of Rule 126 of the Rules of Court." Perceptibly, the fact that a search warrant is being applied for in
connection with a special criminal case as above-classified already presumes the existence of a compelling reason;
hence, any statement to this effect would be super fluous and therefore should be dispensed with. By all
indications, Section 12, Chapter V of A.M. No. 03-8-02-SC allows the Manila and Quezon City RTCs to issue
warrants to be servedin places outside their territorial jurisdiction for as long as the parameters under the said
section have been complied with, as in this case. Thus, on these grounds, the Court finds nothing defective in the
preliminary issuance of Search Warrant No. 09-14407. Perforce, the RTC-Manila should not have overturned it.
C. Compliance with the Constitutional Requirements for the Issuance of Search Warrant No. 09-14407 and the
One-SpecificOffense Rule Under Section 4, Rule 126 of the Rules of Court.

In order to protect the peoples right against unreasonable searches and seizures, Section 2, Article III of the 1987
Philippine Constitution (Constitution) provides that no search warrant shall issue except upon probable causeto be
determined personally by the judgeafter examination under oath or affirmation of the complainant and the
witnesses he may produce, and particularly describing the place to be searched and the persons or things to be
seized:
SEC. 2. The right of the people to be secure in their persons, houses, papers, and effects against unreasonable
searches and seizures of whatever nature and for any purpose shall be inviolable, and no search warrant or warrant
of arrest shall issue except upon probable cause to be determined personally by the judge after examination under
oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to
besearched and the persons or things to be seized.
Complementarily, Section 4, Rule 126 of the Rules of Court states that a search warrant shall not be issued except
upon probable cause in connection with one specific offense:
SEC. 4. Requisites for issuing search warrant. - A search warrant shall not issue except upon probable cause in
connection with one specific offenseto be determined personally by the judge after examination under oath or
affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be
searched and the things to be seized which may be anywhere in the Philippines. (Emphasis supplied)
In this case, the existence of probable cause for the issuance of Search Warrant No. 09-14407 is evident from the
first-hand account of Avasola who, in his deposition, stated that he personally witnessed the commission of the
afore-stated crime and was, in fact, part of the group that buried the victims:
Q9-Who are these six (6) male victims who were killed and buried in the caves in December 2005 at around 9:00
p.m.?
A9-I heard Tatay Laud calling the names of the two victims when they were still alive as Pedro and Mario. I dont
know the names of the other four victims.
Q10-What happened after Pedro, Mario and the other four victims were killed?
A10-Tatay Laud ordered me and the six (6) killers to bring and bury equally the bodies inthe three caves. We
buried Pedro and Mario altogether in the first cave, located more or less 13 meters from the makeshift house of
Tatay Laud, the other two victims in the second cave and the remaining two in the third cave.
Q11-How did you get there at Laud Compound in the evening of December 2005?
A11-I was ordered by Tatay Laud to go [to] the place. I ran errands [for] him. 46
Avasolas statements in his deposition were confirmed during the hearing on July 10, 2009, where Judge Peralta
conducted the following examination:
Court: x x x Anong panandaan mo? Nandoon ka ba noong naghukay, nakatago o kasama ka?
Mr. Avasola: Kasama po ako sa pagbuhat ng mga tao, sir.
Court: Mga ilang katao?

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Mr. Avasola: Anim (6) po.

Court: May mass grave ba na nahukay?
Mr. Avasola: May tatlong kweba po na maliliit yung isa malaki. x x x. 47
Verily, the facts and circumstancesestablished from the testimony of Avasola, who was personally examined by
Judge Peralta, sufficiently show that more likely than not the crime of Murder of six (6) persons had been
perpetrated and that the human remains in connection with the same are in the place sought to be searched. In
Santos v. Pryce Gases, Inc.,48 the Court explained the quantum of evidence necessary to establish probable cause
for a search warrant, as follows:
Probable cause for a search warrant is defined as such facts and circumstances which would lead a reasonably
discrete and prudent man to believe that an offense has been committed and that the objects sought in connection
with the offense are in the place sought to be searched. A finding of probable cause needs only torest on evidence
showing that, more likely than not, a crime has been committed and that it was committed by the accused.
Probable cause demands more than bare suspicion; it requires less than evidence which would justify conviction.
The existence depends to a large degree upon the finding or opinion of the judge conducting the examination.
However, the findings of the judge should not disregard the facts before him nor run counter to the clear dictates of
reason.49
In light of the foregoing, the Court finds that the quantum of proof to establish the existence of probable cause had
been met. That a "considerable length of time" attended the search warrants application from the crimes
commission does not, by and of itself, negate the veracity of the applicants claims or the testimony of the witness
presented. As the CA correctly observed, the delay may be accounted for by a witnesss fear of reprisal and natural
reluctance to get involved in a criminal case.50 Ultimately, in determining the existence of probable cause, the facts
and circumstances must be personally examined by the judge in their totality, together with a judicious recognition
of the variable complications and sensibilities attending a criminal case. To the Courts mind, the supposed delay in
the search warrants application does not dilute the probable cause finding made herein. In fine, the probable cause
requirement has been sufficiently met.
The Court similarly concludes that there was compliance with the constitutional requirement that there be a
particular description of "the place to be searched and the persons or things to be seized."
"[A] description of a place to be searched is sufficient if the officer with the warrant can, with reasonable effort,
ascertain and identify the place intended and distinguish it from other places in the community. Any designation or
description known to the locality that points out the place to the exclusion of all others, and on inquiry leads the
officers unerringly to it, satisfies the constitutional requirement." 51
Search Warrant No. 09-14407 evidently complies with the foregoing standard since it particularly describes the
place to be searched, namely, the three (3) caves located inside the Laud Compound in Purok 3, Barangay Maa,
Davao City:
You are hereby commanded to makean immediate search at any time [of] the day of the premises above
describe[d] particularly the three (3) caves (as sketched) inside the said Laud Compound, Purok 3, Brgy. Ma-a,
Davao Cityand forthwith seize and take possession of the remains of six (6) victims who were killed and buried in
the just said premises.
x x x x52 (Emphases supplied)
For further guidance in its enforcement, the search warrant even made explicit reference to the sketch 53contained
in the application. These, in the Courts view, are sufficient enough for the officers to, with reasonable effort,
ascertain and identify the place to be searched, which they in fact did.
The things to be seized were also particularly described, namely, the remains of six (6) victims who were killed and
buried in the aforesaid premises. Lauds posturing that human remains are not "personal property" and, hence,
could not be the subject of a search warrant deserves scant consideration. Section 3, Rule 126 of the Rules of
Court states:
SEC. 3.Personal property to be seized. A search warrant may be issued for the search and seizure of personal
property:
(a) Subject of the offense;
(b) Stolen or embezzled and other proceeds, or fruits of the offense; or
(c) Used or intended to be used as the means of committing an offense. (Emphases supplied) "Personal
property" in the foregoing context actually refers to the things mobility, and not to its capacity to be
owned or alienated by a particular person. Article416 of the Civil Code, 54 which Laud himself cites,55 states
that in general, all things which can be transported from place to place are deemed to be personal
property. Considering that human remains can generally be transported from place toplace, and
considering further that they qualify under the phrase "subject of the offense" given that they prove the
crimes corpus delicti, 56it follows that they may be valid subjects of a search warrant under the above-cited
criminal procedure provision. Neither does the Court agree with Lauds contention that the term "human
remains" is too all-embracing so as to subvert the particular description requirement. Asthe Court sees it,
the description points to no other than the things that bear a direct relation to the offense committed, i.e.,
of Murder. It is also perceived that the description is already specific as the circumstances would ordinarily

241

allow given that the buried bodies would have naturally decomposed over time. These observations on the
descriptions sufficient particularity square with the Courts pronouncement in Bache and Co., (Phil.), Inc.
v. Judge Ruiz,57wherein it was held:
A search warrant may be said to particularly describe the things to be seized when the description therein is as
specific as the circumstances will ordinarily allow(People v. Rubio, 57 Phil. 384 [1932]); or when the description
expresses a conclusion of fact not of law by which the warrant officer may be guided in making the search
and seizure (idem., dissent of Abad Santos, J.); or when the things described are limited to those which bear direct
relation to the offense for which the warrant is being issued(Sec. 2, Rule 126, Revised Rules of Court) x x x If the
articles desired to be seized have any direct relation to an offense committed, the applicant must necessarily have
some evidence, other than those articles, to prove the said offense; and the articles subject of search and seizure
should come in handy merely to strengthen such evidence. (Emphases supplied) 58
Consequently, the Court finds that the particular description requirement both as to the place to be searched and
the things to be seized had been complied with.
Finally, the Court finds no violation of the one-specific-offense rule under Section 4, Rule 126 of the Rules of Court
as above-cited which, to note, was intended to prevent the issuance of scattershot warrants, or those which are
issued for more than one specific offense. The defective nature of scatter-shot warrants was discussed in the case
of People v. CA59 as follows: There is no question that the search warrant did not relate to a specific offense, in
violation of the doctrine announced in Stonehill v. Diokno and of Section 3 [now, Section 4] of Rule 126 providing
as follows:
SEC. 3. Requisites for issuing search warrant. A search warrant shall not issue but upon probable cause in
connection with one specific offense to be determined personally by the judge after examination under oath or
affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be
searched and the things to be seized. Significantly, the petitioner has not denied this defect in the search warrant
and has merely said that there was probable cause, omitting to continue that it was in connection withone specific
offense. He could not, of course, for the warrant was a scatter-shot warrant that could refer, in Judge Dayrits own
words, "to robbery, theft, qualified theft or estafa." On this score alone, the search warrantwas totally null and void
and was correctly declared to be so by the very judge who had issued it. 60
In Columbia Pictures, Inc. v. CA,61 the Court, however, settled that a search warrant that covers several counts of a
certain specific offense does not violate the one-specific-offense rule, viz.:
That there were several counts of the offenseof copyright infringement and the search warrant uncovered several
contraband items in the form of pirated video tapes is not to be confused with the number of offenses charged. The
search warrant herein issued does not violate the one-specific-offense rule. (Emphasis supplied) 62
Hence, given that Search Warrant No. 09-14407 was issued only for one specific offense that is, of Murder, albeit
for six (6) counts it cannot be said that Section 4, Rule 126 of the Rules of Court had been violated.
That being said, the Court now resolves the last issue on forum shopping.
D. Forum Shopping.

There is forum shopping when a litigant repetitively avails of several judicial remedies in different courts,
simultaneously or successively, all substantially founded on the same transactions and the same essential facts and
circumstances, and all raising substantially the same issues either pending in or already resolved adversely by
some other court to increase his chances of obtaining a favorable decision if not in one court, then in another.63
Forum shopping cannot be said to have been committed in this case considering the various points of divergence
attending the search warrant application before the Manila-RTC and that before the Davao-RTC. For one, the
witnesses presented in each application were different. Likewise, the application filed in Manila was in connection
with Murder, while the one in Davao did not specify any crime. Finally, and more importantly, the places to be
searched were different that inManila sought the search of the Laud Compound caves, while that in Davao was
for a particular area in the Laud Gold Cup Firing Range. There being no identity of facts and circumstances between
the two applications, the ruleagainst forum shopping was therefore not violated.
Thus, for all the above-discussed reasons, the Court affirms the CA Ruling which upheld the validity of Search
Warrant No. 09-14407.
WHEREFORE, the petition is DENIED. The Decision dated April 25, 2011 and the Resolution dated October 17, 2011
of the Court of Appeals in CA-G.R. SP. No. 113017 are hereby AFFIRMED.
SO ORDERED.
G.R. No. 167174

September 23, 2013

SPOUSES CARMELITO and ANTONIA ALDOVER, Petitioners,

vs.
THE COURT OF APPEALS, SUSANA AHORRO,ARLINE SINGSON, BIBIANA CAHIBAYBAYAN, LUMINADA
ERQUIZA,1 ANGELITA ALBERT, JOSELITO ACULA, SORAYDA ACULA, JOMAR ACULA, CECILIA FAMORCA,
CELESTE VASQUEZ, ALFONSO CABUWAGAN, CARMELITA RIVERA, JESSIE CAHIBAYBAYAN, MA. ANA V.
TAKEGUCHI, ROSEMARIE BONIFACIO, ANGELINA FLORES, ALMACERES D. MISHIMA, AURELIA

242

CAHIBAYBAYAN, SONIA S. MALAQUE, NORA ANTONIO, REYNALDO ANTONIO, REGINALD ANTONIO,

RONALDO ANTONIO, JR., JUANITA CHING,2 MARIETA PACIS, TITO PACIS, JOSE IBAYAN, ELSIE SISON,
LEONARDO SISON, MERCEDES ANTONIO, RICARDO SARMIENTO,3 SERGIO TEGIO, CRISENCIA
FAVILLAR, NELLY FERNANDEZ, MARILYN DE VEGA, CELIA TUAZON, CELINE RAMOS, EUTEMIO RAMOS,
LUZVIMINDA VERUEN, NICANOR ORTEZA, ADELAIDA CALUGAN,4 GLORIA AGBUSAC,5VIRGINIA GAON,
REMIGIO MAYBITUIN, LAURA GARCIA, CHARLES GARCIA, MA. CRISTINA GARCIA, 6RICARDO
SARMIENTO, SR., ROBERTO TUAZON, GEMMA TUAZON, ANALYN TUAZON, JOHN ROBERT TUAZON,
ELJEROME TUAZON, JEMMALYN TUAZON, MILAGROS TUBIGO,7 MARICAR TUBIGO,8 MARISSA
BITUIN,9 ROGER GOBRIN, MARCELINA RAMOS, ESTRELLA RAMOS, ALFREDO RAMOS, ADORACION
RAMOS, ERICSON RAMOS, CAMILLE RAMOS, RAMIL MARQUISA,10 ROMEO PORCARE, NIDA PORCARE,
JEROME PORCARE, JONATHAN PORCARE, PILARCITA ABSIN, JHON-JHON ABSIN, JASON
ABSIN,11JAYSON ABSIN, EDWARDO ABSIN, MAMRIA EDEN,12 ARNEL REUCAZA, ZENAIDA REUCAZA,
MICHELE REUCAZA, NALYN REUCAZA,13 MARICRIS REUCAZA, ABELLE REUCAZA,14 JHON
VILLAVECENCIO, CILLE VILLAVECENCIO, ARIEL CAHIBAYBAYAN, JOHN EDWARD VILLAVECENCIO,
ARCELITO VILLAVECENCIO, FERMINA RIVERA, ANITA RIVERA,15 EDWIN HOSMILLO, ESTER HOSMILLO,
REGINE HOSMILLO, MARFIKIS VENZON, CURT SMITH VENZON, ALBERTO VILLAVECENCIO, MARILYN DE
VEGA, JEFFREY DE VEGA, LIANA DE VEGA, RAMIL DE VEGA,16 SHANE VENZON, RUFO SINGSON, ROSALIE
BALINGIT, RAUL SINGSON, HAZEL GARCIA, CRISTINE GARCIA, JASON GARCIA, ECY B.
TAN,17GREGORIO AURE, ICTORIA SARMIENTO,18 OSCAR TUBIGO,19 JOVY SARMIENTO, BABYLYN
SARMIENTO, JEAN CAHIBAYBAYAN,20 RONALD CAHIBAYBAYAN,21 ALLAN CAHIBAYBAYAN, AMELIA
DEQUINA, DENNIS DEQUINA, IRMA DEQUINA, FREDERICK DEQUINA, CRISTINE JOY DEQUINA,
ENRIQUE LOPEZ,22NERY LOPEZ, NERISSA LOPEZ, ERICA LOPEZ, VANESSA LOPEZ, LEO JIMENEZ,
MICHELLE JIMENEZ, MAYLEEN JIMENEZ, LEONARDO JIMENEZ,23 FELICIANO MIRALLES, VIRGINIA
ECIJA, LEONARDO AHORRO, MA. GINA SORIO, ARNEL SORIO, JOENNY PAVILLAR, SALVACION
PAVILLAR, JOHNNY BALDERAMA, MARY JANE BALDERAMA, FERDINAND MALAQUE, MARK ADELCHI
MALAQUE, CLIO JOY MALAQUE, IRISH MADLANGBAYAN, EFFERSON MADLANGBAYAN, ROBERTO
MALAQUE, HELARIA MALAQUE,24 ARBIE MAY MALAQUEROY,25 GILBERT MALAQUE,26 SARRY LEGASPI,
TERESITA LEGASPI, ROSEANN CRUZ, SHE ANN CRUZ, EXELEN LEGASPI, GREGORIO RAMOS, NENITA
RAMOS, FELINO TEGIO, JOYZAIRRA ACULA, JUANITO CALUGAY,27 GEMMA CALUGAY, CARLITO
ANTONIO, CELIA ANTONIO,28 PRINCES MARGARET,29 JOSE CECILIO,30 JEROME CZAR,31 RAMON SISON,
DANILO SISON, MARILOU SISON, ALEX RIVERA, NARCISO DEL ROSARIO, BRIAN DEL
ROSARIO,32 CHARLINE DEL ROSARIO, CARMELA DEL ROSARIO, KEVIN DEL ROSARIO, BEHNSIN JOHN
DEL PACIS,33 MELRON ANTONIO,ANGEO ANTONIO,34 DAISY ANN ANTONIO, IVAN ANTONIO, RAYMART
ANTONIO, PRESCILLA PAGKALIWANGAN, MARK KENNETH PAGKALIWANGAN, MARK JULIUS
PAGKALIWANGAN, VINCENT PAGKALIWANGAN, DOLORES ORTEZA, JONECA ORTEZA, 35 YUMI ORTEZA,
NICANOR ORTEZA, RAUL BALINGINT, KATRINA CASSANDRA BAES, CHRISTOPHER BAES, MARK GIL
BAES, BIENVENIDO BAES, ARTEMIO SANTOS, CATHERINE UMINGA, ROLANDO UMINGA, SR., ERLINDA
TUAZON, CHRISTIAN TUAZON, ARGEL ANGELO SANTOS, MONTANO PAGKALIWANGAN, in their own
behalf and as members of Samahang Magkakapitbahay ng Villa Reyes Compound
Association. Respondents.
DECISION
DEL CASTILLO, J.:
This Petition for Certiorari36 filed under Rule 65 of the Rules of Court seeks to annul: (i) the January 3, 2005
Resolution37 of the Court of Appeals (CA) in CA-G.R. SP No. 86363, which granted herein respondents ancillary
prayer for injunctive relief: and (ii) the February 10, 2005 Writ of Preliminary Injunction 38 issued pursuant thereto.
Said writ enjoined the Regional Trial Court (RTC), Branch 71, Pasig City from implementing its August 9, 2004
Order39 directing the issuance of a Writ of Demolition against the respondents.
Factual Antecedents
Siblings Tomas M. Reyes and Sidra M. Reyes and their father Alfredo Reyes (the Reyeses) were the registered
owners of a 4.044-square meter lot, (TCT) No. PT-107508.40 On August 12, 1999, they obtained a loan from
AntoniaB. Aldover (Aldover) secured by a Real Estate Mortgage (REM) 41 over the said property.
When the Reyeses failed to pay, Aldover caused the extrajudicial foreclosure of mortgage. At the foreclosure sale
conducted, Aldover emerged as the winning bidder. A Certificate of Sale was issued in her favor which was
annotated at the back of TCT No. PT-107508 on September 2, 2002.42
Thereafter, Aldover filed with the RTC of Pasig City a verified Petition for the Issuance of a Writ of Possession
docketed as LRC Case No. R-6203.43 On August 26, 2003, Branch 71 of the RTC of Pasig City issued a
Decision44 granting Aldovers Petition for Issuance of a Writ of Possession subject to the posting of a bond.
On December 12, 2003, the Reyeses filed a Motion to Recall and Lift Issuance of Writ of Possession 45 claiming,
among others, that the mortgage and the auction sale of property are both null and void as the mortgagee
(Aldover) was not armed with a special power of attorney to foreclose the mortgaged property extrajudicially. This
drew Aldovers Opposition46 where she also prayed for the issuance of the writ sans the requisite bond as the
property was not redeemed within the one-year redemption period.
In the meantime, Aldover also caused the consolidation of title over the foreclosed property in her name. On
December 17, 2003, TCT No. PT-107508was cancelled and, in lieu thereof, TCT No. PT-122311 47 was issued in
Aldovers name.
On March 17, 2004, Branch 71 issued an Order 48 denying the Reyeses Motion to Recall and granting Aldovers
motion to dispense with the posting of a bond. On the same date, a Writ of Possession 49 was issued directing the
Branch Sheriff to place Aldover in possession of subject lot.

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In compliance with the writ, the Branch Sheriff issued a Notice to Vacate 50 dated April 1, 2004. Then on April 23,
2004, he issued a Sheriffs Partial Report51 informing the court that he cannot fully implement the writ because
there are several other persons who occupy portions of subject lot claiming to be the owners thereof.
On May 17, 2004, respondents filed before the RTC of Pasig City a Complaint for Declaration of Nullity of
Documents and Title, Reconveyance and Damages with Prayer for Temporary Restraining Order and/or Preliminary
Injunction52 against Aldover and her husband Carmelito (petitioners), the Reyeses, the Branch Sheriff, and the
Registrar of Deeds of Pasig City. In said Complaint docketed as Civil Case No. 69979 and raffled to Branch 268 of
said court, respondents alleged that they have been residing in the same lot subject of LRC Case No. R-6203 since
the 1960s by virtue of lease contracts wherein they were allowed by the Reyeses to build their houses.
Subsequently, their occupation became in the concept of owners after the Reyeses sold to them portions of the lot
they respectively occupy. Respondents insisted that petitioners were aware of the lease and subsequent sale.
Respondents also claimed that the REM is a fictitious transaction because at the time of its execution the Reyeses
were no longer the owners of the entire property subject thereof. Hence, the mortgage as well as the subsequent
foreclosure sale is null and void.
Respondents sought the issuance of a Temporary Restraining Order (TRO)and/or Writ of Preliminary Injunction to
immediately restrain petitioners from further committing acts of dispossession and prayed for the cancellation of
TCT No. PT-122311. On July 5, 2004, however, they filed a Motion to Admit Attached Amended Complaint as a
matter of right (with prayer for withdrawal of TRO and injunction). 53
On July 26, 2004, Branch 268 issued an Order 54 denying respondents prayer for TRO on the ground that it cannot
interfere with the order of a coordinate court. This was followed by an Order 55 dated August 27, 2004 granting
respondents Motion to Admit and admitting respondents Amended Complaint where they withdrew their ancillary
prayer for injunctive relief.
Meanwhile, in LRC Case No. R-6203, in view of the Sheriffs Partial Report, Aldover filed a Motion for Special Order
of Demolition.56 Branch 71granted the Motion in an Order57 dated August 9, 2004, thus:
WHEREFORE, in view of the foregoing, the Motion for Special Order of Demolition is hereby GRANTED. Let a writ
issue.
The respondents and all other persons deriving rights from them are given sixty (60) days from receipt of this
Order to vacate the premises.
SO ORDERED.58
On September 14, 2004, respondents filed before the CA a Petition for Certiorari, Prohibition, Injunction with
prayer for the issuance of a Temporary Restraining Order (TRO) and/or Writ of Preliminary Injunction 59 against the
petitioners and the Reyeses, which they later on amended.60 Respondents alleged that on August 23, 2004 they
were surprised to receive the August 9, 2004 Order of demolition directing them to vacate the premises within 60
days from notice since they were neither impleaded nor notified of the proceedings conducted in LRC Case No. R6203, as well as in the foreclosure sale. Respondents postulated that they are not, therefore, bound by the August
9, 2004 Order of Branch 71 for want of jurisdiction over their persons. Respondents reiterated their claim in Civil
Case No. 69979 that they own the portions of subject lot which they respectively occupy. Thus, the implementation
of said Order would deprive them of their property without due process of law and would render Civil Case No.
69979 pending before Branch 268 moot.
Respondents also asserted that the right they sought to be protected in their Petition is clear and unmistakable and
that the invasion of such right is material and substantial. They thus prayed for the issuance of a TRO and/or Writ
of Preliminary Injunction to enjoin the implementation of Branch 71s Order of demolition. 61
On September 23, 2004, the CA issued a Resolution 62 outrightly dismissing the Petition on procedural grounds.
Invoking substantial justice and great and irreparable damage that may be caused by the impending demolition of
their homes, respondents filed an Omnibus Motion for Reconsideration and Motion to Admit Attached Amended
Petition.63 This was followed by an Extremely Urgent Omnibus Motion for Re-Raffle and for Early Resolution 64since
the Justice to whom the case was assigned was then on official leave.
In a Resolution65 dated October 22, 2004, the CA reconsidered its resolution of dismissal and granted respondents
prayer for the issuance of a TRO. It restrained the implementation of the Order of demolition as well as of the
Notice to Vacate. In the same Resolution, the CA required petitioners to file their comment to the Petition.
After the parties filing of pleadings 66 and upon respondents motion,67 the CA set for hearing on January 4, 2005
the propriety of issuing a Writ of Preliminary Injunction. This hearing, however, did not push through since the CA
already issued the challenged January 3, 2005 Resolution 68 granting respondents ancillary prayer for injunctive
relief. It disposed thus:
WHEREFORE, we resolve to:
1. GRANT respondents prayer for the issuance of a writ of preliminary injunction enjoining petitioners
from enforcing the Notice to Vacate and Order of Demolition.
2. ORDER the respondents to file a bond in the amount of Three Hundred Thousand (P300,000.00) Pesos
within five (5) days from notice hereof, which shall answer for whatever damages petitioners may sustain
by reason of the injunction in the event that we finally decide that respondents were not entitled thereto.

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3. CANCEL the hearing set on January 4, 2005.

4. CONSIDER the main petition submitted for decision.
SO ORDERED.69
On January 12, 2005, petitioners filed a Motion for Reconsideration 70 which was denied by the CA in its January 24,
2005 Resolution.71 Then on February 8, 2005, respondents posted the required injunction bond 72 and the CA
accordingly issued the Writ of Preliminary Injunction 73 on February 10, 2005.
Petitioners subsequently filed a Motion for Inhibition of the CA Sixth (6th) Division 74 which the CA granted in a
Resolution75 dated March 28, 2005. Thereafter, petitioners sought recourse before us via this Petition for Certiorari
ascribing grave abuse of discretion on the part of the CA for the following reasons:
Issues
I
THE COURT OF APPEALS, IN EFFECT, GAVE ITS IMPRIMATUR ONTHE VERY CLEAR ACT OF FORUM SHOPPING DONE
BY THEPRIVATE RESPONDENTS.
II
THE PETITION FOR CERTIORARI FILED BY PRIVATE RESPONDENTSBEFORE THE COURT OF APPEALS WAS AN
IMPROPER REMEDY.
III
IN ANY CASE, EVEN ASSUMING THE PETITION FOR CERTIORARIWAS A PROPER REMEDY THE SAME, HOWEVER,
WAS CLEARLYFILED OUT OF TIME.
IV
THE WRIT OF PRELIMINARY INJUNCTION THE COURT OF APPEALSISSUED GOES AGAINST ESTABLISHED
JURISPRUDENCE ON THEMATTER.VPRIVATE RESPONDENTS, EVEN ASSUMING THEIR FACTUALCLAIMS TO BE TRUE,
CANNOT HAVE A BETTER RIGHT OVER THESUBJECT PROPERTY THAN HEREIN PETITIONERS. 76
Petitioners Arguments
Petitioners contend that the CA gravely abused its discretion in issuing the assailed January 3, 2005 Resolution and
the Writ of Preliminary Injunction. They maintain that the CA did not only condone respondents clear and blatant
act of forum shopping; it actually rewarded them for pursuing the same. According to the petitioners, respondents
Complaint in Civil Case No. 69979 pending before Branch 268 already included an ancillary relief for TRO and/or
Preliminary Injunction for the purpose of stopping Branch 71 from implementing its Order of demolition and
dispossessing them of the disputed property. However, since Branch 268 did not favorably act on their prayer for
such provisional remedy, respondents withdrew the same by amending their Complaint, only to later on file an
original action for certiorari, prohibition and injunction before the CA practically raising the same issues, same
cause of action, and the very same prayer to temporarily and then permanently restrain Branch 71 from
implementing its Order of demolition. Petitioners assert that what respondents actually did was to split a single
cause of action as they could have pursued their prayer for injunction in CA-G.R. SP No. 86363 as a mere ancillary
relief in Civil Case No. 69979 pending before Branch 268. Petitioners also accuse respondents of misleading the CA
by concealing the fact that their Complaint in Civil Case No. 69979 included an ancillary relief for injunction and by
not attaching a copy thereof to their Petition filed with the CA.
Petitioners likewise contend that respondents recourse to the CA was premature because they did not give Branch
71 an opportunity to correct its alleged errors. Petitioners point out that before resorting to a special civil action for
certiorari before the CA, respondents should have first appealed or filed the appropriate motion or pleading before
Branch 71 so that said court could correct any of its perceived errors. But they did not. Hence, no error or grave
abuse of discretion can be attributed to Branch 71. And even assuming that respondents Petition before the CA is
not premature, petitioners assert that the same was filed out of time. Respondents received the Notice to Vacate
on April 1, 2004 and, therefore, had only until May 31, 2004 within which to file a petition for certiorari. However, it
was only on September 14, 2004 when they invoked the certiorari jurisdiction of the CA. Petitioners maintain that
respondents erroneously reckoned the 60-day period for filing a petition for certiorari on the date they received the
Order of demolition because the same was a mere off shoot of the Writ of Possession and Notice to Vacate issued
by Branch 71.
Petitioners further argue that the pendency of Civil Case No. 69979 will not bar the issuance and implementation of
the Writ of Possession in LRC Case No.R-6203.
Lastly, petitioners asseverate that respondents ancillary prayer for injunctive relief lacked basis as they have no
clear and unmistakable right that must be protected. Only 15 out of the 315 respondents are armed with proof of
ownership.77 And of these 15, only five have deeds of absolute sale; the remaining 10 have only contracts to sell
containing incomplete details of payment. In addition, the alleged proofs of ownership do not bear the signatures of
all the co-owners and some of those proofs are not even notarized. And assuming further that the titles of these 15
respondents are true, their collective rights over the subject lot cannot prevail over the rights of the petitioners.
The total area they occupy constitute only about 1,371.66 square meters, or a little over 30% of the disputed

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4,432-square meter lot.78 Above all, petitioners registered their claim as early as January 3, 2000 while none of
respondents alleged proofs of ownership were ever registered. 79
Respondents Arguments
Respondents, on the other hand, deny having misled the CA. They claim that on July 5, 2004 they filed their Motion
to Admit Attached Amended Complaint as a matter of right seeking the withdrawal of their prayer for TRO and on
August 27, 2004 Branch 268 issued its Order admitting their Amended Complaint. Thus, when they filed their
Petition in CA-G.R. SP No. 86363 on September 14, 2004, they found it unnecessary to state that, previously, their
Complaint in Civil Case No. 69979 contained a prayer for the issuance of a TRO.
With regard to the second and third assigned errors, respondents assert that the instant Petition for Certiorari
assails only the propriety of the CAs January 3,2005 Resolution and February 10, 2005 Writ of Preliminary
Injunction. This Court cannot thus pass upon the correctness of respondents recourse to the CA as well as the
prematurity and timeliness of such legal remedy, as the same is still pending with said court.
Respondents further assert that the issue of who have a better right over the property in question is an extraneous
matter that is totally irrelevant in the present controversy. They emphasize that the issue to be resolved in this
Petition for Certiorari is whether the CA committed grave abuse of discretion amounting to lack or excess of
jurisdiction in granting their ancillary prayer for injunction. They claim that the points raised by the petitioners in
support of their contention should be threshed out in Civil Case No. 69979 (declaration of nullity of documents and
title, reconveyance, and damages) pending before Branch 268.
Our Ruling
The review we are bound to undertake
in this Petition for Certiorari is limited
to the determination of whether the CA
committed grave abuse of discretion in
granting respondents ancillary prayer
for preliminary injunction.
We stress at the outset that this Petition for Certiorari merely assails the CAs interlocutory resolutions granting
respondents ancillary prayer for injunctive relief. This does not pertain to the main action for certiorari , prohibition
and injunction in CA-G.R. SP No. 86363, which is still pending before the CA. We will thus limit ourselves to the
determination of whether the CA gravely abused its discretion in issuing the questioned Resolutions and avoid
matters that will preempt or render moot whatever final decision it may render in CA-G.R. SP No. 86363. More
specifically, we will not touch on petitioners contentions that respondents are guilty of forum shopping and that the
latters filing of a Petition for Certiorari before the CA was premature and out of time for the assailed CA
Resolutions pertained only to the propriety of the issuance of the Writ of Preliminary Injunction.
A Petition for Certiorari lies only to correct acts rendered without or in excess of jurisdiction or with grave abuse of
discretion. "Its principal office is only to keep the inferior court within the parameters of its jurisdiction or to
prevent it from committing such a grave abuse of discretion amounting to lack or excess of jurisdiction." 80 "Grave
abuse of discretion in the issuance of writs of preliminary injunction implies a capricious and whimsical exercise of
judgment that is equivalent to lack of jurisdiction, or where the power is exercised in an arbitrary or despotic
manner by reason of passion, prejudice or personal aversion amounting to an evasion of positive duty or to a
virtual refusal to perform the duty enjoined, or to act at all in contemplation of law." 81
A Petition for Certiorari is not the proper remedy to review the intrinsic correctness of the public respondents
ruling. It is settled that as long as a court or quasi-judicial body acts within its jurisdiction, any alleged errors
committed in the exercise of its jurisdiction will amount to nothing more than errors of judgment which are not
reviewable in a special civil action of certiorari. Thus, whether the CA committed errors in proceedings,
misappreciated the facts, or misapplied the law is beyond our power of review in this Petition for Certiorari for it
cannot be used for any purpose except to limit the action of the respondent court within the bounds of its
jurisdiction.82
CA did not commit grave abuse of discretion
From our review of the case, nothing indicates that the CA acted without or in excess of jurisdiction or with grave
abuse of discretion in ordering the issuance of the Writ of Preliminary Injunction. Measured against jurisprudentially
established parameters, its disposition to grant the writ was not without basis and, hence, could not have been
arrived at capriciously, whimsically, arbitrarily or despotically. Respondents amply justified the grant of the
provisional relief they prayed for. A Writ of Preliminary Injunction is issued at any stage of an action prior to
judgment or final order to prevent threatened or continuous irremediable injury to some of the parties before their
claims can be thoroughly studied or adjudicated. To justify its issuance, the applicants must prove the following
requisites: (1) that they have a clear and unmistakable right to be protected, that is a right in esse; (2) there is a
material and substantial invasion of such right; (3)there is an urgent need for the writ to prevent irreparable injury
to the applicants; and, (4) there is no other ordinary, speedy, and adequate remedy to prevent the infliction of
irreparable injury.83
It is true that the buyer in a foreclosure sale becomes the absolute owner of the property if it is not redeemed
within one year from registration of the sale and title is consolidated in his name. "As the confirmed owner, the
purchasers right to possession becomes absolute. There is even no need for him to post a bond, and it becomes
the ministerial duty of the courts," upon application and proof of title, to issue a Writ of Possession to place him in
possession.84 This rule is clear from the language of Section 33, Rule 39 of the Rules of Court. The same provision
of the Rules, however, provides as an exception that when a third party is actually holding the property adversely
to the judgment debtor, the duty of the court to issue a Writ of Possession ceases to be ministerial. Thus:

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SEC. 33. Deed and possession to be given at expiration of redemption period; by whom executed or given. If no
redemption be made within one (1) year from the date of the registration of the certificate of sale, the purchaser is
entitled to a conveyance and possession of the property; or, if so redeemed whenever sixty (60) days have elapsed
and no other redemption has been made, and notice thereof given, and the time for redemption has expired, the
last redemptioner is entitled to the conveyance and possession; but in all cases the judgment obligor shall have the
entire period of one (1) year from the date of the registration of the sale to redeem the property. The deed shall be
executed by the officer making the sale or by his successor in office, and in the latter case shall have the same
validity as though the officer making the sale had continued in office and executed it.
Upon the expiration of the right of redemption, the purchaser or redemptioner shall be substituted to and acquire
all the rights, title, interest and claim of the judgment obligor to the property as of the time of the levy. The
possession of the property shall be given to the purchaser or last redemptioner by the same officer unless a third
party is actually holding the property adversely to the judgment obligor. (Emphasis supplied)
Jurisprudence abounds applying this exception to the ministerial duty of the court in issuing the Writ of
Possession.85
Here, respondents alleged in their CA Petition that they possess and own portions of the property subject of the
Writ of Demolition.1wphi1 In support thereof, they annexed to their Petition and Reply deeds of conveyances,
contracts to sell, receipts, etc. showing that the Reyeses already sold to them the portions of the subject lot they
respectively occupy. A number of these documents predate the REM which the Reyeses executed in favor of
Aldover while others were executed subsequent thereto. Respondents allegation of actual possession is likewise
confirmed by the Sheriffs Partial Report86 which states that there are several other persons who occupy portions of
subject lot and claim to be the owners thereof. In fine, respondents have indubitably shown that they are in actual
possession of the disputed portions of subject property. Their possession, under Article 433 of the Civil Code, raises
a disputable presumption that they are the owners thereof.87 Thus, petitioners cannot resort to procedural shortcut
in ousting them by the simple expedient of filing a Motion for Special Order of Demolition in LRC Case No. R-6203
for under the same Article 433 petitioners have to file the appropriate judicial process to recover the property from
the respondents. This "judicial process," as elucidated in Villanueva v. Cherdan Lending Investors
Corporation,88 "could mean no less than an ejectment suit or a reinvindicatory action, in which the ownership
claims of the contending parties may be properly heard and adjudicated." Moreover, to dispossess the respondents
based on the proceedings taken in LRC Case No. R-6203 where they were not impleaded and did not take part
would be tantamount to taking of real property without due process of law.89
But petitioners downplayed respondents documentary evidence as unreliable for being unnotarized and
unregistered compared to their TCT No. PT-122311 which was duly issued after the Reyeses failed to redeem the
property and they (petitioners) consolidated their title thereto. However, "between an unrecorded sale of a prior
date and a recorded mortgage of a later date the former is preferred to the latter for the reason that if the original
owner had parted with his ownership of the thing sold then he no longer had the ownership and free disposal of
that thing so as to be able to mortgage it again."90
In fine, the CA cannot be said to have acted capriciously, whimsically, arbitrarily or despotically in issuing its
January 3, 2005 Resolution and February10, 2005 Writ of Preliminary Injunction to prevent a threatened or
continuous irremediable injury. There is preliminary showing that respondents have clear and unmistakable right
over the disputed portions of the property which must be protected during the pendency of CA-G.R. SP No. 86363.
Indeed, the precipitate demolition of their houses would constitute material and substantial invasion of their right
which cannot be remedied under any standard compensation. Hence, the need for a Writ of Preliminary Injunction.
Besides, it has been held that the trial court (or the CA in this case) has a wide latitude in determining the
propriety of issuing a Writ of Preliminary Injunction. The assessment and evaluation of evidence in the issuance of
a Writ of Preliminary Injunction involve findings of facts ordinarily left to it for its determination. Hence, absent a
clear showing of grave abuse of discretion, the trial courts disposition in injunctive matters is not generally
interfered with by the appellate courts.91
Furthermore, we note that although the scheduled January 4, 2005 hearing on the propriety of issuing a Writ of
Preliminary Injunction did not push through, the parties were nonetheless amply heard thru their pleadings. At the
time the CA issued its challenged January 3, 2005 Resolution, petitioners had already filed their Comment 92 and
Rejoinder93 where they argued at length why no injunctive relief should be granted in favor of the respondents. In
Land Bank of the Phils. v. Continental Watchman Agency, Inc,94 we reiterated our ruling that there can be no grave
abuse of discretion on the part of the respondent court in issuing a Writ of Preliminary Injunction when the parties
were amply heard thereon. Thus:
We have consistently held that there is no grave abuse of discretion in the issuance of a Writ of Preliminary
Injunction where a party was not deprived of its day in court, as it was heard and had exhaustively presented all its
arguments and defenses. Hence, when contending parties were both given ample time and opportunity to present
their respective evidence and arguments in support of their opposing contentions, no grave abuse of discretion can
be attributed to the x x x court which issued the Writ of Preliminary Injunction, as it is given a generous latitude in
this regard, pursuant to Section 4, Rule 58 of the 1997 Rules of Civil Procedure, as amended.
We emphasize though that the evidence upon which the CA based its January 3, 2005 Resolution is not conclusive
as to result in the automatic issuance of a final injunction. "The evidence submitted for purposes of issuing a Writ
of Preliminary Injunction is not conclusive or complete for only a sampling is needed to give the x x x court an
idea of the justification for the preliminary injunction pending the decision of the case on the merits." 95In the same
vein, our Decision in this case is without prejudice to whatever final resolution the CA and Branch 268 may arrive
at in CA-G.R. SP No. 86363 and Civil Case Nos. 69979 and 69949, respectively.
WHEREFORE, the instant Petition for Certiorari is DISMISSED. The Resolutions dated January 3, 2005 and January
24, 2005 of the Court of Appeals in CA-G.R. SP No. 86363 are AFFIRMED. This case is REMANDED to the Court of
Appeals for the immediate resolution of the main petition in CA-G.R. SP No. 86363.

247

SO ORDERED.
SPOUSES ELEGIO* CAEZO and
DOLIA CAEZO,
Petitioners,

G.R. No. 170189

Present:
CARPIO, J., Chairperson,
NACHURA,
BERSAMIN,**
ABAD, and
MENDOZA, JJ.

- versus -

SPOUSES APOLINARIO and

CONSORCIA L. BAUTISTA,

Promulgated:

Respondents.
September 1, 2010
x--------------------------------------------------x

DECISION

CARPIO, J.:

G.R. No. 170189 is a petition for review [1] assailing the Decision [2] promulgated on 17 October 2005 by the Court of
Appeals (appellate court) in CA-G.R. CV No. 75685. The appellate court granted the appeal filed by the Spouses
Apolinario and Consorcia L. Bautista (spouses Bautista) and dismissed the complaint for the issuance of a writ of
demolition with damages filed by the Spouses Elegio and Dolia Caezo (spouses Caezo) without prejudice to the
filing of the appropriate action with the proper forum. In its Decision[3] on Civil Case No. MC-00-1069 dated 25
March 2002, Branch 213 of the Regional Trial Court of Mandaluyong City (trial court) rendered judgment in favor of
the spouses Caezo. The trial court also ordered the issuance of a writ of demolition directing the removal of the
structures built by the spouses Bautista on the portion of the land belonging to the spouses Caezo.

The Facts

The appellate court narrated the facts as follows:

Spouses Elegio and Dolia Caezo (hereafter appellees) are the registered owner[s] of a parcel of
land with an area of One Hundred Eighty Six (186) square meters, covered by Transfer Certificate
of Title (TCT) No. 32911.
Spouses Apolinario and Consorcia Bautista (hereafter appellants) are the registered owners of a
parcel of land, containing an area of One Hundred Eighty One (181) square meters, covered by
Transfer Certificate of Title (TCT) No. 31727. Both parcels of land are located at Coronado
Heights, Barangka Ibaba, Mandaluyong City and registered with the Registry of Deeds of
Mandaluyong City. Appellants lot is adjacent to that of appellees [sic].
Sometime in 1995, appellees started the construction of a building on their lot. During the
construction, appellees discovered that their lot was encroached upon by the structures built by
appellants without appellees knowledge and consent.
The three (3) surveys conducted confirmed the fact of encroachment. However, despite oral and
written demands, appellants failed and refused to remove the structures encroaching appellees
lot.
Attempts were made to settle their dispute with the barangay lupon, but to no avail. Appellees
initiated a complaint with the RTC for the issuance of a writ of demolition.
For failure to file an Answer within the extended period granted by the court, appellants were
declared in default. Appellees were allowed to present their evidence ex parte before an

248

appointed commissioner. Thereafter the RTC rendered the assailed decision in the terms earlier
set forth.[4]
The spouses Caezo filed their complaint for the issuance of a writ of demolition with damages on 13 April 2000. In
an Order dated 15 August 2000, the trial court declared the spouses Bautista in default for failure to answer within
the reglementary period. The Public Attorneys Office, which represented the spouses Bautista at the time, filed a
Motion to Admit Answer dated 15 June 2000. The trial court denied the motion in its Decision.

The Trial Courts Ruling

On 25 March 2002, the trial court promulgated its Decision in favor of the spouses Caezo. The trial court found that
the spouses Bautista built structures encroaching on the land owned by the spouses Caezo. The spouses Bautista
also refused to remove the structures and respect the boundaries as established by the various surveyors. A
referral to the Barangay Lupon failed to settle the controversy amicably. The trial court thus ruled that the spouses
Bautista are builders in bad faith, such that the spouses Caezo are entitled to an issuance of a writ of demolition
with damages.

The dispositive portion of the Decision reads as follows:

IN VIEW WHEREOF, judgment is hereby rendered in favor of the plaintiffs and against the
defendants. Let a writ of demolition be accordingly issued directing the removal/demolition of the
structures built by the defendants upon the portion of land belonging [to] the plaintiffs at the
formers expense.
Further,
1. the defendant is ordered to pay P50,000.00 (Philippine Currency) as and by way of
moral damages[; and]
2. [t]he defendant is hereby ordered to pay P30,000.00 as and by way of attorneys fees.
SO ORDERED.[5]

The spouses Bautista filed a notice of appeal dated 29 April 2002 before the appellate court.

The Appellate Courts Ruling

On 17 October 2005, the appellate court rendered its Decision which reversed the 25 March 2002 Decision
of the trial court. The appellate court ruled that since the last demand was made on 27 March 2000, or more than a
year before the filing of the complaint, the spouses Caezo should have filed a suit for recovery of possession and
not for the issuance of a writ of demolition. A writ of demolition can be granted only as an effect of a final
judgment or order, hence the spouses Caezos complaint should be dismissed. The spouses Caezo failed to specify
the assessed value of the encroached portion of their property. Because of this failure, the complaint lacked
sufficient basis to constitute a cause of action. Finally, the appellate court ruled that should there be a finding of
encroachment in the action for recovery of possession and that the encroachment was built in good faith, the
market value of the encroached portion should be proved to determine the appropriate indemnity.

The dispositive portion of the appellate courts Decision reads as follows:

249

WHEREFORE, premises considered, the instant appeal is GRANTED. The complaint filed by
plaintiffs-appellees is hereby DISMISSED without prejudice to the filing of the appropriate action
with the proper forum.
SO ORDERED.[6]

Issues

The spouses Caezo enumerated the following grounds to support their Petition:
I. Whether the Honorable Court of Appeals gravely erred in granting the petition of the [spouses
Bautista] and reversing the Decision of the Court a quo; [and]
II. Whether the Honorable Court of Appeals gravely erred in stating that the petitioners should
have filed recovery of possession and not writ of demolition.[7]

The Courts Ruling

The petition has merit.

The present case, while inaccurately captioned as an action for a Writ of Demolition with Damages is in reality an
action to recover a parcel of land or an accion reivindicatoria under Article 434 of the Civil Code. Article 434 of the
Civil Code reads: In an action to recover, the property must be identified, and the plaintiff must rely on the
strength of his title and not on the weakness of the defendants claim. Accion reivindicatoria seeks the recovery of
ownership and includes the jus utendiand the jus fruendi brought in the proper regional trial court. Accion
reivindicatoria is an action whereby plaintiff alleges ownership over a parcel of land and seeks recovery of its full
possession.[8]
In order that an action for the recovery of title may prosper, it is indispensable, in accordance with the precedents
established by the courts, that the party who prosecutes it must fully prove, not only his ownership of the thing
claimed, but also the identity of the same.[9] However, although the identity of the thing that a party desires to
recover must be established, if the plaintiff has already proved his right of ownership over a tract of land, and the
defendant is occupying without right any part of such tract, it is not necessary for plaintiff to establish the precise
location and extent of the portions occupied by the defendant within the plaintiffs property.[10]

The spouses Caezo were able to establish their ownership of the encroached property. Aside from testimonial
evidence, the spouses Caezo were also able to present documentary and object evidence which consisted of
photographs,[11] transfer certificates of title,[12] and a relocation survey plan.[13]

The relocation survey plan also corroborated Elegio Caezos testimony on the reason for the spouses Bautistas
attitude regarding the encroached property. The relocation survey plan showed that the spouses Bautistas property
encroached upon that of the spouses Caezo by 0.97 centimeters, while the spouses Bautistas property was
encroached upon by 1.01 centimeters by another landowner. Elegio Caezo testified thus:
Q I am showing you a survey plan of lot 13. Can you please tell us what is this survey plan?
A That is the survey plan of the surveyor whom we hired sir.
Q Can you please point to us where in this plan is your property indicated?
A This is our property, sir.

250

Q The witness, your Honor, is pointing to Lot 13 indicated in the survey plan. How about the
property of the defendants?
A The defendants property is this, sir.
Q The witness, your Honor, is pointing to Lot 14 indicated in the survey plan. Now, Mr. Witness,
you said that the defendants wanted you to recover that portion of your property encroached
on from the property adjacent to theirs. Please illustrate to us by referring to this survey plan
what the defendants meant?
A The defendants want us to get the portion they had encroached on from Lot 15 because,
according to them, Lot 15 also encroached on their lot, sir.
Q The witness, your Honor, is pointing to Lot 15 indicated in the plan. What happened next?
A We told them that this is not possible because Lot 15 is not adjacent to our property, sir.
Q What did the defendants do?
A The defendants still refused to remove their structure, sir.
Q So, what happened?
A We filed a complaint against the defendants before the Office of the Barangay Captain of
Barangay Barangka, Ibaba, sir.
Q What happened in the Barangay?
A The Barangay council tried to settle the matter amicably between us. However, no settlement
was reached, sir.
Q While in the barangay, did you offer anything to the defendants in order to settle the case?
A Yes, sir.
Q What was it?
A We offered that if the defendants will remove the structures, we are willing to shoulder half of
the expenses for the removal.
Q What did the defendants say to this?
A They refused our offer and insisted on their previous position that we get our portion from Lot
15, sir.
Q What did the Barangay do after failing to settle the case?
A The Barangay issued a Certification to File Action, sir.[14]

Given the efforts made by the spouses Caezo to settle the present issue prior to the filing of a Complaint, the trial
court was justified in ruling that the spouses Bautista were in default and in not admitting their Answer. The
Complaint was not the spouses Bautistas first encounter with the present issue. Moreover, the spouses Bautista
failed to file their Answer even after the expiry of the motion of extension granted to them.[15]

The testimony and the relocation survey plan both show that the spouses Bautista were aware of the encroachment
upon their lot by the owner of Lot 15 and thus they made a corresponding encroachment upon the lot of the
spouses Caezo. This awareness of the two encroachments made the spouses Bautista builders in bad faith. The
spouses Caezo are entitled to the issuance of a writ of demolition in their favor and against the spouses Bautista, in
accordance with Article 450 of the Civil Code.[16]

We affirm the awards made by the trial court in its Decision:

x x x Considering the length of time when [the spouses Caezo] were deprived of beneficial use on
the subject portion of land owned by them, the [spouses Bautista] are likewise liable to
pay P30,000.00 (Philippine Currency) in accordance with Article 451 of the Civil Code.
With respect to the prayer for the award of P50,000.00 (Philippine Currency) as moral damages,
the court decides to give due course to it in view of the fact that the [spouses Caezo]
satisfactorily proved the existence of the factual basis of the damages and its causal relation to
[the spouses Bautistas] acts. There was bad faith on the part of the [spouses Bautista] when
they built the structures upon the land not belonging to them. This wrongful act is the proximate
cause which made the [spouses Caezo] suffer mental anguish, sleepless nights and serious
anxiety. The [spouses Caezo] positively testified about these matters.
As regards the prayer for exemplary x x x damages, no sufficient evidence were adduced which
would warrant and justify this court to award the same. The prayer for attorneys fees however, is
found meritorious hence, the same is hereby granted.[17]

251

WHEREFORE, we GRANT the petition. The Decision of the Court of Appeals in CA-G.R. CV No. 75685 promulgated
on 17 October 2005 is SET ASIDE and the dispositive portion of the Decision of Branch 213, Regional Trial Court of
Mandaluyong City promulgated on 25 March 2002 is AFFIRMED with MODIFICATION. A writ of demolition of the
encroaching structures should be issued against and at the expense of Spouses Apolinario and Consorcia L.
Bautista upon the finality of this judgment. Spouses Apolinario and Consorcia L. Bautista are further ordered to pay
Spouses Elegio and Dolia Caezo P30,000 as actual damages; P50,000 as moral damages; and P30,000 as
attorneys fees. The interest rate of 12% per annum shall apply from the finality of judgment until the total amount
awarded is fully paid.

SO ORDERED.

SPOUSES
CASTRO,

ISAGANI

and

DIOSDADA

Petitioners,

- versus SPOUSES REGINO SE and VIOLETA DELA

CRUZ, SPOUSES EDUARDO and CHARITO
PEREZ and MARCELINO TOLENTINO,
Respondents.

G.R. No. 190122

Present:
CARPIO MORALES, J., Chairperson,
BRION,
BERSAMIN,
VILLARAMA, JR., and
SERENO, JJ.

Promulgated:
January 10, 2011
x--------------------------------------------------x
DECISION
CARPIO MORALES, J.,

For the Courts consideration is the propriety of the issuance of a writ of preliminary mandatory injunction in favor
of respondent Spouses Regino Se and Violeta dela Cruz (Spouses dela Cruz).

Respondent Spouses Eduardo and Charito Perez (Spouses Perez) obtained a P250,000 loan from Spouses Isagani
and Diosdada Castro (petitioners) on November 15,1996, to secure which they executed a real estate mortgage in
petitioners favor covering an unregistered 417 square meter parcel of land, located in San Isidro, Hagonoy,
Bulacan, covered by Tax Declaration (TD) No. 01844 (the property).

Respondent Spouses Perez having failed to settle their loan, petitioners extrajudicially foreclosed the mortgage
and, as the highest bidder at the public auction, bought the property on February 4, 1999. It turned out
that before the foreclosure or sometime in 1997 respondent Spouses Perez, contrary to a provision of the real
estate mortgage, sold the property to respondent Spouses dela Cruz who had in fact caused the cancellation of TD
No. 01844 by TD No. 01892 in their name on August 15, 1997.

252

Petitioners thus filed on April 8, 1999 a complaint against herein two sets of respondent Spouses, for
annulment of Deed of Sale and TD No. 01892 [1] and damages before the Malolos Regional Trial Court
(RTC). Respondent Marcelino Tolentino, Municipal Assessor of Hagonoy, Bulacan was impleaded as defendant. The
complaint was raffled to Branch 7 of the RTC.

By respondent Spouses dela Cruzs allegation, before buying the property, they inspected it and found no
improvements thereon that would put them on guard against the integrity of the TD of the sellers-Spouses Perez
which TD, contrary to petitioners claim, bore no annotation of the mortgage. They had in fact constructed a house
on the property in the course of which they were approached by petitioners who informed them of an existing
mortgage thereover, but as petitioners did not present any document to prove it, they paid no heed to the
information.

During the pendency of petitioners complaint against respondents spouses, petitioners filed an ex-parte motion
before Branch 16 of the RTC for the issuance of a writ of possession over the property by virtue of the foreclosure
of the mortgage of the sale to them of the property. [2] Petitioners motion was granted and a writ of possession
dated August 2, 2001 was issued and enforced against respondent Spouses dela Cruz who were evicted from the
property.

On December 7, 2002, petitioners amended, with leave of court, their complaint, alleging that, inter
alia, respondent Spouses Perez failed to redeem the mortgage within the reglementary period.

In their Answer to the Amended Complaint, respondent Spouses dela Cruz prayed for the issuance of a
writ of preliminary mandatory injunction to restore them to physical possession of the property, which prayer
Branch 7 of the RTC granted by Order of October 29, 2004 in this wise:

. . . It is not disputed that the Sps. Isagani Castro and Diosdada Castro, herein plaintiffs, were
placed in possession of the subject property by virtue of a writ of possession issued by Branch 16
of the Court. This writ of possession commanded the sheriff to require the spouses Eduardo Perez
and Charito Lopez and all persons claiming rights under them to vacate subject property and
surrender possession thereof to spouses Castro. At that time, the Spouses Regino Se and Violeta
dela Cruz were in possession of the property as owners thereof, having already purchased the
same from the Sps. Castro. Their evidence of ownership is Tax Declaration No. 01892 of the
Office of the Municipal Assessor of Hagonoy, Bulacan, the property being still an unregistered
property. They were not claiming rights under the spouses Perez. They were and still are the
owners in their own right. Hence, the writ of possession issued was improperly implemented and
under Art. 539 of the Civil Code, they must be restored to said possession by the means
established by the laws and the Rules of Court. The writ of preliminary mandatory injunction
prayed for is undeniably one of the means established by the laws and the Rules of
Court. [3] (underscoring supplied)

Petitioners motion for reconsideration of the trial courts Order of October 29, 2004 was denied by Order of
March 5, 2007, hence, they filed a petition for certiorari before the Court of Appeals. Finding no grave abuse of
discretion in the issuance of the Order, the appellate court denied petitioners petition, by Decision of September 14,
2009.[4]

253

Hence, the present petition.

The trial court anchored its assailed Order granting the writ of preliminary mandatory injunction on Article 539 of
the Civil Code. The Article reads:

Art. 539. Every possessor has a right to be respected in his possession; and should he
be disturbed therein, he shall be protected in or restored to said possession by the means
established by the laws and the Rules of Court.
xxxx

Undoubtedly, respondent Spouses dela Cruz actually took possession of the property before the real estate
mortgage covering it was foreclosed, and had in fact cancelled the TD in Spouses Perez name and had one issued
in their name. It appears, however, that petitioners did not inform Branch 16, RTC of the previous sale of the
property to third parties, herein respondent Spouses dela Cruz, and the latters actual possession thereof.

For an injunctive writ to issue, a clear showing of extreme urgency to prevent irreparable injury and
a clear and unmistakable right to it must be proven by the party seeking it. The primary objective of a preliminary
injunction, whether prohibitory or mandatory, is to preserve the status quo until the merits of the case can be
heard.[5]

[T]he rule is well-entrenched that the issuance of the writ of preliminary injunction rests upon the
sound discretion of the trial court. It bears reiterating that Section 4 of Rule 58 gives generous
latitude to the trial courts in this regard for the reason that conflicting claims in an
application for a provisional writ more often than not involve a factual

254

determination which is not the function of appellate courts. Hence, the exercise of sound
judicial discretion by the trial court in injunctive matters must not be interfered with
except when there is manifest abuse, which is wanting in the present case. [6] (emphasis and
underscoring supplied)

Indeed, the rule is well-entrenched that for grave abuse of discretion to exist as a valid ground for the
nullification of an injunctive writ, there must be a capricious and whimsical exercise of judgment, equivalent to lack
or excess of jurisdiction. Or the power must be exercised in an arbitrary manner by reason of passion or personal
hostility, and it must be patent and gross as to amount to an evasion of a positive duty or a virtual refusal to
perform a duty enjoined by law.

[7]

Recall that respondent Spouses dela Cruz had long before the foreclosure of the mortgage or sometime in
1997 bought and took possession of the property, and had in fact cancelled the seller-respondent Spouses Perez TD
and had one issued in their name. By petitioners seeking ex parte the issuance to them on February 1999 of a writ
of possession over the property, which was granted and the writ enforced against respondent Spouses de la Cruz,
they disturbed the status quo ante litem. The trial court did not thus commit grave abuse of discretion when it
issued the writ of preliminary mandatory injunction in favor of Spouses de la Cruz.

For the enforcement of the writ of possession against respondent Spouses dela Cruz, who did not take
part in the foreclosure proceedings, would amount to taking of real property without the benefit of a proper judicial
intervention. The procedural shortcut which petitioners is impermissible. Even Article 433 of the Civil Code instructs
that Actual possession under claim of ownership raises disputable presumption of ownership. The true owner must
resort to judicial process for the recovery of the property. The contemplated judicial process is not through an exparte petition as what petitioners availed of, but a process wherein a third party, Spouses de la Cruz herein, is
given an opportunity to be heard.[8]

The jurisdictional foundation for the issuance of a writ of injunction rests not only in the existence of a
cause of action and in the probability of irreparable injury, among other considerations, but also in the prevention
of multiplicity of suits.

Since petitioners failed to show that the appellate court erred in upholding the trial courts exercise of its
discretion in issuing the writ of preliminary mandatoryinjunction, the challenged Decision stands.

Parenthetically, the issuance of the challenged writ does not render petitioners case closed. Whether there
existed a conspiracy between both sets of respondent spouses to defraud petitioners can be only be determined
after the principal action is tried on the merits during which the parties are afforded the opportunity to present
evidence in support of their respective claims. [9]

WHEREFORE, the petition is DENIED.

SO ORDERED.

G.R. No. 116100

February 9, 1996

255

SPOUSES CRISTINO and BRIGIDA CUSTODIO and SPOUSES LITO and MARIA CRISTINA
SANTOS,petitioners,
vs.
COURT OF APPEALS, HEIRS OF PACIFICO C. MABASA and REGIONAL TRIAL COURT OF PASIG, METRO
MANILA, BRANCH 181, respondents.
DECISION
REGALADO, J.:
This petition for review on certiorari assails the decision of respondent Court of Appeals in CA-G.R. CV No. 29115,
promulgated on November 10, 1993, which affirmed with modification the decision of the trial court, as well as its
resolution dated July 8, 1994 denying petitioner's motion for reconsideration. 1
On August 26, 1982, Civil Case No. 47466 for the grant of an easement of right of way was filed by Pacifico Mabasa
against Cristino Custodio, Brigida R. Custodio, Rosalina R. Morato, Lito Santos and Maria Cristina C. Santos before
the Regional Trial Court of Pasig and assigned to Branch 22 thereof.2
The generative facts of the case, as synthesized by the trial court and adopted by the Court of Appeals, are as
follows:
Perusing the record, this Court finds that the original plaintiff Pacifico Mabasa died during the pendency of
this case and was substituted by Ofelia Mabasa, his surviving spouse [and children].
The plaintiff owns a parcel of land with a two-door apartment erected thereon situated at Interior P.
Burgos St., Palingon, Tipas, Tagig, Metro Manila. The plaintiff was able to acquire said property through a
contract of sale with spouses Mamerto Rayos and Teodora Quintero as vendors last September 1981. Said
property may be described to be surrounded by other immovables pertaining to defendants herein. Taking
P. Burgos Street as the point of reference, on the left side, going to plaintiff's property, the row of houses
will be as follows: That of defendants Cristino and Brigido Custodio, then that of Lito and Maria Cristina
Santos and then that of Ofelia Mabasa. On the right side (is) that of defendant Rosalina Morato and then a
Septic Tank (Exhibit "D"). As an access to P. Burgos Street from plaintiff's property, there are two possible
passageways. The first passageway is approximately one meter wide and is about 20 meters distan(t)
from Mabasa's residence to P. Burgos Street. Such path is passing in between the previously mentioned
row of houses. The second passageway is about 3 meters in width and length from plaintiff Mabasa's
residence to P. Burgos Street; it is about 26 meters. In passing thru said passageway, a less than a meter
wide path through the septic tank and with 5-6 meters in length, has to be traversed.
When said property was purchased by Mabasa, there were tenants occupying the remises and who were
acknowledged by plaintiff Mabasa as tenants. However, sometime in February, 1982, one of said tenants
vacated the apartment and when plaintiff Mabasa went to see the premises, he saw that there had been
built an adobe fence in the first passageway making it narrower in width. Said adobe fence was first
constructed by defendants Santoses along their property which is also along the first passageway.
Defendant Morato constructed her adobe fence and even extended said fence in such a way that the entire
passageway was enclosed. (Exhibit "1-Santoses and Custodios, Exh. "D" for plaintiff, Exhs. "1-C", "1-D"
and "1-E") And it was then that the remaining tenants of said apartment vacated the area. Defendant Ma.
Cristina Santos testified that she constructed said fence because there was an incident when her daughter
was dragged by a bicycle pedalled by a son of one of the tenants in said apartment along the first
passageway. She also mentioned some other inconveniences of having (at) the front of her house a
pathway such as when some of the tenants were drunk and would bang their doors and windows. Some of
their footwear were even lost. . . .3 (Emphasis in original text; corrections in parentheses supplied)
On February 27, 1990, a decision was rendered by the trial court, with this dispositive part:
Accordingly, judgment is hereby rendered as follows:
1) Ordering defendants Custodios and Santoses to give plaintiff permanent access ingress and egress, to
the public street;
2) Ordering the plaintiff to pay defendants Custodios and Santoses the sum of Eight Thousand Pesos
(P8,000) as indemnity for the permanent use of the passageway.
The parties to shoulder their respective litigation expenses. 4
Not satisfied therewith, therein plaintiff represented by his heirs, herein private respondents, went to the Court of
Appeals raising the sole issue of whether or not the lower court erred in not awarding damages in their favor. On
November 10, 1993, as earlier stated, the Court of Appeals rendered its decision affirming the judgment of the trial
court with modification, the decretal portion of which disposes as follows:
WHEREFORE, the appealed decision of the lower court is hereby AFFIRMED WITH MODIFICATION only
insofar as the herein grant of damages to plaintiffs-appellants. The Court hereby orders defendantsappellees to pay plaintiffs-appellants the sum of Sixty Five Thousand (P65,000) Pesos as Actual Damages,
Thirty Thousand (P30,000) Pesos as Moral Damages, and Ten Thousand (P10,000) Pesos as Exemplary
Damages. The rest of the appealed decision is affirmed to all respects. 5

256

On July 8, 1994, the Court of Appeals denied petitioner's motion for reconsideration. 6 Petitioners then took the
present recourse to us, raising two issues, namely, whether or not the grant of right of way to herein private
respondents is proper, and whether or not the award of damages is in order.
With respect to the first issue, herein petitioners are already barred from raising the same. Petitioners did not
appeal from the decision of the court a quo granting private respondents the right of way, hence they are
presumed to be satisfied with the adjudication therein. With the finality of the judgment of the trial court as to
petitioners, the issue of propriety of the grant of right of way has already been laid to rest.
For failure to appeal the decision of the trial court to the Court of Appeals, petitioners cannot obtain any affirmative
relief other than those granted in the decision of the trial court. That decision of the court below has become final
as against them and can no longer be reviewed, much less reversed, by this Court. The rule in this jurisdiction is
that whenever an appeal is taken in a civil case, an appellee who has not himself appealed may not obtain from the
appellate court any affirmative relief other than what was granted in the decision of the lower court. The appellee
can only advance any argument that he may deem necessary to defeat the appellant's claim or to uphold the
decision that is being disputed, and he can assign errors in his brief if such is required to strengthen the views
expressed by the court a quo. These assigned errors, in turn, may be considered by the appellate court solely to
maintain the appealed decision on other grounds, but not for the purpose of reversing or modifying the judgment
in the appellee's favor and giving him other affirmative reliefs. 7
However, with respect to the second issue, we agree with petitioners that the Court of Appeals erred in awarding
damages in favor of private respondents. The award of damages has no substantial legal basis. A reading of the
decision of the Court of Appeals will show that the award of damages was based solely on the fact that the original
plaintiff, Pacifico Mabasa, incurred losses in the form of unrealized rentals when the tenants vacated the leased
premises by reason of the closure of the passageway.
However, the mere fact that the plaintiff suffered losses does not give rise to a right to recover damages. To
warrant the recovery of damages, there must be both a right of action for a legal wrong inflicted by the defendant,
and damage resulting to the plaintiff therefrom. Wrong without damage, or damage without wrong, does not
constitute a cause of action, since damages are merely part of the remedy allowed for the injury caused by a
breach or wrong.8
There is a material distinction between damages and injury. Injury is the illegal invasion of a legal right; damage is
the loss, hurt, or harm which results from the injury; and damages are the recompense or compensation awarded
for the damage suffered. Thus, there can be damage without injury in those instances in which the loss or harm
was not the result of a violation of a legal duty. These situations are often called damnum absque injuria.9
In order that a plaintiff may maintain an action for the injuries of which he complains, he must establish that such
injuries resulted from a breach of duty which the defendant owed to the plaintiff a concurrence of injury to the
plaintiff and legal responsibility by the person causing it. 10 The underlying basis for the award of tort damages is
the premise that an individual was injured in contemplation of law. Thus, there must first be the breach of some
duty and the imposition of liability for that breach before damages may be awarded; it is not sufficient to state that
there should be tort liability merely because the plaintiff suffered some pain and suffering. 11
Many accidents occur and many injuries are inflicted by acts or omissions which cause damage or loss to another
but which violate no legal duty to such other person, and consequently create no cause of action in his favor. In
such cases, the consequences must be borne by the injured person alone. The law affords no remedy for damages
resulting from an act which does not amount to a legal injury or wrong.12
In other words, in order that the law will give redress for an act causing damage, that act must be not only hurtful,
but wrongful. There must be damnum et injuria.13 If, as may happen in many cases, a person sustains actual
damage, that is, harm or loss to his person or property, without sustaining any legal injury, that is, an act or
omission which the law does not deem an injury, the damage is regarded as damnum absque injuria.14
In the case at bar, although there was damage, there was no legal injury. Contrary to the claim of private
respondents, petitioners could not be said to have violated the principle of abuse of right. In order that the
principle of abuse of right provided in Article 21 of the Civil Code can be applied, it is essential that the following
requisites concur: (1) The defendant should have acted in a manner that is contrary to morals, good customs or
public policy; (2) The acts should be willful; and (3) There was damage or injury to the plaintiff. 15
The act of petitioners in constructing a fence within their lot is a valid exercise of their right as owners, hence not
contrary to morals, good customs or public policy. The law recognizes in the owner the right to enjoy and dispose
of a thing, without other limitations than those established by law. 16 It is within the right of petitioners, as owners,
to enclose and fence their property. Article 430 of the Civil Code provides that "(e)very owner 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."
At the time of the construction of the fence, the lot was not subject to any servitudes. There was no easement of
way existing in favor of private respondents, either by law or by contract. The fact that private respondents had no
existing right over the said passageway is confirmed by the very decision of the trial court granting a compulsory
right of way in their favor after payment of just compensation. It was only that decision which gave private
respondents the right to use the said passageway after payment of the compensation and imposed a corresponding
duty on petitioners not to interfere in the exercise of said right.
Hence, prior to said decision, petitioners had an absolute right over their property and their act of fencing and
enclosing the same was an act which they may lawfully perform in the employment and exercise of said right. To
repeat, whatever injury or damage may have been sustained by private respondents by reason of the rightful use
of the said land by petitioners is damnum absque injuria.17

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A person has a right to the natural use and enjoyment of his own property, according to his pleasure, for all the
purposes to which such property is usually applied. As a general rule, therefore, there is no cause of action for acts
done by one person upon his own property in a lawful and proper manner, although such acts incidentally cause
damage or an unavoidable loss to another, as such damage or loss is damnum absque injuria. 18 When the owner of
property makes use thereof in the general and ordinary manner in which the property is used, such as fencing or
enclosing the same as in this case, nobody can complain of having been injured, because the incovenience arising
from said use can be considered as a mere consequence of community life. 19
The proper exercise of a lawful right cannot constitute a legal wrong for which an action will lie, 20 although the act
may result in damage to another, for no legal right has been invaded. 21 One may use any lawful means to
accomplish a lawful purpose and though the means adopted may cause damage to another, no cause of action
arises in the latter's favor. An injury or damage occasioned thereby is damnum absque injuria. The courts can give
no redress for hardship to an individual resulting from action reasonably calculated to achieve a lawful means. 22
WHEREFORE, under the compulsion of the foregoing premises, the appealed decision of respondent Court of
Appeals is hereby REVERSED and SET ASIDE and the judgment of the trial court is correspondingly REINSTATED.
EMMANUEL C. VILLANUEVA,
Petitioner,

G.R. No. 177881

Present:

- versus -

CHERDAN LENDING INVESTORS CORPORATION,

Respondent.

VELASCO, JR., J.,*

NACHURA,
Acting Chairperson,**
LEONARDO-DE CASTRO,***
BRION,**** and
MENDOZA, JJ.
Promulgated:
October 13, 2010

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

DECISION

NACHURA, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, seeking to reverse and set aside the
Court of Appeals (CA) Decision [1] dated October 31, 2006 and Resolution [2] dated May 10, 2007 in CA-G.R. SP No.
89910.

The facts of the case are as follows:

Spouses Fortunato and Rachel Pearedondo (spouses Pearedondo) obtained from respondent Cherdan Lending
Investors Corporation a loan amounting to P2.2 million, secured by a real estate mortgage over a parcel of land
covered by Transfer Certificate of Title (TCT) No. T-129690. Despite demand, spouses Pearedondo failed to pay the
obligation. Hence, respondent extrajudicially foreclosed the mortgage. At the auction sale, respondent was declared
as the highest bidder. A Certificate of Sale was issued and was later registered. Upon the expiration of the
redemption period, the title to the property was consolidated and a new title, TCT No. 143284, issued in
respondents name.[3]

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On September 28, 2001, respondent filed before the Regional Trial Court (RTC) of Paraaque City, Branch 258, an
Ex-Parte Petition for Issuance of Writ of Possession for Real Property Covered by Transfer Certificate of Title No.
143284 of the Registry of Deeds for Paraaque City.[4]

In an Order[5] dated January 7, 2002, the RTC granted the petition, the dispositive portion of which reads:

WHEREFORE, viewed in the light of the foregoing, let Writ of Possession issue in favor of the
petitioner and against Spouses Fortunato Pearedondo and Rachel Pearedondo and all occupant(s),
tenant(s), and/or persons claiming rights under them to immediately vacate the premises
formerly covered by Transfer Certificate of Title No. 129690 and now covered by Transfer
Certificate of Title No. 143284 registered in the name of the petitioner, issued by the Registry of
Deeds of Paraaque City and to serve the purpose, the Sheriff of this Court is hereby ordered to
put the petitioner in possession thereof or thru its duly authorized representative, with the
assistance of the barangay officials or local police, if need be.
SO ORDERED.[6]

Accordingly, a writ of possession was issued. Upon service of a copy of the court order, petitioner
Emmanuel C. Villanueva moved for the reconsideration of the order and the setting aside of the writ of possession
on the ground that he is the owner and is in actual possession of the subject property. He notified the court that he
had filed criminal and civil cases relative to the fraudulent transfer of ownership of the subject property from him to
the spouses Pearedondo.[7] For their part, spouses Pearedondo also filed a separate Motion to Quash the Writ of
Possession[8] on two grounds: 1) that there was a pending civil case for the declaration of nullity of mortgage; and
2) that a third party is in adverse possession of the property.

On September 30, 2002, the RTC issued an Order[9] in favor of petitioner, disposing, as follows:

WHEREFORE, premises considered, the Motion for Reconsideration as well as Motion to Set Aside
Writ of Possession are GRANTED and the movant is allowed to be in possession of the subject
property until after the pending case/s has/have been resolved with finality and the Writ of
Possession dated February 11, 2002 is hereby recalled and set aside.
As to The Motion to Quash filed by the respondents/mortgagors, the same is hereby DENIED.
SO ORDERED.[10]

On August 27, 2004, the RTC of Paraaque City, Branch 257, dismissed Civil Case No. 98-0378 for
Declaration of Nullity of Real Estate Mortgage filed by Fortunato Pearedondo against respondent. [11] Respondent
thereafter filed a Motion for Alias Writ of Possession, [12] which was denied[13] on December 20, 2004. On March 8,
2005, respondents motion for reconsideration was denied for lack of merit. [14]

Aggrieved, respondent instituted a special civil action for certiorari before the CA, praying that the RTC
Order denying its motion for alias writ of possession be reversed and set aside, and that the RTC be directed to
issue a writ of possession in favor of respondent against petitioner.[15]

In the assailed Decision dated October 31, 2006, the CA granted respondents petition, the pertinent
portion of which reads:

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WHEREFORE, the petition is GRANTED. The assailed Orders dated December 20, 2004
and March 8, 2005, both of the Regional Trial Court, Branch 258, ParaaqueCity are
hereby ANNULLED and SET ASIDE. The trial court is hereby directed to issue an alias writ of
possession against all those who claim adverse title and rights against petitioner, which should be
placed in actual possession of the subject property but without prejudice to the eventual outcome
of the cases anent the validity of title thereto.

SO ORDERED.[16]

Citing PNB v. Sanao Marketing Corporation [17] and Ancheta v. Metropolitan Bank and Trust Company, Inc.,
[18]

the CA held that the pendency of the case for annulment of the foreclosure proceedings was not a bar to the

issuance of the writ of possession. The CA refused to apply Section 33, Rule 39 of the Rules of Court, which
authorizes the giving of possession of the property to the purchaser or last redemptioner unless a third party is
actually holding the property adverse to the judgment obligor, ratiocinating that the provision applies only to
execution sales and not to extrajudicial foreclosures of real estate mortgage under Act 3135. [19]

Hence, the present petition raising the following issues:

(1) Can the Honorable Court of Appeals require Villanueva to comment on a petition for
certiorari wherein he is not even pleaded as a party?
(2) Is the petition of Cherdan barred by Court order dated 30 September 2002?
(3) Is Cherdans petition for certiorari filed in the Court of Appeals proper?
And

(4) Is there a legal obstacle/impediment to place Cherdan in possession of the property?

(5) Is the decision (Annex A) and resolution (Annex B) of the Honorable Court of
Appeals in accord with the decisions of the Supreme Court in Capital Credit Dimension, Inc. v.
Chua, 428 SCRA 259, 263 (Apr. 28, 2004); Penson v. Maranan, 491 SCRA 396, 405-406 (June
20, 2006); and Dayot v. Shell Chemical Co. (Phils.), Inc., 525 SCRA 535, 548 (June 26, 2007)?[20]

The petition is meritorious.

The core issue for resolution is the propriety of the issuance of the writ of possession over the property
subject of the foreclosure of the real estate mortgage.

A writ of possession is an order of the court commanding the sheriff to place a person in possession of a
real or personal property.[21] It may be issued in an extrajudicial foreclosure of a real estate mortgage under
Section 7 of Act 3135, as amended by Act 4118, either 1) within the one-year redemption period, upon the filing of
a bond, or 2) after the lapse of the redemption period, without need of a bond or of a separate and independent
action.[22]

260

It is settled that the buyer in a foreclosure sale becomes the absolute owner of the property purchased if it
is not redeemed within one year after the registration of the sale. As such, he is entitled to the possession of
the property and can demand that he be placed in possession at any time following the consolidation of ownership
in his name and the issuance to him of a new TCT.[23] Time and again, we have held that it is ministerial upon the
court to issue a writ of possession after the foreclosure sale and during the period of redemption. Upon the filing of
an ex parte motion and the approval of the corresponding bond, the court issues the order for a writ of possession.
The writ of possession issues as a matter of course even without the filing and approval of a bond after
consolidation of ownership and the issuance of a new TCT in the name of the purchaser.[24]

This rule, however, is not without exception. Under Section 33, Rule 39 of the Rules of Court, which is
made to apply suppletorily to the extrajudicial foreclosure of real estate mortgages by Section 6, Act 3135, as
amended, the possession of the mortgaged property may be awarded to a purchaser in the extrajudicial foreclosure
unless a third party is actually holding the property adversely to the judgment debtor.[25] Section 33 provides:

Sec. 33. Deed and possession to be given at expiration of redemption period; by whom
executed or given.
If no redemption be made within one (1) year from the date of the registration of the
certificate of sale, the purchaser is entitled to a conveyance and possession of the property; or, if
so redeemed whenever sixty (60) days have elapsed and no other redemption has been made,
and notice thereof given, and the time for redemption has expired, the last redemptioner is
entitled to the conveyance and possession; but in all cases the judgment obligor shall have the
entire period of one (1) year from the date of the registration of the sale to redeem the property.
The deed shall be executed by the officer making the sale or by his successor in office, and in the
latter case shall have the same validity as though the officer making the sale had continued in
office and executed it.
Upon the expiration of the right of redemption, the purchaser or redemptioner shall be
substituted to and acquire all the rights, title, interest and claim of the judgment obligor to the
property as of the time of the levy. The possession of the property shall be given to the purchaser
or last redemptioner by the same officer unless a third party is actually holding the property
adversely to the judgment obligor.

The same issue had been raised in Bank of the Philippine Islands v. Icot, [26] Development Bank of the
Philippines v. Prime Neighborhood Association,[27]Dayot v. Shell Chemical Company (Phils.), Inc.,[28] and Philippine
National Bank v. Court of Appeals, [29] and we uniformly held that the obligation of the court to issue an ex
parte writ of possession in favor of the purchaser in an extrajudicial foreclosure sale ceases to be ministerial once it
appears that there is a third party in possession of the property who is claiming a right adverse to that of the
debtor/mortgagor.

The purchasers right of possession is recognized only as against the judgment debtor and his successorin-interest but not against persons whose right of possession is adverse to the latter.[30] In this case, petitioner
opposed the issuance of the writ of possession on the ground that he is in actual possession of the mortgaged
property under a claim of ownership. He explained that his title to the property was cancelled by virtue of a falsified
deed of donation executed in favor of spouses Pearedondo. Because of this falsification, he filed civil and criminal
cases against spouses Pearedondo to nullify the deed of donation and to punish the party responsible for the

261

falsified document. Petitioners claim that he is in actual possession of the property is not challenged, and he has
come to court asserting an ownership right adverse to that of the mortgagors, the spouses Pearedondo.
The third partys possession of the property is legally presumed to be based on a just title, a presumption
which may be overcome by the purchaser in a judicial proceeding for recovery of the property. Through such a
judicial proceeding, the nature of the adverse possession by the third party may be determined, after such third
party is accorded due process and the opportunity to be heard. The third party may be ejected from the property
only after he has been given an opportunity to be heard, conformably with the time-honored principle of due
process.[31] The Civil Code protects the actual possessor of a property, as Article 433 thereof provides:

Art. 433. Actual possession under claim of ownership raises disputable presumption of
ownership. The true owner must resort to judicial process for the recovery of the property.

One who claims to be the owner of a property possessed by another must bring the appropriate judicial action for
its physical recovery. The judicial process could mean no less than an ejectment suit or a reivindicatory action, in
which the ownership claims of the contending parties may be properly heard and adjudicated. [32]

The ex parte petition for the issuance of a writ of possession filed by respondent, strictly speaking, is not the kind
of judicial process contemplated in Article 433 of the Civil Code. Even if the same may be considered a judicial
proceeding for the enforcement of ones right of possession as purchaser in a foreclosure sale, it is not an ordinary
suit filed in court, by which one party sues another for the enforcement or protection of a right, or the prevention
or redress of a wrong.[33]

Unlike a judicial foreclosure of real estate mortgage under Rule 68 of the Rules of Court where an action
for foreclosure is filed before the RTC where the mortgaged property or any part thereof is situated, any property
brought within the ambit of Act 3135 is foreclosed by the filing of a petition, not with any court of justice, but with
the office of the sheriff of the province where the sale is to be made. As such, a third person in possession of an
extrajudicially foreclosed property, who claims a right superior to that of the original mortgagor, is given no
opportunity to be heard on his claim. It stands to reason, therefore, that such third person may not be
dispossessed on the strength of a mere ex parte possessory writ, since to do so would be tantamount to his
summary ejectment, in violation of the basic tenets of due process. [34]

The Court cannot sanction a procedural shortcut. To enforce the writ against petitioner, an unwitting third
party possessor who took no part in the foreclosure proceedings, would amount to the taking of real property
without the benefit of proper judicial intervention. [35] Hence, it was not a ministerial duty of the trial court under Act
3135 to issue a writ of possession for the ouster of petitioner from the lot subject of this instant case, particularly
in light of the latters opposition, claim of ownership and rightful possession of the disputed properties. [36]

262

In granting respondents petition, the appellate court cited Ancheta v. Metropolitan Bank and Trust
Company, Inc.[37] and PNB v. Sanao Marketing Corporation.[38]

The invocation of these cases is misplaced.

These cases involved the propriety of the issuance of a writ of possession pending the determination of
the validity of the mortgage or foreclosure proceedings filed by the mortgagor or by at least one of the mortgagors
who was a party to the foreclosure proceedings. We held then that the pendency of such determination is not a bar
to the issuance of the possessory writ as no discretion is left to the issuing judge.
The above-cited cases have different factual milieu which makes them inapplicable to the present case.
In Ancheta and PNB, the oppositors were parties to the mortgage and the foreclosure proceedings; in the present
case, the oppositor was a third party who was a stranger to the mortgage and who did not participate in the
foreclosure proceedings. Moreover, in Ancheta and PNB, the oppositors objected to the issuance of the writ because
of the pendency of a case for the annulment of the real estate mortgage and the foreclosure proceedings; while
petitioner herein objected because he is in actual possession of the foreclosed property and he is claiming the right
of ownership adverse to that of the mortgagor, the spouses Pearedondo.

These factual circumstances in the instant case call for the application not of Ancheta and PNB but of the other set
of cases thoroughly discussed above declaring that the issuance of the possessory writ is not a ministerial duty of
the RTC judge.
WHEREFORE, premises considered, the petition is hereby GRANTED. The Court of Appeals Decision
dated October 31, 2006 and Resolution dated May 10, 2007 in CA-G.R. SP No. 89910 are REVERSED and SET
ASIDE. The Orders dated December 20, 2004 and March 8, 2005 of the Regional Trial Court,Paraaque City, Branch
258 in LRC Case No. 01-0123, are REINSTATED.
SO ORDERED.

263